Revamps needed for long-term gain

  • Business
  • Saturday, 13 Apr 2019

THE exposé of the mismanagement that has taken place at the various institutions has been staggering. The revelations of the shenanigans that took place in Lembaga Tabung Haji (TH), Felda and Lembaga Tabung Angkatan Tentera (LTAT) showed the extent of how past dealings were made with disregard to proper governance and transparency.

Shady deals being struck and books being cooked were some of the findings at these institutions, which hid the extent of losses from the squandering of money to give the perception that all was well.

As for Felda, it was the reversal of fortune that was startling. Prior to the listing of its unit FGV Holdings Bhd, Felda was a profitable agency with little debt. The flotation of FGV Holdings on Bursa Malaysia saw Felda raising RM10.5bil, which it shared with FGV Holdings to give it a bump in cash reserves. Felda kept RM6bil of the initial public offering proceeds, with FGV Holdings receiving RM4.5bil.

In both cases, the money was whittled away, with the debt at Felda ballooning from RM1.2bil in 2007 to RM14.4bil 2017. To add salt to its financial wounds, Felda kept losing money after the listing of FGV Holdings.

Such woes have necessitated an injection of RM6.23bil by the government and precipitated a complete overhaul of how Felda will be run. It is hoped that by doing so, the fortunes of settlers and that of the agency will improve in time.

Felda is not the only agency that has shown problems of malfeasance within the organisation. TH revealed shocking past practices by management that have forced the government and its agencies to assist the ailing fund with a rescue package.

The package includes a special-purpose vehicle under the Finance Ministry taking over TH’s under-performing assets and issuing sukuk and preference shares totalling RM19.9bil to TH as the purchase consideration. TH is targeting to complete the rehabilitation of the assets in seven years.

TH’s problems are not recent as former Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz in 2015 had said the value of TH’s reserves had become negative, meaning the fund’s assets were not sufficient to meet all its financial obligations.

But the fund then used depositors’ money to pay high dividends in order to keep up with the illusion that the fund was performing well.A clean-up of TH has been underway and to show just how the financial scandal has affected TH, it was announced last week that the fund would give a hibah or dividend of 1.25% to its depositors for its financial year 2018 (FY18). This is the lowest on record.

“The Pakatan Harapan government inherited TH from the previous government in a sad state,” said Minister in the Prime Minister’s Department Datuk Seri Dr Mujahid Yusof Rawa at a press conference at the Putrajaya Islamic Complex last week.

He said TH suffered from “poor governance and mismanagement” under the previous Barisan Nasional government, prompting the need for financial restructuring, which was completed in December last year.

But the stream of bad news did not end there. On Thursday, LTAT, which manages the Armed Forces’ retirement fund, was found to have overstated its net profit by 44% for its FY17 ended Dec 31. This was because of the non-compliance of two previous transactions with the Financial Reporting Standards.

The financial discrepancy resulted in LTAT’s net profit being reported at RM662.2mil previously, compared to the actual amount of only RM370.7mil.

Given the re-adjustment to its accounts, the Armed Forces retirement fund has hinted that its FY18 financial results would be negatively impacted, but did not say whether its dividend payment would be lower.

In a statement issued on Thursday, LTAT’s chief executive Nik Amlizan Mohamed said the National Audit Department had issued a qualified opinion pertaining to Note 33 and 13 of LTAT’s FY17 financial statements.

As per the qualified opinion, Note 33 refers to the proceeds from land sales worth RM202.7mil, which should not have been taken into account in the FY17 financial statements. Meanwhile, as for Note 13, it involves unrecognised impairments of RM88.9mil for two stocks held by LTAT.

In its FY17 financial statement, LTAT only recognised a total impairment of RM18.46mil instead of RM107.36mil.

Overall, with the re-adjustment of LTAT’s FY17 net profit to RM370.56mil, the fund’s retained earnings would drop drastically to a retained loss of RM31.6mil from a positive retained earnings of RM259.99mil previously. Nik Amlizan said that the release of LTAT’s FY18 accounts has been delayed, following the late submission of its FY17 accounts.

A revamp of such funds and institutions should pay off in time, given the improvements in the performance and annual dividends given by the Employees Provident Fund (EPF) in recent years.

In the early 2000s, the EPF declared meagre dividends and that prompted calls for a revamp in how the EPF managed itself.

An overhaul was conducted and the EPF, which used to invest in around 400 stocks, cut that down to about 100. This allowed its portfolio to focus on better-quality counters to invest in. Furthermore, an asset-allocation strategy was devised to spread out its investments and more money was invested overseas, which has helped translate to the high dividends members have been enjoying in recent years.

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