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This article first appeared in The Edge Malaysia Weekly on November 19, 2018 - November 25, 2018

IF what sources say is true, the draft copy of the White Paper on the restoration, financial management and governance of the Federal Land Development Authority (FELDA) only mentions the acquisition of PT Eagle High Plantations Tbk in passing.

“Maybe half a page or all of one page at the most [was on Eagle High],” says a source with knowledge of the contents of the White Paper.

After all, the acquisition was mired in controversy with questions about the high price tag of US$505.4 million (RM2.26 billion at the time), which was a 95% premium to the market price, and the logic of FELDA even buying a non-controlling 37% stake in the first place.

At US$505.4 million, the price works out to IDR580 per share, which is 3.4 times higher than the current trading price of IDR169.

To add insult to injury, FELDA’s 33.67% unit FGV Holdings Bhd had opted out of the deal a few months earlier on the advice of merchant bankers JP Morgan and Bank of America.

“The White Paper says FELDA was given the mandate to buy Eagle High by the previous government, and concedes that the premium paid was too high … It goes on to say that while the funding (for the Eagle High acquisition) was from the government, FELDA had to record the acquisition in its books and settle the government loan after three years, assuming Eagle High did not get RSPO (Roundtable on Sustainable Palm Oil) certification by 2019,” the source says.

The Edge understands that the government, via GOVCO Holdings Bhd, had funded FELDA to the tune of RM2.25 billion, payable over seven years.

There is a put and call option in the sales and purchase terms, where if Eagle High does not get RSPO certification by 2019, FELDA can exercise the put option, which will require the Rajawali group — the vehicle of Tan Sri Peter Sondakh — to buy back the 37% stake at 6% interest a year.

Sondakh, who owns 37.64% of Eagle High, is known to be a close associate of former prime minister Datuk Seri Najib Razak.

It seems the White Paper indicates that the acquisition of Eagle High is being investigated for misappropriation.

Interestingly, it is FIC Properties Sdn Bhd, the FELDA unit that handles its non-plantation businesses, that acquired the 37% stake in Eagle High.

While some say the acquisition hinged on Malaysia and Indonesia signing the Council of Palm Oil Producer Countries back in November 2015, which was aimed at strengthening the bond between CPO producers, others view it as a loan to Sondakh.

“The 6% interest rate means nothing. Indonesian banks lend at more than 10% per annum — I think it’s like 10.5%. So, the 6% interest is still a good deal for him (Sondakh). The entire transaction seems to favour him,” says a former merchant banker familiar with the deal.

It is ironic that Eagle High’s market capitalisation stands at US$359.7 million now, which means FELDA’s 37% stake has a market value of US$133.09 million. In other words, a paper loss of US$372.31 million (RM1.56 billion) for the agency.

According to sources, FELDA made an impairment of RM1.69 billion for its financial year 2017 because of the high premium it paid for the Eagle High stake and the dip in its share price.

“What will happen if Eagle High goes bust?” asks the former merchant banker. “What will FELDA get?”

Eagle High has suffered losses in the past three financial years and seems likely to maintain its losing streak this year. In its nine months ended Sept 30, it suffered a net loss of US$17.4 million on revenue of US$228.1 million.

While Eagle High gets scant coverage in the White Paper, the failed sturgeon-rearing project, in which FELDA invested RM47.61 million with no returns, is discussed and, according to the White Paper, it was decided at a board meeting in late August this year to cancel it.

Similarly, the White Paper looks at FELDA’s establishment of Global Settlers Sdn Bhd to open FELDA concept shops known as Savaro.

This initiative was via a joint venture with Schneeballen Korea Co Ltd, which aimed to bake and distribute schneeballen pastries. Savaro commenced operations in July 2013 but went into liquidation in April 2016.

While losses at the Savaro restaurants amounted to only RM2.24 million, there were discrepancies, such as the rents not being paid into the building owners’ bank accounts but into that of the outlet managers.

The findings of investigations revealed that no real study, detailed financial analysis or risk analysis were undertaken. South Korea’s courts decided that there was embezzlement in the project.

But what is more important is, why was Eagle High not discussed in detail?

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