“When news got out yesterday that Zakaria Arshad had been asked to take a leave of absence by Tan Sri Mohd Isa Samad, the stock went into a tailspin”
PETALING JAYA: Federal Land Development Authority’s (Felda) efforts to maximise returns from its assets have been thrown into doubt following a management crisis at its key subsidiary, Felda Global Ventures Holdings Bhd (FGV).
It is learnt that the advisers of Felda’s transformation plan have expressed concerns over the abrupt suspension of FGV group president and chief executive officer Datuk Zakaria Arshad.
The transformation plan being implemented by Zakaria at FGV and the group’s financial performance are an integral part of Felda’s corporate exercise.
“With the ongoing squabble at the FGV level, bankers would be hard-pressed to sell any of their plans to the investment community,” said an official close to Felda.
Over the past one month, shares in FGV have been trending lower amid swirling rumours of Zakaria’s impending exit.
When news got out yesterday that he had been asked to take a leave of absence by his chairman Tan Sri Mohd Isa Samad, the stock went into a tailspin.
Shares in FGV fell 11 sen, or 6.4%, to RM1.62 – its lowest level since last December.
Felda chairman Tan Sri Shahrir Abdul Samad had in April pointed out the need for Felda to boost its revenue base and income source to meet its annual budget requirement of between RM2bil and RM3bil annually.
He wanted FGV to contribute more to Felda in the interest of the smallholders.
Felda owns about a third of the shares in FGV and is the company’s single largest shareholder.
Apart from dividend payouts, Felda counts on a fixed sum annual payment and a cut of FGV’s profits under a unique land lease agreement (LLA).
Last year, the total amount contributed by FGV came to about RM300mil.
The contribution was less than expected, said Shahrir who noted that Felda was not happy with the returns from the land being managed by FGV.
About 335,000ha from Felda’s total landbank of 850,000ha are currently run by FGV under an LLA which was established in 2012.
To boost returns, Felda is considering several options to sweat its assets.
This includes taking back the plantation land that is leased out to and managed by FGV because it feels that it can extract higher returns.
According to some analysts, the possibility of the LLA being terminated is low.
However, should Felda decide to terminate the agreement, CIMB Research estimated that it would need to compensate FGV by as much as RM3.2bil for the loss of future income of the estates and RM600mil for the assets.
The firm said on June 1 that should Felda proceed to terminate the LLA with FGV, the income from the potential RM3.8bil estimated one-off compensation may not be sufficient to offset the future income loss from the estates and the replanting cost of RM1.7bil incurred since FGV’s initial public offering.
Meanwhile, there is also the possibility of bringing in a new strategic shareholder to FGV.
But the turmoil in FGV could potentially derail much of the work that has been done to revive its fortunes.
Zakaria, the son of a Felda settler who has served the group since 1984, was appointed in April last year to lead the FGV.
Under his transformation plan, he has set a target to boost annual profit after tax to above RM1bil and increase fresh fruit bunch production by a third.
During the first three months of the year ended March 31, FGV managed to squeeze in a small profit, driven largely by Zakaria’s cost-cutting measures.
“The management’s effort to control cost is also commendable,” MIDF Research said in its report last week.
While Zakaria’s financial discipline has won him admirers in the market, the latest development, however, has spooked investors.
Source: The Star Online