By NG MIN SHEN / Pic By TMR

Lembaga Tabung Haji (TH), which will set up a special purpose vehicle (SPV) to deal with its underperforming assets and huge assets-to-liabilities deficit, could resort to selling its privately held assets as part of the turnaround of the fund’s financials.

Fortress Capital Asset Management (M) Sdn Bhd investment advisor and director Geoffrey Ng said TH’s stakes in public-listed companies are easier to manage from an accounting and risk-weighted perspective, but would not add value to TH’s assets as the fund’s deficit already includes its investments in the listed firms.

“So, if the stakes were sold to the market, they would be sold at prevailing prices, which have already been included in the deficit. If
you aggregate the market value of these companies, you’d still have a deficit even if you sold the stakes.

“So, it wouldn’t be of much use to TH. Unless TH needs the liquidity, there is no urgency for them to sell,” Ng told The Malaysian Reserve.

According to TH’s 2017 financial report, the pilgrimage fund’s total assets as at end-2017 stood at RM70.3 billion, while total liabilities amounted to RM74.4 billion, leaving the fund with a RM4.1 billion hole, Minister in the Prime Minister’s Department Datuk Dr Mujahid Yusof Rawa said yesterday.

Mujahid said PricewaterhouseCoopers, which audited the financial report, had proposed setting up an SPV to take over, rehabilitate and maximise the recovery of TH’s underperforming assets.

The SPV has already received approval from the Cabinet, he said, adding that a comprehensive turnaround plan is needed to restore TH’s balance sheet.

Going forward, the pilgrimage fund would be in a better position to realise some of its public investments by selling them to the open market, as well as to be more proactive and efficient at managing the companies, in which TH has significant representation at the board level.

“A number of companies in which TH holds stakes are running deficits in costs, and the companies’ performances are not as good as expected when TH entered,” Ng said.

He said the SPV would look more closely at the fund’s private assets as the public-listed assets have a greater liquidity.

“From an accounting and risk-weighted perspective, the liquid ones tend to be easier
to manage. For the private assets, it will take longer to look at the operational aspects of these companies and plan the crystallisation of the investments,” he said.

The private investments would, in turn, likely be assessed first to determine their recurring values before any decision to sell is made.

“Independent valuations of these private assets would probably be carried out first, as the SPV would want to see the results from that before taking over the assets.

“The SPV would be selective in deciding which ones are fundamentally attractive in terms of taking over, either by restructuring the companies or conducting an outright sale,” Ng said.

TH has total current equity assets under management of US$3.2 billion (RM13.34 billion) invested in 103 securities, as per Bloomberg data.

By industry, TH’s largest current exposures are in the financials (35.2%) and utilities (18.2%) sectors, with the largest five-year increase in the utilities segment and largest five-year decrease in the consumer staples segment.

By market capitalisation, the group’s largest current exposures are in small-cap (53.8%) and large-cap (19%) stocks, followed by micro-caps (14.8%) and mid-caps (12.4%).

Firms in which TH holds major stakes are TH Plantations Bhd (73.84%), Theta Edge Bhd (68.7%), BIMB Holdings Bhd (53.47%), TH Heavy Engineering Bhd (29.8%), Brahim’s Holdings Bhd (19.28%), Al-’Aqar Healthcare Real Estate Investment Trust (14.04%), Southern Acids (M) Bhd (13.05%), Malakoff Corp Bhd (10.36%), Glomac Bhd (10.31%), Alam Maritim Resources Bhd (10.13%) and Parkson Holdings Bhd (9.92%), among others.

On whether the fund would likely pare down its larger investments, such as its 53.47% stake in BIMB Holdings which owns Bank Islam Malaysia Bhd, Ng said this would be a strategic decision based on whether TH still sees value in being the controlling shareholder of the largest Islamic bank in Malaysia.

“This is a multi-year structuring of their investments. It will not happen overnight, and will probably not be completed within a year or two,” he added.