In the second of a four-part series on Felda Global Ventures, KiniBiz goes to a Felda settlement and talks to its inhabitants about what FGV's listing means to them. While some are happy with the cash payment of RM15,000 they are unsure if 800 shares in FGV will make much difference to their predicament.  

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It is a drizzly afternoon in Serting, Negri Sembilan and AM Talib Harun and a group of middle
aged men, all Federal Land Development Agency (Felda) settlers are chatting animatedly over coffee and keropok lekor.
About nine months ago, a truck dropped off stacks and stacks of Felda Global Ventures Holdings (FGV) prospectuses at this Felda Raja Alias settlement for them to read, and now these men are minority shareholders in the government flagship.
The allocation of shares were part of the deal which Prime Minister Najib Abdul Razak, the
minister in charge of Felda, said was the benefits from the listing for settlers. The "windfall" also includes RM15,000 per settler, paid in three installments.
Felda had made RM5.5 billion from its divestment, and RM1.7 billion or roughly a third of that
went back to the settlers in the form of the windfall cash. It is unclear what the remainder will be used for.
"You know (the PM) said that it's supposed to secure our future until the end of the world. I don't see how," AM Talid said.
"It's 800 shares. If it was 180,000, like what was offered to some who have never even worked on a Felda land, I may change my mind."
AM Talib does not mention names but the person he refers to is Felda chairperson Mohamad Isa Samad, who according to the prospectus was offered as much. Bloomberg, however, does not list Isa as one of the top 20 shareholders of FGV.
According to the prospectus, settlers make up only 2.5 percent of those allocated shares, while Felda employees fared slightly better at 3 percent. The largest portion of the shares, 41 percent, was allocated to "other institutional investors" while 11.5 percent or a whopping 419.6 million shares were for Ministry of International Trade and Industry (Miti)-approved bumiputera investors.
Feel good
Lifting the 1000-page prospectus, the second generation settler from Felda Raja Alias said that he believes that he is probably one of the few settlers who actually read it. The others, he reckons, either could not understand it or did not bother to.
"They were told that Felda is now a global entity, that we are special, and they felt good about it," he said.
But Felda Lui Timur settler Rahim Karidin is not feeling too great.
"This FGV has put me in debt for nothing!" he said.
The men estimate that about 90 percent of settlers had taken up loans to purchase the 800 shares, which at initial public offering price of RM4.55 would have cost a total RM3,640. The loans were initially to be taken with a commercial bank, but Felda had post-listing stepped in to offer soft loans.
According to the loan agreement, settlers now have to pay Felda RM50 per month. Although a relatively small amount, this would mean six years of debt for returns which are uncertain at best. With the CPO price dip slashing settler incomes, RM50 less a month still stings.
Sitting under water most of 2013, FGV shares have not had an inspiring run with analysts either calling for the stocks to be sold or held for a longer term. Investors who cashed out at its peak of RM5.55 would have raked in profits, but how much?
Profits for whom?
If only half of the Miti-allocated shares were sold then, the investors whose identities the ministry said are "confidential" could have pocketed collectively a cool RM 210 million. For the settlers, however, the profits are negligible.
The settlers from Serting say they know of only one person who sold off his shares and the person managed to gain RM500 after all the fees were accounted for.
"And that was the end of it," AM Talib said, adding that this kind of risk is not something many
want to stomach, considering that Koperasi Permodalan Felda, which they all hold shares in, has been giving out dividends in the teens every year.
Indeed this was one of the reasons cited by settlers who opposed the listing, who said they would rather hang on to their KPF shares than to swap them for FGV shares for the sake of the listing.
The short term outcome of the listing for settlers were foreshadowed by the initial resistance to the listing, at least on the part of eight KPF members who took the matter to court. KPF had in the 11th hour prior to listing successfully held an extraordinary general meeting where it voted overwhelmingly for the listing to go ahead.
KPF's approval was required as it shares the golden egg Felda Holdings Bhd with FGV. FGV had bought 49 percent of Felda Holdings in 2009, and the entity remains its most profitable holding. KPF holds the remaining 51 percent.
The validity of the EGM is, however, now in question following a High Court decision to delete
Mohamad Isa's KPF membership. This may affect his chairmanship of the cooperative. KPF is valued at RM3 billion.
The initial plan was to swap the settlers KPF shares for FGV shares, although details on this were murky all the way to the June listing, resulting in much uncertainty. The court case involving the eight KPF members had halted plans for FGV to buy KPF's stake in Felda Holdings, to boost its listing value.
By April, a new listing structure was devised, placing Felda and a special purpose vehicle as
"trustees" to care for the settlers interest in FGV. It was said then that settlers would earn new
dividend allocations from the special purpose vehicle and Felda. This would be on top of the fifty percent of group profits which FGV promises shareholders.
Generations in poverty
KiniBiz submitted questions to FGV CEO Sabri Ahmad for the purpose of this series of articles. They are as yet unanswered.
However, speaking at the Palm Oil Conference 2013, Sabri said that the listing would "improve the (settler) living standards and develop communities with better benefits for the scheme, along with improved corporate governance".
For the Serting settlers, however, the FGV listing has done nothing for the children of Felda settlers, some of whom are living in dire straits. AM Talib said that the listing has altogether lost sight of the agency's raison d'etre—lifting people out of poverty.
"Even if one child from each Felda household falls between the cracks, that is 110,000 more poor families in the future. Today when you go to Felda settlements, you see (adult) children of settlers living in huts in the middle of plantations, fighting over abandoned homes," he added.
He claims that the "luckier" of these children of Felda settlers would be hired as labourers on the plantations, but others are left foraging or fishing from the rivers for a livelihood.
"The Felda Plantation land of 330,000-ha should not be used to prop up the FGV listing. It should be used to help people out of poverty. The only way out is through land or the children of Felda settlers will be poor and their children's children more so," he said.
PAS-linked Children of Felda Settlers' Association (Anak) economic advisor Rosli Yaakop
also believes that settlers have a stake on the Felda Plantation land, as it was developed from
contributions made by Felda settlers. These contributions, he said, are among the many "cuts" made to the proceeds from their crops sold to Felda for processing.
He argues that there is also a legal argument against the use of Felda Plantation, which land is now leased for 99-years to FGV.
"The land was given by the state governments to Felda for the benefit of the settlers and KPF. By including the lands in the listing, Felda is by-passing the Land (Group Settlement Area) Act 1960," he said.
Additionally, more than 40,000ha of the land involved in the listing exercise is Malay reserve land, raising further questions by critics.
For now, the settlers say they have no choice but to hang on to their 800 shares and pay their
RM50 a month, but with commodity prices on the slide, the bright future promised by the listing is hardly on the horizon.

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Yesterday: FGV listing: A roller coaster ride?
Tomorrow: The upside for FGV

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In the third of a four-part series, KiniBiz looks at the possible upsides for Felda Global Ventures. There is a potential for the company to do well going forward by making the right acquisitions to get a good mix of plantation assets and measures to improve yield. Much will depend on good leadership.

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While the Felda Global Ventures story pales to the fairy tale it was hyped up to be, the listing had turned the once slender company into the richest kid on the plantation block. And when plantation land is running scarcer by the minute, RM4.4 billion burning a hole in FGV's pocket can go quite far.
Indeed mergers and acquisitions make up 50 percent of what FGV intends to do with the proceeds.
As it is, it is the third largest oil planter in the world but CEO Sabri Ahmad said that FGV has greater plans.
He has been reported as saying that FGV intends to secure 150,000-ha of land in the next five years. Together with the 500,000-odd ha of Felda settler land it manages, FGV will by 2020 be overseeing an ambitious one million ha of plantations.
Industry experts believe that overseas acquisitions are the best bet, with plantation land in places like West Africa, leased out for up to 10 times cheaper than in Malaysia. The IPO proceeds and RM57 million it made from disposing its stake in Tradewinds (M) Sdn Bhd, could be used to grow its land bank tremendously.
Big plans
FGV did not return answers to questions asked by KiniBiz at press time, but its management has made it clear that it has foreign land in sight. In an interview with media consultancy company Prospect Group on Feb 14, Sabri said that it hopes to "replicate the Felda model in Myanmar (sic) and Cambodia."
"We also want to replicate and share our experience in West Africa. West Africa is suitable for oil palm," he said.
Beyond palm oil, Sabri was quoted as saying that FGV is "already negotiating with big players" in Burma and Cambodia to expand rubber hectarage to 100,000 hectares. He added that they are also seeking to grow sugar cane, to supplement its downstream businesses in this area.
"This will address our over dependence on palm oil," he said.
But three months to its first IPO anniversary, FGV has yet to make any acquisitions locally or abroad, with speculation of it purchasing Sarawak Plantation land quashed soon after it surfaced.
"It's not easy to acquire land so we have to give them some time. It's not possible to also put a deadline on this as they shouldn't be pushed to buy for the sake of buying," an analyst with an investment bank who declined to be identified said.
However, she said FGV's growth heavily hinges on its acquisition strategy.
Indeed, about half of FGV's trees are aged 21 or older, but another analyst believes that its aggressive strategy of acquiring new land could also mean buying land with trees which are already in the prime.
This would mean harvesting even sooner than the three years it would take for its own new trees which is now planting at the speed of 15,000 ha a year to mature.
Sabri also told the Palm Oil Conference 2013 last week (Mar 6) that FGV had replanted 16,000-ha of palm oil in 2012 and will continue to replant for at least another three years.
Poised to gain from CPO upswing
MIDF analysts Nur Nadia Kamil and Syed Muhammad Kifni agree that much of the FGV story hinges on CPO sales. They said that much of FGV's earnings is derived from its upstream activities and its landmark agreement with Felda Holding's milling and processing subsidiary Felda Palm Industries (F Palm) is a major plus point.
They said that FGV has already recorded promising earnings from its CPO sales since inking the fresh fruit bunch and CPO sale deal in March 2012, and this spells brighter days ahead. They argued that this is because CPO and FGV prices are highly correlated at 89 percent.
"As CPO price is expected to rebound to circa RM3,000 levels, therefore we expect FGV share price to increase to nearly RM5.30 per share," they said in a Jan 25 note.
Bucking the trend with a call buy on the stock, they said that an expected CPO upswing is enough to offset rising costs of production and drawbacks sustained from its aggressive replanting programme. Replanting will cost RM15,000 to RM20,000 per ha for the next 10 years.
MIDF's bullish outlook on CPO, however, contradicts that of global palm oil experts who at the Palm Oil Conference 2013 last week said that palm oil price for the year would hover around RM2500 per metric tonne.
According to the March 2012 agreement, all of FGV's CPO earnings will be sourced from F Palm produced oil. However, FGV's old hectarage only provides a third of fresh fruit bunches sourced by F Palm to produce CPO. The remainder are sourced from Felda settlers and third parties.
As such, remisier and finance website NextTrade founder Alex Lu said, lower yield from its aged trees would also have a smaller than expected impact on its CPO earnings.
"Any decline will not be significant," he said.
Tall order for FGV's new man
But for now, FGV's numbers have been "disappointing" at best.
"The jump in profit after tax for its quarter ending Sept 31, 2012 was due to gain on disposal of investment of RM47 million. If that is excluded, its average net profit is about RM195 million a quarter," he said.
Eventually, net profit dropped for the financial year ended December 31, plunging by a significant 39 percent.
Solid acquisitions and focussed aggressive replanting can turn things around. But until then, Lu said, these numbers are not telling the market a very glowing story.
This is the challenge which CEO designate Mohd Emir Mavani Abdullah will need to step up to, which some analysts and industry veterans feel he can achieve.
Although he comes from an oil and gas background, industry veterans believe Emir's international connections could enhance FGV's international focus.
The company's overseas ventures have garnered modest returns, and losses of hundreds of millions in North America. A veteran said that Emir who served as advisor to the Abu Dhabi government can change this and "add value" to FGV's downstream products.
Already, he has announced that the group is looking at at least 12 potential acquisitions, while looking at measures to weather further weakness in CPO prices. What these measures are, however, remain a mystery.
Emir's role leading Performance Management and Development Unit's (Pemandu) Oil and Gas and Financial Services and Government Role in Business laboratories may point to a flair for innovation.
"For a CEO, Emir's also pretty young at 48. He'll come in with more energy and fresh perspective," an analyst said.

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Yesterday: The FGV listing and the Felda settler
Tomorrow: The winners and losers