Good return with certainty?

"Invest in Certainty" was the mantra for a local grower scheme.

But I think Datuk Ng Yen Yen made a bad call on the investment. What an illed advice from the ex-Deputy Finance Minister.

Abstracted from an article in the Star,

Grab chance to invest in scheme, women urged

Women should be more actively involved in investment especially those with minimum risk, said Deputy Finance Minister Datuk Dr Ng Yen Yen.

“Women should be given a chance to have a better understanding of how to invest within their financial means,” Dr Ng said at the launch of the World First Oil Palm Grower Invest-ment Scheme for Women Pre-view at the Palace of Golden Horses here on Tuesday night. 

Dr Ng, who is Wanita MCA chief, said the investment was offered at an affordable price with RM5,000 per plot with 23 years of annual dividends. 

“An 8% rate of return is guaranteed for the first three years while returns for the remaining 20 years are to be based on the price of crude palm oil,” she said. 

She urged women to take up the opportunity to invest in the scheme during this exclusive period for them. 

She also said the men should buy the investment as a gift for their wives, daughters or mothers in conjunction with International Women’s Day today. 

A press statement said there would be a return on capital outlay from net proceeds of sale of the oil palm estate at the end of the 23rd year. 

For details, contact Mines Marketing Sdn Bhd at 03-89411888 or Women’s Wealth Creation (M) Sdn Bhd at 03-80683993.

However, a circular has been sent out to the investors on the proposed voluntary termination of the grower scheme. See attachment

Reasons given:

a) Unpredictable weather condition (Was it due to inclement weather? Was the rainfall actually higher than usual? Did the company study the rainfall before purchasing the land?)

b) Incursions of wild elephants into the plantation (Surprising someone highlighted this earlier in a forum in 2009. See below)

c) Soil fertility

d) Shortage of key personnel and manual workers

e) Umcompromising terrain (Did the company study the terrain before buying the land? Or did the terrain changed substantially after the purchase?)

A member of forum rightly pointed out his doubts way back in 2009. The points he raised:

I won't put my money in CHGS because of the following doubts:

1) The CPO operation cost is about RM 1200/ tonnes at this moment, up from about RM 800/ tonnes less than 5 years ago. Assume CPO price is RM 1200 a tonne, the company is paying 2% return. (let's ignore FFB production bonus) The operation cost is expected to increase and maybe 10 years down the road, it will go up to RM 2100/ tonne. Assume the CPO price is RM 2100/ tonne, is the company able to pay 12% return to investors when the cost alone is RM 2100/ tonne? Where the money comes from? What I am trying to tell here is that the CPO payment chart doesn't work because it does not factor in inflation.

2) Did the prospectus spell out how the land to be sold after 23 years? If the real estate market is not doing well that time, are they going to hold? How long it takes to sell the land? And more important how soon can the investors get back their money!

3) The company said the return is guaranteed. Is it back by assets? If not, it is merely verbal guarantee. And mine you it is a private limited company

4) The boss is a very prominent businessman in Malaysia. If the plan is so good, do you think the public has the chance to invest in? Why not keep to himself or sell to his rich friends. It is easier to sell to his friends who can invest hige amount rather than having to manage so many retail investors.

5) If the plan is so profitable and safe, why not CHGS raise capital through debt which has lower cost of capital?

6) CPO has gone beyond RM 4700/ tonne and yet the plots were not fully suscribed yet. The total investment available for sale is less than RM 400 millions. It is coming to 3 years and the plots are still not fully suscribed. Few billion units of ASM and ASW 2020 which seems to have lower return were snatched up by Chinese investors within hours! Investors lack confidence is the scheme.

7) Since the company thinks the scheme is so profitable/ certain (the slogan is Invest in Certainty), why not the company offers guaranteed buy-back after the trees start to yield?

8) There were 18,000 oil palms damaged by wild elephants at Gua Musang in April 2009, causing massive loss to a company. Have sufficient measures being taken to mitigate this risk?

9) Track record of the boss Lee and Country Height Group is not so convincing. Look at the winding up of Min Hotel, Lake Front Business Centre owning local authorities up to million of assessment fee (it was reported in year 2006), check with the buyers of college height, Pajam and see whether they are happy with the company, if you happened to visit Mines Wonderland, you will be appalled how the ice sculpture look like, poor customer service, delay in payment etc...

10) The investment is very illiquid. Once the company cannot fulfill his payment, investors will rush to sell the plots... Do you think you can sell then? Few financial advisors said they won't invest in this scheme such as KCLAU, DAVID LEE and the boss of ISI Business Network