PETALING JAYA: The Federal Land Development Authority’s (Felda) financial position deteriorated after the listing of Felda Global Ventures Holdings Bhd (FGV), now renamed as FGV Holdings Bhd, in June 2012.
The White Paper issued yesterday showed the loss-making Felda’s income was impacted, as FGV was unable to contribute an estimated income of RM800mil a year as expected before the initial public offering (IPO).
Felda was impacted by the losses and impairments in FGV and also the latter’s investment of RM1.6bil in PT Eagle High Plantations Tbk (EHP), including foreign-exchange losses in 2017.
The report stated that FGV’s several other decisions had a negative impact on it.
Among the decisions were the acquisition of assets exceeding market prices such as Pontian United Plantations Bhd (RM1.2bil), Asia Plantations Ltd (RM628mil) and four plantation companies and a piece of oil palm land and assets in Sabah from Golden Land Bhd (RM655mil).
“The land lease agreement (LLA) did not provide the returns as projected when FGV was listed. Instead, it had a negative impact on Felda’s financial position,” said the report.
FGV was listed in June 2012 at an issue price of RM4.55. A total of RM10.5bil was raised from the listing exercise, of which Felda received RM6bil and FGV the remaining RM4.5bil.
However, since the listing, Felda’s financial position has worsened as it posted losses of RM2bil in 2013 compared with a profit of RM5.8bil in 2012.
Felda’s net losses were RM1bil in 2014, RM1.1bil (2015), RM700mil (2016) and this worsened to RM4.9bil in 2017.
Felda also saw its cash pile of RM1.8bil and RM3.9bil between 2007 and 2011 shrinking to RM400mil in 2017.
Its net losses of RM4.9bil in 2017 were due to the deterioration in plantation income due to the negative impact from the LLA and also the purchase of non-strategic assets and investments which were above market price and poor governance.
The government-linked company also faced rising expenditure costs.
Over 2007 to 2017, its cumulative financing to settlers and contributions to the state government totaled RM13.1bil, while staff management costs came to RM2.7bil.
Total expenditure rose sharply during the period following the special grant amounting to RM1.7bil to settlers in 2012. Additionally, there was an impairment of investments in FGV amounting to RM2.1bil and fair-value losses on investments in EHP of RM1.6bil, including foreign currency exchange losses in 2017.
The increase in finance costs was due to high levels of loans taken from external institutions.
Felda’s gearing ratio rose to 1.2 times in 2017, an increase of 114 times. For example, a loan from GovCo Holdings Bhd amounting to RM2.3bil was used to purchase a 37% stake in EHP’s shares, which was higher than the market price.
In the same year of purchase, the value of EHP shares had fallen by RM1.6bil, including foreign-exchange losses.
The report said Felda’s investments in EHP were classified as “financial assets at fair value through profit or loss” instead of “investment in associate”.
If this investment had been properly classified, the decrease in the fair value of EHP would have been reported as an investment impairment of RM1.6bil, and the fair value of the put option should have been considered.
While Felda’s total assets increased by 107% from RM12.1bil in 2007 to RM25bil, its liabilities surged by 1,100% from RM1.2bil to RM14.4bil.
Revenue fell by 74% from RM2.7bil to RM700mil. Its profits fell from RM1bil in 2007 to net losses of RM4.9bil in 2017.
The report said the long-term trend showed that although Felda’s total assets had increased during the period, this did not translate into higher revenue or income for Felda.
The report pointed out that the audited financial statements for the financial years ending 2012, 2014, 2015 and 2017 found that the asset value did not include impairments and this was not in line with recognised accounting standards.
“If adjustments are made to impairment, the assets’ value will be lower than reported for each year. This assessment is limited to forensic research on eight investments or selected asset purchases. If this investigation is extended, it is likely that other errors can be detected,” it said.
The report also showed that Felda’s cash balance had shrunk from RM2.4bil in 2007 to RM400mil in 2017. Prior to FGV’s IPO, Felda’s financial performance was strong, with an average cash balance of RM2.5bil a year.
The cash balance had declined dramatically after the loss of income from plantation activities and lower returns on investment.
The report cautioned that the current method or strategy would impact the sustainability of Felda, where it would have to continue to borrow to cover its expenses and it would not be able to continue to operate.
FGV was established in 2007 as an overseas investment vehicle in the palm oil business as well as other agricultural businesses.
When it was started, Felda channeled RM1.8bil for financing FGV’s business operations. Of this, FGV spent RM1.7bil on financing foreign investments through the purchase of shares and property.
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