This article first appeared in The Edge Malaysia Weekly on August 23, 2021 - August 29, 2021

THE Federal Land Development Authority (FELDA) is understood to be looking to dispose of a stake in developer Encorp Bhd, three separate sources familiar with the matter tell The Edge.

Questions to FELDA and messages to chairman Datuk Sri Idris Jusoh on the possibility of the sale of equity in Encorp were not answered. The Edge did not send questions to Encorp, as the proposed deal is at the shareholder level.

“What I hear is that the asking price is high at about RM1 (a share). FELDA bought in at a high price, so it is considering many options now,” one of the sources says.

Another source says FELDA is also toying with the idea of selling a block of shares to a bumiputera entrepreneur who could turn things around, and if the share price picks up, FELDA will exit the company.

At present, the issue lies in FELDA’s high entry costs into Encorp.

FELDA, via its unit Felda Investment Corp Sdn Bhd (FIC), bought a 49.5% stake in Encorp for RM239.72 million, or RM1.55 a share, from Tan Sri Mohd Effendi Norwawi in May 2014, triggering a mandatory general offer. FIC also offered 55 sen a warrant and RM1.55 for Encorp’s redeemable convertible unsecured loan stock (RCULS). To cut a long story short, FELDA ended up with 72.27% of Encorp after forking out RM306.11 million.

Today, FELDA has a 69.14% stake in Encorp and, based on its closing price of 29 sen last Friday, FELDA’s stake is worth RM57.15 million. FELDA is likely to be sitting on a paper loss of more than RM240 million. Since a three sen dividend at end-June 2014, Encorp has made no dividend payments.

At 29 sen, Encorp’s market capitalisation is RM91.84 million, less than what FELDA forked out for its 49.5% block in May 2014.

The other substantial shareholder in Encorp is private company Anjakan Masyhur Sdn Bhd, the vehicle of Azhar Mohd Awal and Azman Hanafi Abdullah, which holds 12.65% equity interest.

Anjakan Mashyur has been a substantial shareholder of Encorp since September 2007. Both Azhar and Azman are not on the board of Encorp. Based on its address (110 Jalan Maarof, Bangsar, Kuala Lumpur), it is likely that businessman Tan Sri Syed Mokhtar Albukhary controls Anjakan Mashyur. It is worth noting that all of the tycoon’s businesses share the same address.

One market watcher says there could be too many hurdles involved for a sale to materialise anytime soon. “First, I don’t know anyone who is willing to part with that sort of money on a property development company, especially now, when things are so glum. Second, it will have to be a bumiputera company that FELDA sells it to — FELDA is not just going to sell to anyone. Third, what is in Encorp?” he says.

Encorp has posted losses in its last four financial years from 2017 to 2020. For its first quarter ended March 31, 2021 (1QFY21), the company suffered a net loss of RM1.63 million on RM27.41 million in sales. For the corresponding period a year ago, it suffered a net loss of RM14.69 million from RM30.16 million in revenue.

As at end-March this year, Encorp had cash and bank balances of RM47.57 million. During the period in review, the company had other investments valued at RM157.26 million and inventories of RM129.37 million. Its short-term debt commitments were RM130.74 million while its long-term borrowings were RM741.14 million.

Encorp’s finance costs for the first three months of FY2021 was RM18.14 million.

Nevertheless, as at end-March this year, Encorp’s net asset per share was pegged at RM1.14.

According to its FY2020 annual report, Encorp’s key assets were Strand Mall, a four-storey retail mall in Kota Damansara valued at RM164 million, and Red Carpet Avenue, which comprises 29 terraced shopoffices adjoining Strand Mall, valued at RM136.69 million.

Encorp also has 15 office suites and 518 car park bays in Kota Damansara valued at RM26.02 million; 65 residential apartments, 16 retail shops and 316 car park bays in Johor Baru valued at RM56.54 million; parcels of land in Shah Alam valued at about RM23.5 million; three apartments in Victoria Park, Western Australia, pegged at a value of RM14.78 million; and 2.7 acres in North Lake Road, Cockburn Central, Western Australia valued at RM8.5 million.

The value of these assets in the current damp climate is anyone’s guess.

There is also a question of whether there will be changes at FELDA with the new administration of the country.

While some say there is unlikely to be any change in the ministerial positions and those that helm government-linked companies, others say a change at the helm of FELDA could happen, considering the land development authority’s settlers control as many as 54 parliamentary constituencies, or 24% of the 222 parliamentary seats that will be up for grabs in the next general election, to be held by 2023.

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