Friday, June 01, 2012

FGVH IPO: Felda Settlers Fleeced

Koperasi Permodalan Felda (KPF), which represents the interest of the Felda settlers have been completely left out of the Felda Global Ventures Holdings Berhad (FGVH) public-listing exercise.  KPF is the 51% shareholder of Felda Holdings Bhd (FHB), while FGVH, a wholly-owned subsidiary of FELDA statutory body holds the balance 49%.  Based on the KPF 2010 Annual Report, it is 70% owned by Felda settlers, with the balance owned by Felda employees.

It is therefore not a surprise that KPF has expressed shock at their being left out of the initial public offering (IPO) exercise in a statement issued on 27 April 2012.  They had claimed that the decision to leave them in a lurch contradicts the Budget statement issued by the Prime Minister, Dato’ Seri Najib Razak which stated that the interest of the Felda settlers will be protected via the majority ownership of FGVH via KPF.

However, the lack of ownership in FGVH is in effect, the least of KPF’s problems.  As discovered from the official draft FGVH listing prospectus, not only will KPF not get any ownership of FGVH, KPF’s existing business and income will be cannibalised by FGVH.

Prior to 2012, FELDA, the Government statutory body owns 355,864 hectares of plantation land, which was managed by Felda Plantations Sdn Bhd, a 51% subsidiary of FHB.  The remainder 49% is owned by FELDA.  However as at January 2012, FGVH is granted 99-year rights to the land.

The 355,864 hectares of plantation land generated RM680 million in net profit in 2011. The net profit attributable to KPF-FELDA would be RM510.1 million based on its KPF’s 51% ownership of FHB and FELDA’s 49% ownership of Felda Plantations.  Given the proposed price of RM4.65 per FGVH share on a market valuation of 16-17 times earnings (市盈率), KPF's stake in the above plantation land contributed as much as RM8.8 billion to FGVH's market capitalisation (市值).

Hence the Government's promise to pay RM15,000 to each settler, amounting to RM1.69 billion for 112,635 settlers is only a fraction of the value of the plantation (RM8.8 billion) land ceded by KPF to FGVH.  The compensation certainly does make up for the loss of profits to KPF over the next 99 years!

Besides ripping off KPF, the Government is also short-changing FELDA by leasing the above plantation land to the to-be-listed FGVH at dirt-cheap prices of RM1,490 per hectare or RM530 million annually.

In comparison, the Al-Hadharah Boustead Plantation REIT (房地产投资信托基金) receives an average rental of RM3,358 per hectare for its plantation lands.  Even after taking into account the 20% lower yield from the FELDA land -- 16 metric tonnes per hectare (MT/ha) compared to 20 MT/ha -- the market price for leasing that land should be at least RM2,600/ha.

Hence the heavily discounted 99-year land lease agreement at RM1,490/ha causes FELDA to lose RM394 million annually. FELDA would lose some RM39 billion over the next 99 years, before taking into account any upward revision in market rental rates.

Therefore, in the Government’s haste to list FGVH for mysterious reasons, it has really turned out to be a no-holds-barred attempt to fleece the Felda settlers and severely shortchange the Government.  After listing, FELDA will only retain 40% of FGVH, with the balance being sold to local and foreign investors.  Hence it is clear that the interest of the Felda settlers have been compromised, in order to ensure a sizeable listing for FGVH.
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