Tabung Haji scandal and illegal dividends

December 11th, 2018

The government yesterday released a damning report on Lembaga Tabung Haji (TH), highlighting illegal dividend distributions since 2014, assets shrinkage of more than RM4 billion and claims of accounting irregularities to mask a higher profit

The report, which was tabled in Parliament by Minister in Prime Minister's Department (Religious Affairs) Datuk Seri Dr Mujahid Yusof Rawa, showed a financial hole of RM4.1 billion between total assets and liabilities, making the fund ineligible to pay dividends to depositors.

Investigation by independent auditor PriceWaterhouseCoopers (PwC) unearthed that TH has total assets of RM70.3 billion against RM74.4 billion in liabilities at the end of 2017, a hole of RM4.1 billion.

The pilgrim fund's financials indicated that every ringgit of its liabilities is backed by 94.4 sen in assets. The assets to liabilities ratio had widened from an estimated 98 sen to RM1 indicated by the central bank at the end of 2015.

"TH did not have enough assets to cover its liabilities and they still declared hibah (dividends) since 2014. I leave it to your imagination to think of how they obtained the money to make the payouts," Mujahid told the media at the Parliament lobby yesterday.

The state-owned fund, with nine million depositors and manages thousands of Malaysian Muslims to perform the haj every year, had acted against TH Act 1995.

The bylaw that governs the fund prohibits dividend and bonus payments if the assets slide lower than its liabilities. TH is also not allowed to pay the yearly hibah if it is not profitable.

Mujahid said dividend payments made since 2014 had not met the requirement of assets against liabilities and that there must be distributable profits.

The minister, who is in charge of TH, warned of larger gaps in the pilgrim fund's financials.

"The hole is getting bigger. If I may say, it is more than RM4.1 billion today. This is not sustainable," he stressed.

Meanwhile, Malaysiakini, which quoted PwC's financial position review for 2017, claimed TH had paid hibah using depositors' savings and the fund had masked its profitability by structuring deals to show profits.

The online news portal said TH sold shares in BIMB Holdings Bhd for a profit before buying back the stake. The report also said the pilgrim fund's subsidiaries had announced high dividends, but were not fully paid to TH.

"This would only lead to the hibah being funded out of the cash from the depositors' savings funds, and not the profits declared," PwC said in the financial position review.

The report said TH sold RM2.55 billion in shares to generate a gain of RM553 million, but spent RM2.69 billion buying back the same shares, according to Malaysiakini. TH is a major shareholder in BIMB with about a 52% interest in the holding company of Bank Islam Malaysia Bhd, the country's first Islamic bank.

The financial scandal has also forced the government to embark on a comprehensive turnaround plan to plug the hole.

"That is why a recovery plan is urgently needed and that is what we have agreed on," he said.

Mujahid said the comprehensive turnaround plan at TH will include a special-purpose vehicle (SPV) to take over, rehabilitate and maximise recovery of the state-owned fund's underperforming assets.

The SPV has been approved by Cabinet and will be rolled out before the end of the year.

TH will also be placed under the supervision of Bank Negara Malaysia (BNM). Currently, the pilgrim fund is solely governed by its Act. BNM has no regulatory oversight of TH.

"The Cabinet has discussed the turnaround plan and given our full endorsement so that TH's financial position is restored and confidence regained," Mujahid said, adding that more details on the plan will be revealed today.

The minister, however, assured depositors that dividends for financial year 2018 (FY18) will still be paid out, in line with the two prerequisites stated in the Act.

"I believe TH will be able to make a small profit to announce dividends. TH will announce the amount by year-end as their accounts have not been closed yet," he said.

The 2017 Auditor-General's Report last week revealed that TH has failed to record an impairment totalling RM227.81 million on its investments in several subsidiaries and associates. This is due to inconsistencies in its asset impairment policy, which was changed every year. In fact, the policy was modified twice in FY17.

The new management, led by former Bank Islam CEO Datuk Seri Zukri Samat, is expected to announce more revelations related to the fund today.

TH lodged two reports with the Commercial Crime Investigation Department at the end of last month, implicating former chairman Datuk Seri Abdul Azeez Abdul Rahim, former CEOs Tan Sri Ismee Ismail and Datuk Seri Johan Abdullah, as well as four current top officers.

Govt to bear RM10.3bil in Tabung Haji's rescue and restructuring plan

Thursday, 14 Nov 2019

The government will bear RM10.3bil premium to ensure the financial health of Lembaga Tabung Haji (LTH) is restored as part of the rescue and restructuring plan of the pilgrimage fund, Urusharta Jamaah Sdn Bhd (UJSB) announced Thursday (Nov 14).

UJSB, which is a wholly-owned unit of Ministry of Finance (MoF) completed the transfer of non-performing assets valued at RM9.63bil held by LTH in December last year, following financial mismanagement and wrongdoings by the previous management.

The transfer was done from LTH to UJSB in exchange for RM19.90bil, consisting of two tranches of sukuk totalling RM19.60bil, namely RM10bil of seven-year

sukuk and RM9.9bil of Islamic redeemable convertible preference shares (RCPS-i) as well as RM300mil in cash payable to LTH.

"The difference of RM10.3bil between the consideration of RM19.90bil and RM9.63bil market value of assets is to be borne by the government to ensure that the financial health of LTH is restored," UJSB said in a statement here, Thursday.

UJSB pointed out that in the event the value of the assets depreciates further, the losses shouldered by the government will be higher than RM10.3bil.

Explaining on the assets transferred, UJSB said it consist of a mixture of listed equity holdings, properties and one unlisted plantation asset.

The property assets transferred to UJSB include 0.63ha of land at Tun Razak Exchange (TRX).

The land was purchased by LTH at RM188.5mil or RM2,760 psf, significantly higher than that paid for by 1Malaysia Development Bhd (1MDB) at only RM75 psf (or RM5.1mil for 0.63ha).

UJSB then purchased the TRX land from LTH at RM400mil or RM5,856 psf, which does not reflect the actual market value of the said land. The purchase consideration was done at a significant premium (112.2 per cent) to what LTH paid in April 2015 (RM188.5mil or RM2,760 psf), it explained.

In a recent valuation exercise conducted in March 2019, the market value of the said TRX land stood at only RM205mil.

The huge difference between the market value and the purchase value of the land (95% premium over market value), together with all the other assets acquired by UJSB, was needed to ensure the successful rescue and restructuring plan of LTH.

Overall, UJSB will bear significant losses as a result of impairment charges estimated at more than RM10bil for the assets acquired from LTH.

The TRX land transaction itself will result in an impairment charge of RM195mill.

"With the transfer of assets now completed, UJSB will continue with its mandate and purpose, which are to carry out the rehabilitation and restructuring of assets under its care; to maximise asset recovery value; and to redeem all monetary instruments issued by UJSB and subscribed by LTH in a timely manner."

Source:

https://themalaysianreserve.com/2018/12/11/tabung-haji-scandal-and-illegal-dividends/

https://www.thestar.com.my/news/nation/2019/11/14/govt-to-borne-rm103bil-in-tabung-haji039s-rescue-and-restructuring-plan

Questions:

1.In your opinion what are the possible causes of the Lembaga Tabung Haji scandal?

(20 marks)

2.How did Lembaga Tabung Haji managed to payout hibah (dividends) since 2014 when the bylaws that governs the fund prohibit dividend and bonus payment if the assets slide lower than its liabilities?

(20 marks)

3.Should the government get involved to bail out Lembaga Tabung Haji? Why and why not?

(20 marks)

4.Should the former chairman Datuk Seri Abdul Azeez Abdul Rahim, former CEOs Tan Sri Ismee Ismail and Datuk Seri Johan Abdullah, as well as four current top officers, be held responsible for the scandal? Why or why not?

(20 marks)

5.Suggest course of action that Lembaga Tabung Haji as well as the government should take in order to ensure that such scandal will not arise in the near future.

(20 marks)