Justify Felda’s overpriced London hotel foray, Guan Eng tells Putrajaya

KUALA LUMPUR, Oct 23 — Lim Guan Eng demanded answers from Putrajaya today on how it plans to turn Felda’s RM500 million London hotel foray into a lucrative investment, citing information that the land authority had overpaid for the property by RM100 million.

Citing a media report today, the DAP secretary-general noted that real-estate agents Savills and Knight Frank had valued the 198-unit Grand Plaza service apartments in Bayswater, London, at only £80 million (RM408 million), when Felda had paid the inflated price of £97.9 million (RM495 million).

“In other words Felda overpaid by nearly RM100 million!” Lim said in a statement here.

“This has raised fears that any economic downturn would cause state-linked Malaysian firms buying up London properties at inflated prices to lose tens of millions of pounds in public funds,” he added.

Adding salt to wound, the Bagan MP pointed out that Felda, with its core business in commodity plantation, has neither prior expertise nor intimate knowledge in the business of running hotels.

To date, he added, both Felda and the federal government had purportedly refused to explain how Felda hopes to turn in a profit over and above the cost of its RM500 million London hotel investments.

“When I raised this in Parliament on Monday, the government refused to reply how Felda can earn a high enough rate of return to recoup their investment, beyond saying that the market value of the London hotel has now increased to 115 million pounds from the 98 million pounds initial investment,” he said.

“Again there was no proof that the market value of the London hotel has increased to 115 million pounds,” Lim added.

In Parliament on Monday, Deputy Minister in the Prime Minister’s Department Datuk Razali Ibrahim had insisted that Felda’s RM500 million investment would bring yield, although he could not give an estimated figure.

“The cost to buy the hotel or serviced apartments was £98 million but valuation on paper is £115 million and according to our research, that place can bring in profit because it has an occupancy rate of 90 percent every month.

“The investment is an opportunity for the subsidiary company, but I can’t answer if the investment can bring profit or if the capex will be enough,” the Muar MP said.

Residential Land sold the freehold of Grand Plaza Serviced Apartments for £98 million (RM500 million) to FIC UK Properties, a subsidiary of Felda Investment Corporation (FIC) Sdn Bhd in early September 2013.

The serviced apartment is one of the biggest in London, has 198 apartments across 13 period stucco-fronted buildings over 105,044 square feet, near the Bayswater Subway station.

Razali said that it is important to not “put everything in one basket”, in justifying the Felda’s move to invest in non-agricultural sectors. Felda now owns nine hotels in total.

Citing his experience when Pakatan Rakyat (PR) took on administration of the Penang government after the 2008 polls, Lim noted today that the pact had been shocked to discover that the state government and its many subsidiaries had been involved in non-core activities where it had zero expertise like operating oil palms, rubber plantations, rearing fish farms, running hotels, educational colleges and even a golf course.

All these “ill-considered ventures”, he said, were chalking up major losses.

But through a policy of divestment and outsourcing through open, competitive tenders, Lim said these heavy annual operating losses were later turned into yearly profits instead.

Unlike Felda’s London foray, however, Lim said these ventures had not involved capital expenditure, thus enabling the losses to be turned into profits quickly.

“With the RM500 million capex by Felda, it is unlikely that even if Felda make profits, the profits will justify the cost of investment.

“For this reason, Barisan Nasional (BN) leaders should not treat public monies as their private holdings but justify in the interests of accountability and transparency, the financial benefits of investing in non-core businesses to the people,” he said.

Last month, Lim had asked Felda chairman Tan Sri Isa Abdul Samad to own up to the “real reasons” behind Felda’s decision to invest some RM700 million in the hospitality and information technology sectors.

Chided by Isa for being a busybody, the opposition lawmaker retorted that the Felda chairman owed an explanation to the one million-plus Felda settlers the reason for the land authority’s decision to spend nearly RM600 million to buy two hotels and a further RM110 million to acquire a 25 per cent stake in public-listed Iris Corp instead of parking their money in a field related to agriculture, its core business.

Isa had also recently denied reports that the Malaysian Anti-Corruption Commission (MACC) is investigating the purchase, as reported by the news portal The Malaysian Insider.

There are seven subsidiaries under Felda, three of which are not involved in its core business.

They are Felda Global Ventures Middle East Sdn Bhd, Grand Borneo Hotel Sdn Dhd, and its investment arm, FIC, he said.

“All the investments by the subsidiaries are being monitored closely,” the Umno Youth vice-chief said.