Most people forgot that Tabung Haji's dividend (including haj bonus) for the last 4 years before he retired was just 5% (2000) 3.25% (2001), 3.5% (2002) and 4% (2003). Since then, much effort had been made to turn-around Tabung Haji which included the highest dividend for 17 years of 8.5% declared in 2014.
Malaysian Fund Undergoes Scrutiny — Government Vehicle Draws Ire as Soured Investments Shrink Once-Hefty Payouts
By Leslie Lopez, The Asian Wall Street Journal
1 December 2004
KUALA LUMPUR — Salmah Mahjid runs a small food stall on the fringes of the financial district here. Each month, she puts 20% of her income into an account at Lembaga Urusan Tabung Haji, a unique government-owned investment fund created to finance Malaysian Muslims’ pilgrimages to Mecca.
The 43-year-old mother of five has just one goal: to create a nest egg for her family to make their pilgrimage, a sacred duty for all Muslims. “I know the money will be there when we need it,” Ms. Salmah says.
But for Mokhtar Hamid, a retired government employee who has put all of his savings into Tabung Haji, the fund was also a steady and lucrative investment. Setting aside money for his pilgrimage is one reason, he says. “The other was the good returns Tabung Haji used to give me.”
For most of the 1980s and early 1990s, Tabung Haji paid annual dividends averaging more than 8.5%, much higher than the interest offered on savings by Malaysian commercial banks in those years.
But the robust dividends are gone and some unhappy depositors like Mr. Mokhtar are blaming Tabung Haji’s management for making ill-advised investments that have eroded the fund’s bottom line. Since Asia’s financial crisis struck Malaysia in 1997, the fund has slashed its annual dividend to barely more than 3%. (Tabung Haji dividend for 2015 was 8% including Haj bonus)
“This institution is based on religion and the money has been deposited for holy reasons,” Mr. Mokhtar says. “But the management has been a huge letdown.”
Indeed, Tabung Haji’s affairs, long shrouded from public view, are coming under scrutiny.
A report by Malaysia’s Auditor General, which was released in July, says that some of the fund’s big investments were tainted by serious management mistakes, leaving the fund burdened with poor-quality assets. The unusually harsh report has prompted a police complaint against Tabung Haji by an ethnic Malay student group. Government officials also say that the country’s Anti-Corruption Agency is investigating several of Tabung Haji’s investments.
Tabung Haji officials declined to comment on the developments. But several senior executives, who spoke on condition of anonymity, say the Auditor General’s report reflects missteps made in the past. They insist the situation has improved. “There are problems, but new measures have been put in place to make sure these problems don’t recur,” says one Tabung Haji executive. He says a 2001 management overhaul helped turn around the fund. For 2003, it produced a profit of 414 million ringgit ($108.9 million), up from 368 million ringgit in 2002.
(for 2015, Tabung Haji made RM3.53 billion profit).
Still, bankers and government officials familiar with the fund’s affairs say Tabung Haji’s improved earnings largely reflect the more robust Malaysian stock market.
What is more, the fund is still burdened with problems inherited from the mid-1990s, bankers and government officials say. These include a portfolio littered with bad bets such as some sour loans to Malaysian business groups and overpriced property acquisitions. Such investments have crimped Tabung Haji’s ability to provide bigger dividends to the 4.5 million depositors who have collectively invested more thanUS$3 billion in the fund.
(Tabung Haji fund size as at 2016 is now RM64 billion or US$15.2 billion)
The chief source of Tabung Haji’s woes has been political meddling. Documents reviewed by The Asian Wall Street Journal and interviews with Tabung Haji executives, bankers and government officials show that recommendations by Tabung Haji’s board on investment proposals were sometimes sidestepped or ignored in favour of dictates from politicians. Examples include the purchase of a centrally located office building in Kuala Lumpur and an investment in a real-estate development in Johor state. Both investments were joint ventures with Maju Holdings Sdn. Bhd., a private concern controlled by Abu Sahid Mohamed, a Kuala Lumpur businessman. Mr. Abu Sahid declined to comment for this article.
Tabung Haji also is suffering from bad loans it made to several Malaysian business groups during the go-go 1990s. For instance, the fund is the largest participant in a consortium of banks that lent 400 million ringgit to a group of private investors who control about 18% of DRB-Hicom Bhd., one of Malaysia’s largest publicly listed industrial conglomerates. The loan hasn’t been serviced for almost a year, and collateral for the credit consists of DRB-Hicom shares whose value currently covers only about 50% of the outstanding loan, according to bankers familiar with the situation.
The political dimension to Tabung Haji’s troubles could cause headaches for Prime Minister Abdullah Ahmad Badawi’s government, say bankers as well as senior executives of the fund. That is because Tabung Haji’s depositors are an important political base for Mr. Abdullah’s United Malays National Organization, the linchpin of Malaysia’s multiracial coalition government.
“It is an important political tool because the government can claim political mileage for all the good Tabung Haji does,” says a senior fund executive. Now, he says, the government must take responsibility for the fund’s troubles.
Established in 1963, Tabung Haji began with a mandate to help Malaysia’s poor but politically dominant Malays save money for their pilgrimage to Mecca, or hajj.
To do so, the fund gathers deposits from Muslims, invests them and pays out annual dividends. Tabung Haji also has a monopoly on arranging mass pilgrimages to Mecca and runs hostels, medical clinics and food outlets in Mecca to cater to the needs of Malaysian pilgrims. No other Islamic country has such an extensive state-sponsored hajj program. In 2003, more than 25,000 Muslims went to Mecca under Tabung Haji auspices.
But the fund’s operations lack transparency and aren’t supervised by any government financial regulator. “Like any other deposit-taking institution, Tabung Haji should be under the review of a supervisory agency like the central bank. But that’s not the case,” says Radzuan Halim, a private Malaysian economist.
Instead, Tabung Haji is regulated by a government-appointed investment panel and board directors, who are answerable only to Malaysia’s prime minister.
Tabung Haji’s original charter provided for a strict division between its investment panel — made up mainly of professional technocrats from Malaysia’s central bank and government economic advisers — and its board of directors. The panel’s investment proposals were forwarded to the board for final approval.
That changed in 1995 when former Prime Minister Mahathir Mohamad’s administration amended the charter to give the cabinet minister overseeing the fund’s affairs full authority over its investments. The minister in charge of Tabung Haji traditionally has been the politician overseeing Islamic affairs for the government. “That effectively rendered the board and the investment panel impotent,” contends a Kuala Lumpur-based banker close to Tabung Haji. This banker and several private economists tracking the fund say that Tabung Haji’s current troubles are strong grounds for the government to consider trimming the powers given politicians on investment matters.
Tabung Haji’s troubled joint ventures with privately controlled Maju Holdings illustrates how investment-decision making sometimes went awry.
In early 1996, Maju, an unprofitable company owned by Mr. Abu Sahid, offered the fund a 49% stake in a property-development project in the city of Johor Bahru. Maju valued the property at 137 million ringgit at the time.
Tabung Haji’s board initially opposed the proposal because of Maju’s weak financial position, according to internal Tabung Haji documents seen by The Asian Wall Street Journal. Maju was saddled with accumulated losses of about 47 million ringgit and the fund’s board feared Tabung Haji could be exposed to hefty liabilities if Maju’s Johor Bahru development faced cost overruns during construction.
Despite the board’s reservations, the then-minister in charge of Tabung Haji, Abdul Hamid Othman, directed the fund’s chairman at the time, the late Ahmad Razali Mohamed, who was Dr. Mahathir’s brother-in-law, to proceed with the investment, according to the internal Tabung Haji documents.
After Tabung Haji invested 67 million ringgit in October 1996, the project immediately ran into trouble. It has since been abandoned.
Mr. Abdul Hamid, who is currently a special adviser to the government on Islamic matters, declined to comment for this article.
A senior Maju executive describes the company’s joint venture with Tabung Haji in Johor as a “sensitive issue” with the state government. “There will be compensation from the state and we are taking steps to recover our investment,” says Fuad Yon, a director of Maju Holdings.
The troubles with the Johor project didn’t stop Tabung Haji from doing more business with Mr. Abu Sahid, however. According to internal Tabung Haji documents, Mr. Abu Sahid again approached the fund in December 1997, offering to sell it a building in a Maju real-estate development called Maju Junction in Kuala Lumpur.
To expedite the deal, Mr. Abu Sahid wrote to Mr. Abdul Hamid on Dec. 30, 1997, asserting that Tabung Haji’s backing was vital because his bank was threatening him with foreclosure on the Maju Junction property. “I desperately need your quick approval on this matter, because the bank has already issued a foreclosure notice on [the] property,” Mr. Abu Sahid wrote, without disclosing the identity of the bank, in the letter reviewed by The Asian Wall Street Journal.
Three days later, Mr. Abdul Hamid wrote to Tabung Haji’s then-chief executive officer, Harun Baba, approving the Maju Junction transaction. According to internal documents, Tabung Haji’s board agreed in a meeting in January 1998 to acquire the building after receiving an independent valuation report on the venture.
In a letter dated May 4, 1998, Mr. Abu Sahid again wrote to Mr. Abdul Hamid informing him that Tabung Haji officials had offered to acquire the proposed building in the Maju Junction project for 266.5 million ringgit. The figure was based on a valuation of 488 ringgit per square foot for the office tower, according to Mr. Abu Sahid.
Mr. Abu Sahid suggested that the proposed transaction be “rounded to 270 million ringgit” and also requested that Tabung Haji pay an initial installment of 220 million ringgit for the purchase upon signing of a sales agreement. The balance was to be paid on the project’s completion.
Mr. Abdul Hamid wrote a letter to then-Prime Minister Mahathir on May 8, 1998, informing him of the project offered to Tabung Haji and sought the former premier’s approval to grant Mr. Abu Sahid the large upfront payment. On Mr. Abdul Hamid’s letter, Dr. Mahathir penned “approved,” together with his signature, a copy of the correspondence reviewed by this newspaper shows. In a note on May 26, Mr. Abdul Hamid informed Tabung Haji’s chairman of Dr. Mahathir’s approval and instructed the board to act on the matter. Dr. Mahathir, currently away from Malaysia, didn’t respond to requests for comment.
According to the Auditor General’s report, Tabung Haji commissioned the property-valuation unit of Malaysia’s Finance Ministry to do a valuation of the proposed office tower in the Maju Junction project before deciding to acquire the building. The Auditor General’s report states that Maju’s proposed sale price of 270 million ringgit was about 77% higher than the assessment conducted by the property-valuation unit.
Still, Tabung Haji proceeded with the purchase.
When the office tower was finally handed to Tabung Haji in September 2001, the Auditor General’s report says, a new assessment of the property revealed its actual floor space was less than 30% of the total specified when Tabung Haji agreed to buy it.
That discrepancy effectively boosted the purchase price of the building to 725 ringgit per square foot. At the time, property prices for high-quality commercial buildings in the city’s top commercial zones averaged about 490 ringgit per square foot.
Maju’s Mr. Fuad contends comparisons with other property transactions at the time don’t provide an accurate picture, saying, “We delivered what we promised to sell.”
According to the Auditor General’s report, it will take Tabung Haji 21 years to recoup its investment in Maju Junction.