This article first appeared in The Edge Malaysia Weekly on July 15, 2024 - July 21, 2024

THE Human Resource Development Corporation (HRD Corp) has come under scrutiny following the Public Accounts Committee’s (PAC) inquiry into the government agency’s investment portfolio and asset purchases.

HRD Corp has invested in at least 10 Bursa Malaysia-listed companies, based on data compiled by The Edge (see table).

Last week, the National Audit Department revealed that HRD Corp bought shares in Widad Group Bhd (KL:WIDAD) under a put and call option (PCOA) agreement on Oct 12, 2020.

In the briefing notes, the National Audit Department stated that HRD Corp’s entry price in Widad was at 62 sen a share. Widad’s share price fell off a cliff, dropping from 49 sen in mid-January to a low of 5.5 sen last Friday.

Widad’s annual report for 2023 shows that HRD Corp owned a 3.12% stake, or 96.46 million shares, as at April 18. That block of shares is worth RM5.31 million compared with its investment cost of RM59.8 million.

Based on last Friday’s closing prices, the value of HRD Corp’s stakes in the 10 companies stood at RM565.6 million. HRD Corp’s 2023 annual report shows that its equity investments amounted to RM612.77 million, which is 75% higher than the RM352 million in 2022.

Among the 10 companies, HRD Corp’s investment in Chin Hin Group Bhd (KL:CHINHIN) seems to be faring well as the share price has surged nearly 57% over the past 12 months, partly driven by its one-for-one bonus issue in early May.

Bloomberg data shows that HRD Corp sold some 41.66 million Chin Hin shares in June. It is currently left with 41.66 million shares, which are worth RM140 million based on last Friday’s closing of RM3.36.

HRD Corp also has a position in Chin Hin’s property arm — Chin Hin Group Property Bhd (KL:CHGP). Its 2.39% stake, or 15.79 million shares, are worth RM37.74 million based on RM2.39 a share.

Chin Hin owns a 61.56% stake in CHGP.

Meanwhile, HRD Corp also invested in the Hextar group of companies, namely Hextar Global Bhd (KL:HEXTAR) and Hextar Industries Bhd (KL:HEXIND), according to the companies’ latest annual reports.

HRD Corp holds a 2.6% stake in Hextar Industries amounting to RM35 million, and a 1.64% stake in Hextar Global which is worth RM56.83 million in total, based on last Friday’s closing prices.

Shares in Hextar Global have gained 21% over the last one year, and more than 67% in the last two years, to 89.5 sen apiece, while Hektar Industries’ share price has gained 13.4% year on year (y-o-y) and 54.3% in the last two years to 49 sen a share.

HRD Corp also holds shares in the Berjaya Group of companies, namely Berjaya Corp Bhd (KL:­BJCORP), 7-Eleven Malaysia Holdings Bhd (KL:SEM) and Berjaya Food Bhd (KL:BJFOOD), as the latest annual reports show.The government agency has 4.12% equity interest in Berjaya Corp worth RM79.35 million, a 4.5% stake in 7-Eleven Malaysia worth RM100 million and a 4.9% stake in Berjaya Food worth RM46.46 million.

Shares in Berjaya Corp gained 20% y-o-y and 49% over the last two years to 34.5 sen a share. 7-Eleven’s share price has been flattish over the last one year but has surged 30% over the past two years to RM2 apiece. On the other hand, Berjaya Food’s share price has fallen 16.9% year to date because of the boycott of Starbucks over the Israel-Palestine conflict. The stock has fallen 18.55% over the last two years.

HRD Corp’s other investments are a 2.85% stake in NCT Alliance Bhd (KL:NCT), 3.36% in Teladan Group Bhd (KL: TELADAN), 4.38% in MAG Holdings Bhd (KL:MAG) and 0.84% in Sasbadi Holdings Bhd (KL:SASBADI).

HRD Corp began investing in Sasbadi in 2020, but it is no longer listed in the company’s 2023 annual report.

Teladan and NCT Alliance are related to Chin Hin group and Hextar group, which have common shareholders in the Chiau families and Datuk Eddie Ong Choo Meng.

According to the 2023 annual reports, Ong owns a 2.07% stake plus 4.64% warrants in Melaka-based property developer Teladan. Meanwhile, Chin Hin’s executive chairman Datuk Seri Chiau Beng Teik owns a 1.23% stake in Teladan. Over at NCT Alliance, CHGP owns a 4.84% stake in the company, while the Chiau family holds a 9.11% stake.

NCT Alliance ended the week at 51 sen a share, giving it a market capitalisation of RM852.4 million. Teladan last traded at RM1 (market cap: RM812.6 million), MAG Holdings closed at 18 sen (RM300.36 million) and Sasbadi at 18 sen per share (RM76.32 million).

HRD Corp, which collected more than RM2 billion in levies from over 80,000 employers last year, had investments in various kinds of capital market instruments amounting to RM1.45 billion at end-2023. It had invested RM612.8 million in equities, RM170.3 million in redeemable cumulative convertible preference shares (RCCPS) and RM135.5 million placed with unit trusts.

According to its 2023 annual report, the investment in securities came with put and call options “to manage price risk exposure arising from certain equity investments held”.

The government agency explained that the put option 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% and 8.5% a year. Likewise, the call options allowed it to “call” (buy) shares that it originally owned at the original price plus a premium of between 8% and 8.5% a year.

As such, the options are only financially feasible if HRD Corp’s counterparty has the financial resources to fulfil its obligations.

In the case of Widad, it was reported that HRD Corp bought its stake in the company at 62 sen a share in 2020. Today, the counter is trading at six sen.

Executed alongside an initial share sale agreement, the PCOA included a moratorium from Oct 15, 2020, to Oct 14, 2021. The agreement was renewed on Oct 12, 2021, extending the moratorium until Nov 30, 2022, following approval in an investment panel meeting.

Complications arose on Nov 30, 2022, when the investment panel committee rejected a proposal for a second renewal of the agreement, citing Widad’s failure to pay the agreed premium on the investment.

Widad appealed on Feb 8, 2023, agreeing to have HRD Corp purchase additional shares at no charge to average down the cost, while committing to premium payments via instalments.

The investment panel committee then overturned its previous decision in a special meeting on April 5, 2023, and approved the second renewal of the PCOA for one year, from Dec 1, 2022, to Nov 30, 2023.

The Minister of Finance Inc subsequently approved the renewal on Oct 16, 2023, setting a renewal price of 54 sen, down from the initial entry cost of 62 sen. The renewal was formalised on Nov 30, 2023. 

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