Question : 
Was the TH Corporate Restructuring through the sale of assets to the SPV Company transparent, i.e. there is no compromise on the interests of Muslims including its shariah compliance aspects due to too much scepticism and secrecy in its transactions involving Muslim assets before?

Answer:
The full list of TH assets transfer to the SPV was submitted to the Dewan Rakyat on 14 March 2019 and is now available on the official portal of the Dewan Rakyat. On 28 December 2018, TH has already informed the companies listed on Bursa Malaysia where TH can release interest exceeding 2%. This revelation is a source of news reported by the mass media. The TH Restructuring and Rehabilitation Plan was also tabled in the Dewan Rakyat on 10 December 2018 and the document was also distributed to reporters. Confidentiality of this transaction does not arise as all information has been disclosed in Dewan Rakyat and Dewan Negara. For example, the same question on the name of the directors of the SPV has already been stated or answered at the Dewan Negara sitting in December 2018.

• No relationship, except only involved in the formation of the SPV and the planning of the TH Structuring and Rehabilitation Plan.

• TH has the First Right of Refusal on the assets that have been transferred if SPV wants to dispose of those assets

Sukuk has terms that can help the Government's financial flexibility in order to reduce the government's debt burden. Cash injection will put pressure on the Government finances as the Government is forced to make additional loans and the debt burden of the country will increase. This increase in debt is likely to have a negative impact on the National credit rating.

As a result of this Restructuring and Recovery Plan, TH recorded total assets of RM76.5 billion compared to liabilities of RM75.5 billion in the financial year ended December 31, 2018. TH's income in 2018 was RM4.2 billion while its profitability was RM2.0 billion. Based on this financial performance, TH was able to make hibah distribution for 2018 in accordance with the Tabung Haji Act 1995.

The premium rate is required to cover the deficit gap between the value of TH's assets and liabilities as a result of the impairment of TH's investment. SPV is wholly owned by the Government, where under section 24 of the Tabung Haji Act, all deposits will be borne by the Government. It is the Government's responsibility to ensure that TH's financial position can be restored immediately.

TH cannot be the asset manager for the SPV directly as TH can be considered to still hold the interest in the assets transferred. Therefore, according to accounting principles, TH still needs to consolidate assets that have suffered a high impairment loss and do not provide good rates of return in TH's financial position. This will result in the asset segregation objective not being achieved, and the deficit gap between asset value and value remains high. This will lead to TH's inability to distribute hibah not only in 2018, but for years to come.

SPV are required to acquire TH assets that aredeclining in value and are becoming less competitive. To ensure that TH's financial position can be restored immediately, these assets are transferred at a premium price that exceeds the market value. This is to ensure that the value of the asset will be higher than the value of the liability to be able to make the distribution of hibah and avoid the possibility of a liquidity crisis.

If these assets are not transferred, the value of TH's liabilities will exceed the value of the assets. Therefore, TH will not be able to distribute grants to depositors for 2018 and the next few years. If this happens it will cause a potential liquidity crisis or bank- run. The government had to make a cash injection to help TH to return the deposit as guaranteed as enshrined in the Hajj Fund Act 1995. This sudden cash injection will burden the country's financial position and can have a negative impact on the country's credit rating.

TH's strategic assets have been taken over by the Government and not individuals or private companies. Acquisition of assets under the TH Structuring and Recovery Plan is also done at a premium rate in order to close the deficit gap between asset values and liabilities and to save TH from liquidity crisis. Muslims need not be suspicious of the status of these strategic assets because the SPV is entrusted to add value to these assets. In fact, TH has also been given the First Right of Refusal to recover potential assets after the asset value is restored.

The transfer of assets totaling RM19.9 billion will be completed through the issuance of two (2) series of sukuk by the SPV amounting to RM10 billion and RM9.6 billion. These zero-coup sukuk will give returns of 4.05% and 4.1% per annum. Another RM300 million will be settled by the SPV through cash payments.

Although there are potential assets and the value of the stock is likely to recover, the gap in the value of the shares is too high, ranging from 20% to 90%. The period of time it takes for the stock to recover could take a long time and cause TH not to close the deficit gap in the near future.

The Board Members of the SPV :

• YBhg Datuk Ahmad Badri bin Mohd Zahir,
  Chief Secretary to the Treasury
   
• YBhg Datin Rashidah Mohd Sies,
  Secretary to the Government Investment Company Division
   
• YBhg Dato’ Mohd Shukri bin Hussin,
  Director of Pelaburan Hartanah Bumiputera Bhd
 
   
• Mr. Mohd Hassan Ahmad
  Deputy Secretary of Fiscal and Economics
   
• Mr. Imri Dolhadi Ab. Wahab,
  Head of Section, Fiscal and Economic Division

CEO SPV:

Mr. Izad Sallehuddin was appointed as the CEO of SPV on April 2, 2019. He has served as Head of Equity Affairs at CitiGroup Global Market Sdn Bhd since 2015, and was in charge of formulating and executing the business strategy of CitiGroup company in Malaysia.

• Asset rehabilitation process through warehousing strategy to prevent fire sale


• Optimizing the realization value of assets for the recovery of those assets through the process of improving property values and disclosure of stock values when capital and financial markets recover

• Manage the operation of assets that have been taken over such as hotels and real estate


• Realize assets in cash for repayment of SPV financial instruments to TH


• Reduce costs to the Government

The issued sukuk provides returns of 4.05% and 4.10% and through this transaction, TH will generate a revenue of RM800 million per year.