Felda faces dip in profits due to old palm trees
KUALA LUMPUR, May 15 - Aging palm oil plantations will affect Felda's future profitability as it will lead to a lower yield, the Wall Street Journal reported today.
Putrajaya is currently forging ahead with Felda's controversial planned public listing despite criticism from some settlers and the opposition who claim that it will shortchange some 112,000 Felda settlers nationwide.
The influential business daily quoted Alvin Tai, an analyst at brokerage firm OSK as saying that the average age of Felda's plantations is 20 to 25 years, a factor which could affect the federal land authority's profitability in the long run.
“There is a concern that this will be a drag on profitability,” Tai told WSJ.
The WSJ also said a research note on palm-oil stocks published last month by Citigroup showed that Singapore-listed companies Golden Agri-Resources and Indofood Agri Resources Ltd. have a more “favourable” average plantation profile of 12 years.
The government plans to list Felda Global Ventures Holding's (FGVH) plantation assets in a US$3 billion initial public offering (IPO), a plan Prime Minister Datuk Seri Najib Razak has said will turn Felda into a "global conglomerate."
Tai stressed, however, that “the government will not allow this IPO to fail” by likely receiving support from government-backed funds.
The newspaper added that Indonesian palm-oil producer Bumitama Agri Ltd., which was listed in Singapore in April, has soared since its debut as its young-plantation profile attracted investors.
Felda Global Ventures Holding's (FGVH) planned initial public offering is set to become the world's second-largest this year and the third-largest on record for Malaysia.
The listing, to be held by June, comes as global demand grows rapidly for palm oil, an edible oil mainly used in cooking but also an ingredient in soaps and cosmetics.
Bankers are informally sounding out potential investors about their interest in the offering before a price range for the share sale is set.
Prime Minister Najib has assured Felda settlers that the listing would yield profits, and has announced a RM1.69 billion windfall for all settlers and staff throughout the country, ahead of the FGVH listing.
Najib said last week that all Felda settlers would receive a windfall of RM15,000 each through three different phases - RM5,000 for settlers (phase 1), RM5,000 for their wives (phase 2), and RM5,000 for the second-generation settlers (phase 3).
"These (payments) come from FELDA's own strength. We do not utilise government funds," he had said.
The listing of the plantation giant was promised by Najib to be a “windfall” for Felda settlers, a traditional vote bank for Umno.
It is seen as important to ensuring continued support from the settlers in the upcoming general election which widely expected to be held by July.
FGVH is a 100 per cent subsidiary of Felda, a statutory body under the Prime Minister’s Department.
