Fresh allegations within Felda Global Ventures Holding Bhd pose a big blow to public trust in the Najib administration
By Jane Tay, edited by Anne Hwarng
The unfolding of the dispute
Felda Global Ventures Holding Bhd (FGV), whose biggest shareholder is state-owned Federal Land Development Authority (Felda), has recently come under the spotlight as allegations of graft and possible abuse of power arise. The FGV board has divulged that a deal with Dubai-based palm oil buyer Safitex is at the core of the company’s internal investigation into the alleged mismanagement. This suspected mismanagement has resulted in the suspension of the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and two other executives by the board.
In a statement, the FGV board said Safitex’s debt to an FGV unit, Delima Oil Products, had ballooned from US$8.3 million (RM35.5 million) at the end of 2015 to about US$11.7 million (RM49.92 million) as of 2016. This exceeds the allocated credit limit per PricewaterhouseCoopers’ (PwC) statutory financial audit for FY16. After receiving the PwC report, internal auditors were authorised by the board to probe the matter and they “detected potential contraventions of group policies”.
CEO Zakaria Arshad has denied wrongdoing and refused to step down as instructed by then Chairman Mohd Isa Abdul Samad, who is the former chief minister of Negeri Sembilan state and a former vice-president of Malaysia’s ruling party, the United Malays National Organisation (UMNO).
Zakaria has called on the Malaysian Anti-Corruption Commission (MACC) to conduct its own investigation into the matter on top of FGV’s internal probe and they have since visited FGV’s offices in Kuala Lumpur “to collect supporting documents” and called Isa in for questioning.
The allegation of corruption has had a negative impact on FGV, with brokerage CIMB downgrading FGV to a “reduce” rating from “hold”, saying the suspension of the CEO and CFO for an indefinite period of time will give rise to uncertainties about its direction.
Malaysian Prime Minister Najib Razak has since stepped into this publicised boardroom spat. He has appointed Idris Jala as an independent third party “to establish the facts of the case” regarding the suspension of FGV’s top executives and “recommend the way forward”, according to a statement from the PM’s office.
The Pemandu Associates President and CEO who also served as a minister in the PM’s department is known as a turnaround specialist in Malaysia, having acted as CEO of Malaysia Airlines in 2006 and returning the national carrier to profitability.
In an unpopular move, Najib has also appointed Isa as acting chairman of the Land Public Transport Commission (SPAD) following his resignation as chairman of FGV. This appointment has been subject to criticism, with the Democratic Action Party (DAP) of Malaysia issuing a statement questioning Isa’s competence, experience and integrity.
Implications for Najib and the Barisan Nasional
With Malaysia expecting to hold a general election within the next year, the resolution of this public spat is critical for both Najib and Felda. Politicians and analysts have indicated that the call for elections may even come as soon as by the end of 2017, as Najib seeks to capitalise on a disorganised opposition and expectations that economic growth may slow in 2018.
Felda “settlers”, or land owners, are the majority voters in at least 54 of the 222 seats in the parliament and form a key vote bank for Najib’s ruling alliance in battleground states. The Barisan Nasional (BN) coalition had won all but six of those seats in the 2013 election. According to Oh Ei Sun, principal adviser to the Pacific Research Centre in Malaysia, Felda settlers – together with districts in the east dominated by ethnic Malays – will determine the outcome of the election.
The latest FGV scandal is but another issue further fueling the existing discontent surrounding Felda. The settlers, the bulk of whom hold shares at FGV, are already upset by a long decline in share value, with the stock 62 percent below its listing price in 2012. As at December 31, 2016, FGV recorded a profit after tax and minority interests (Patami) of RM31.5 million, which was a far cry from the Patami of RM982.3 million in 2012.
Complaints about late assistance payments from Felda have added to the settlers’ distrust of the government. Felda often issues loans as a monthly allowance until land bears fruit, which could take years, raising the risk of settlers falling into debts they are unable to handle.
Najib told a gathering of settlers last September that the government was working on ways to improve the system, but according to Shahaniza Shamsuddin, a lawmaker with Najib’s UMNO, “that matter hasn’t fully died down yet”.
Najib has since taken remedial action to rally his support base within Felda settlers. According to the official Bernama news agency, Najib has announced an RM500 (US$117) payment to Felda families to help them celebrate the festival for the end of Ramadan. FGV will also pay an RM280 dividend to the almost 95,000 settlers who hold shares.
While some settlers have started to lose faith in BN and the Najib administration, BN still has a clear advantage, according to Ibrahim Suffian, executive director at the Merdeka Center for Opinion Research. He expressed that despite the opposition’s increased visits to settler communities, the chances of winning them over are limited as “the opposition currently lacks convincing leadership or clarity of message”.
Lawmaker Shahaniza has also weighed in on the issue, voicing that her constituents still thought BN could help address Felda’s issues. She remains optimistic, saying that with the MACC getting involved, “we’re hoping a solution is in sight for FGV’s problems”. It remains to be seen if the reputation of Najib and his team can be sufficiently repaired with the MACC’s handling of the scandal, and whether this can be achieved in time for the pending elections.