Tuesday, June 19, 2012

FGVH IPO: Settler's Income Cannibalised

Felda Palm Industries Sdn Bhd (FPI) is a palm oil processing company which purchases from Felda Plantations as well as other oil palm plantation companies, and processes them into Crude Palm Oil (CPO) for sale to refineries, traders and other users.

FPI is company where Koperasi Permodalan Felda (KPF) has a 64.7% effective stake.  Based on FPI’s latest available audited accounts, it made RM9.5 billion and RM204 million in revenue and profits respectively in 2010. More specifically, FPI sold 3.0 million metric tonne of CPO for RM8.1 billion during the year.

However, based on the FGVH prospectus, FPI has been forced to sign a concession contract on 1 March 2012 with FGVH where all CPO produced by FPI, except a small quantity used by FPI's own subsidiaries will be sold only to FGVH.

The above arrangement is clearly to enable FGVH to earn a margin from the sale of CPO to the final customers. FGVH adds no value to the entire process except to cannibalise part of the profits which would otherwise have been attributable to FPI.  As highlighted in the FGVH prospectus, FGVH “resells all of this CPO to third-party customers, such as refiners and traders in
Malaysia and abroad, to our joint ventures…” (pp 184)

Assuming just a mere 5% margin in sales price earned by FGVH, it is in essence a loss of profit amounting to RM405 million to FPI.

The biggest loser will hence be KPF which owns 64.7% of FPI but does not even own a single share in the soon-to-be-listed FGVH. KPF which is 70% owned by Felda settlers, with the balance owned by Felda employees, is the entity set up in 1980 to become a savings and investment trust for Felda members.  Its intent was to give a fair opportunity to Felda members to take part in equity ownership of companies set up by FELDA.

This is on top of the fact that 355,864 hectares of the Government's FELDA land previously managed by another KPF subsidiary, Felda Plantations Sdn Bhd, has been ceded to FGVH for 99 years.  The transfer of the above land will boost FGVH profits by RM680 million annually based on 2011 financial performance.

Hence it is clear that in order to inflate the profits of FGVH and the attractiveness of its shares to potential investors, the Government has sacrificed the interest of Felda settlers represented by KPF by robbing them of income which they've enjoyed all these years.

We call upon the Government not to shortchange KPF and the FELDA settlers.  The RM15,000 “durian runtuh” amounting to a total of RM1.69 billion does not even come close to the loss of income for KPF and the settlers for the next 99 years as a result of the above one-sided deals.
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