This article first appeared in The Edge Malaysia Weekly on August 19, 2024 - August 25, 2024
NEWS of the Malaysian Anti-Corruption Commission’s (MACC) probe involving three officers at property developer Encorp Bhd (KL:ENCORP) on Aug 8 has again thrust the Federal Land Development Authority (FELDA) into the spotlight as questions are raised about the government agency’s choice of investments.
For context, FELDA’s investment arm 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. As the deal triggered a mandatory general offer, FIC also offered 55 sen apiece for Encorp’s warrants and RM1.55 for its redeemable convertible unsecured loan stock (RCULS). In total, FIC forked out RM306.11 million for a 72.29% interest in Encorp. According to Encorp’s 2023 annual report, FIC’s stake as at March 31, 2024, stood at 62.3%.
Encorp’s share price, which had been hovering at the 28 sen level for the past few months, dipped to 24 sen last Thursday following news of the MACC probe. At the current market price, FIC’s 62.3% stake is worth a mere RM47.3 million, putting the group’s investment in Encorp at an estimated paper loss of RM256.86 million.
In fact, at 24 sen per share, Encorp’s market capitalisation of RM76 million is a fraction of the RM306.11 million that FIC forked out in May 2014.
In 2021, rumours of FIC wanting to dispose of its stake in Encorp swirled. Since FIC bought into the property developer at a high price, it hoped to recoup its cost by selling out at RM1 a share at least — which was a 61% premium to Encorp’s share price at its peak of about 62 sen in October that year — but nothing came of those intentions.
Encorp, whose core businesses are in property development, property investment and construction, has been mired in losses since FY2017 as it ratcheted up a net loss of RM30.5 million on revenue of RM312.9 million that year. The company attributed the poor financial performance to a decrease in revenue due to fewer ongoing projects compared with the same quarter in the preceding year, as well as an increase in provision for liquidation and ascertained damages by its property division.
As Encorp continued to chalk up losses in subsequent years, it fuelled market talk that the FIC-backed management team in Encorp did not have the expertise to run a profitable business. After all, it registered net profits of RM6.4 million, RM12 million and RM19.34 million from FY2011 to FY2013 respectively, prior to FIC’s takeover.
In the last five years, Encorp has been able to narrow its heftiest net loss of RM18 million in the financial year ended Dec 31, 2022 (FY2022) to RM8.5 million last year. It has not announced any dividend payouts since distributing three sen per share in June 2014.
According to Maybank Investment Bank, which advised FIC at the time, the buy-in to Encorp was meant to serve as a platform for FIC to undertake the development of FELDA’s land bank, which included parcels located in prime areas in the Klang Valley and other urban centres across the nation.
An investment arm of FELDA, FIC was set up in July 2013 with the aim of ensuring profitable and sustainable investment returns to its shareholders through non-plantation business operations, according to its website. Its main focus is hospitality, property and strategic investments.
Under the hospitality division, FIC owns three properties in London, namely Felda House, Grand Felda House and Park City Grand Plaza Kensington. In Malaysia, it owns The Grand Beach Resort Port Dickson and Merdeka Palace Hotels & Suites in Kuching.
In terms of investments in public-listed companies, apart from Encorp, FIC also invested in Barakah Offshore Petroleum Bhd (KL:BARAKAH) and Iris Corp Bhd (KL:IRIS). Barakah offers pipeline services, offshore transport and installation while Iris is a technology consulting, airport security and immigration software and hardware provider.
In 2014, FIC purchased a 9.62% stake in Barakah at RM1.36 apiece for a total investment of RM100 million. The year before, shortly after FIC was formed in July, it bought 25.7% of Iris at an average cost of 27.5 sen for a total of RM145 million.
FIC began selling batches of its stake in Iris in April 2014 and ceased to be a substantial shareholder with the reduction of its stake to 4.95% in February 2019.
In November 2014, FIC bought 9.62% equity interest in Barakah Offshore Petroleum at RM1.36 a share, amounting to RM100 million.
The outfit had flatlined at six sen apiece even before the pandemic broke out. FIC ceased to be a substantial shareholder in mid-2018.
Encorp is the only listed company in which FIC still has a substantial stake. What its plans are with its stake in the property developer remains to be seen.
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