Lessons for investors from Country Heights Growers Scheme

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On Feb 8, investors of the Country Heights Growers Scheme (CHGS) approved its early termination. The investors also accepted the goodwill package of about RM25 million, equivalent to a 12% net yield payment, offered by Tan Sri Lee Kim Yew, CHGS founder and chairman of its manager Plentiful Gold-Class Bhd. This is on top of the company’s one-to-one buyback offer (totalling RM215.5 million) plus the net yield of RM78.5 million paid out between 2007 and 2011.

The reasons for CHGS' failure were agricultural in nature, which a good estate manager would have planned for.The reasons for CHGS' failure were agricultural in nature, which a good estate manager would have planned for.The reasons for CHGS’ failure were agricultural in nature, which a good estate manager would have planned for.

Lee personally guaranteed that all payments due from the scheme’s termination would be made within six months, instead of the earlier proposed two years.

It is always a disappointment when one’s investment does not pan out as expected. But then, the company had in the last five years paid out 48% of return in total, giving 8% return per annum for the first three years and 12% in the consequent years. Recognising that it could not afford another payout due in Feb 14, it had on Jan 17 said so, and proposed to terminate the clearly unsustainable scheme. If all goes well, and regulator Companies Commission of Malaysia (CCM) is pressured to make sure it does, investors would get their monies back by August. It is a relatively swift happy ending of sorts, considering how awry this could go.

 

Take the Euro Deposit Investment Scheme (EDI), for example. The Securities Commission (SC) had commenced probe into the scheme following complaints from investors and on April 28, 2009 issued a notice prohibiting the soliciting of new investments and directing that payments due to clients paid and their assets returned. It had been quiet since, until Feb 7, 2013 when SC announced it had on Jan 23 filed a civil suit against RBTR Asset Management Bhd and seven others over the scheme.

 

According to SC’s statement of claim, 112 EDI investors had cumulatively invested RM27.71 million between November 2007 and May 2008. From May 2008 to January 2009, only 49 investors, with funds amounting to RM14.18 million, were repaid in full or at all. A total of RM13.53 million, in particular investments maturing February 2009-May 2009, remains unpaid.

 

logo_CHGS

logo_CHGSThe ball has start rolling again with the civil suit but as one investor who had sunk in RM50,000 puts it, “there will only be closure when we get our capital back” and that could take years, if at all.

 

Meanwhile, the early termination of the CHGS sparked some concern over the viability and sustainability of other interest schemes. That they are registered and “endorsed” by the CCM does nothing to assuage the worry. After all, CHGS was registered with the CCM, and many quarters question whether the regulator body has all the necessary expertise to monitor them all efficiently. It was reported that CCM admits to having insufficient knowledge in oil palm plantations. As of deadline time, Business Circle was unable to get a response from the CCM to its questions.

 

CCM’s website lists 171 registered interest schemes that are active, including recreational clubs, property schemes, and schemes involving timesharing, farmsharing and equipment sharing. The list does not seem to be updated as CHGS is still listed as active. CCM did not respond to our queries on whether there had been many complaints over these schemes and what actions it had taken to date.

 

Interestingly, CHGS’ early termination caused only minimal concern among investors of another oil palm-based investment scheme Golden Palm Growers Scheme (GPGS). According to Andrew Phang, executive chairman of the scheme’s manager Golden Palm Growers Bhd, “our investors are fairly comfortable” with the management and sustainability of GPGS.

He highlights two fundamental differences between GPGS and CHGS – the model and the agricultural practices.

“The CHGS model promised to pay based on external indicators, i.e. the CPO price, regardless of whether its trees are fruiting or not. This led to a mismatch between its revenue and its ability to pay. We promise to pay based on how much we earn. This model will consistently provide solid returns over the 23 years of the scheme and we’ll never have a mismatch issue.” He adds that the cited reasons for CHGS’ failure were agricultural in nature, which a good estate manager would have planned for. “Rainfall, terrain and wildlife, including elephant encroachments…  all these affect us too. At the end of the day, it depends on how good your estate management practices are.”

GPGS currently has some 3,700 investors.

Photo Credit: firdaus usman via Compfight cc

CHGS logo obtained from CHGS official website.

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