Felda to dispose its stake in Eagle High Plantations?

A palm oil mill operated by Eagle High Plantations in Indonesia.

By ZAIDI ISHAM ISMAIL
editor@dagangnews.com

BACK in 2016, Felda was embroiled in a controversial deal when it bought a 37 percent stake in Indonesia's PT Eagle High Plantations.

The venture set tongues wagging because it was seen as non-viable and lacked clarity and transparency.

Industry analysts opined that the purchase was too pricey at more than 90 percent premium.

The foray was also seen to be more of a political decision rather than a business decision as former prime minister Datuk Seri Najib Razak was involved.

Eagle High meanwhile is owned by the Rajawali Group which was founded by Peter Sondakh, a close friend of Najib.

Felda or the Federal Land Development Authority bought the 37 percent stake at a hefty US$500 million which was too much for a mature oil palm plantation.

Analysts at the time described the deal at US$500 million as too excessive and rumours spread that it was marked up.

To retain or let it go

And now after five years, Felda has the option to sell the stake via a corporate exercise called a put option.

It is understood thst Felda last week mulled its options to exercise the put option as it has been 5 years since it bought the stake.

"I think it is only right for Felda to get back its money because it bought Eagle at a way too much prenium.

''Furthermore, PT Eagle has not been giving good returns to Felda as the oil palm trees are aging, spread out over hilly terrain making harvest axtivities difficult exacerbatèd by poor yield," an analyst told DagangNews.com.

The analyst said the deal was opposed by all analysts at the time as it was deemed too expensive.

But it went ahead due to political pressure.

"Felda needs the put option to go through as it is dire straits right now," a Maybank Securities analyst told DagangNews.com.

See too much red

At its height, Felda was able to chalk RM2 billion to RM3 billion revenue a year.

But now, Felda is swimming in red ink and profitability is not going to be so soon despite a recovery in crude palm oil prices.

"Felda needs the money at a time when it is also privatising its commercial arm FGV Holdings Bhd.

So it just makes sense for Felda to carry out the put option and exit Indonesia," said the analyst.

Whichever way, Felda has a lot of thinking to do.

It must lay out all of its cards on the table and make the best decision - for country, company and its long suffering oil palm smallholders. - DagangNews.com