Frankly Speaking

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Firmness begins at homeAt the rate the National Higher Education Fund (PTPTN) is giving out study loans, it will be RM46 billion in the red by 2020, Higher Education Minister Datuk Seri Mohamed Khaled Nordin revealed recently. Such a massive deficit is obviously unsustainable, and must be corrected as a matter of urgency, lest the fund should become unable to meet the demand for study aid before long.

That would have repercussions all around. Deserving students may find their academic progress stalled due to the lack of available financing; tertiary institutions would have to cope with a revenue shortfall; academic programmes may have to be curtailed; the nation’s human capital development would be retarded to a corresponding extent; and, popular disaffection against the establishment by frustrated youth may increase. These are all undesirable consequences that should be avoided through prudent financial management.

A root cause of this fiasco is the ineffectiveness of the fund in arresting the high rate of defaults. Since its inception in 1998 until October last year, the fund has hauled 18,532 loan defaulters to court. This year, 78,000 defaulters were barred from leaving the country.

To improve its collection rate, the fund needs to adopt the standard operating practices of commercial lending institutions. Clearly, if a private lender were to have the PTPTN’s profile of non-performing loans, it would find itself out of business very soon.

Why the fund cannot maintain a similar level of discipline is a mystery, unless there is a political reason to go soft on defaulters.

As a government institution, it should be a simple enough matter for the fund to trace its borrowers through the Inland Revenue Board or the Employees Provident Fund.

If it cannot turn the screws on bad debtors, the PTPTN has only itself to blame.Indemnity letter an issue?For two weeks, PricewaterhouseCoopers (PwC) was in the limelight due to a letter of indemnity it was seeking from the Port Klang Authority (PKA) that had wanted to make public a report prepared by the accounting firm on the controversial Port Klang Free Zone (PKFZ).

But now that the issue with regard to the letter of indemnity has been settled, the PKA is leaving the release of the report to the Cabinet that incidentally had ruled out the need for such a letter.

This brings us back to the question, is the letter of indemnity really an issue?

Before PwC started its report on the PKFZ, the board had issued the letter to the accounting firm. This is a standard procedure that all accounting firms practise. After PKA decided to make the report public, the accounting firm had asked for another letter of indemnity.

But two members of the board did not want to sign off on the second letter. If all board members had signed off the first letter without trepidation, why hesitate signing off on the second letter?

Anyway, all the information that PwC could have put in the report must have been extracted and sourced from the management of PKA.

In arriving at the project’s financial viability and cash flow projections, it is highly unlikely that the accounting firm could have plucked the numbers out of thin air. Assumptions would have been based on numbers given by the management of the port.

In a nutshell, all that was in the report would have been a reflection of what had actually transpired. If at all there was a legal suit, it would have gone back all the way to PKA. So, why all the fuss over the letter of indemnity? Unless certain directors were not keen on seeing it made public?TA’s timingWhen there is less than two months left before a particular warrant expires, it is almost certaing that investors will sell out if it is out of the money.

That was the scenario most TA Enterprise warrant holders were facing before May 8 when the company announced an impending revision of its proposed listing of TA Global and distribution in specie of the shares in the new company.

With the warrants expiring on June 24, most of them would have sold out. Considering that the warrants are in the money, those who had sold would have every reason to gripe.

In the same vein, existing shareholders of TA Enterprise who don’t have the warrants would also have reason to complain about the dilution caused by the conversion of warrants to shares.

Also, considering that a dividend in specie had been offered under the proposed scheme, the existing shareholders would have received more shares had the warrants expired worthless.

This brings us to the question of the timing of TA Enterprise’s announcement of its corporate exercise.The dividend in specie has made the group’s warrants worth converting into TA Enterprise shares. This will. in turn, help the company to raise some RM470 million should all the warrants be converted into shares.Now the question is, what are the company’s plans for the money raised? Is it looking at acquiring more properties, including hotels, overseas?

Could the announcement have been better timed? Had warrant holders known of this development earlier instead of slightly less than two months before expiry, many would not have sold out.

This article appeared in The Edge Malaysia, Issue 756, May 25-31, 2009