KUALA LUMPUR - Malaysia has given approval for state-owned palm oil plantation agency Federal Land Development Authority (Felda) to issue a 9.9 billion ringgit ($2.38 billion) sukuk with a government guarantee to finance its restructuring plans.

A government inquiry in response to graft allegations last year found that poor management had sent the Felda's losses and debt soaring over the past decade.

In a statement on Wednesday, economy minister Mustapa Mohamad said the key problems faced by Felda are an unsustainable capital structure and high debt burden amounting to 10.6 billion ringgit ($2.55 billion).

"Weaknesses in governance and financial management also contributed to the problems," he said.

The government has also approved a debt restructuring and termination of a land lease agreement to boost the income of Felda's plantations.

Felda has leased more than 350,000 hectares of land to its main listed unit FGV Holdings since 2011, but Mustapa said leased payments and profits had been much lower than initial projections.

"Felda's financial position is expected to show a positive trend starting in 2023 with the implementation of these initiatives," said Mustapa.

($1 = 4.1630 ringgit)

(Reporting by Mei Mei Chu Editing by David Goodman) ((meifong.chu@thomsonreuters.com; +6-139-492-9424; Reuters Messaging: @meixchu on Twitter))