This article first appeared in The Edge Malaysia Weekly on August 12, 2024 - August 18, 2024

A proposal to rectify the shareholding spread of highly political FGV Holdings Bhd (KL:FGV) is facing delays amid an attempt by business tycoon Tan Sri Syed Mokhtar Albukhary to inject his plantation, sugar and rice businesses into the entity.

Sources say FGV’s proposal to resolve the shareholding spread through the issuance of redeemable preference shares (RPS-i) has yet to get off the ground despite the announcement on the matter having been made at the end of June last year.

In its last update in February this year, FGV announced that it could not issue the circular to shareholders because the controlling shareholder — the Federal Land Development Authority (FELDA) — is seeking the consent of the government.

The key ministries in charge of affairs related to FELDA are the Prime Minister’s Department (PMO) and the Ministry of Finance (MoF). Both of these ministries are under the watch of Prime Minister Datuk Seri Anwar Ibrahim, who is well aware of the political repercussions should he mishandle any matters related to FELDA and FGV.

“The proposal is not getting the push it used to when FELDA was under (former chairman) Tan Sri Idris Jusoh. Coincidentally, parties linked to Syed Mokhtar have floated the idea of a merger of his assets with FGV,” says a source.

The proposal to issue the RPS-i was endorsed by FELDA’s management when Idris was the chairman. The announcement came out on June 30, 2023, just a day before Datuk Seri Ahmad Shabery Cheek replaced Idris.

Shabery’s office did not respond to questions on the shareholding spread.

It is learnt that amid the delay, there is a proposal to merge assets linked to Syed Mokhtar with FGV to create a major agricultural and food-based company.

“The proposal is not new. Syed Mokhtar has been eyeing a piece of FGV for a long time now. He was looking at FGV even before FELDA embarked on the privatisation of the company in December 2020. FELDA’s previous top management had opposed any proposal to merge Syed Mokhtar-related assets with the authority. But FELDA’s new management could be open to [new] ideas,” says the source.

Syed Mokhtar controls Tradewinds Plantations Bhd, Padi Beras Nasional Bhd and Central Sugar Refinery Sdn Bhd (CSR) through his holding company, Tradewinds Group (M) Sdn Bhd. He took Tradewinds and Bernas private a few years ago while CSR has always remained a private entity.

As for FGV, it is one of the biggest plantation companies in the world and accounts for 3% of global crude palm oil (CPO) supply. The company manages almost 439,000ha of plantation land, of which 350,000ha are leased from FELDA.

FGV and FELDA are locked in a land lease agreement (LLA) under which the former pays the latter RM248 million and 15% of the operating profit from the plantations covered by the LLA annually.

In the past, FELDA had stated that it was unhappy with the returns, which was one of the reasons for FGV’s takeover in December 2020. FGV, in its defence, had stated that the returns were based on CPO prices and that the LLA plantations had been replanted and were in much better shape than when they were leased in 2012.

FGV also controls 51% of publicly traded MSM Malaysia Holdings Bhd (KL:MSM), which is the largest sugar refiner in the country. However, MSM has not been able to realise its full potential due to the building of a new plant in Johor that is not producing the desired returns.

Sources say Syed Mokhtar’s proposal is to essentially merge the assets of Tradewinds Group with FGV.

“The end result is a large upstream plantation company with a complete monopoly of the sugar refinery business and distribution of rice.

“This proposal could also see FELDA taking back from FGV two key subsidiaries that are in the upstream segment of the plantation business,” says the source.

The two key indirect subsidiaries are FGV Plantations (Malaysia) Sdn Bhd (FGVPM) and FGV Palm Industries Sdn Bhd (FGVPI). During FGV’s listing in 2012, FELDA injected both these companies into the listed entity and over the years much work has been done to improve their performance.

Both the companies have been registering strong profits and are primary contributors to FGV’s group dividends. FGV indirectly wholly-owns FGVPM and 72% of FGVPI. The remaining 28% stake in FGVPI is held by Koperasi Permodalan FELDA Malaysia Bhd.

FGV’s results have been erratic as its business is sensitive to the price of CPO. For the financial year ended June 30, 2023, it recorded a paltry profit of RM102 million on a turnover of RM19.3 billion. In contrast, in 2021 and 2022, its profits were RM1.2 billion and RM1.3 billion respectively on revenues of RM19.6 billion and RM25.6 billion.

As for Tradewinds Plantations, its results were generally in line with the average in the plantation sector.

The company recorded a profit of RM141 million on a turnover of RM1.9 billion in the financial year ended December 2023. In 2021 and 2022, the revenues were similar at RM2.6 billion but the profits were RM1.2 billion and RM344 million.

In 2022, Tradewinds Plantations declared an astounding dividend of RM1.5 billion. The year 2019 was also good for the company as it declared a dividend of close to RM1 billion.

Meanwhile, Bernas, which has a monopoly on the import and distribution of rice for the government, recorded a loss of RM18.8 million on a turnover of RM6.7 billion in the financial year ended December 2023. However, it should be noted that Bernas was profitable in the previous years with the company declaring healthy dividends.

A cursory look at the financial numbers of CSR and MSM show that the former has been more consistent in delivering profits.

CSR recorded a loss of RM83.3 million in the financial year ended December 2023, but it was profitable between 2019 and 2022 and declared a total dividend of RM500 million for those years.

As for MSM, it recorded losses in three out of the last five years between 2019 and 2023: in the financial years ended December 2019, 2022 and 2023.

FELDA and parties related to it ended up holding more than 85% of FGV after it launched a takeover in December 2020 at RM1.30 per share. The offer ended in March 2021 and since then, the company has had six extensions to fulfil the public shareholding spread, which stands at 13.09% now.

Under Bursa Malaysia’s listing requirements, FGV needs to have at least a 25% free float.

In a plan to meet the free float requirement, FGV proposed in June last year a bonus issue of RPS-i whereby the holders would get all the dividends from FGVPM and FGVPI. The objective was for FELDA, which would hold more than 82% of the RPS-i to be issued, to benefit directly from the dividend flow of FGVPM and FGVPI.

After the issuance of the bonus issue, it is learnt that FELDA would then reduce its stake in FGV to meet the shareholding spread.

FGV has received two extensions of time on the bonus issue of RPS-i. The new deadline to issue the circular is this week (Aug 13).

Considering that there has been very little development so far on the bonus issue, FGV is most likely to seek another extension to issue the circular to shareholders. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.