Weak management team caused Felda’s downfall

Economic Affairs Minister Datuk Seri Mohamed Azmin Ali said the Cabinet had agreed the tabling of the White Paper, which was scheduled to be tabled to Parliament on Monday, had to be postponed to the first meeting of the second session of the 14th Parliament (2019).

PETALING JAYA: The downfall of Felda, which is currently saddled with huge debts and in a critical financial situation, is attributable to its former weak management team and its non-profitable investments.

Felda is also faced with both integrity and accountability issues, said the White Paper.

Back in 2011, Felda introduced an innovative programme, including the listing of Felda Global Ventures Holdings Bhd (now known as FGV Holdings Bhd) and the establishment of Felda Investment Corp Sdn Bhd (FIC).

The focus of Felda was to become an “economic powerhouse” by way of undertaking investments both locally and abroad.

FGV was involved in three core businesses, namely, plantations, logistics and support services, while FIC operated as an investment holding company in the non-plantation sector such as in property, hospitality and strategic investments both locally and overseas.

Felda would only be involved in managing the estates of its settlers and small-sized industries.

As part of the proposed listing of FGV, Felda handed over the management of its commercial estate land via a land lease agreement (LLA) and almost its entire downstream activities to FGV in 2012.

Based on the LLA, Felda would receive a fixed amount payment of RM248mil per year from FGV and also a 15% share of operating profit from the sale of fresh fruit bunches (FFB) derived from the estate land leased.

However, the average net income received by Felda, amounting to RM400mil a year, is “way too low” when compared with the RM800mil per year forecast earlier.

Hence, there was a drastic drop in Felda’s revenue until the group began to post losses in 2013, and later, experienced a further deficit on the back of its normal expenses and commitment , which remained the same.

Felda has also failed to efficiently manage the proceeds from the listing exercise of FGV in mid-2012.

Of the total RM10.5bil proceeds from the initial public offering (IPO), Felda received RM6bil while the remaining RM4.5bil was distributed to FGV.

The proceeds were meant for strategic investments that would benefit the settlers in the long term, the White Paper pointed out.

Felda, however, spent RM1.4bil (24%) on new non-profitable investments and RM4.6bil (76%) on non-productive expenses.

FGV, on its part, spent RM3.3bil (73%) from its RM4.5bil IPO proceeds on investments and non-profitable developments such as acquisitions of several companies.

The remaining RM1.2bil (27%) was used for working capital and other expenses.

The White Paper also highlighted that there was a conflict of interest in the administration and operations of the Felda Group.

“The appointment of Tan Sri Mohd Isa Abdul Samad as the chairman of the Felda board of directors and also the chairman of Felda’s various associate companies such as FIC, FIC Properties Sdn Bhd and FGV went against normal good corporate management practices as well as the check-and-balance mechanism.

“He also held the director’s post in 20 subsidiaries and other Felda-interest related companies,” said the report.

Furthermore, the inefficient corporate management administration under the previous Felda management team has led to the group losing a sustainable business model.

“The failure of Felda’s (former) board of directors and management team to put in a professional and capable team to undertake large-scale investments has exposed Felda to many risks.

“Weak internal management and a lack of accountability and integrity have also resulted in Felda suffering huge losses,” added the paper.

Based on its audit forensic investigations, the new Felda management discovered several dubious practices and misappropriation in the return and investment process from the meeting minutes of the Felda Board and FIC together with other related documents, whereby the purchase of property under Felda and FIC was made under the name of Isa and FIC chief executive officer Mohd Zaid Abdul Jalil - without a due diligence process and the approval of the Felda board.

Another point worth mentioning is the aggressive and uncontrolled investments undertaken by both Felda and FIC.

The White Paper said: “The investment decisions, which were made without proper planning and due diligence process, have caused Felda and FIC to succumb to severe losses from the investment in non-strategic companies.”

Furthermore, the bulk of the acquired assets were bought above the market price and were not able to generate the much-expected returns.

“Hence, these non-strategic investments have affected the sustainability of the group’s financial position, which later affected its entire operations,” added the report.