KUALA LUMPUR (March 6): The Federal Land Development Authority (Felda), which posted a net loss of RM1.01 billion in 2022, almost double of the amount it bled in 2021, faces financial challenges to meet its debt obligations, according to the Auditor-General's Report on Federal Agencies for 2022.

The annual net loss of RM1.01 billion was sharply higher than the RM545 million net loss it suffered in 2021, despite strong crude palm oil prices.

The AG highlighted that Felda’s loan repayment commitment amounted to RM1.561 billion compared to its cash balance of RM808 million as at end-2022.

“Felda is unable to fulfill commitments amounting to RM753 million," the report said

"Felda relies on the government and financial institutions for operational costs and liabilities, highlighting potential challenges in meeting these financial obligations," said AG in the report.

The Auditor-General urges Felda to reduce its reliance on the federal government for financial assistance.

The report recommended Felda to establish a clear operational direction, ensuring robust financial performance without over-reliance on federal government assistance.

Additionally, Felda is advised to closely monitor the operations and financial performance of its subsidiary companies, ensuring sustainability, viability, and providing appropriate returns without relying heavily on the parent agency.

The report raised a red flag on Felda’s loan repayment commitments, considering the government agency has loans totaling RM7.97 billion obtained from financial institutions and RM686 million from the federal government.

These include the RM2.5 billion Tawarruq Financing Facility agreement entered into by Felda's subsidiary FIC Properties Sdn Bhd (FICP) with Govco Holdings Berhad (GovCo). Govco is a unit of the Ministry of Finance Incorporated.

The loan was taken up for the purchase of a 37% stake in PT Eagle High Plantations Tbk from Tan Sri Peter Sondakh's Rajawali group in Indonesia for US$505.4 million or RM2.26 billion in 2017.

FICP defaulted on the loan repayment in 2017.

"FICP failed to repay the loan, leading FELDA to enter into a new agreement with GovCo as a corporate guarantor for the Tawarruq Financing Facility," the report said.

Furthermore, Felda was required to repay RM200 million to GovCo on April 11 last year. On top of that, it is due to settle RM2.878 billion next month, on April 11.

Felda undertook a debt restructuring exercise for the RM2.5 billion financial facility granted by the Ministry of Finance. Under the repayment scheme, Felda has a commitment to repay RM50 million per year for the first five years starting this year.

The remaining outstanding of RM2.595 billion will be repaid according to schedule over a period of 15 years starting in 2029.

The AG pointed out that the decline in Felda's grant, down to RM214 million from RM342 million in 2021, has significantly impacted its operational sustainability, given its heavy reliance on financial assistance from the federal government, as reported in the AG's report.

Felda's acquisition of the 37% take in Eagle High from Rajawali via FICP, which was met with much criticism then due to the exorbitant price tag, was undertaken on the promise that Eagle High would obtain some form of Roundtable on Sustainable Palm Oil or RSPO certification within 30 months.

But the Indonesian group, controlled by the Indonesian businessman Sondakh, who is a close associate of former prime minister Datuk Seri Najib Razak, failed to get the RSPO certification. This led to Felda, in January 2019, issuing its first put option to sell the stake back to Rajawali. Rajawali, however, disputed it and initiated arbitration proceedings to block Felda from exercising the option.

In February 2023, the Malaysian government made the surprise announcement that Felda had initiated fresh arbitration against the Rajawali group to exercise that same option, and revealed that Felda had lost the earlier round of arbitration, though no reason was given as to why it lost.

The new arbitration was initiated after Felda made a second attempt to exercise the option in 2022, which Rajawali is again disputing.

It has now been over a year since Felda initiated this second arbitration, but there has been no news or update on the matter. This has raised concerns whether the silence from all parties — be it Rajawali, local ministers, or even Felda officials and its communications department — meant Felda will likely be saddled with its 37% stake in Eagle High, The Edge Malaysia wrote in its latest publication for the week of March 4-10.

In the meantime, FICP had not managed to generate any revenue in the last five financial years of FY2018 to FY2022. Aside from RM100.81 million after-tax profit in FY2019, FICP had been loss making in four of the last five years, with accumulated losses reaching RM2.77 billion at end-2022, while its assets for the period in review amounted to RM213.86 million, down about 75% from RM837.83 million in FY2019.

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