Published On: Wed, Apr 10th, 2019

Malaysia to provide $1.5 billion in aid to state palm oil firm Felda

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FILE PHOTO:  A woman walks past a logo of Felda in Kuala Lumpur
FILE PHOTO: A woman walks past a logo of Felda in Kuala Lumpur, Malaysia February 7, 2018. REUTERS/Lai Seng Sin/File Photo

April 10, 2019

KUALA LUMPUR (Reuters) – Malaysia will provide state-owned palm oil plantation agency Felda with financial aid of 6.23 billion ringgit ($1.52 billion) following a government inquiry into the company whose losses and debt have soared over the past decade.

The agency’s total liabilities had risen 12-fold over 10 years, from 1.2 billion ringgit in 2007 to 14.4 billion ringgit in 2017, according to a white paper released to parliament on Wednesday that cited poor management and low integrity.

The report was prepared by the Ministry of Economic Affairs after the government of Mahathir Mohamad, who came to power last year after defeating Malaysia’s longtime ruling coalition, had vowed to look into Felda’s financial troubles and alleged graft.

“The report found that operational mismanagement, failure of investment management and low levels of integrity are the main sources that caused Felda’s poor cash flow, and affected its developmental program,” it said.

Felda, or the Federal Land Development Authority, will also restructure and delay some repayments of its borrowings, said the report, which follows two years of management crises and allegations of corruption under the previous government.

The report said Felda would restructure the principal payment of its debts, as well as delay the repayment of its borrowings of 1.98 billion ringgit in 2019. The remainder of its 9.3 billion ringgit borrowings will be repaid from 2020 to 2028.

Felda’s chairman said last September it would sell assets, restructure loans and try to boost its cashflow in a bid to trim debts by nearly 20 percent from 8.03 billion ringgit ($1.93 billion) at mid-2018 to 6.5 billion ringgit by year-end.

Felda was created by Malaysia’s second prime minister in 1956, and aimed to resettle and employ the rural poor in the palm oil industry. It grew to become the world’s largest state-run palm oil agency.

Its problems, however, have frustrated Malaysia’s 650,000 palm oil farmers, also known as settlers, as they have racked up debt on low incomes. The settlers had been a key source of votes for the previous ruling coalition, which suffered a shock defeat in May last year.

The government said it has set aside about 2 billion ringgit to write off debt interest for settlers loans, among other measures to increase estate efficiencies and reduce operational costs.

(Reporting by Joseph Sipalan; writing by Emily Chow; editing by Richard Pullin)

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