This article first appeared in The Edge Malaysia Weekly on January 29, 2024 - February 4, 2024

AFTER several failed attempts to get a foot in the door of FGV Holdings Bhd, low-profile tycoon Tan Sri Syed Mokhtar Albukhary has proposed a merger of his rice trading and distribution business with the plantation company’s consumer products and logistics divisions. The merger, if approved, would lead to the creation of a company with a monopoly of the rice trading business and significant control of the production and distribution of cooking oil and margarine food products in the country.

The proposal by Perspective Lane (M) Sdn Bhd will see Syed Mokhtar holding 51% in a newly created special purpose vehicle (SPV) and FGV, 49%. The sole shareholder of Perspective Lane is Restu Jernih Sdn Bhd, a private vehicle controlled by Syed Mokhtar.

“The proposal has been submitted to the Ministry of Finance, which holds a golden share in FGV. It is also with FELDA (Federal Land Development Authority), which holds close to 87% of FGV,” says a source.

When asked to comment, FGV group CEO Datuk Mohd Nazrul Izam Mansor tells The Edge he is unaware of the matter.

Apart from injecting Bernas into the SPV, Perspective Lane also proposes to inject an undisclosed amount of cash in return for the 51% stake. FGV, meanwhile, will inject its consumer products business and profitable logistics arm into the SPV in return for 49% interest.

Bernas, or Padiberas Nasional Bhd, has a monopoly on rice in the country and is profitable. According to reports, it generates an average annual revenue of RM4.5 billion and profit before tax of RM250 million.

It is the sole importer of rice and in return is mandated to ensure there is sufficient supply of the staple food in the country. However, Bernas’ role in fulfilling its mandate has constantly come under the scrutiny of lawmakers in parliament.

As for FGV, its primary consumer products are cooking oil and margarine marketed under the Saji and Seri Pelangi brands respectively. According to its latest annual report, FGV’s market share for refined cooking oil is 45.7% while Seri Pelangi margarine has 43.9% of the market. But it is not known if the consumer products business is profitable.

“The consumer products business has potential to be a major contributor to FGV’s bottom line. As for the logistics business, it is profitable, even during the pandemic, and provides critical support for FGV’s upstream plantation business.

“There is no reason for FGV or FELDA to agree to this proposal ... especially ...  as the government under (Prime Minister) Datuk Seri Anwar Ibrahim has stated clearly that government-linked companies should not dispose of critical assets,” says an official familiar with FGV’s operations.

FGV’s logistics business encompasses bulk terminals, warehouses, jetty operations and a fleet of transport lorries and tankers. The bulking and warehouse businesses in particular are profitable, with healthy margins.

In 2022, this segment registered a profit before tax of RM110 million on a turnover of RM254 million. Even at the height of the pandemic in 2021, the bulking and warehouse businesses were profitable with a pre-tax profit of RM80 million on a turnover of RM210 million.

According to its 2022 annual report, FGV’s entire logistics and other businesses, which include its consumer products division, registered revenue of RM759.6 million and a profit before tax of RM104.2 million.

“At the moment, the logistics and consumer products businesses are relatively small in the grand scheme of things for FGV. That is because the plantation business is doing alright with the high crude palm oil prices.

“However, the logistics and consumer products divisions are areas that can provide FGV with growth. The potential is bright, especially for the consumer products businesses where FGV is poised to control more than 50% of the market in the next few years,” says the executive.

Sources say the FELDA board is not keen on the proposal as it would not be in the best interest of FGV, which has been given the task of diversifying its income base and fulfilling the public shareholding issue.

Under a corporate exercise to fulfil the public shareholding requirement, FGV will issue redeemable preference shares to all shareholders. The preference shares will be backed by dividends from two of FGV’s major subsidiaries. The proposal is awaiting approval.

“When the corporate exercise is completed, FGV’s cash flow in the form of dividends from its subsidiaries would drop. To make up for the lesser dividend flow, the current management of FGV has to work hard to sweat its logistics and consumer products businesses.

“If these assets are to be put into an SPV where they have minority interest, there would not be very much left in FGV,” says the executive.

A rice trader from Kedah, Syed Mokhtar has expanded his business empire over the years. He is a close associate of former prime ministers Tun Dr Mahathir Mohamad and Tan Sri Muhyiddin Yassin. A typical businessman, Syed Mokhtar has also built ties with current prime minister Anwar.

Perspective Lane holds Syed Mokhtar’s plantation business, which he had previously tried to merge with FGV. But the deal did not go through and instead, FELDA launched a mandatory general offer for FGV to fend him off. 

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