The government of Malaysia will bear an RM10.3 billion ($2.48 billion) premium to restore the financial health of Lembaga Tabung Haji (LTH) as part of the pilgrimage fund’s rescue and restructuring plan, Urusharta Jamaah Sdn Bhd (UJSB) announced Thursday (Nov. 14).
UJSB – a wholly-owned unit of the Ministry of Finance – completed the transfer of non-performing assets valued at RM9.36 billion held by LTH in December last year, following financial malpractice by the previous management.
The transfer was done from LTH to UJSB in exchange for RM19.9 billion, consisting of two tranches of sukuk (Islamic financial certificates) and RM300 million in cash payable to LTH.
“The difference of RM10.3 billion between the consideration of RM19.9 billion and RM9.63 billion market value of assets is to be borne by the government to ensure that the financial health of LTH is restored,” UJSB said.
In the event the value of the assets depreciates further, the losses for the government will be more than RM10.3 billion.
The assets transferred consist of a mixture of listed equity holdings, properties, and one unlisted plantation asset.
The property assets transferred to UJSB include a 1.56-acre parcel of land at Tun Razak Exchange (TRX), which was purchased by LTH at RM188.5 million (RM2,760 per square foot).
This price was significantly higher than that paid for by 1MDB at only RM5.1 million (RM75 per square foot).
UJSB then bought the TRX land from LTH at RM400 million (RM5,856 per square foot).
The purchase consideration was done at a significant premium (112.2%) to what LTH paid in April 2015 (RM188.5 million).
In a valuation exercise conducted in March 2019, the market value of the land stood at only RM205 million.
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 necessary to ensure the successful rescue and restructuring plan of LTH.
Overall, UJSB will shoulder substantial losses due to impairment charges estimated at more than RM10 billion for the assets acquired from LTH.
The TRX land transaction itself will bring about an impairment charge of RM195 million.
“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 maximize asset recovery value; and to redeem all monetary instruments issued by UJSB and subscribed by LTH in a timely manner,” UJSB added.
The headquarters of Lembaga Tabung Haji (the Malaysian hajj pilgrims fund board) on Jalan Tun Razak, Kuala Lumpur. Picture credit: Astro Awani