KUALA LUMPUR – Expectations ran high when Zakaria Arshad was appointed president of Felda Global Ventures Holdings, or FGV, a year ago. Net profit at the state-backed plantation operator had slid from 981 million ringgit ($228 million) in 2013 to 117 million ringgit in 2015, largely due to lower crude palm oil prices.
FGV is 34% owned by Malaysia’s Federal Land Development Authority, which was set up before independence to distribute agricultural land to ethnic Malays under a poverty elimination program. Around 112,000 FELDA settlers nationwide continue to benefit from state handouts in the form of subsidized fertilizer and low-interest loans. That has helped ensure the ruling party’s control in rural constituencies.
Arshad, the son of a settler, was tasked with cutting costs and transforming FGV into a top-10 global agribusiness by 2020. Rising through the ranks to the top post, Arshad partly succeeded in trimming costs and improving yields, as reflected in FGV’s first-quarter earnings this year, according to CIMB Investment Bank in a recent research note.
Yet, along with three other top executives, he was suspended indefinitely on June 6 pending an internal probe over alleged mismanagement. Mudslinging followed, with Arshad accusing FGV’s board, led by then-Chairman Isa Samad, of creating the malaise that he said predated his appointment as president.
Prime Minister Najib Razak’s office reacted swiftly to the boardroom tussle, appointing a former minister known for turning around ailing state-owned companies a day after Arshad’s suspension to quell the unrest. The country’s anti-graft agency also stepped in to investigate Arshad for alleged misconduct. Adding to the confusion, Najib moved Samad out of FGV, appointing him acting chairman of the Land Public Transport Commission.
The appointment is seen as a step up for Samad. The commission’s job is to enforce land transport regulations. The transfer went ahead despite the ongoing corruption and abuse of power probe of Samad and his wife.
The turmoil at FGV comes at a time when public sentiment toward state-backed companies is at a low ebb, particularly due to the bailout of loss-making Malaysia Airlines in 2014, mismanagement at sovereign wealth fund 1Malaysia Development Berhad and, more recently, at Proton Holdings, the automaker partly acquired by China’s Zhejiang Geely Holding Group.
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Malaysia is expected to hold a general election in less than a year and the government does not want problems at FGV to spiral out of control.
Najib’s intervention is also seen as way to keep a lid on discontent among settlers who have seen their income shrink due to weak palm oil prices. Some who own shares in FGV have also been hurt by the sharp drop in share prices. The company’s stock has fallen by two-thirds since it was listed in June 2012. Malaysian James Chin, a professor at the University of Tasmania, in Australia, said Najib is worried about FGV becoming a political scandal before the election because about a quarter of all constituencies are in or near FELDA settlements.
Public support for the government’s handling of the economy was at 24% in March, an improvement over the 17% recorded a year earlier, according to a poll conducted by the Merdeka Center for Opinion Research. Even so, the pollster said the result showed clearly that many Malaysians are not satisfied with the state of the economy, especially because the weaker ringgit that has eroded their savings.
S&P Global Ratings said on June 22 that the political challenges stemming from the corruption allegations at 1MDB could pose problems for Malaysia’s sovereign rating over the near to medium term.
However, pundits are still predicting a win for the ruling party, partly because the opposition coalition remains fragmented. For Najib, whose image has been tarnished by the scandal at 1MDB, the margin of victory must be large to be taken as a sign of a new popular mandate. If not, he risks being booted out by his own party.