This article first appeared in The Edge Malaysia Weekly on December 10, 2018 - December 16, 2018

SINCE it was established in September 1963, Lembaga Tabung Haji (TH) has managed and built up the haj pilgrim fund so that depositors have enough savings when they embark on a pilgrimage to Mecca to fulfil the fifth pillar of Islam.

Like any other fund management firm, TH invests in stocks, fixed income instruments, property development and other businesses. However, unlike most of Malaysia’s public fund management firms, TH has a high proportion of stocks in its portfolio.

Unfortunately, these investments do not always give good returns. A prime example and also one of TH’s most prominent public-listed investee companies is TH Heavy Engineering Bhd (THHE), which has been bleeding red ink since the financial year ended Dec 31, 2014 (FY2014), at the very least. As at June 30 this year, it had accumulated losses of RM697.07 million.

TH first emerged as a substantial shareholder in the then Ramunia Holdings Bhd on Nov 2, 2007, and by Dec 24, had enlarged its stake to 5.18%. As Ramunia’s average share price in 2007 was RM1.19, TH’s investment in the company was valued at around RM30.1 million.

To be sure, Ramunia had an attractive asset back then. It owned a 170-acre fabrication yard in Teluk Ramunia in southern Johor, one of the largest in Asia. This asset had received three acquisition proposals, but Sime Darby Bhd finally sealed the deal in 2010.

In January 2008, before the yard was bought by Sime Darby, Ramunia’s board of directors announced that it had accepted a RM3.2 billion takeover bid from state-controlled MISC Bhd. The RM3.2 billion valuation pegged TH’s 6.1% stake in Ramunia as at Jan 17, 2008, at RM195.2 million.

However, the deal was scrapped by MISC in November 2008 following unsatisfactory due diligence findings, one of which was the deterioration in the net asset per share of Ramunia between Oct 31, 2007, and July 31, 2008.

Ramunia’s net asset per share as at end-October 2007 was RM1.13, but by end-July 2008, it had tumbled to a mere 41 sen after its oil and gas business registered a pre-tax loss of RM192.67 million for the nine-month period, compared with a pre-tax profit of RM27.4 million in the previous corresponding period.

The first cracks were now evident.

In notes accompanying its filings with Bursa Malaysia, Ramunia attributed the huge losses to higher project overheads, cost over-runs and losses, foreign exchange losses, disputed change orders, provisional sums, and project bidding costs.

Nevertheless, its yard continued to attract interest. In August 2009, the group entered into a definitive sales and purchase agreement with Sime Darby Engineering Sdn Bhd for the disposal of the yard for RM530 million. The deal was completed in April 2010.

Post-disposal of the yard, Ramunia acquired a 56.79-acre fabrication yard in Pulau Indah, Port Klang.

In spite of the losses of RM279.83 million in FY2008 and RM50.2 million the following year, TH persisted in accumulating Ramunia shares and by Feb 28, 2009, owned 29.68% of the company, making it the largest shareholder.

Worse was to come when in its FY2009 audited accounts, its auditor expressed a modified opinion of Ramunia as a going concern because of its net current liabilities of RM29.74 million and shareholders’ deficit of RM28.44 million.

Ramunia was classified as a PN17 company on March 1, 2010, but managed to turn around in the financial year ended Oct 31, 2010 (FY2010), with a net profit of RM67.99 million, mainly because it disposed of its assets. Two years later, it exited PN17 status.

However, the respite was short-lived. Renamed THHE in 2010, its performance started to deteriorate by the last quarter of FY2013 and by 2015, it had to undertake the issuance of 1.1 billion irredeemable convertible preference shares (ICPS) to stabilise its financials.

TH was the only subscriber for the ICPS, pumping in RM275 million for 99.76% of the five-year tenured instruments. Should TH convert the ICPS, it will control more than 64% of THHE.

At present, the group is yet again a PN17 company, falling into the category in April last year after its external auditor said it was disclaiming its audited financial statements for FY2016 because of various financial issues the group was facing.

At the time of writing, THHE had yet to come up with a regularisation plan to exit its PN17 status. The company has been granted another extension and has to submit the plan before or on April 25 next year. As at last Friday, the counter was trading at 3.5 sen.

Another company in which TH was a substantial shareholder was AKN Technology Bhd, which was delisted in June 2011, after failing to regularise its financials.

A semiconductor service provider, AKN was classified as a PN17 company after its auditor issued a disclaimer on its annual audited accounts for the financial period ended June 30, 2008. The group had submitted a regularisation plan (RP) in October 2009 but was asked to submit an enhanced one.

HwangDBS Investment Bank Bhd was appointed to assist in the preparation and submission of the enhanced RP, which was submitted in January 2010. However, the enhanced RP was rejected by Bursa in September of the same year.

At the time of the delisting, TH owned 5.27% of AKN. Its shareholding was only surpassed by businessmen Datuk Ahmad Kabeer Mohamed Nagoor and Ooi Boon Leong, who owned 13.42% of AKN through AKN Capital Sdn Bhd.

To be fair, not all of TH’s investments have performed so dismally.

The fund owns the biggest stake in the country’s oldest Islamic financial institution, Bank Islam Malaysia Bhd, through its 53.5% equity in BIMB Holdings Bhd.

Currently trading at RM3.78, BIMB’s share price has gained a massive 710.5% since its listing in March 1992. Admittedly, those impressive gains have come over 26 years.

Perhaps more importantly for TH and its depositors, BIMB has consistently paid dividends over the past 18 years, except for the financial year ended Dec 31, 2006 (FY2006), when the bank posted losses of RM1.23 billion after setting aside RM1.48 billion in provisions during the year.

BIMB continued with its dividend payments in the years after the FY2006 losses, but at a single-digit level until FY2011 when it started to pay double-digit dividends, underscoring its significant improvement over the years.

In the last financial year, for instance, the bank declared total dividends amounting to 14 sen a share.

Through BIMB’s 59.64% stake in Syarikat Takaful Malaysia Bhd (STMB), TH also controls the takaful operator.

Over the past five years, STMB’s share price has more than doubled, reaching RM4.05 as at last Friday’s close.

The pilgrim fund also holds a 4.9% stake in pharmaceutical company YSP Southeast Asia Holdings Bhd, whose share price over the last five years has also more than doubled to RM2.66.

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.