Palm oil deal embroiled in Malaysian politics

The Malaysian opposition has attacked a state company’s investment in a palm oil project in Indonesia, saying it is a costly handout to a foreign businessman connected to Prime Minister Najib Razak.

Malaysia’s state-owned Federal Land Development Authority, known as Felda, plans to buy a 37 per cent stake in Eagle High, controlled by Indonesian conglomerate Rajawali Group, for $505m. The deal will be financed by the Malaysian government, Felda says.

Felda, which is the world’s biggest producer of crude palm oil by volume through its listed unit Felda Global Ventures, says the deal gives it access to a swath of new territory in a neighbouring country at a time when plantation land is growing scarce in Malaysia. 

The development of palm oil projects in Indonesia is controversial because land is often cleared for agriculture through burning, creating a choking, toxic haze that drifts across the region each year. Palm oil is a ubiquitous ingredient in products as varied as shampoo and fish fingers.

Malaysian opposition politicians claim the Eagle High deal is overpriced and have raised questions about ties between Mr Najib and Indonesian businessman Peter Sondakh, who heads Rajawali Group. 

Both men, who are friends, deny that their relationship is relevant and say the deal has a sound commercial basis. 

The deal could become a divisive political issue because of Felda’s central role in the economy of rural Malaysia — smallholders who sell their produce to Felda form a majority of voters in about 50 of the country’s 222 parliamentary constituencies. 

Tony Pua, an MP with the Democratic Action party, Malaysia’s main opposition, said: “Billions of ringgit meant for the interest of [a] rural smallholders’ plantation scheme are being used to acquire a foreign plantation company with known ties to Najib, at an extremely inflated price.” 

Malaysia’s premier has been buffeted by allegations of grand corruption linked to troubled state investment fund 1MDB. 

Mr Najib, who denies wrongdoing and appears politically unscathed by the controversy, is preparing to fight a general election in 2017, analysts believe. 

Felda’s expansion is also likely to prompt concern from environmental lobby groups. Eagle High has been criticised by Greenpeace over deforestation, while Felda has been investigated for alleged violations of labour rights on its plantations in Malaysia. 

Felda’s listed unit planned to buy 37 per cent of Eagle High for $680m last year, but that transaction was derailed after a major institutional investor raised concerns about the price. 

Felda was established in 1956 by Abdul Razak, father of the current prime minister, to alleviate rural poverty. 

Settlers were given small parcels of land for plantations. The smallholders work closely with Felda, which buys and processes the oil palm fruit they harvest. 

Nazir Razak, brother of Mr Najib and a prominent Malaysian banker, is among those who have questioned the Indonesian deal.

In an Instagram post illustrated with a picture of his father, Mr Nazir wrote: “A 173 per cent premium for a non-control stake. I hope the board will fully justify the acquisition and valuation.” 

Muzzammil Mohd Nor, Felda’s deputy director-general, said in a statement that the Indonesian deal would benefit Malaysian smallholders, as greater size would give the producer more say over crude palm oil prices. Eagle High’s share price might not reflect its true valuation, Mr Muzzammil said, arguing that the Indonesian land had “scarcity value”. 

“No other plantation of this large size is available for sale, especially at this valuation,” he said.

Earlier this year, a Malaysian government spokesman told the FT that there was no link between the Malaysian premier and the proposed Felda deal. The spokesman said: “Felda’s management independently evaluated this business proposition and any decision will be in the interests of Felda.”

Eagle High did not immediately respond to a request for comment.