TH set for equities, land swap for RM19.9b with SPV

The swap will erase the deficits in TH’s financials and recoup much needed cash to balance its books


LEMBAGA Tabung Haji (TH) will transfer RM19.9 billion worth of non-performing assets, including land purchased from 1Malaysia Development Bhd (1MDB), to a government-owned special-purpose vehicle (SPV) for cash.

The SPV will finance the assets by issuing RM10 billion, seven-year Islamic debt papers and RM9.9 billion of Islamic redeemable convertible preference shares. The exercise is expected to be completed by the end of this month.

The asset for cash transaction will free the pilgrim fund of its underperforming assets, erase the deficits in its financials and recoup much needed cash to balance its books.

The assets to be sold to the SPV are equities with impaired value exceeding 20% and properties with a yield of less than 2%.

The move to create the SPV to restructure the assets resembles Pengurusan Danaharta Nasional Bhd, which was established by the government in June 1998 to address the non-performing loans faced by the country’s banking system.

TH CEO Datuk Seri Zukri Samat said about 80% of the said assets to be sold are underperforming equities, while the balances are properties.

One of the properties to be included in the asset for cash swap is the over RM188 million land at the Tun Razak Exchange (TRX).

The land deal was widely criticised for the price, deemed to be exorbitant, besides allegations of it being a financial bailout of 1MDB.

Zukri, who is the former MD of Danaharta, said the TH-owned land in TRX will be transferred to the SPV at the same purchase price and it will be up to the SPV to add value to the land plot.

“It is an open secret. Everyone knows about the 1MDB land we bought. We paid RM195 million for the land. That land is still sitting there, but it doesn’t give any return to us. The yield is zero.

“So, one of the assets (we are looking at) is this land,” he told a press conference on TH’s rehabilitation and restructuring plan yesterday.

Zukri said once the transfer is completed, TH will have a clean balance sheet with assets matching its liabilities. The move will allow the fund to pay its annual dividends for financial year 2018 (FY18), in accordance with the TH Act 1995.

“We hope to complete the transfer of assets by Dec 31, 2018, so that we can normalise the financial position of TH in 2018 itself.

“I know the instruments will take a while to be issued. So, what will appear in our balance sheet as at Dec 31, 2018, is an instrument of RM19.9 billion that we will get as receivables from the SPV first.

“By the first quarter of 2019, all of the instruments will be issued,” he 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 fiveyear 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.

Zukri said TH will evaluate its remaining portfolio after the sale of the underperforming assets to the SPV.

“There will be some business review on our portfolio. Some of them are not doing well. We are not good in oil and gas, and I don’t think our hotel operations are doing well.

“So, this falls under our review. After the review, we will decide whether we want to totally dispose of them or reduce our stakes,” he said.

Minister in the Prime Minister’s Department (Religious Affairs) Datuk Seri Dr Mujahid Yusof Rawa on Monday revealed a RM4.1 billion financial hole between total assets and liabilities at TH.

Mujahid said dividend payments made since 2014 had not met the requirement of assets against liabilities and that there must be distributable profits.

The bylaw that governs the fund prohibits dividend and bonus payments if the assets slide lower than its liabilities. TH is also not allowed to pay the yearly hibah if it is not profitable.

Despite warnings issued by former Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz, TH continued to pay total dividends of between 5.75% and 8.25% annually from 2014 to 2017.

The pilgrim fund is solely governed by its Act. BNM has no regulatory oversight of TH.

Zukri also confirmed that TH will be placed under the central bank, effective Jan 1 next year.

“Even though it will take a bit of time for us to change the Act, administratively from Jan 1, 2019, TH will be under the supervision of BNM.

“It will be very good for TH. BNM has a very robust risk management and governance framework. Organisations under its supervision must follow its policies,” he said, adding that the selection of TH’s board of directors and management will now require the bank’s approval.

Meanwhile, former TH chairman Datuk Seri Abdul Azeez Abdul Rahim has denied allegations that the previous management had breached the TH Act 1995 in distributing dividends.

He claimed that based on the valuation reports on all assets which can be realised from Ernst & Young (EY) for 2015, 2016 and 2017, the value of assets owned by TH was greater than the liabilities.

According to Bernama, Abdul Azeez said in 2015, the value of assets which can be realised was RM64.7 billion compared to liabilities and hibah payments totalling RM63.3 billion, an asset surplus of RM1.4 billion, while in 2016, assets totalled RM69.1 billion against liabilities and hibah payments of RM63.3 billion, a surplus of RM1.4 billion.

“In 2017, the value of assets which can be realised was RM74.7 billion compared to aggregate liabilities including hibah payments totalling RM74.4 billion, which means TH had a surplus of RM373 million.

“This proves that the previous management of TH had paid hibah according to the TH Act, but the current government did not take into account EY’s reports when they made their disclosure yesterday,” he said, according to the national news agency.