Sunday 3 June 2012

Felda Global's listing faced with extensive risks

While the prime minister may be upbeat that Felda Global Ventures Holdings Berhad (FGVH) to outperform Facebook, the company’s prospectus has nevertheless identified several underlying risk factors that might affect its share prices.

NONEThe 22-page examination of risk factors found in chapter five of the prospectus touches on wide-ranging issues such as the company’s over-dependence on foreign workers, a potential failure to maintain good employee relations and dependence on certain key personnel and skilled employees.

FGVH noted in its prospectus that like many Malaysian plantation companies, they rely to a significant extent on foreign labour, primarily from Indonesia, for the plantations’ operations.

“As of March 31, 2012, we have employed a total of 25,558 foreign estate workers, representing approximately 84.4 percent of our estate workers and approximately 73.1 percent of out total workforce,” wrote the prospectus on page 51.

It said as the standard of living in Malaysia improves over time, they found it increasingly difficult to hire Malaysian production workers, and this difficulty may increase in the future.

It pointed out that on average, FGVH needs to arrange visas for between 5,000 to 6,000 foreign workers annually

“If visa policies in Malaysia and Indonesia were to change in any way so as to make it more difficult for us to maintain a sufficient foreign labour workforce, our business, results of operations and financial condition would be materially and adversely affected,” it said.

Employee relations on balance

The prospectus unveiled on Friday also noted that the company cannot assure their relationship with the employees will always be on good terms.

NONEIt said as of March 31, approximately 40.7 percent of the total workfoce was unionised under six unions and subject to a collective employment agreement.

“We cannot assure you that we will be able to favourably negotiate the terms and conditions of any new labour agreements, and accordingly, strikes and disruptions to our operations may occur in the future due to this and other reasons,” it said on page 58.

It added that if FGVH is unable to maintain good employee relations or fails to negotiate a collective bargaining agreement, the business, financial conditions and results of operations may be “adversely affected”.

On the same page, it revealed that the corporation’s dependence on the continued contributions of key personnel and skilled employees also poses a risk.

Although the company said it intends to focus on succession planning issues to avoid affecting business should the key personnel leave, the experience and knowledge of key personnel, including directors and senior management may be difficult to replace.

No control over FHB

The prospectus also noted that the company’s profit before taxation is dependent on Felda Holdings Berhad’s (FHB) business.

NONE“Our share of results from FHB accounted for RM349.2 million, RM173.1 million and RM227.8 million of our pro forma profit before taxation in 2009, 2010 and 2011,” it said on page 66.

However, with only a 49 percent stake in the company, FGVH is not a majority shareholder and therefore has no control over major corporate matters in FHB.

It is therefore susceptible to risks facing FHB that are beyond its control, for example those pertaining to safety and environmental laws, various approvals and licenses and any litigation faced by FHB.

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