Rule of Law Must Prevail in SFI Deal to Ensure Investor Confidence and Progress & Development

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In a recent article titled, “Ensuring Sabah’s Interests in SFI deal”, published in Your Local Voice – Daily Express (Sabah) on 9 June 2019, Dato John Lo shared views pertaining to Sabah Forest Industries (SFI) that were basically biased towards the State without due consideration to the Rule of Law.

If the views by John Lo are anything to go by then Sabah’s progress and development would be stifled because investors would shy away as a result of the state’s interference in private sector business transactions. There is a need for the Sabah State Government to respect the rule of law and give credence to private sector business transactions in efforts to ensure investor confidence and development in the state.    

Since the following issue were raised by Dato John Lo, there is a need to put it into correct perspective so that readers would have a correct and accurate picture of the situation.

First some clarification. Grant Thornton Consulting (GTC), the manager and receiver of Sabah Forest Industries (SFI), called for a tender for the sale of SFI’s assets in which Pelangi Prestasi Sdn Bhd (PPSB) emerged the winner with a bid for USD310 million. The successful bid was a premium of 16% for SFI over the market value of its assets. This is by no means is a ‘failure’, as claimed by Datuk John Lo!

Therefore, for GTC to call for a second tender exercise is inappropriate. To put into perspective, all pre-requisites set by GTC and the State Government for the issuance of fresh timber licenses and for the sale & purchase to be successfully implemented such as payment of salaries of the SFI employees in full, including the shortfalls for the period of January 2018 – March 2018 arising from the temporary layoff by GTC, were fulfilled. The failure to procure the fresh timber license is tantamount to gross dereliction of duty on the part of GTC, which has resulted in a legal suit by the parties concerned. 

It must be made clear that the ‘two’ points central to the case, as raised by Datuk John Lo, (state’s insistence to have pulp and paper expertise as a prerequisite and decision to reject the issuance of the license) were a mere after-thought by the government to disrupt the sale & purchase between PPSB and Ballarpur Industries.  

First, about the notion that the investor should have ‘pulp and paper’ experience as a ‘pre-requisite’ for the take-over of SFI.

The future of SFI cannot be just about pulp and paper. If this is a pre-requisite, SFI would be ‘under utilised’ because the industry today has evolved from far more than just being pulp and paper. The undeniable fact is the future plan for SFI would turn Sabah into a major industrial bio-hub over the next 10 years. Such information is readily available from the news and business archives of PPSB.

Our research shows that the strategies adopted by PPSB in emerging technologies from Nordic countries would ultimately position Sabah as the regional leader in forest bio-economy and the bio-hub industry. It would put Sabah on the global map for sustainable and profitable management of its forest economy. This is a positive step 

Today, business is driven by evolving and new technologies and economies. Forest bio-economies and bio-industries are the future in forest sustainable management. New industries create multiple job opportunities.

It only then makes sense for the chief minister of Sabah to issue timber licenses to companies with the foresight and vision to transform Sabah into a regional hub. It is not just the vision but also credentials and capabilities of the company that will augur well for the state in the long term, and not to look at foreign investors who are inclined to ‘exploit’ the state for their own gains, as we have seen thus far. 

Why should we look at a new investor from abroad when the country already has available local investor(s) who have the capacity, inclination and financial muscle to transform companies like SFI into a leading conglomerate not only in sustainable forest management but also forest bio-hub industry, that would ultimately create tens and thousands of new jobs in various capacities in the downstream sector over the next 10 years. 

Second, if there was anything amiss in the previous sale of SFI in 2018, then the necessary reports must be lodged with the relevant agencies. Otherwise, there may be a perception that the current state leadership is blocking the deal for other reasons.

In the case of the Sabah Government, to include new conditions after the fulfillment of the terms and conditions and signing of the sale & purchase agreement, more so when the state government was involved from the very beginning in the transaction, breaches the rule of natural justice and is unethical.

Although the state government owns 2% of SFI, it is improper for any party or state to interfere in a business transaction that has been duly agreed upon and the terms and conditions consented between the authorized parties. When the state government involves itself in such a manner, it would indeed be a major concern for investors wanting to invest in the state.

We agree that the Sabah government did not benefit from SFI previously and this could be due to a number of reasons – inefficiencies of the business operations, lack of expertise, political interference or even due to its minimal 2% equity in SFI. This then cannot be used as a basis to pre-judge PPSB on its acquisition of SFI. 

If the state government is serious about getting the best for the people of Sabah, then it should seek an amicable and ‘win-win’ situation, that could possible include an increase in the state’s equity in SFI – despite the Chief Minister being quoted that Sabah does not have RM2 billion, let alone RM1 billion to invest in SFI.

We serve the interests of the people of Sabah through fair play.   


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