Felda Global's IPO: Could be worse than Facebook?

Malaysian oil palm plantation company Felda Global Ventures Holdings (FGVH) aims to raise RM 9.95 billion (€ 2.5 billion) by its listing on June 28, making it the world’s second largest IPO this year after Facebook. But a closer look at the company raises concerns over another listing debacle, which may turn out worse than Facebook’s IPO. Investors should be cautious as an accumulation of environmental, social and governance risks will result in serious financial risks.

Set up in 2007 as the overseas branch of the Federal Land Development Authority (FELDA), FGVH now is the third largest listed oil palm oil company globally. By taking control of its parent’s landbank, it has a total of 424,995 ha of land in Malaysia and Indonesia under management. In addition, the company is the largest crude palm oil (CPO) trader globally, as it also sells most of the CPO produced by 113,000 Malaysian settlers on another 522,000 ha. FGVH also is the leading refined sugar producer in Malaysia and has interests in downstream processing in various countries around the world.

Despite these impressive figures, investors buying FGVH shares will face significant environmental, social and governance risks, which are likely to create financial risks. Tension between the company’s ambitions and the Malaysian rural poor is rising because of alleged systemic undervaluation of oil palm fruits and the use of power politics to grab their land. The settlers owned 51% of a company which managed FELDA’s land, but FELDA signed a new lease contract with FGVH. While social unrest would cripple part of its operations, the prospectus does not disclose how the government assures that the settlers’ cooperative is going to be involved in the future of the company.

The company does not demonstrate a strong sustainability record, with only 3% of its landbank RSPO certified. 50% of IPO proceeds will be used to develop plantations in vulnerable areas in Africa, Indonesia and elsewhere. The company’s expansion plans are likely to trigger NGO protests and conflicts with local communities.

Malaysia’s ruling political party, UMNO, controls the company management and lines up state-controlled investors to inflate share demand. Share prices can be expected to drop when this artificial demand dries up. Opposition parties favour redistributing FGVH’s landbank under the rural poor. With elections upcoming, changes in the political landscape may affect FGVH’s access to land and income streams.

Furthermore the suggested profitability of FGVH has to be questioned as palm fruit yields on FGVH plantations are below average and half of the plantations are in need of replanting. The planned replanting is too low, which means that either productivity will drop or more investments in replanting are needed. Both will influence the company’s bottom line.

After Facebook’s IPO in May, many investors complained that the underwriting syndicate (including Morgan Stanley and JP Morgan) had not revealed all relevant facts. The same two banks, together with Deutsche Bank, are involved in FGVH’s underwriting syndicate. And this prospectus also fails to provide some facts: details are missing on the environmental, social and governance risks of an investment in FGVH, including their possible financial implications.

Meanwhile, the IPO itself is likely to create new risks, as there is widespread fear that the government’s proceeds of the IPO (€ 1.4 billion) will be used by UMNO to buy a favourable result in the upcoming general elections, further undermining Malaysia’s fragile democracy. For investors who expect sustainable returns on the short and middle term, FGVH’s IPO could become more disappointing than Facebook’s. 

Lawas police and government found liable for false imprisonment and assault

Limbang, June 23, 2012: Three men, including two students, have succeeded in a suit against the Police and the government of Malaysia for assault and false imprisonment.

The case arose from a futsal match between the Police team and the Bada Buda Team from a local school, during which a disagreement occurred.

The second defendant, (a police officer L/P Jamel Fernandez Mohamad) ran onto the field and assaulted one of the players.

The first plaintiff, Umar Selutan, stopped the assault and the game was aborted.

The following day, the Umar was called to the Lawas police station to explain the incident, but was accused of starting the fight and put in lock-up without being told of the reasons for his detention.

He was released after 55 hours in detention without any charge being proffered against him.

The second and third plaintiffs (Awangku and Steven) and another player were picked up from their school by police officers the day after the match and taken to the police station, where they were accused of assaulting the police team.

L/P Jamel and the first defendant Inspector Khairul Anuar bin Omar then assaulted Awangku in the office of another officer.

The two schoolboys were put in lock-up and were released 28.5 hours later without any charges being proffered against them. 

Awangku only received medical treatment for the injuries sustained from the assault after he was released from lock-up.

All three plaintiffs were not given the opportunity to consult a lawyer at any time.

The plaintiffs claimed that the defendants had violated their duty to uphold the peace but instead had assaulted Awangku.

They further claimed that they had been humiliated and treated like criminals, and as a result, suffered trauma and shame and/or damage and/or injuries as a result of their illegal arrest and false imprisonment.

The High Court in Limbang allowed the claims of the plaintiffs for damages and costs against Inspector Khairul, L/P Jamel and the Government of Malaysia.

The defendants were ordered to pay RM10,000 as damages to each plaintiff and RM5,000 as costs for causing injuries to the second defendant while in police detention.

"We are thankful that justice has prevailed for the plaintiffs in this case, who were innocent (and young, in the case of two) victims made to suffer at the hands of the very people paid by taxpayers to protect them.  

"We hope that court’s ruling will serve to remind those in authority not to abuse their positions of trust," their counsel Baru Bian,who is also State PKR chairman and State Assemblyman for Ba'Kelalan, said in a statement. By Sematong Express