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Malaysia pilgrimage fund says 1Q earnings “sustainable”, no longer insolvent

By Asia Asset Management  
May 15, 2019

Malaysia's Lembaga Tabung Haji (TH) posted a net profit of 440 million ringgit (US$105.50 million) and revenue of 623 million ringgit in the first quarter, and says it’s no longer technically insolvent and that the financial performance is “sustainable” after the troubled fund’s revamp last year.

TH expects revenue to continue growing from the current quarter with dividends from sukuk or Islamic bonds issued by a special purpose vehicle set up by the government to acquire the fund’s underperforming assets.

The dividends “will provide a return of almost 800 million ringgit a year”, TH says in a statement on May 13, adding that it also expects revenue to be bolstered by “the implementation of a new investment adjustment process”.

The fund did not explain the new investment process, and spokespersons did not immediately respond to a request for details.

According to TH, the “sustainable performance” in January-March 2019 was the result of the “successful completion” of its restructuring exercise at the end of last year.

The special purpose vehicle, known as Urusharta Jemaah, is a key part of the overhaul. It will issue 10 billion ringgit of non-tradeable sukuk and 9.9 billion ringgit of Islamic redeemable convertible preference purchase to pay for the purchase of TH's underperforming properties and stocks in listed companies.

TH was restructured after auditing firm PricewaterhouseCoopers (PwC) found last year that the fund’s total liabilities exceeded total assets, making it technically insolvent, and that its dividend payouts in 2017 contravened conditions set by law, which requires the payments to come from profits and not from depositors’ savings. The audit found that two suspicious transactions may have inflated TH’s earnings.

The government of Prime Minister Mahathir Mohamad hired PwC to evaluate TH's financial position after unexpectedly winning the general election a year ago.

According to TH, its financial position has "strengthened" with total assets now exceeding total liabilities by 1.2 billion ringgit. "This is supported by improved portfolio investment performance, as well as overall healthy quality of assets after impairment was made in 2018,” it says.

TH did not disclose the assets and liabilities figures as at March 31. But last month, the fund said it had 76.5 billion ringgit of assets and 75.5 billion ringgit of liabilities at the end of 2018.

The PwC audit found that a year earlier, the fund had 70.3 billion ringgit of assets and 74.4 billion ringgit of liabilities.

TH is a statutory body set up in 1963 to manage deposits from local Muslims saving for their Hajj pilgrimage.

The fund says it drew 4.3 billion ringgit of new savings in the first quarter of 2019, while withdrawals stood at 4.6 billion ringgit.