Serdang MP Ong Kian Ming wants to know whether Felda Global Ventures (FGV) is buying into a high-risk asset in Indonesia, PT Eagle High Plantations.

He said Eagle High, formerly known as BW Plantations, does indeed have a large landbank of 419,000ha where its 147,000ha of planted palm oil makes it the third largest palm oil company listed on the Indonesian stock exchange.

"But what FGV has not come out to say thus far is the potential challenges and cost associated with developing this large unplanted landbank," Ong ( photo ) said in a statement today.

It was announced that FGV plans to buy 37 percent of Eagle High from the Rajawali Group, paying cash for 30 percent and issuing shares to buy the other 7 percent.

It also plans to buy 95 percent of a sugar project from Rajawali for around US$67 million (RM251 million).

The Eagle High deal would combine FGV’s downstream capabilities with Eagle High’s land bank and reduce operating costs, the two companies said in a joint presentation on Friday.

On Monday, shares of FGV fell to a record low , after analysts said its plan to buy a stake in Eagle High was expensive.

Permits are not yet secured

Ong said a report that was published on the Nov 20, 2014 by Chain Reaction Research (CCR), a Washington DC-based environmental risk analysis research outfit, said the reverse takeover of BW Plantation by the Rajawali was classified as a high-risk venture.

One of the risks cited is that for 70 percent of its landbank, permits are not yet secured to start oil palm planting and it is far from certain that they will be.

As shown in Table 1 below, 65 percent of Eagle High’s landbank (formerly BW Plantation) are unplanted and most of this is from another company - Green Eagle - plus additional Rajawali landbank that was injected into BW Plantation as part of Rajawali’s reverse takeover exercise conducted in November 2014.

Ong said location permits have a legal expiration date, and often these permits are not converted into real plantation development rights.

Unlike many similar reports, he added that BW Plantation’s prospectus does not provide details on the prospects of the unplanted landbank actually being developed.

"Even though Eagle High has a large landbank, the licenses to develop the unplanted landbank have not all been approved and Eagle High may not be able to find enough customers if its planting policies in these areas are not in accordance to recognised standards of sustainability," Ong said.

He added that the CCR report is further proof that FGV is overpaying for its 37 percent stake in Eagle High and that FGV’s shareholders – the FELDA settlers and the general public – will end up paying for the mistakes of FGV’s management and board of directors.