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This article first appeared in The Edge Malaysia Weekly on July 4, 2022 - July 10, 2022

URUSHARTA Jamaah Sdn Bhd’s (UJSB) latest financial accounts give an indication of the quality of the assets that it took over from Lembaga Tabung Haji (TH) at the end of 2018. The numbers for the financial year ended Dec 31, 2020 (FY2020) do not look good.

To recap, the Minister of Finance Inc (MoF Inc) set up a special purpose vehicle (SPV), UJSB, at end-2018 to acquire the underperforming assets of TH for RM19.9 billion — in a move to revive the pilgrim fund.

The market value of the assets that changed hands, including land, commercial buildings, hotels, plantations and shares in more than 100 listed companies, was only RM10 billion at end-2018. This means that UJSB paid a steep price, a 99% premium, for TH’s assets.

In FY2019, a year after the transaction was made, UJSB’s total assets stood at RM10.33 billion while its total liabilities were RM20.29 billion. The SPV suffered an after-tax loss of RM9.8 billion that year with RM233.98 million in revenue. Much of these losses are understood to be the result of impairments.

In FY2020, the MoF Inc unit’s total assets shrank by 12% to RM9.09 billion while its total liabilities rose 2.07% to RM20.71 billion. In that financial year, UJSB suffered an after-tax loss of RM1.65 billion without generating any revenue. As a result, its accumulated losses ballooned to RM11.62 billion, according to the financial statements filed with Companies Commission of Malaysia.

In a reply to questions from The Edge on its divestments, a UJSB spokesperson says, “With reference to UJSB’s ongoing portfolio management and its strategic divestment of its stake in certain companies, this is an ordinary course of business undertaken by UJSB.

“Suffice to note, we are always working to build a portfolio of resilient investments that can weather through evolving market conditions and continuously generate value. This has allowed us to improve our portfolio yield year on year and we will continue to focus on strengthening this moving forward,” the spokesperson adds.

UJSB currently owns shares in about 60 companies listed on Bursa Malaysia, from 100 previously. Of these, it holds substantial stakes in 15 of them.

Judging by UJSB’s portfolio in 2018, TH seemed to have an overweight position in the oil and gas (O&G) sector. These O&G assets ended up being taken over by UJSB.

UJSB owned an 8.8% stake in offshore support vessel (OSV) operator Icon Offshore Bhd in 2018 but ceased to be a substantial shareholder in March 2020.  It paid RM1.34 per share for the stake in Icon when the market value was only seven sen.

It also owned a 9.95% stake in another OSV outfit, Alam Maritim Resources Bhd. The block was priced at RM1.21 per share compared with the market price of eight sen. By March 2020, UJSB had sold off its entire stake in Alam Maritim.

UJSB acquired 8.21% of Uzma Bhd from the pilgrim fund for RM2.54 per share, more than four times the market value of 57.5 sen then. It cleared its shareholdings in Uzma in May 2020, when the stock was trading at the 60 sen band.

The SPV paid RM24.43 million, or almost RM2.50 a share, for its stake in the ailing Boustead Heavy Industries Corp Bhd (BHIC), compared with the market price of RM1.31. UJSB ceased to be a substantial shareholder in BHIC at end-March 2021 when the share price was trading at around 56 sen.

UJSB also had non-substantial stakes in Sapura Energy Bhd, Bumi Armada Bhd and Enra Group Bhd, all of which it took over at inflated prices of between 79% and 1,330%, and has since sold down.

At present, it has 4.9% in Velesto Energy Bhd, 9.34% in Petra Energy Bhd, 8.1% in Dayang Enterprise Holdings Bhd, and 5.24% in Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE).

Of the 100-odd companies in which UJSB acquired shares, at least 15% were in O&G.

The rather large exposure to O&G companies made the pilgrim fund vulnerable to the fluctuation in crude oil prices over the past decade. Consequently, its portfolio was hit badly when the O&G sector experienced a prolonged downturn from late 2014 until 2020. Oil prices averaged below the US$55 level during this period.

With a mandate to manage a large amount of money under the pilgrim fund, TH should be well aware of investment risks and returns, having been burnt before.

In 2008, it bought into Ramunia Holdings Bhd — now TH Heavy Engineering Bhd (THHE), in which UJSB has a controlling 64.45% stake — when the Petronas-controlled MISC Bhd proposed a reverse takeover (RTO) exercise to inject its O&G unit Malaysia Machine and Heavy Engineering Sdn Bhd (now public-listed Malaysia Marine and Heavy Engineering Bhd) into Ramunia.

However, the RM3.2 billion RTO was called off after MISC announced that there were “unsatisfactory due diligence findings”, after the shipping giant had postponed the completion of its due diligence three times.

In the period between the announcement of MISC’s RTO and the termination of the deal, TH had bought almost 29.7% of Ramunia’s stock, and was later left with a paper loss of some RM175 million. After MISC withdrew from the deal, Ramunia shed some 73% of its market capitalisation.

In September 2015, TH had to participate in THHE’s recapitalisation exercise by subscribing for irredeemable convertible preference shares (ICPS), which raised RM275 million. But the pilgrim fund was the sole subscriber, and bumped up its shareholding to the current level when the ICPS were converted in September 2020.

UJSB paid RM380.3 million for the block of 334.16 million shares in THHE held by TH, compared with its market value of RM10.02 million then, and RM315.45 million for 1.1 billion preference shares that had a value of RM16.46 million.

Other than O&G companies, UJSB also took over a 19.28% stake in Brahim’s Holdings Bhd from the pilgrim fund for RM83.35 million or RM1.83 per share when the market price was only 28 sen. UJSB ceased to be a substantial shareholder in Brahim’s in April this year, after the company fell into the Practice Note 17 category of cash-strapped companies.

UJSB is also the largest shareholder in Pelikan International Corp Bhd, with a 26.06% stake. It took over 157.18 million shares or 28.66% in Pelikan from TH at about RM2.10 or RM329.49 million, when the stationery maker was trading at 34.5 sen.

Pelikan has been profitable over the last five years. The saving grace of this investment is probably the 20 sen special dividend it declared in FY2021.

It is noteworthy that UJSB has issued RM27.55 billion in government-guaranteed sukuk. The SPV has a finite life of 10 years, after which it will likely be wound up. It is hoped that by then, TH’s financials will be stronger and the hard-earned savings of its members will be yielding good returns.


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