This article first appeared in The Edge Malaysia Weekly on March 4, 2024 - March 10, 2024

ALTHOUGH more than a year has passed, there has been no news or update on the Federal Land Development Authority (FELDA)’s multibillion-ringgit arbitration proceedings against Indonesia’s Rajawali group.

The silence from all parties — be it Rajawali, local ministers, or even FELDA officials and its communications department — begs the question as to whether FELDA will likely be saddled with its 37% stake in ailing PT Eagle High Plantations, or whether it can enforce a put option on Rajawali group to buy back the stake.

One member of the task force aimed at reviving FELDA says, “I’m unable to comment, I’m afraid” when asked for an update.

A minister of an unrelated portfolio declined comment and would only say, “This investment is being handled by the Ministry of Finance and FELDA. You should ask them (MoF and FELDA).”

The prolonged silence is quite baffling. Judging by the outcome of the first arbitration proceedings, FELDA could be in a pickle because of an expensive purchase it made in December 2016. Its wholly-owned FIC Properties Sdn Bhd (FICP) acquired a 37% stake in Eagle High from Tan Sri Peter Sondakh’s Rajawali group for a staggering US$505.4 million, or RM2.26 billion.

The Rajawali group is controlled by Sondakh, an Indonesian businessman and close associate of former prime minister Datuk Seri Najib Razak. But the deal was frowned upon principally because of the exorbitant price tag.

To be fair, as a safety mechanism, FELDA inserted a put option clause that would require Rajawali to buy back the 37% stake, plus an additional 6% interest from May 2017, if certain conditions were not met. The conditions included Rajawali securing Roundtable on Sustainable Palm Oil (RSPO) certification for Eagle High within 30 months.

FELDA says the RSPO conditions were not met.

Nevertheless, initial rounds of arbitration have favoured Rajawali. The first attempt by FELDA to exercise the put option in May 2019 failed, but no details were given as to why it fell through.

A second attempt at arbitration was made in January last year at the Singapore International Arbitration Centre. According to minister in the prime minister’s department (law and institutional reforms) Datuk Seri Azalina Othman Said, FELDA had (again) exercised the put option but Rajawali had disputed the put option.

She also pointed out that FELDA’s 37% stake in Eagle High as at last February was pegged at US$678.09 million — the sum of the principal US$505.4 million with the 6% interest added on. Adding the 6% quantum for the period from last February to present time, back-of-the-envelope calculations indicate that Rajawali would now have to fork out US$718.77 million, or a whopping RM3.42 billion, for FICP’s 37% in Eagle High. However, this is assuming that Rajawali loses in the arbitration proceedings.

A search on the Companies Commission of Malaysia of FICP’s financials was perplexing as it revealed that in the last five financial years (FY) — FY2018 to FY2022 — the company has not managed to generate any revenue. Other than a RM100.81 million after-tax profit in FY2019, FICP has bled losses in all four of the last five years.

FICP’s accumulated losses were RM2.77 billion at end-FY2022, while its total assets for the period in review amounted to RM213.86 million, down almost 75% from RM837.83 million in FY2019.

It is also noteworthy that FICP has a RM2.5 billion charge from Ministry of Finance’s Govco Holdings Bhd.

According to its website, Eagle High’s current total plantation area of 87,000ha is located in Sumatra, Kalimantan and Papua. Back when FELDA acquired the 37% stake in Eagle High, it was reported that the Indonesian plantation outfit had about 150,000ha of plantations spread across Indonesia, but a total land bank of more than 320,000ha.

The huge reduction in plantation area is perplexing as one would expect replanting exercises to have taken place.

For whatever reasons, Eagle High has never performed.

Eagle High has a market capitalisation of just over US$104 million (about RM493 million), which means that FICP’s 37% in the plantation company has a market value of about US$38 million or less than 8% of what was paid — US$505.4 million — at end-2016. 

And Eagle High’s financials are not inspiring. After a loss-making streak of seven years — since 2015 — the company posted a US$900,000 (RM4.27 million at current exchange rates) profit in FY2022. For the nine months ended September 2023, Eagle High chalked up net profits of US$8.7 million (RM41.25 million at current exchange rates).

A plantation company’s finances largely hinge on crude palm oil (CPO) prices and its own efficiency. It is noteworthy that in 2022, CPO prices averaged RM5,115 per tonne, having surged to a record high of RM8,163 per tonne in early March of that year, gaining more than 105% over the past year. In 2023, CPO prices averaged RM3,812 per tonne and RM3,878 in the first two months of 2024.

FELDA’s 81.9% unit FGV Holdings Bhd is not known to be an efficient planter, but for financial year ended December 2023, it chalked up net profits of RM103 million on the back of RM19.36 billion in revenue.

FGV’s net cash generated from operating activities in FY2023 amounted to RM1.6 billion. Nevertheless, FGV had negative reserves of RM1.04 billion.

As at end-December last year, FGV had cash and bank balances of RM1.52 billion. On the other side of the balance sheet, it had current liabilities of RM2.26 billion and long-term borrowings of RM1.14 billion.

Last Thursday, FGV ended at RM1.45, translating to a market capitalisation of RM5.29 billion. 

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