LET’S get straight to the point – Felda Global Ventures Holdings Bhd (FGV) is in serious problem. No, that’s an understatement – FGV is heading towards a roller coaster ride at the rate it is going.
It would have been much simpler if it is just another private company except that ordinary Felda shareholders and smallholders are finding the value of their shares diminishing.
The simple kampong folks who had relied on the value of these shares as their retirement income are now wondering what is in store for them now.
The reality is that FGV has been the undisputed worst plantation stock performer ever since its initial public offering (IPO) in July 2012. The share price decline was so bad that the company was removed from the Bursa Malaysia KLSE Index stocks last year.
Since its hyped-up listing at RM4.45 per share, the battered government-linked stock closed at RM1.67 yesterday representing a whopping 62.5% decline in share prices.
It was largely attributed to its inefficiencies and weak crude palm oil prices
However what is hard to digest is that FGV has also fraud in its 50%-owned unit in Turkey, which has incurred a stock loss of RM57mil.
This reportedly contributed to FGV’s net loss for its third quarter ended Sept 30 widening to RM94.86mil from RM33.9mil a year ago.
FGV shares plunged a further 11% on the day the news broke out while its warrants suffered bigger losses.
It’s a massive task for its chief executive officer Datuk Zakaria Arshad who has to grapple with these headaches. It’s bad enough that the market for palm oil is soft but he also has to clean up the organisation.
He just assumed the position in March and has set out to improve FGV’s bottom line and save RM100mil in costs by the end of the year. However the holes are getting bigger.
Zakaria is undoubtedly the most suitable person for the job. He is the son of a Felda settler and he was born in Jelebu in the 1950s, when it was a very remote area in Negri Sembilan.
He came from a poor family with nine siblings. The family was given 12 acres of land and certainly it helped the family out of poverty. As Zakaria said, one of the major contributions of palm oil is how it has improved the lives of many Malaysians.
Zakaria is certainly the right man for the job. He has the interest of the Felda settlers and that is the most important criteria. I am also certain he believes in accountability, corporate governance and being open. But he has a real tough job dealing with legacy.
There are potential fraudulent acts in a subsidiary and these acts are currently a subject of forensic audit, which entails the manipulation of stock figures and the forgery of signatures of board members, a source reportedly said, adding that the units involved are Felda-Iffco Sdn Bhd and its unit Felda Iffco Gida Sanayi.
Felda-Iffco is a major supplier of baking fats and is a 50:50 joint venture (JV) with Dubai-based IFFCO International.
The source added: “There were serious discrepancies in the financial report submitted by the company in question. The chief operating officer of the said company had left and FGV was not aware of the problems until after he left.”
According to reports, when the JV was first initiated in 2009, the investment by FGV was RM66mil.
Felda-Iffco had then invested RM60mil to develop its margarine and fats business.
In short – FGV is facing losses which it has problems explaining to its shareholders. External factors affecting the commodity prices is one thing but poor governance, fraud and cheating are harder to explain.
In a nutshell – this is the result of obvious poor replanting management, poor oversight and poor controls on subsidiary companies.
It is harvesting far less per hectare than other major plantations. In terms of efficiency and yield, FGV also lags behind its smaller competitors although it is the market leader in terms of production volume with an annual crude palm oil production of more than three million tonnes over its last fiscal years, according to one report.
There are red flags that Putrajaya must be alert to – this is not just an ordinary public listed company or government linked company.
It has serious political implications as the country heads towards a general election, speculated to be held next year.
The small holders are loyal supporters of the Barisan Nasional and their interests deserves to be protected.
FGV is regarded as a government “protected” stock and rightly so too. But FGV is also asset rich despite the current low market price and poor consumer confidence.
There must be no room for any institutional raid. The volume of shares traded since May is too high now and has raised eye brows.
FGV must be protected to ensure its structure remains strong – and it needs a sound strategy to ensure that its cash will not run out.
Look at the numbers – based on its financial highlights as of Sept 30, 2016 -
Net assets per share is RM1.77, equity stands at RM8.77bil versus RM8.98bil same period last year (SPLY), it recorded a net loss of RM78mil versus a profit of RM311mil SPLY, earnings per share is -2.7 sen versus 0.4 sen SPLY, cash and bank balance is at RM2.5bil against total borrowings RM5.77 bil and share price yesterday was RM1.67 down from about RM2.50 in Sept 2016.
FGV needs urgent help – it CANNOT continue this way. It can’t be on the operation room without a good surgeon to carry out the repair work.
It doesn’t take an expert to tell us that 2017 will be a tough year but the looming storm ahead for FGV shows the worse has yet to come and as AllianceDBS Research reportedly predicted – “FGV has run limited engines to spur growth, as it has to contend with an older tree age profile which limits organic growth near-term FBB growth.”