This article first appeared in The Edge Malaysia Weekly on July 24, 2017 - July 30, 2017

THE government is expected to hand out a windfall cash handout — as much as five figures — to settlers of the Federal Land Development Authority (FELDA) on Hari Peneroka on July 23, sources say.

“First we heard five figures, then RM10,000, and now, it is supposed to be RM20,000. I am not sure which is which,” says a family member of one settler.

Other sources say the amount dished out to each family when Felda Global Ventures Holdings Bhd went public in May 2012 was RM15,000, so the settlers will expect the same or more.

FELDA has a 33.67% stake in FGV, the world’s third-largest oil palm estate operator with 450,000ha of plantation assets as well as considerable downstream assets.

“Things are much worse now than they were in 2012 when FGV was listed. FGV was listed at RM4.55 per share but is now trading at just above RM1.60 [almost a 65% discount to the IPO price]. So, maybe, the payout should be higher or at least match what was given in 2012,” says an official at one of FELDA’s units.

In May that year, the RM15,000 for each family was staggered over three payments. At that time, the total payout for the 112,000 FELDA settlers amounted to RM1.69 billion. The money came from the sale of FGV shares in the IPO, which raised close to RM10.5 billion.

Considering the number of FELDA settlers has remained about the same, a RM10,000 payout would work out to a total of RM1.12 billion, and a RM20,000 payout, RM2.24 billion.

Nevertheless, these payments are deemed necessary as FELDA settlers dominate as many as 54 parliamentary seats out of the total of 222 in the country. Of the 54 seats, 48 are under the control of Barisan Nasional (BN), and have been strongholds of the ruling coalition for the longest time.

But there are indications BN could be losing its grip on FELDA settlers, which explains the huge payout.

In the 2013 general election, the late Tan Sri Jamaluddin Mohd Jarjis won the Rompin constituency, defeating Mohd Nuridah Salleh of PAS by 15,114 votes.

In May 2015, after Jamaluddin passed away a month earlier, his predecessor, Datuk Hasan Arifin, only managed to beat PKR’s Nazri Ahmad by 8,895 votes, which means the winning margin was slashed by almost half.

In two of the 16 polling districts in Rompin, the majority voted for PAS, which came as a shock.

So the payout is regarded as important to ensure the settlers continue to support BN. Considering that FELDA and FGV have not been doing well, it remains to be seen whether the payout will be sufficient to allay the concerns of the settlers regarding these two entities.

The other question is whether FELDA can afford such a huge payout.

It is understood the agency is getting financial aid from Govco Holdings Bhd, a company under the Minister of Finance Inc.

Much of the aid is going towards FELDA’s wholly-owned unit, FIC Properties Sdn Bhd, which, according to some, has concluded its planned acquisition of a 37% stake in PT Eagle High Plantations Tbk.

The block in the Jakarta-listed planter is being acquired from the well-connected Tan Sri Peter Sondakh, who controls a 75% stake. However, Eagle High has not announced FELDA’s entry as yet.

As at end-June last year, Govco registered an after-tax profit of RM90.76 million from RM157.96 million in revenue. It had non-current assets of RM4.11 billion, current assets of RM175.88 million, and long-term debt commitments of RM4.29 billion.

Interestingly, Govco is saddled with RM13.95 million in accumulated losses.

There have been many questions over the high price for Eagle High, which became an issue following reports two years ago that FGV was interested in acquiring the block of shares. But FGV opted out after its advisors, JP Morgan and Bank of America, came out against the deal.

FELDA got the green light from the Indonesian Ministry of Agriculture’s Direktorat Jenderal Perkebunan on Jan 25.

The 37% block in Eagle High was slated to be sold at US$505.4 million or RM2.26 billion to FELDA, a discount from the US$680 million initially sought by the Rajawali group.

However, at last Thursday’s close of IDR236, Eagle High’s market capitalisation was only US$558 million.

In a nutshell, FELDA is paying US$505 million for the 37% stake in Eagle High that has a market value of US$206.46 million — or almost 2½ times more than its worth.

While there have been reports justifying the high price tag based on potential revenue as well as FELDA squeezing Rajawali for dividends, among other things, what rankles many is that FELDA is buying a 37% stake at a massive premium but will still not have control of the Indonesian planter. The Rajawali group will retain a holding of 37.06% post the sale, and does not want to cede control.

Nevertheless Eagle High has more than 320,000ha of land bank. Total planted area, including nucleus and plasma, is about 150,000ha, with the trees having an average age of about eight years. To achieve a more favourable valuation to FELDA, only the planted nucleus of more than 125,000ha was used.

Eagle High’s financials have not been good as well. Since FGV and FELDA made clear their intention of buying into the company, almost every quarter was supposed to be a turnaround, but this has yet to happen.

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