Leaked KPMG Due Dilligence Report on EHP Warns Against Purchase


A leaked due diligence report prepared by KPMG for FGV revealed deep concerns regarding the value and sustainability of EHP and raises valid questions on the credibility of the seller in providing complete information to the Indonesia Government and Felda.



From a financial standpoint, EHP has financial liabilities/debts owing to banks of about USD843 million, of which USD127 million is due/has been due for repayment. Its cash in bank is also shockingly low at USD8.3 million as at March 2015, resulting in delayed payments to creditors and small business suppliers due to cash constraints. EHP claimed it was working on a new refinancing plan of USD281.3 million from various banks in Indonesia to cover its existing borrowing repayment obligation and operational expenditure. The question posed from the due diligence is has Felda ensured that Eagle High successfully refinanced its loans prior to Felda’s acquisition? The contravention of financial covenants by EHP on local banks loans would allow the creditors to foreclose.


The curious question here then arises, why have the local banks not sent notices to demand payment or initiate foreclosure proceedings. Is this because they were waiting for Felda to bail out EHP and then demand higher returns for a waiver of the breach?


The report clearly states that due to the current structure of the EHP Group, there is high potential of dividend leakage of 45-55% before Felda receives its share of any dividend. Any restructuring to make dividend repatriation more efficient, i.e. to eliminate EHP’s Singaporean layer of subsidiaries, would cost approximately RM117 million.


KPMG Due Diligence Report



Indonesian PLASMA smallholder cooperatives have also been on the receiving end of EHP’s poor cashflows. As at March 2015, 60% of Eagle High’s trade payables were past due and key among these payables are amounts due to the PLASMA cooperatives for purchase of FFB, thereby denying the farmers a right to their hard-earned money. EHP group has also not reported or paid monthly income tax since 2014 which further indicates serious cash flow issues and making a mockery of President Jokowi’s administration to ensure all local conglomerates pay their tax obligation for the benefit of the nation.



EHP has also breached financial ratios for certain subsidiaries. Interest free advances amounting to USD26 million was given to related Rajawali companies controlled by the same shareholder, Peter Sondakh. The management of EHP  informed the auditors that the repayment of these loans to Peter Sondakh’s companies may not be recoverable.


The banks providing the loans such as BNI, BRI and Mandiri are aware of these breaches and seem to be providing waivers for these breache. Is this purely bad governance in the Indonesian banking system or is there an element of collusion to consider?


Eagle High has also not fulfilled its PLASMA obligation and it is estimated that there is a 8,000 ha shortfall in its obligation. However, the Indonesian Government has not questioned the Eagle High Group or threatened to revoke its plantation licenses, as provided under the law.


That KPMG’s report also disclosed that the valuation of EHP, which is based on INTI (plantation owner’s lcore land area) planted areas has been overstated by 3,259 ha due to PLASMA* (smallholders land) planted areas being misclassified as INTI planted areas. The Report also stated that EHP does not have Hak Guna Usaha / Right to cultivate (HGU) for 1/3 of its planted areas (51,108 ha) – additional undeterminable and significant costs will have to be incurred to obtain the HGUs for these areas. To top it off, 40% of total planted area is still immature – requiring additional cost capitalisation.


Further, most of the IUP (Izin Usaha Perusahaan) on it’s land has expired, and will require lengthy time and significant costs to renew, and subject to uncertainties in the approval process if challenged by the local people.


PT Rajawali Corpora, owned by tycoon Peter Sondakh, controls 65.5% stake in PT Eagle High Plantation Tbk. (BWPT). It only held the stake for 5 months 15 days before announcing the initial share sale to FGV. Interestingly, it was for USD685 million, exactly the amount owed by EHP then to creditors.


When that fell through, mainly due to the negative report by KPMG,

Sondakh through Rajawali Corpora decided to sell 37% of EHP shares formerly named PT BW Plantations Tbk. to Malaysian company, Felda, for USD505 juta. Felda signed the S&P agreement with EHP just one day after FGV rejected the initial deal as bad for the company and shareholders (in this case Felda too, as the majority shareholder)



Investors have to deal with a long process to apply for and obtain the relevant operational licenses for the oil palm plantation business, which are mostly under the authority of and arranged by the local government (known as Pemerintah Daerah). Moreover, the investors have to comply with the “plasma obligation” for the oil palm plantation business by providing land for the local community with an area of at least 20% (twenty percent) of the total land given in the plantation business license (Izin Usaha Perkebunan or “IUP”).


The “plasma obligation” was first provided for in Regulation of the Indonesian Minister of Agriculture No. 26/Permentan/OT.140/2/2007 concerning Plantation Business License Guidelines, as replaced by Regulation of the Indonesian Minister of Agriculture No. 98/Permentan/OT.140/9/2013 concerning Plantation Business License Guidelines (Permentan No. 98/2013”). Article 15 paragraph (1) of Permentan No.98/2013 states that a company applying for a plantation business license (Izin Usaha Perkebunan or “IUP”) for an area of 250 hectares or more must facilitate the local community’s development by providing the local community with a the plantation area of at least 20% (twenty percent) of the total area given to the company as stated in the IUP.




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