Sunday, June 27, 2010

Is Your Company Bankrupt ?

Hantu Laut

Let's us get back to the story of Felda's bankruptcy.

Is Felda already unofficially bankrupt or is in the process of becoming bankrupt (some people like to use the term 'technically insolvent') which is a misnomer.You are either insolvent or you are not.There is no in between.If you suffer a temporary cash flow problem that doesn't yet construe an act of bankruptcy until such time you can't pay your creditors and legal action is instituted against you by your creditors to recover the debts.

The question here is. Has Felda committed an act of bankruptcy which simply means it was unable to pay its creditors?

One can easily detect whether a company is liquid or not and the simplest way is to look at the current assets over current liabilities.This ratio is concerned with the assessment of an organisation's ability to meet its short-term obligations.Even this does not reflect true liquidity.The truest test is the acid test of the 'liquid asset ratio', which is current assets less stock/inventories over current liabilities.The minimum ratio should be 1:1 liquid assets over current liabilities.Anything less means the company is in trouble and will have problem paying its creditors and a probable cash flow problem that can effect its overall operation.

Can one detect a company heading for bankruptcy a year or two before it happens?

In 1968 Edward I Altman, assistant professor of finance at New York University came up with a formula that can predict a company heading for bankruptcy as far back as two years before it happens.The formula is a bit too complicated for me to explain here. It uses balance sheet values to measure the financial health of a company using different formula for different type of company.His formulas have achieved over 75 percent accuracy and gained wide acceptance by auditors and management accountants.

Felda is a GLC and as such its financial statements should be an open book.In fact, all public and private limited companies' accounts are opened for public scrutiny and it should be more so with GLCs.These are companies considered own by the people which make it imperative that those managing them show transparency and accountability.

Why is Felda silent and secretive about where the missing portion of the cash reserve gone to?

Felda should be more forthcoming and should publish its latest audited accounts to satisfy public's abhorrence.Simply saying our assets has grown by so much is not good enough.

Dato Mohd Maslan in a press conference didn't show an air of confidence or knowledgeable in finance when he simply put forth the increment in total assets as a satisfactory answer.Total assets meant nothing to liquidity.A company can have huge asset backing yet still go bust.Reason? It doesn't have enough liquid assets to pay short term debts.

The question? Is Felda having liquidity problem that forced them to use the cash hoard to finance their day-to-day operation or the money was spent on other investments.If there were investments what are they? These are simple questions that someone in the higher management should answer not people like Mohd Maslan who is an UMNO politician.

Below is financial highlights of Felda operations.
Performance 2004-2008 (year ended December 31)




Felda has yet to produce its audited accounts for 2009.

The last few years Felda has embarked on diversification of it business.In 2007 it bough out Robert Kuok's interest in Perlis Plantation Bhd (PPB) at a total cost of RM1.5 billion which bought them PPB group's entire sugar asset in the country.

Felda Global was created to diversify both locally and overseas.It formed a JV in Indonesia to open palm oil plantation, hotel and restaurant in Mecca, oleochemical in US and foodstuffs in UAE.

There was no announcement whether it uses internal funding or bank borrowings to fund the venture overseas.


If they have nothing to hide, it's about time someone in Felda wake up and give plausible answers to those relevant questions and send its detractors to hell.

Also read:

Unfazed by threat, ex-minister takes another swipe at Felda

(Unperturbed by the threat of an expensive law suit, issued by Felda yesterday, Tan raised another poser over the group’s alleged RM500million investment in Massachusetts-based Twin Rivers Technology.

“Felda is in the oil palm business. Why is it investing in an American business in the first place?

“And what benefits does Twin Rivers Technologies bring to Felda?” he asked.)

Profoundly stupid question.Probably, never heard of diversity,diversification and diversified resources.

Palm oil will not be the golden crop forever.A time will come when it will end up like the others, tin and rubber.

Felda was right in diversifying into other type of businesses.A one product company is vulnerable when market goes a yoyo.

It is not what other business the company undertakes should be the question.It is whether there were frauds and abuses of fiduciary duties that should be of concern.

Wonder, how they made this guy a deputy minister?

Not sure whether this makes any sense but read it anyway.

8 comments:

donplaypuks® said...

Bro

Thank you for your figures on Felda.

"He reiterated that while it was true that Felda’s cash reserves had declined RM2.73 billion from RM4.08 billion in 2004 to RM1.35 billion in 2009, its current and fixed assets had risen as much as RM6.2 billion from RM9.17 billion in 2004 to RM15.37 billion in 2009. Furthermore, our net assets currently stand at RM12.2 billion."

This was Felda's press release.

Yet the figures you have re-produced for 2008 shows NTA/Shareholders' Funds of $3.2 billion!!

Is Felda claiming that between 2009-2010, their NTA went up by about $9 billion when its last PBT, for 2008, was $819 million?

Seems unlikely given PBT for 2009/2010 is unlikely to have exceeded $2 billion. Unless of course, Felda also revalued some land banks and other asssets to create a revaluation surplus as well.

The Felda spokesman seems confused as to the differences between Net Current Assets, Net Assets and Net Tangible Assets (NTA). He may have confused $15 billion revenue with $15 billion increase in fixed and current assets!!

As an accountant of some fair experience, I can safely safely say it is the NTA figure which is relevant. Unless Felda has bank loans and other long-term bank and other borrowings, the NTA should normally = Shareholders' Funds.

If you could give us some more stats on the bank borrowings, PAT (Profit After Tax) and dividends paid and other appropriations from each years Reserves, any average accountant can work out the story of whether Felda's balance sheet is in good shape or we have anothe PKFZ-like financial scandal to worry about!!

dpp
we are all of 1 race, the Human Race

Hantu Laut said...

donplaypuks,

You are right a good NTA certainly reflects health of the company but quite different from assessing liquidity.

I am a bit confused about the RM4 billion reserve.If it exists it would have been reflected in the total shareholders' funds.

Those cash reserve must have come from accumullated profits or a mixture of profits and extraordinary gains.

Maybe, you can work it out.

Anonymous said...

HL, may be u want to ponder over this article;


By Asrul Hadi Abdullah Sani, The Malaysian Insider

KUALA LUMPUR, June 28 — The National Association of Felda Settlers’ Children (Anak) wants the Malaysian Anti-Corruption Commission (MACC) to probe what they say is the misappropriation of funds by the Federal Land Development Authority (Felda).

Its president Mazlan Aliman said that Anak will lodge a report next month with the MACC if the Deputy Minister in the Prime Minister’s Department Datuk Ahmad Maslan did not provide an explanation for the fall in Felda’s cash reserves.

“We (Anak) will lodge police report in every state this month regarding Ahmad Maslan’s statement and If he does not clarify his statement then we will lodge a report to the MACC,” he said.

Ahmad has denied that the plunging cash reserve was caused by mismanagement.

“We did not abuse the funds,” Ahmad told the Dewan Rakyat last week, adding that the money was spent appropriately.

Mazlan, however, challenged Ahmad today to a public debate.

“If he thinks that he is correct then I challenge him to an intellectual debate. It can be done anywhere,” he said.

He also ridiculed Ahmad for wanting file a defamation suit against several Pakatan Rakyat (PR) leaders, including Datuk Seri Anwar Ibrahim and Kuala Terengganu MP from PAS Mohd Abdul Wahid Endut, for making what it says are false claims that the land development authority is bankrupt.

“I think Ahmad Maslan panicked during the press conference because what he said was not professional. I find him really amusing because how can you sue someone when the questions were asked in Parliament?” he said.

The Najib administration recently admitted Felda’s reserves plunged from RM4.08 billion in 2004 to RM1.35 billion in 2009, a decline of 67 per cent.

PR leaders have blamed Najib and incoming Sime Darby Bhd chief executive Datuk Mohd Bakke Salleh for Felda’s dwindling cash reserves.

Former Land and Co-operatives Deputy Minister Datuk Dr Tan Kee Kwong said Felda had RM7 billion in assets, cash in the bank of RM4.5 billion and no borrowings before Najib took over.

eddy said...

Bro, the Pro PAS/Pakatan National Association of Felda's Settlers Children(Anak) do not have much support from the Felda BN stronghold, the last time they appeared in the Hulu Langat byelection they failed to draw in the crowd.

I say its just shit stirring by ANAK who is using this non-issue to make inroads into FELDA and try to gain whatever support from FELDA participants. I like your quote here on Tan's comment on FELDA's diversification move:


"Profoundly stupid question. Probably, never heard of diversity,diversification and diversified resources.

Palm oil will not be the golden crop forever.A time will come when it will end up like the others, tin and rubber.

Felda was right in diversifying into other type of businesses.A one product company is vulnerable when market goes a yoyo."

I agree wholeheartedly.

I also think suing the pants of the Pakatan leaders is not enough, FELDA must take out a full page Front Paper Advertisement on all Bahasa Melayu and English Newspaper to explain its Financial position..a point by point rebuttal on the accusations made by Pakatan would be good and lay the matter to rest once and for all.

Police reports by ANAK only serve to politicise the issue with no benefit for the Felda folks.

SM said...

Bro HL,

I think u know the truth. Without going deep into analysis of their books (of which we should do for sure) & if you would only take of the "blinkers" u r wearing, u will find the answer.
Do you want to bet that they will not sue (they just acn't afford to have their dirty deeds exposed bah)?

Wenger J Khairy said...

I believe the current policy is in keeping with Dr. Mahahtir's principles of minimum disclosure. The summary accounts are subjective - what is required is the comprehensive set of accounts.

When there is a reluctance to share, the conclusion is obvious. I blame Dr. Mahathir for making this culture of secrecy a must. Those who were opposed to this were labelled as sympathetic to the Opposition and dealt accordingly.

Anonymous said...

DPP, a bit of spinning from the minister here I guess, NA of RM12b, and NTA according to my rough estimation is RM3.2b, hence RM9b of revaluations?

But what PR got wrong I think is accusing it of bankrupt or mismanagement. If the good old Dr left it with an NTA of RM1.9b in 2004, and it's now worth RM3.2b, surely it means that the company is growing, my estimation is CAGR of 14%, not great, but certainly not bad!

Mira

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