24/02/2012 (Observer), Kuala Lumpur — Malaysia could delay a $2 billion listing of a state-linked palm oil firm as farmers’ opposition to the deal risks undermining the ruling coalition in fiercely contested national polls expected this year.

The listing of FELDA Global Ventures (FGVH), originally set for mid-2012, aimed to give Malaysia’s $27 billion palm oil sector much-needed financial firepower to boost yields and expand when top producer Indonesia is gaining market share.

But the initial public offering has triggered unexpectedly strong resistance from some of the 113,000 farmers who together own 60 per cent of the land given to them by FGVH’s parent, the Federal Land Development Authority (FELDA).

Although the listing would bring each family a one-time windfall, opponents say it would deprive them of financial control of an asset they have held for generations.

Pressing on with the IPO without addressing these concerns would be risky for Prime Minister Najib Razak, who calls the farmers his “safe deposit” in the fight to win elections that must be called by April 2013, but are expected this year.

Najib is fighting to reverse a dismal election showing by his ruling coalition in 2008, when the opposition made historic inroads in parliament.

“The prime minister is concerned about this. He wants the listing to happen but he may take a step back to ensure the settlers are satisfied,” said a senior government official with direct knowledge of the listing plans.

“The process needs to take time. In the worst case scenario, Najib will push the IPO after the elections,” said the official, who declined to be identified.

The farmers, or FELDA settlers, as they are known, number about 1.6 million, including their extended families. They form the bulk of the voters in 54 of Malaysia’s 222 parliamentary seats and are mostly ethnic Malay, the core support base of the ruling Barisan Nasional coalition.

The opposition has backed the farmers over the deal as it seeks to push its way into the traditional rural strongholds of Najib’s United Malays National Organisation (UMNO).

Najib’s father, former prime minister Abdul Razak, started FELDA in the 1950s, handing out land to Malays to fight poverty. The farms expanded to 880,000 hectares (or 2.2 million acres), making for the world’s biggest plantation scheme, with FELDA owning about 40 per cent of the land bank.

The farmers and FELDA played a crucial role in making Malaysia the world’s second-largest palm oil producer.

“There is now the potential for widespread dissatisfaction over the listing, with the younger generation of settlers questioning the economic benefits,” said Ibrahim Suffian, director of Merdeka Centre, an independent polling group.

“It is a generational gap.”

The listing plan envisages FGVH taking over the plantation group’s commercial arm, Felda Holdings, which is 51 per cent owned by farmers through an investment co-operative (KPF).

On paper, it fits Malaysia’s plan to privatise state assets and draw in investors seeking exposure to palm oil prices that have risen six per cent this month alone.

Farmers’ opposition to the listing has grown after government media published details of FGVH’s new structure, which signalled KPF would have to sell its share in Felda Holdings for a mix of dividends and equity.

While KPF would end up as the single largest shareholder with a stake of 37 per cent in the listed FGVH, there would be a dilution of KPF’s assets and a government-formed asset management firm would control its voting rights.

A farmers’ group won an interim court order this month in Najib’s home state of Pahang to stop the listing. FELDA officials said they would offer to remove KPF as a major shareholder from the proposed listing but would ensure the farmers would still get dividends, domestic media said. — Reuters