FGV Falls from Grace but Isa Samad Stays: Governance Malaysian Style


June 16, 2017

FGV Falls from Grace but Isa Samad Stays: Governance Malaysian Style

by P.Gunasegarm@www.malaysiakini.com

A QUESTION OF BUSINESS | The latest fallout at Federal Land Development Authority (Felda) controlled Felda Global Ventures Ventures Holdings Bhd (FGV), is just a continuation of the wrong and highly questionable actions of the company since listing in 2012.

Image result for FGV Chairman Isa Abdul Samad

The solution is to simply go back to basics which means that FGV should stick to the business it knows well – oil palm plantations and related processing. It should pay fair prices for related acquisitions, not astronomical sums. And be run by competent professional managers who understand the business and are straight.

But too much damage has already been done by these actions and it will be some time before it recovers completely.

In the latest controversy, FGV board chairperson Isa Abdul Samad announced on June 6 that FGV CEO Zakaria Arshad was to take an immediate leave of absence. He added that it was a board decision.

Apart from Zakaria, FGV chief finance officer Ahmad Tifli Mohd Talha, FGV Trading chief executive officer Ahmad Salman Omar and Delima Oil Products Sdn Bhd senior general manager Kamarzaman Abd Karim were also suspended.

Zakaria hit back saying he had tried to stop hundreds of millions in investments by the company’s board which he described as “ridiculous”.

Amongst the investments, he said, were plans for a 100 million pound sterling (approximately RM551 million) expansion of Felda Cambridge Nanosystems Ltd, a nanocarbon company, which had already lost RM117 million in the last three to four years.

“Now they (the FGV board) want to expand, they need another 100 million pounds. To me this is ridiculous, we’re a plantation company,” he was quoted as saying by The Star.

To understand what is going on, it is necessary to go back into FGV’s short history. While it was listed in mid-2012 with high hopes that it will provide great returns for Felda settlers who hold a direct stake, Felda which holds about a 34% stake and various government institutions including the Employees Provident Fund (EPF), the share performance has been atrocious.

When it was first listed on June 28, 2012 confidence was so high that it opened higher than expected over its initial public offer (IPO) price of RM4.55. Reuters reported: “Malaysian palm oil firm Felda Global surged 20 percent in its trading debut on Thursday (June 28, 2012) as investors cheered on the world’s second largest IPO after Facebook’s botched float and the company pledged stronger profits in the coming months.

“The firm raised US$3.1 billion (about RM10 billion then) in Asia’s biggest initial public offering of this year, running against the global gloom in IPO markets and giving the government a political dividend ahead of what is likely to be a closely fought election (the 2013 general election).”

FGV closed that day at RM5.30, some 16% higher than its IPO price but it has been downhill all the way after that, reflecting poor results and an extreme lack of market confidence in the share following a string of poor purchases over the years, squandering some RM4.46 billion net that came directly to FGV from the issue of new shares from the IPO.

Between June 28, 2012 and its last trading day on Friday, FGV’s share price went from RM5.30 to RM1.66, wiping out nearly seven-tenths of its market value. Even comparing with the IPO price of RM4.55, the drop was over 63% – more than six-tenths of value was lost. The EPF itself lost RM203 million when it sold off some of its investments in FGV.

If one thought that this decline in value is because of a general decline in plantation stocks generally, they are wrong. Bursa Malaysia’s plantation index, which aggregates the performance of major plantation companies, declined just 6% over the same period, or about a twentieth of its value against FGV’s seven-tenths, a rate of decline which was 20 times higher.

Acquisition spree

FGV’s acquisition spree under previous CEO Mohd Emir Mavani Abdullah included the takeover of Pontian United Plantations Bhd for RM1.2 billion, Asia Plantation Ltd for RM628 million and RM2.2 billion for Felda Holdings Bhd, and 836 ha of oil palm land from Golden Land Bhd for RM655 million cash.

It culminated in a deal with the Rajawali Group announced in June 2015 for FGV to acquire a 37% stake in PT Eagle High Plantations (EHP) and 93% to 95% stakes in Rajawali Group’s sugar project, in all worth about US$680 million (about RM2.9 billion) in cash and FGV stock.

Emir was strangely involved in a corruption case earlier this month when an employee of The Star newspaper was charged in the Kuala Lumpur Sessions Court with receiving RM20,000 in bribes. M Youganesparan was accused of receiving the money from Emir at The Intermark Hotel, Jalan Tun Razak about 9.15pm on May 30 this year.

By the time the Eagle High acquisition was announced, FGV needed to borrow money to do the deal as it had exhausted the RM4.46 billion from IPO proceeds. The deal was heavily criticised as being way too expensive, even by the EPF, at an estimated 70% premium to market. Also Peter Sondakh, the founder and owner of the Rajawali group was said to be part of Prime Minister Najib Razak’s inner circle and served as his adviser on Indonesian affairs.

Fortunately CEO Zakaria Arshad, appointed on April 1, 2016 and the same one who is now on a leave of absence, nixed the deal, which was officially aborted in July 2016 after FGV started negotiations to restructure the deal in December 2015. Eventually in December 2016, the Eagle High deal was done with Felda which paid US$505 million (about RM2.2 billion) a quarter less, for the same deal.

Zakaria also cut other merger and acquisition deals saying that FGV should concentrate on the plantation business instead, in all saving FGV at least RM4 billion in spending.

Isa was chairman of both FGV and Felda at this time but was replaced as Felda chairman in January this year by another politician Shahrir Samad, although it was not clear why he was replaced. Isa, during Abdullah Ahmad Badawi’s time as Umno president, was found guilty of money politics in 2005 and suspended from the party for six years. He had to give up his post as UMNO Vice-President and Federal Territories Minister.

Image result for Idris Jala looks FGV

Idris Jala–The Financial Whiz appointed to fix GFV

Now former cabinet minister Idris Jala is supposed to look into this whole mess and make his recommendations. But at the end of the day, the solution is very straight forward. First, appoint people with impeccable credentials to the board and ensure that there is board diversity, independence and honesty.

Don’t just cram them chock full with politicians, often of dubious quality even then, and civil servants who know little or nothing about the corporate world and how it operates. Directors collectively should have expertise which covers all aspects of running a business.

Then pick a CEO with proven credentials and give him a free hand to run the company within the broad guidelines and mandate set out by the shareholders and the board. Make him accountable for set targets.

The needless failure of FGV is that of basic corporate governance. At the heart of this is the hijacking of what could have been a good, solid plantation company by the politicians for their own purpose, in the process screwing Felda settlers, investors and other stakeholders.


P GUNASEGARAM says too much is discussed but too little is done about corporate governance in Malaysia, even for listed companies. What happens with unlisted government companies, he wonders. E-mail: t.p.guna@gmail.com.

 

11 thoughts on “FGV Falls from Grace but Isa Samad Stays: Governance Malaysian Style

  1. It was always known Isa Samad was a highly corrupt politician, classic feudal money politics warlord, throughout his career. After getting caught, not only did he get away Scott free, Najib put him in charge of one of his own father’s best legacy that has become a key Malay UMNO institution. And troubles keep returning, bigger and bigger, you have to ask how competent is Najib if he did not see it coming, worst, how he has no clue what to do himself but keep sending various lesser tool-mens to fix it for him.

    Even now, although Felda is his ministerial responsibility, and there is already Sharif Samad at Felda, he sents in a bigger tool-man to deal with it rather than take charge himself.

    ISA Samad need to go but Felda’s problem is. Ultimately Najib.

  2. ( Will try and condense the whole rigmarole or ‘ juggling ‘ by shrewd people….) :
    The top crooks are (now) trying to put blame on CEO , CFO & Sr GM – from beginning about going ‘ global ‘ (Felda becoming FGV ) they had used and misused EPF monies to ” invest ” in an old Power plant by the river Thames, and bought two low-class hotels at higher price or higher value.

    These ‘ C……ks ‘ had no qualms to use or misuse (Malaysians) public Funds , simply because EPF Collections are in PERPETUITY , on-going until ‘ thy kingdom come…. ‘ – So, EPF can ‘cover ‘ the current loss of RM 203 million, by on-going collections of public funds locally….in perpetuity mind you…. ( Was’nt that the whole purpose from the beginning in buying or investing in Overseas assets , like the few hundred years old power plant etc ? ? –

    Moral : the real hard-core crooks are getting away by shifting blame…..(as always , like 1MDB ?, No ? )

  3. Apparently all this may be suspected of going on for several years. The objective of having is an INTERNAL AUDITOR is that he can be identify such happenings at the earliest stages as he is expected to have the expertise relevant to the core activities of the Company and thus able to advise the Audit Committee members.
    In this case questions arise:
    [a] Did the Internal Auditor conduct his audits effectively and did he find any wrongdoings?
    [b] If the Internal Auditor did find anything wrong did he report to the ‘AC’?
    [c] If the ‘AC’ was informed then what action did ‘AC’ members take and further did the ‘AC’ members had expertise relevant to the core activities of the company or of the transactions?
    [d] Did the Internal Auditor have the expertise relevant to the core activities or transactions of the company and was he allowed to conduct the audit or barred from conducting the audits of these matters or not given due co-operation and required documents or support by the the ‘AC’ and the Board of Directors?

    [It has been my personal experience and observations based on compositions of ‘AC’ of many listed Companies including GLCs as listed in the Annual Reports and Agencies-Others where most of the ‘AC’ members may not posses expertise relevant to the core activities of the Company-GLC-Agency-Others or the time they may give may not be compatible to the size of the Company-GLC-Agency-Others to be able to scrutinize the accounts of not only the Holding Company but also the hundreds of Subsidiaries-Associates-JVs [and some of the ‘AC’ members may also have multiple directorships besides potions in other organizations-charities-sports-etc and own companies] BURSA MANDATES THAT ONE MEMBERS OF THE ‘AC’ MUST BE AN ACCOUNTANT BUT SILENT ABOUT THE EXPERTISE OF THE OTHER ‘AC’ MEMBERS]. I have raised this during of several AGMs in which I am a shareholder but the standard reply is that ‘ALL ARE PROFESSIONAL HIGHLY EDUCATED AND WITH VAST EXPERIENCE AND WITH INTEGRITY AND INDEPENDENT all of which I never disputed but still emphasized that some may NOT HAVE THE EXPERTISE RELEVANT TO THE CORE ACTIVITIES OR SOME MAY NOT HAVE BEEN ABLE TO DEVOTE TIME AND THUS EXPERTISE DUE TO THEIR OTHER ACTIVITIES.

    The above comments on ‘AC’ members may be substantially applicable to some Internal Auditors and some may not receive only token support of the ‘AC’ and Board of Directors.

    Thus there may be blind trust in the audit of the Statutory External Auditors which in most cases is to comply with approved standards and mainly finance orientated.

    MY COMMENTS ARE BASED MORE ON COMPANIES INVOLVED IN ‘CONSTRUCTION-PROPERTY DEVELOPMENT’ CORE ACTIVITIES but may be applicable to other companies.

    Remember ‘AC’ and ‘BOD’ members are generally nominees of the substantial or controlling shareholders as in cases where there is a GOLDEN SHARE and most Internal Auditors are generally accounting/finance qualified and thus the audit may also be finance orientated.

    It may not be surprising that worldwide [including developed countries] most Companies-GLC-Agencies-Charities-Religious and other Trust Funds may be susceptible and some have been victims [as is evidenced on the internet and reported weekly by Transparency International and annual Fraud Survey Reports by ACFE-PwC-E&Y-KPMG-KROLL to name a few] to be RISKS ASSOCIATED with

    ‘MISMANAGEMENT-FRAUD-CORRUPTION-COLLUSION-CRONYISM-EMBEZZLEMENT-BRIBERY-KICKBACKS-NEPOTISM’

    and mainly involve WHITE COLLAR PROFESSIONALS who rarely get sentences compatible to he extent of the funds involved in ‘MFCCCEBKN’ cases even when they pay ‘negotiated’ amounts of fines which are agreed after ‘plea bargained’ without the offence being recorded and this enable them to continue their activities as usual.

  4. Here now (in Malaysia ) , it shows loss of RM203 million , ‘ there ‘ these clever crooks would have collected RM 2003 million UNDER COUNTER…..(they think we are fools ……)

    • They msy not think we are fools but may be convinced that we are fools as such cases have been ongoing for decades with little if any improvement and quantums have increased to current levels of hundreds of millions or even in billions and this is common in many countries.

  5. Just wondering, what was the total cost, ( if any ) in buying the whole Battersea power plant by the river Thames ? If so, how may Bs ….no, not bull-shit , but really , was it bought in entirety ? TQ

  6. Jibby is indebted to Isa for saving him when he was caught in the raw in PD many years back. If Jibby doesnt help Isa now Isa will spill the beans and Jibby will be a goner. Che Mah Chot will have Jibby’s pecker in a pickel jar or thrown to the dogs.
    _______________
    Orang Malaya,

    Najib was in bed with actress Ziana Zain. Mahathir had something to do with getting Najib out of trouble with the religious authorities. Isa was a minor official. Perhaps, Isa made the arrangements for the escapade and then informed the Jabatan Agama authorities who caught Najib with his pants down and his dig/pecker up. That shorty Iago like Isa is capable of anything. BTW, Tun Razak himself was of the same mould as his lecherous son. Recall Sarimah and Tengku Razali’s auntie.–Din Merican

  7. this same rascal shorty was in the grip of the Super Bumi, when he was running like the under-dog , of the great Entreprenuer , who controlled the State , like his own , and then scooted off to Ozi land with three hundred million – and , Tun M could do nothing to stop the escapade…..? –

    Super-rascals…..all alike …..

  8. ” nasib FGV akan di tentu hari ini…..” re TS Sharir Samad’s press release. –

    Najib lantik Idris Jala untuk menjadi ‘orang tengah ‘ dalam kemelut ini….

    mark the words ; ‘ orang tengah ‘ ie to mediate ….. (biasa lah ) . Smart PM , he usually does that, he will ALWAYS pick somebody MERELY ‘ to PROTECT HIMSELF ‘ , so we’ll be sure of the outcome…. ( all Super class ! ! ! )

  9. The findings of AOB as published in its Annual Report for 2016 include the many shortcomings in the quality of audit performed by some Statutory Auditors. Also relevant is the comments and sdvice of Chairman of AOB as published in the STARBIZ dated 5 or .6.7.17 if memory serves me right.

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