PETALING JAYA: The Federal Land Development Authority (Felda), the authority that is saddled with debts of RM8.05bil, is expected to see its cash balance drop to about RM100mil by year-end, hampering efforts for external funding, according to sources.

Although Felda is implicitly owned by the government, it is learnt that financial institutions are not prepared to extend loans or carry out long-term bond programmes unless there is a government guarantee because of its weak finances.

Before the May 9 general election, Felda was to issue bonds to the tune of RM6bil to help it carry out its programmes while an exercise to rationalise and divest its assets was completed.

The funding was to help it tide over until the performance of its associate company, FGV Holdings Bhd , improved.

Post-FGV listing, the arrangement was for Felda to get RM250mil as lease payments and 15% of the operating profit.

With the crude palm oil (CPO) price at RM2,200 per tonne, the portion of operating profit is less than RM400mil.

For Felda to have a sustainable cash flow model, it would need CPO prices to be about RM3,000 per tonne, where its portion of the operating profit is estimated at RM800mil.

Together with a land lease payment of RM250mil and dividends from its stake in FGV, Felda would be able to get more than RM1.1bil.

“However, the CPO price is low and this is beyond the control of FGV or Felda.

“FGV’s plan to improve the plantations is only expected to bear fruit in 2022. Until then, Felda needs an external cash infusion, which is why the bond issue was proposed,” said a source.

The other alternative is for Felda to take back all its assets from FGV, or the government to take over all its social obligations towards the 112,000 settlers.

The rationale is that Felda can improve its financial position if it manages the 355,864ha under FGV currently.

“The alternatives cannot be done immediately. FGV has other shareholders to contend with and any exercise would incur a lot of money.

“As for the government, it cannot take over the social obligations because its finances are already strained,” said the source.

Felda has a new chairman in Tan Sri Megat Zaharuddin Megat Mohd Nor, whose immediate task is to see to it that Felda’s finances improve.

It has been reported that Felda’s debt is expected to be reduced to RM6bil from RM8.05bil from the proceeds of the sale of assets by the end of this year – something that could help its case for more borrowings from banks.

“Recommendations on the solutions to Felda’s cash crisis will be out together with the White Paper on Felda,” said a source.

Felda’s cash position of RM100mil is a far cry from the RM2.1bil it was sitting on as of end-2011 after the listing of FGV. Felda received RM5.5bil, of which RM1.7bil was given to settlers in the form of a durian runtuh (windfall) and loans of RM400mil given to them to extend their homes.

Only 25% of the proceeds of the listing was used for reinvestment purposes. Among the assets it purchased were a serviced apartment block in London, a hotel in Sabah, a stake in Iris Corp Bhd and a piece of land in Bukit Katil, Malacca.

The assets were not yielding as much as desired, and on top of that, several other initiatives such as Felda Wellness Corp Sdn Bhd lost money.

Economic Affairs Minister Datuk Seri Azmin Ali is expected to table the White Paper on Felda towards the end of the current Parliament sitting.

According to sources, Felda also needs fresh money to help service debts taken to purchase assets such as PT Eagle High Plantations Tbk in Indonesia from the Rajawali Group. Apart from that, it also has to extend loans to settlers.

Felda has always acted as the “lender” of first resort to settlers for all their needs from loans to extend their homes to replanting activities. There are some 80,000 settlers who owe Felda more than RM60,000 each and they depend on financial assistance, as the current price of palm oil is too low.

Sources said CPO prices needed to be closer to RM3,000 per tonne before the settlers could start paying back the amounts due.

“At current levels, the money is hardly enough for them to take back even RM1,000 per month because productivity is low and cost remains high,” said a source.