LETTER | The government’s decision to terminate the Land Lease Agreement (LLA) between Felda and FGV Holdings Berhad needs to be thoroughly examined and re-evaluated before it is allowed to proceed any further. 

The decision, which received cabinet approval on Wednesday, requires a more in-depth cost-benefit study to be conducted, in particular for its potential effect on the Malaysian market and future of the settlers.

Prematurely ending the 99-year LLA – in this case after just eight years – gives investors the wrong impression, suggesting a lack of certainty in commercial contracts agreed to with the government and denting an already fragile confidence in Malaysian markets.

The LLA’s termination will raise more questions than answers, particularly of FGV’s future and its listed status. What will constitute its core business, now that up to 70 percent of its operational land bank will be taken back? Will FGV remain in the plantation sector, or will it divest or even seek to be delisted? What would be the financial impact of the latter if it were to come to fruition?

Questions are no less forthcoming on Felda’s side of the deal, given the substantial financial impact on its balance sheets. To date, Felda already carries RM10.6 billion in debt; how will the additional burden of compensating FGV hold? What will become of Felda’s 33.66 percent stake in FGV? Will it continue to hold the shares or let them go, given that FGV will now no longer have a core business.

Given the uncertainties and many questions that remain unanswered, the LLA’s termination might not be the best way forward. Alternatives such as a renegotiation of terms or a robust restructuring of the investment structure or financial model must be considered. 

Key points to note will be the lease rates, profit sharing arrangements and other incentives that can balance out each party’s profitability.

It is imperative to note that FGV remains fully capable of becoming a long-standing and sustainable investment platform for settlers and their cooperative the Koperasi Permodalan Felda Malaysia Berhad (KPF). It is crucial that due consideration be given not just in terms of investment profitability but the greater good of Felda and its community of settlers.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.