PETALING JAYA: The Federal Land Development Authority (Felda) is proposing to walk away from its partnership with the Jakarta-based Rajawali Group and demand the return of more than US$500mil it had ploughed into a clutch of oil palm estate and sugar-related manufacturing assets in Indonesia in May 2017.
Felda’s controversial acquisition of a 37% interest in Rajawali’s Eagle High Plantations Tbk came with a so-called “put option” that provided for the Malaysian concern to sell back the equity interest at the purchase price of US$505.4mil, together with an annual interest charge of 6% that must be borne by the Indonesians, according to Singapore’s The Straits Times.
Felda’s board of directors resolved to exercise the put option in a letter on Jan 3 to Rajawali, which is controlled by businessman Peter Sondakh, on the grounds that the Indonesian concern failed to meet key conditions under the original transaction that was personally driven by former Prime Minister Datuk Seri Najib Razak.
Under the deal, Eagle High was required to secure the Roundtable on Sustainable Palm Oil certification, an internationally recognised accreditation that allows for access into key markets, before the end of 2019.
Felda executives noted that the Indonesian group had made little progress in securing the certification, leaving it with little choice but to walk away from the deal.
Executives from Rajawali, which has diversified business interests in telecommunications, agriculture, retail and mining, did not respond to queries from The Straits Times.
Malaysian government officials directly involved in the ongoing restructuring of the debt-laden plantation group Felda acknowledged that Rajawali has informed Felda that it intended to challenge the put option in court.
A messy and protracted court case will be closely watched because it will spotlight the toxic mix of politics and business at Felda during the Najib administration – which was voted out last May – that has left the company in dire financial straits.
An ongoing audit into Felda’s operations has revealed widespread mismanagement and serious irregularities in its domestic and international acquisitions.
Successive financial losses since 2013 have placed a serious squeeze on cashflows and Felda’s ability to service its debt load that has jumped to over RM8bil in mid-2018 from RM1.5bil in 2009.
That, in turn, has more than tripled the group’s debt-gearing ratio to 46%, from 14% during the same period.
A company’s debt-gearing ratio reflects the proportion of a company’s debt to its equity and offers a quick snapshot of the financial risks it is exposed to.
Felda has also been forced to revalue its inflated assets that have been written down to roughly RM1.5bil from RM2.4bil previously. There is a strong political dimension to Felda’s woes for Prime Minister Tun Dr Mahathir Mohamad’s Pakatan Harapan coalition government.
Felda was established in 1956 as the brainchild of Tun Abdul Razak Hussein – Najib’s father – and offered land to settlers, who now work on dozens of plantations of rubber trees, sugar cane, oil palm and other crops.