This article first appeared in The Edge Malaysia Weekly on July 29, 2024 - August 4, 2024

AFTER being in the spotlight over the past few weeks for investments that are deemed questionable, as well as some expenses and renovations that are perceived to be high, the Human Resource Development Corporation Bhd (HRD Corp) has broken its silence. Here is the reply it sent to questions posed by The Edge.

The Edge: One of the allegations against HRD Corp involves a deposit of RM120 million meant for the acquisition of a building, Menara Ikhlas, from one Crystal Clear Technology, that did not go through. Was the deposit refunded?

HRD Corp: HRD Corp entered into a lease-to-own agreement with Crystal Clear Technology to purchase Menara Ikhlas with a deposit of RM120 million for a RM202.5 million purchase price. It was agreed between the parties that the balance payment of RM82.5 million would be spread out over 10 years. It was also agreed that during the lease-to-own period, HRD Corp will be able to rent out sections of the building and collect additional rental income, thereby ensuring that HRD Corp will mitigate the overall cost of the purchase of the building and be more prudent in its expenditure.

While there were concerns as to why HRD Corp did not just pay a 10% deposit, it should be noted that this is not a standard outright purchase where a buyer puts in a 10% deposit and is then given three months to pay the remaining 90%. This would have been risky to HRD Corp, given the high amount involved.

Nevertheless, when HRD Corp decided to terminate the agreement, the RM120 million was refunded to HRD Corp, together with an interest of RM3.2 million. HRD Corp did not incur any losses from this agreement.

For clarity, why was the money deposited with Crystal Clear Technology? From what we gather, Crystal Clear Technology was not the owner of the building.

Menara Ikhlas was an auction property that Crystal Clear Technology had won the bidding for. HRD Corp’s sale and purchase agreement with Crystal Clear Technology was entered into on the understanding that Crystal Clear Technology would obtain vacant possession of Menara Ikhlas and would therefore then be able to sell Menara Ikhlas to HRD Corp.

HRD Corp decided to terminate the agreement when Crystal Clear Technology failed to obtain the vacant possession of the property after the period stipulated in the agreement. The deposit for RM120 million was made to the solicitors representing Crystal Clear Technology and not to them directly, as is the standard industry practice. This money was returned by the lawyers to HRD Corp, when the agreement was terminated.

When these investments were made, is it true that they were done without board approval? Do you think there is a lack of checks and balances?

This is not true. All investments must be submitted to the investment panel for their review and approval. The investment panel has an obligation to provide an update to the board of directors on the status of all investments upon request. These are all prescribed by Section 26 and 27 of the PSMB Act 2001 (Pembangunan Sumber Manusia Bhd Act, 2001).

The investment panel of HRD Corp is an independent body comprising the chairman (who is also the chairman of the board of directors), two members of the board, one representative of the Ministry of Finance (MoF) and two independent members selected by the minister with the relevant industry, financial and business experience to oversee the investment function at the organisation. The investment panel itself acts as a check and balance body to the board of directors and the management of HRD Corp as it comprises a representative of MoF as well as independent parties with the relevant industry experience.

Was CEO Datuk Shahul Hameed Dawood’s company, MyEvents, ever used by HRD Corp for any event management purposes? Were any jobs subcontracted to MyEvents?

HRD Corp has never appointed the event management company MyEvents or subcontracted any jobs to MyEvents. HRD Corp also does not use the services of event management companies as all events are planned, executed and managed internally by its staff. HRD Corp only hires contractors for logistics support of its events if required and the selection of contractors are always done through its proper procurement process.

In HRD Corp’s Annual Report 2023, it shows that the firm generated about RM308.42 million in revenue. Can you explain and elaborate on what your main sources of income are?

HRD Corp has been prudent in its spending and investments and has continued to ensure its solid financial health and self-sufficiency. HRD Corp’s sources of income are as follows:

•     RM190 million operating income comprising — RM106 million from investments, RM45 million from service fees, and RM38.6 million from fees, lease income, revenue generating projects (that is, conference, signature programmes, and so on).

•     RM70.9 million non-operating income comprising — RM44 million from fair value through profit and loss, RM23.7 million in equities and RM3.2 million in others

•     RM47.52 million in strategic incentives disbursements — funds acquired and disbursed into strategic upskilling and reskilling programmes for the nation.

The annual report also shows that HRD Corp spent more than RM200 million in operating expenses. What are these expenses for? Why are the expenses so high for an organisation with 700 staff?

In 2023, HRD Corp recorded an overall surplus before taxation of RM97.48 million, compared with RM29.79 million in 2022, which is an increase of 227%. Nevertheless, HRD Corp’s operating expenses had only increased 38.7%, going from RM107.37 million in 2022 to RM148.98 million in 2023. The growth in operating expenses has been moderate and conservative despite the higher income.

It is worth noting that HRD Corp’s operating expenses have grown in tandem with the growth in the number of employers registered with HRD Corp, following the expansion of the PSMB Act 2001 on March 1, 2021. This mandated that all employers from all sectors must start paying levy to HRD Corp. As a result, HRD Corp’s registered employers grew from 33,300 in 2021 to 89,912 in 2023 while levy collection grew from RM848 million in 2021, to RM1.80 billion in 2022 and RM2.13 billion in 2023.

To enable HRD Corp to serve the exponential increase in registered employers quickly, and efficiently, it needed to scale up its operations accordingly. This included hiring more staff, upgrading its IT infrastructure in line with its digital transformation efforts, as well as acquiring or leasing new offices across the country to house new employees and ensure its registered employers can reach out to and engage with its staff properly.

Based on companies’ annual reports on Bursa Malaysia, it shows that HRD Corp invested in 10 to 11 listed companies, namely, Widad Group Bhd, Berjaya Corp Bhd, Teladan Group Bhd, Chin Hin Group Bhd and Hextar Group. Can you elaborate how these investments were made? What are HRD Corp’s criteria or requirements when making an investment?

HRD Corp has always been committed to maximising its investment returns while safeguarding its principal. Every investment follows a strict investment framework and policy. Every investment proposal sent to the investment panel is accompanied by a detailed financial analysis that covers the company’s (that HRD Corp is investing into) revenue, profit, retained earnings, price-earnings ratio, share movement, free cash flow, current ratio, gearing (ratio of borrowing over equity), historical and current order book and industry benchmarking.

As a result, HRD Corp’s investments have recorded a consistent overall profit for the past three years at RM58.4 million in 2021, RM76.5 million in 2022 and RM106.3 million in 2023.

Can you explain the acquisition into Singer (Malaysia) Sdn Bhd and Berjaya Capital Bhd? These are both private companies. What motivated HRD Corp to buy into these private companies? Can you elaborate more on what the investment size is in these two companies?

All investments are made based on the PSMB Act 2001, its limits of authority, investment framework and investment policy. HRD Corp is allowed to invest into private companies under the PSMB Act 2001. The investments into these companies were made after a thorough analysis of the viability of the companies and taking into consideration the control measures in place to ensure that HRD Corp’s investments are protected and its risks are minimised.

The Public Accounts Committee (PAC) mentioned that some of the investments made by HRD Corp are “high-risk” in nature. What is your opinion on this? Do you think they are high-risk investments? If not, why?

No. As explained by the Honourable Minister of Human Resources Steven Sim Chee Keong in parliament recently, 85% of HRD Corp’s investment portfolio comprises low-risk investments in fixed deposits, bonds, sukuk and unit trusts (that is, Amanah Raya). The rest are in moderate-risk investments such as shares.

However, to protect its investments, HRD Corp does not trade in shares in the open market. Instead, shares are purchased through a put and call option with corporate and personal guarantors as added layers of protection to HRD Corp’s investments.

PAC said that HRD Corp does not have a mandate to invest its funds. What is your take on this?

HRD Corp has the mandate to invest as prescribed by Section 26 and 27 of the PSMB Act 2001. It has exercised all due diligence and has been prudent in its investments to ensure HRD Corp records profits while protecting its principal.

When the investment panel was created at HRD Corp, was there a blueprint or plans on how to invest HRD Corp’s funds? Can you share what kind of returns HRD Corp is aiming for on an annual basis? What are your investment goals and risks? Do you have an internal investment team overlooking the funds? What is the process like? Who is the key decision-maker when it comes to investment decisions?

All investment proposals are reviewed by the Treasury Department, which then conducts a thorough analysis of their viability before presenting them to the investment panel. The investment panel will then deliberate on the proposal before making a decision. HRD Corp targets to secure a return on investment of 5.2% from its investments based on industry benchmarking. This was achieved in 2023.

The perception of HRD Corp has been somewhat negative for some time now. What is your plan to make the opinion/view/image of HRD Corp better?

We are a 31-year-old organisation that has served Malaysian industries, employers, employees and talents effectively since the start of our operations. In the last three decades, we have:

•     Collected RM15.14 billion in levy

•     Disbursed RM10.84 billion in training grants

•     Trained more than 7.1 million Malaysians

•     Approved over 22.1 million in training places

Beyond our registered employers and their employees, we have also expanded training and development opportunities to communities in need. These include B40, senior citizens, persons with disabilities, former prisoners, micro-SMEs and more.

In fact, most recently, we organised the National Training Week, a week of nationwide free training programmes and activities for all Malaysians, where working with our partners and collaborators, we offered over 65,000 free training courses, recorded over 376,000 training participation, and delivered over 1.03 million training hours and RM323 million in training value.

We have also provided other platforms to help Malaysians learn, such as our e-LATiH, a free and premium online learning programme with over 160,000 training courses from 13 local and international industry players, which are Microsoft, LinkedIn, Skillsoft, Harvard Business School Publishing, Go1, Asia e University, Udacity, FutureLearn, Alibaba Cloud, Google Cloud Partner, Accenture, Rosen, and AirAsia Academy.

We remain committed to our mission of ensuring that every Malaysian has the opportunity to improve their skills and knowledge and secure better career and income-generation opportunities for the long term. We will continue to communicate these programmes and initiatives to all Malaysians to ensure that they know of and can benefit from them. We strongly believe that by doing so, more Malaysians will understand what we do and see the value that HRD Corp brings to the nation.

Events of the last few weeks, while unfortunate, are just a small part of our long and solid journey. As long as we continue to do our work ethically, transparently and passionately, we believe perceptions will change for the better.

Where do you see HRD Corp in five years?

HRD Corp hopes to continue to grow and become better and stronger as an organisation. We also hope to be in a better position to offer more support to our registered employers and their employees in particular, such as offering more high-value local and international certification programmes at competitive rates, enabling them to get the best value for their levy. This will also include strengthening our existing levy schemes and ensuring they have more avenues to use it for.

HRD will continue to stay ahead of rapid industry developments to ensure we are meeting the needs of the nation, industries, organisations and employees. To that end, we will continue to lead the way in offering the latest work-based learning models, high-value certifications, as well as non-traditional education, certification and career pathways for Malaysian talents and professionals for the long term.

HRD Corp also hopes to continue supporting the nation’s human capital development agenda, particularly in ensuring Malaysia achieves 35% high-skilled workers by 2030. This will entail providing more learning and development opportunities to every level of the Malaysian society, thereby ensuring that no one is left behind.

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