Higher income: A Felda estate.The termination of the LLA is a move by Felda to increase its earnings from plantation lands.
PETALING JAYA: FGV Holdings Bhd is expecting a compensation of between RM3.5bil and RM4.3bil from the termination of the land lease agreement (LLA) for 350,733ha of estates owned by the Federal Land Development Authority (Felda).
The compensation amount is based on an internal assessment, which will vary depending on FGV’s financial performance for 2020 and 2021, in addition to other various factors.
In a statement yesterday, FGV said it had yet to receive a written notice from Felda regarding the termination of the LLA.
“Once FGV receives an official notice from Felda as required under the LLA, FGV will follow the procedures outlined in the LLA to start the process of termination and determine the compensation due to FGV, which will take 18 months to complete, ” it said.
The Felda-owned estates were leased to FGV for 99 years, beginning Nov 1,2011.
The termination of the LLA is a move by Felda to increase its earnings from plantation lands.
Under the LLA terms, FGV is to pay Felda RM248mil (based on the hectarage) plus 15% of the operating profit from the LLA land on an annual basis.
From 2012 until 2019, FGV paid Felda a cumulative sum of RM1.96bil in fixed lease payments due to adjustments in hectarage leased, while the profit shared with Felda amounted to a total of RM476.2mil.
FGV noted that its plantation supply chain remains intact, as the estates under the LLA make up only 30% of the fresh fruit bunches (FFB) processed at FGV’s 68 palm oil mills.
“Due to the proximity of the palm oil mill to the LLA estates, we do not foresee any changes to the current FFB supply arrangement.
“The rest of FGV’s plantation integrated value chain in the midstream and downstream businesses will remain uninterrupted by the LLA termination exercise, ” said FGV.
In addition, FGV said its businesses and operations are prepared for the eventuality of the LLA termination.
As such, FGV’s overall long-term strategy to further grow and strengthen its high value-add business activities, focusing on food and branded consumer products, remain intact and will potentially be expedited to provide higher returns to shareholders as the result of the LLA termination.
On Wednesday, the Cabinet approved the proposal to terminate Felda’s LLA with FGV as well as the issuance of a RM9.9bil sukuk by Felda.
In a statement by the Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed, the other proposals to ensure Felda’s recovery also included debt restructuring with financial institutions and increasing the self-reliance of settlers.
The proposals, which are expected to turn Felda’s cash flow positive, were recommended based on the findings of a special task force led by Tan Sri Abdul Wahid Omar tabled during a Cabinet meeting on Oct 14.
As at Aug 28,2020, Felda’s shareholdings in FGV was 21.24% while Felda Asset Holdings Company Sdn Bhd (FAHC) had an equity of 12.42%.