Billions lost in Felda, hundreds of millions of asset value vanished in Tabung Haji

This article first appeared in The Edge Financial Daily, on December 4, 2018.
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KUALA LUMPUR: The Federal Land Development Authority (Felda) lost RM5.7 billion for the financial year ended Dec 31, 2017 (FY17) and Lembaga Tabung Haji had failed to impair RM227.8 million on its investments.

Felda’s jaw-dropping losses and Lembaga Tabung Haji’s massive impairment of asset values were revealed in the second series of the 2017 Auditor-General’s (AG) Report highlighting the Inland Revenue Board (IRB) and the Social Security Organisation (Socso) as well, among others.

The report issued an unmodified opinion with an emphasis of matter on Felda regarding its massive net loss of RM5.73 billion and RM4.85 billion on the company and group levels respectively, while net current liabilities stood at RM643.93 million and RM27.03 million respectively.

“Felda and the group’s operational cash flow also saw deficits amounting to RM1.2 billion (in 2016: RM1.16 billion) and RM503.49 million (in 2016: RM578.54 million),” said the report.

The report also cited Felda and the group had institutional borrowings of RM7.8 billion and RM12.14 billion respectively, compared with RM6.82 billion and RM9.08 billion for the previous year.

The AG’s Report said Tabung  Haji, which last Friday lodged police reports against several former top executives’ misuse of its monies and for misrepresentation in a corporate deal, had an inconsistent impairment rate applied.

Lembaga Tabung Haji failed to record an impairment totalling RM227.81 million on its investments in several subsidiaries and associates, according to the AG’s Report.

The setting of Lembaga Tabung Haji’s asset impairment policy has been inconsistent as changes were made every year, especially in FY17, whereby the policy was modified twice, said the report.

“Based on Paragraph 8, MFRS 136: Impairment of Assets, impairment provisions must be made if the carrying amount of the investment exceeds the recoverable amount.

“For FY17, Lembaga Tabung Haji did not record an impairment totalling RM227.81 million against investments in three subsidiary companies and three associates, primarily the investment in the associate company, TH Heavy Engineering Bhd, which amounted to RM164.58 million,” it said.

TH Heavy’s net loss narrowed to RM120.23 million for FY17 from RM439.64 million for the previous year. Its annual revenue plunged 70% year-on-year to RM5.4 million from RM17.78 million.

Tabung Haji has been sitting on a huge loss with TH Heavy since it bought into Ramunia Holdings Bhd, the previous incarnation of TH Heavy, in 2008.

Earlier that year, MISC Bhd proposed to inject its oil and gas unit, Malaysia Machine and Heavy Engineering Sdn Bhd, into fabricator Ramunia in a reverse takeover. However, the RM3.2 billion proposal was called off after MISC announced unsatisfactory due diligence findings. Consequently, Tabung Haji was stuck with a paper loss of some RM175 million after the pilgrims’ fund aggressively accumulated Ramunia shares before MISC called off the deal. Ramunia lost about 70% of its market capitalisation after MISC pulled out.

For the Inland Revenue Board, the AG’s Report said it had granted a non-interest bearing loan of RM100 million to its subsidiary Yayasan LHDN, without any agreement signed between the parties involved.

The financing facility was granted on the condition that Yayasan LHDN would repay the amount from 2037, 20 years after financing was given.

Another agency named in the report was Kumpulan Wang Industri Elektrik, which invested RM2.37 billion in a fixed deposit account at a licenced bank.

While approval for the investment was received by the energy, green technology and water ministry, there was no approval from the finance ministry to invest the amount as required under Section 44D Act 501 – Electric Supply Act (Amendment) 2015.

The AG’s Report also pointed out a RM184.17 million discrepancy in Socso’s contribution records between employers and employees, which it said had been a recurring issue.

It said the difference in the record of payment was due to several factors, including electronic payments made by employers but not accompanied by sufficient information and the submission of compact discs — containing data on their employees — which were unreadable.

The AG’s Report also highlighted a big portion of contributions from federal and state government bodies was not made based on Socso’s procedures.

Universiti Teknologi Mara (UiTM) was issued an unmodified opinion too with an emphasis of matter, as the university had issued a letter of support to its subsidiary UiTM Holdings Sdn Bhd to guarantee the latter’s continued operations.

In turn, UiTM Holdings became the guarantor for a loan amounting to RM17.69 million made by two of its subsidiary companies, UiTM Private Healthcare Sdn Bhd and Section One Sdn Bhd.

Another company, UiTM Solar Power Sdn Bhd, issued sukuk totalling RM240 million with a RM7 million bank guarantee from UiTM Holdings.

“The letter of support has exposed UiTM to uncertain financial commitments from UiTM Holdings Sdn Bhd and the group in future,” said the report.