This article first appeared in The Edge Malaysia Weekly on July 8, 2024 - July 14, 2024

Human Resource Development Corporation’s (HRD Corp) property, plant and equipment (PP&E) expenditure has risen over the years. Besides the purchases of new furniture and fittings and motor vehicles, there have also been renovation costs (see chart 1). Renovations are capitalised as part of cost to fixed assets under PP&E because they can be seen as extending the useful life of the assets.

HRD Corp’s balance sheet for the past 10 years (2013-2023), except for 2021 and 2022, showed that it had booked an amount  for renovation each year. In 2023, renovation costs soared to RM6.569 million. It booked another RM2.1 million as reclassified under renovation. These lifted the accumulated value of renovations to RM16.06 million.

According to the Public Accounts Committee’s report released last Thursday, HRD Corp had spent RM1.5 million renovating a community centre in Tapah, Perak. Its chief executive Datuk Shahul Hameed Shaik Dawood told the PAC that the building, which HRD Corp had bought in 2023, was being renovated to serve as a “learning and development” facility for the Orang Asli because they had no internet there. He said the large sum was because it was “a state-of-the-art” renovation, including the installation of two screens costing RM100,000 both of which are not being used currently.

Shahul said he was given six months to complete the renovation to make sure that then human resources minister M Saravanan could officiate at the opening of the community centre. Shahul told the PAC that he believed the community centre was located in Tapah because it was the constituency of the former minister.

HRD Corp started investing in derivatives — put and call options — in 2020, the year when the stock market saw a big swing in trading volumes. Its investments in put options has crept up over the past four years (see chart 2), judging by the fair value of the derivatives, up from RM16.09 million in 2020 to RM71.39 million in 2023, while the fair value of its call options climbed from RM31.35 million to RM105.64 million during the period.

HRD Corp stated in its 2023 annual report that it used call and put options to “manage price risk exposure arising from certain equity investments held”. The government agency explained that the put options allowed it to “put” (sell) the shares in hand back to the original vendor at the original purchase price plus a premium that ranged between 8.0% and 8.5% (2022: 8.0% and 8.5%) per annum. Likewise, the call options allowed it to “call” (buy) shares that it originally owned at the original purchase price plus a premium of between 8.0% and 8.5% (2022: 8.0% and 8.5%) per annum.

This appears to be a good hedge. The question is, when the share price collapses, will the vendors honour the contracts? In that case, HRD Corp will have to hold on to the shares or sell the block at a sharply lower price on the open market.

Notably, the government agency, which collected levies amounting to RM2.13 billion from 89,912 registered employers in 2023, also invested in redeemable cumulative convertible preference shares (RCCPS) for the first time in 2023. The fair value of its RCCPS stood at RM170.3 million as at Dec 31 last year.

The government agency’s operating expenses have swelled in the past two years (see chart 3). The amount exceeded RM100 million in 2022 to reach RM107.37 million and climbed further to RM148.97 million in 2023.

One big-ticket item on strategic development activities increased more than three times to RM16.29 million in 2023 from RM5.68 million the year before.

Another big expense was the cost of organising the National HRD Conference, on which HRD Corp spent RM10.9 million in 2023, up from RM4.04 million in 2022. The government agency charged RM3,200 per participant for the standard pass and RM2,900 per participant for the group pass (minimum five participants) for the annual two-day conference.

HRD Corp booked RM11.2 million as income from the National HRD Conference in 2023 and RM4.66 million in 2022. This means the government agency made marginal profit from holding the conference.

HRD Corp’s staff costs went up substantially to RM73 million in 2023, making up 40% of its total operating expenses, from RM53.7 million the year before. The amount was substantially lower at RM13.76 million in 2013. Meanwhile, its travelling and accommodation expenses rose to RM4.89 million last year from RM2.88 million in 2022. 

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