This article first appeared in The Edge Malaysia Weekly on May 29, 2017 - June 4, 2017

LEMBAGA Tabung Haji (TH) has confirmed that it would like to see its deputy CEO Datuk Badlisyah Abdul Ghani take the helm at Bank Islam Malaysia Bhd following the retirement of the bank’s group managing director, Datuk Seri Zukri Samat, early next month.

TH has a 52.5% stake in BIMB Holdings Bhd which, in turn, wholly owns Bank Islam — one of the more profitable Islamic lenders in the country.

“Yes, we had in 2016 recommended Badlisyah to be appointed to lead Bank Islam, in view of the possible departure of Zukri. Our recommendation was based on his past proven track record in a much bigger and established Islamic bank (CIMB Islamic Bank Bhd). Of course, the choice of leadership and succession planning for BIMB as well as Bank Islam is subject to nomination of the board of directors of the respective companies and approval by Bank Negara Malaysia,” TH group managing director and CEO Datuk Seri Johan Abdullah says in an email, in response to recent reports in The Edge that highlighted some controversies ahead of the leadership change.

The Edge had reported sources as saying that Bank Islam’s board had already put forward its choice — Khairul Kamarudin, the bank’s current deputy CEO — to Bank Negara and the decision now lies with the central bank. If approved, it remains to be seen whether he will, like Zukri, also hold the top job at BIMB.

Johan, who had to postpone a face-to-face interview with The Edge as he is recovering from knee surgery, also disagreed with reports that TH is at odds with BIMB’s board of directors or that it had planned — and changed its mind at the last minute — to remove certain directors at BIMB’s annual general meeting on May 17.

The following is Johan’s response on a host of issues facing the BIMB group, including the leadership change and a planned restructuring.

The Edge: We understand from various sources that TH, as the major shareholder, is at odds with the board of directors at BIMB and Bank Islam. Could you tell us your perspective on what is actually going on?

Datuk Seri Johan Abdullah: We have never seen ourselves to be at odds with the board of directors of any of our investee companies. As a shareholder, we will always have our views on various issues affecting our investee companies and we will always express these views to the relevant board of directors. It is the same with BIMB.

It is normal to have difference of opinions in regards to certain issues and people may disagree with our views. We are fine with that. What is important is that all views are considered and debated to arrive at the best outcome for BIMB. We are surprised if people see this process as putting different parties at odds with each other.

Over the years, TH — as a quasi-sovereign fund with diversified investments — has engaged with various boards, including that of BIMB, and such perception has never arisen. We have been a shareholder since the inception of both BIMB and Bank Islam.

As such, we will rigorously voice our opinions and work with their board of directors to ensure the group’s long-term success and sustainability.

What happened at the AGM in relation to the re-election of the directors?

We don’t understand where people get the impression that we changed our mind when we voted. Prior to the AGM, we considered many things, engaged and consulted with the regulators and discussed with other stakeholders on issues of mutual concern. Taking into account all feedback from this exercise, we came to our only and final decision as reflected in how we voted at the AGM.

We understand that the BIMB group structure needs to change. It’s been years now that BIMB has been mulling a restructuring — why is it taking so long? What are your reservations?

I am surprised that people think that we have reservations.

On why it has been years, as you put it — that you would have to ask the management and the board of BIMB. As at May 24, TH has 52.5% shareholding but we don’t have majority on the board composition [to comply with regulatory requirements].

TH would always support any opportunity that would enhance the value of our investments. We look forward to hearing from BIMB on any latest decision in regards to the restructuring proposal for us to consider.

We expect any restructuring proposal to provide the group with the best structure to grow not only domestically but also regionally. The restructuring naturally must be value accretive. That is a given.

Whatever it may be, it would be subject to relevant regulatory approvals as well as shareholders’ approval. TH will decide on the matter accordingly when it is presented holistically and I can say that the decision would be premised on what is good for the group and TH.

As the major shareholder, we have always given our support to BIMB in its past initiatives.

Despite being a majority shareholder, regulations prevent TH from having much say in BIMB’s direction. You’ve been on both sides, being the former group CEO of BIMB and now group managing director for TH. What is your view on this matter?

I believe that regulations are there to serve a purpose and to protect the interest of the various stakeholders instead of impeding stakeholders’ rights and interests.

When I was heading BIMB, we continuously engaged with relevant stakeholders to ensure that they are kept abreast of business developments at the firm and to garner feedback as well as advice on how best we can, on balance, meet their expectations.

TH, as a significant shareholder, certainly has its own aspirations for BIMB, which may be different from other shareholders’ or that of the management of BIMB/Bank Islam itself. I am of the opinion that regular engagements by BIMB with us would definitely help align all these aspirations so that together, we can enhance the value of the group.

There was talk earlier that you’re looking to sell a 20% block.

We do not comment on speculations. What I can say, however, is that as far as TH is concerned, we will always explore all and any avenue or opportunity that can create value for our stakeholders.

BIMB’s share price is now back to end-2013 highs — around RM4.30 — after the dip early last year. Is the time right to sell, considering your cost of about RM2.50?

TH is in BIMB for the long term. However, this does not mean we will not look at trading opportunities whenever they arise. This is a dynamic process and subject to our investment parameters, we leave it to our equity portfolio managers to decide when to trade to generate optimum returns.

You mentioned before that the regulatory regime may require TH to pare down its stake. Is there a firm timeline internally to do this?

At present, there is no requirement for us to pare down our stake in BIMB.

Syarikat Takaful Malaysia Bhd is now trading at almost four times your effective cost of investment. From a BIMB shareholder’s perspective, is the time ripe for a major divestment by BIMB?

This question is more appropriate to be addressed by BIMB.

TH received roughly RM113 million in dividends from BIMB last year. TH is now focusing on sustainable and recurring income, mostly plantation and property. Where does BIMB fit into the realigned investing strategy you told us about?

BIMB is a key investment for TH and Islamic financial services is one of our core investment sectors. In fact, it is the single largest investment in our portfolio. Naturally, BIMB is very important to us.

BIMB has given us commendable returns since 1983 and moving forward, we are confident that it will continue to positively contribute to our bottom line.

TH has played a key role as a pioneer in, and in setting up, Islamic finance in 1963, and we will continue our efforts to enhance the sector. We have no plans to exit this industry. Without TH, there would not be the Islamic finance industry that we know today in Malaysia.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.