Failing business should seek capable suitors


  • Letters
  • Friday, 15 Nov 2019

I REFER to the letter published in The Star yesterday titled, “Felda: Change to survive” by Adam Malek (online at bit.ly/star_felda), which puts into perspective the shortcomings of Felda and FGV and its overdependence on the government for financial support. If the business model is not sustainable, any amount of money pumped into Felda will not have any positive outcome.

Most surprising is the decision by the Felda’s Settlers Consultative Committee to comment negatively on the proposed acquisition of shares in FGV by a capable group, which otherwise could be the knight in shining armour that Felda needs!

Why make negative comments when the consultative committee itself is unable to provide a solution and explain how keeping “Felda within Felda” could possibly work – especially when its own listed FGV has been on a downward trajectory, incurring substantial losses of RM1.08bil in 2018?

Without supporting facts, the consultative committee should be realistic in recognising that Felda would not be able to survive with its present business model. It has become an unsustainable business entity. And how long can the government continue supporting it?

Before FGV was listed, Felda’s income (from 2007 to 2011) ranged from RM200mil to about RM6bil a year. During the period, it also reported sterling profits ranging from RM200mil to RM1.1bil. Felda’s settlers received good monthly revenues to live comfortably on. Felda also reported a healthy balance sheet – from RM1.8bil to RM3.9bil during the period.

After FGV’s listing on Bursa Malaysia, Felda’s revenue dropped; its debts increased; settlers began having financial problems; they had to take out loans and pay monthly instalments and interest payments for shares in FGV. The hard facts:

> Felda’s management that decided on FGV’s listing was clearly not business-savvy. FGV’s business model should have focused on downstream activities and not compete with Felda’s plantation and refinery businesses.

> The Land Lease Agreement between Felda and FGV put Felda at a disadvantage – and its revenue reduced. Also, FGV was not able to give the expected revenue returns to Felda.

> In 2019, FGV started selling assets to ensure profits for the year, especially after the massive loss in 2018. But selling assets is not the answer. It does not solve Felda’s, or the settlers’, problems.

> Felda’s decision to pay the more than 300% inflated price of US$505mil (RM2bil) for a stake in Eagle High Plantation when the market value was only US$114mil (RM473mil) was a bad business decision.

> In recent years, Felda has become dependent on the government for financial aid. What happened after the government’s RM6.23bil White Paper bail-out earlier this year? There was a further RM810mil fund allocation under the 2020 Budget. Has Felda become sustainable again after all the financial aid or is it expecting more money? Remember, this is taxpayers’ money!

With such a poor track record since 2010, it is not surprising that Felda’s debts have escalated and its balance sheet reduced to RM400mil (from RM3.9bil in 2011).

It is obvious that Felda has become unsustainable and it cannot depend on FGV’s meagre contributions. It must find new solutions to generate higher revenue and in a consistent manner.

Before the consultative committee says no to any potential suitor, it must be open to pragmatic ideas – even if that means selling FGV shares to local plantation companies more capable of turning around the business operations of FGV to bring value to Felda, the settlers and their future generations.

CONCERNED TAXPAYER

Kuala Lumpur

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