PETALING JAYA: The Armed Forces Fund Board (LTAT) has completed its position assessment for the financial year 2017 (FY17) and FY18 ended Dec 31, revealing significant financial irregularities and weaknesses.
The assessment finds that prior to 2019, LTAT had accumulated an investment portfolio with substantial risks and asset quality issues.
There were also certain past transactions that contained potential irregularities and weaknesses in operational, accounting and legal areas.
These irregularities and weaknesses took place under the previous leadership of Tan Sri Lodin Wok Kamaruddin as its chief executive up to Sept 7,2018.
In a statement yesterday, General Tan Sri Dr Mohd Zahidi Zainuddin(file pic) said, “LTAT is conscious of the fact that its primary role is to generate sustainable dividends for members of the Armed Forces.
“The findings of this assessment provide clarity on critical areas that need to be strengthened.
“This will subsequently place us in a better position to provide a steady stream of returns for the benefit of our members.”
A position assessment was undertaken in February this year, in line with LTAT’s commitment to enhance corporate governance and improve the fiscal health of the fund and its corporations.
The key findings of the position assessment include an impact on retained earnings due to the overpayment of dividends, overstatement of assets, lack of due diligence, and unsold property assets, among others.
The assessment found that LTAT’s five-year asset returns from FY14 to FY18 (after excluding one-off gains) were lower than the declared dividend rates.
This has resulted in LTAT paying dividends at a higher rate than it could afford.
To manage the situation, LTAT will develop a reasonable dividend policy, which includes determining a minimum rate of return on its investments.
LTAT will subsequently establish a strategic asset allocation framework to meet its minimum expected dividend rate.
Apart from that, there was an overstatement of LTAT’s assets between 2015 and 2017, due to failure to impair one of its large investments when the recoverability of the fund was uncertain after the seller who guaranteed the share buyback was declared bankrupt in Malaysia in 2015.
As a result, an impairment of RM55mil needs to be made in LTAT’s FY18 results.
In reference to LTAT’s investment in the aforementioned company financial and technical due diligence exercises were not properly undertaken prior to the investment.
The assessment also found some issues with unsold property assets worth RM45mil in relation to 88 condominium units that remained unsold as at December 2018, despite having been completed in FY15.
“LTAT is looking to expedite the sale of the remaining unsold units.
“Moving forward, LTAT will carefully consider potential returns and its own expertise in property development, ” it said.
In addition, there was significant selling of profitable shares and a significant increase in LTAT’s shareholdings in BOUSTEAD HOLDINGS BHD and its quoted subsidiaries (BHB Group).
This has resulted in over-concentration in a handful of companies under the BHB Group’s stable.
LTAT’s exposure to BHB Group increased almost 50% from RM2.1bil to RM3.1bil, while the number of related shares increased by more than 83% from 833 million shares in FY14 to 1.525 billion shares in FY18.
“To this end, LTAT will undertake a strategic asset allocation initiative, ” said LTAT.
The assessment also found that high dividends declared for FY17 by a number of subsidiaries were not paid in full and are still outstanding up to this date.
“In addressing this, LTAT is re-assessing the ability of its subsidiaries to pay dividends, taking into consideration their respective performance and cash position, ” said LTAT.
Lastly, the assessment highlighted that the practice of buying unit trusts in order for members to receive a special bonus was found to be detrimental to LTAT’s ability to control and actively manage the fund.
“Neither LTAT nor the members were able to manage their unit trust holdings until the point of retirement.
“Moving forward, LTAT may consider other avenues of investment that would allow the LTAT board to better fulfil its key objective, ” said LTAT.