Listing of FGV- looking out for settlers interests.

I am more interested in establishing credibility in a proposition, idea or plan. Accordingly I am not fixated over an idea nor feel xenophobic on having to change my position if necessary, in the interest of achieving credibility. For example, while I am not immediately taken in by the idea of listing Felda Global, the rational economist in me accepts that it makes good business and economic sense to restructure Felda’s business to unlock value. I think, even while some of us differ in our views, this principle of restructuring, reorganizing, changing in order to arrive at better value, is acceptable. Also I am not averse to having experts run and operate the business. Example- KPF is the investment entity in Felda Holdings. The members of KPF get dividends, handouts, charity, assistance etc. they are able to enjoy because the commercial entity, Felda Global Ventures Sdn Bhd does the business for them. KPF’s and the interests of others- public spirited individuals, minders (paid or unpaid) are to ensure the managers of the business do their work efficiently and create shareholder value.

Except that, I will always be circumspect about the term ‘unlocking value’. Translate that into action and practice, what does the term mean? This term ‘unlocking value’ has taken different meanings in the context of business in Malaysia. It can mean anything. In the sad case of MAS for example, unlocking value has meant the sale of assets and the management of balance sheet bypassing managing the operations of the business.  The truth is, a business depends more on managing its operations.

My understanding in unlocking value is however somewhat more basic- it means you produce more per acre if you are in the business of planting something, you get better price, you produce better quality, produce new products, become more productive, keep costs down. It’s a bricks and mortar view of how an economic enterprise operates. You operate the real economy. Goods and services. It’s the business operations.

As an analyst or investor I will look at these variables and parameters. At the same time, I have this cynical bias- no business unit can sustain profit on paper shuffling and share manipulations without the support of the business fundamentals. I am always suspicious at the managing balance sheet approach. You want to arrive at a clean balance sheet; you manage the assets and liabilities. You are fixated at the over consuming idea of having more value at assets over liabilities.

In felda’s case that means to me, making sure plantations produce more and high quality yields, marketing, managing more efficiently and so forth. Creating prosperity through share manipulations, IPO and the stuff are initial spurts. What comes later- working on the fundamentals is what sustains long term benefits.

A close friend sent me a text. He says he doesn’t understand why I oppose the FELDA Global ventures (FGV) listing. Don’t I empathize with FELDA settlers? The indirect owners of the 880,000 hectares of palm oil trees are going to enjoy a windfall and you are objecting?  Settlers are passive investors through their cooperative. The business and commercial aspects of the business has always been handled by Felda Global Ventures SB. That is the organization that operates and manages the business. Doesn’t it make good business and economic sense to restructure the business into a single entity and create upstream and downstream business entities?

The most important element of this business in my mind is the land area. Now, these 880,000 hectares comprise of what? The land already owned by settlers or land not already owned by settlers or both? Since 1990, Felda doesn’t enlist settlers anymore. Land not already owned by settlers or were not given out were all placed under Felda Plantations. These are not operated by settlers. They are run directly by Felda through their plantation business units.

Now, that itself was a contentious position. Land was set aside by the various states to be given to settlers. Felda serves as the authority in selecting settlers in order to give individuals land to cultivate. That was the original intention of Tun Razak when he established Felda in 1956. Of course we are not going to be sticky about his original intention. He is dead anyway and his idea is opened to improvements and even revision. The infallibility and absolute completeness and un-changeability of an idea do not appeal to me and I believe that should apply to others too. There must be reasons for not giving out land to would be settlers.  I don’t think not doing so, renders the whole idea of Felda into total disrepute.

But it will be prudent to keep a look out where we can go wrong. A less than spirited board representation for example can put a damper on good business operations. Look at what happened to Sime Darby for example. Clearly on an overall basis, the board hasn’t played a good oversight and supervisory role. The business operations must be run by quality managers and staff. The organization needs to be nimble in spirit. Maybe the idea of concentration of authority and power needs to be relooked. Power and resources need to be dispersed in order to unlock value.

My other worry is this. After the IPO, FGV becomes a behemoth. It will be bigger than Sime Darby I think. Where lies the danger? The danger lies in it becoming a large bureaucratic held-back business organization.  It becomes a government unto itself. That may turn FGV into an unwieldy centrally planned business. This possibility is fraught with dangers. Central planning is not good for business. Concentration of power, monopoly and similar ideas are antagonistic to free enterprise, competition, acquisitive tendencies and this idea of limited interference. The age of big government or government knows best must be given its real meaning in practice. If FGV is to succeed, ideas supportive of power dispersion, free enterprise, competition will have to be enhanced not curtailed. We don’t need a commissar mentality to run FGV. We will talk about this at other times.