KUALA LUMPUR: Lembaga Tabung Haji (TH) is targeting to reduce its exposure to the stock market next year, which will see the pilgrim fund divesting a portion of its stakes in 103 listed companies on Bursa Malaysia.

At a half-an-hour press briefing, group managing director and chief executive officer Datuk Seri Zukri Samat said that about half of TH’s assets were in the stock market and that it was targeting to reduce this to 20%.

“I don’t think we should have gone into growth stocks or those so-called small counters. We should be going into dividend-yield stocks.

“We are also looking into companies that we have more than a 30% stake. Some are not doing well, for example, the oil and gas (O&G) business. All these are under review,” he told reporters.

TH Heavy Engineering Bhd (THHE) is perhaps one of the pilgrim fund’s biggest drags, especially since it has been holding this position since 2008. For the financial year ended Dec 31, 2017 (FY17), TH’s impairment on the THHE investment amounted to RM164.58mil.

Among the bigger companies where it has stakes in include BIMB Holdings Bhd, Tenaga Nasional Bhd and MISC Bhd

The mid-sized companies where it has stakes in include Malakoff Corp Bhd, Malaysian Resources Corp Bhd, Lotte Chemical Titan Holding Bhd, Cahya Mata Sarawak Bhd and Mudajaya Group Bhd.

Some of the smaller companies where it has pockets of investments are Notion Vtec Bhd, Alam Maritim Resources Bhd, Reach Energy Bhd, APB Resources Bhd  and Scomi Energy Services Bhd

To nurse the fund back to health, TH will carve out RM19.9bil of its “underperforming” assets comprising equities and property into a special-purpose vehicle (SPV), which will be owned by the Finance Ministry.

The exercise is to rehabilitate the fund’s underperforming assets and relieve pressure on the balance sheet.

“The assets to be carved out would be identified using two criteria. For property, it would be those with a yield of less than 2%, and for equities, the value impaired would have exceeded 20%,” he said.

While he did not go into the details, Zukri said that about 80% of the assets would be in the form of equities, while 20% would be property.

He highlighted that among the assets that would be carved out is the land that it had bought from 1Malaysia Development Bhd, which was bought in 2015 for RM190mil, as well as its shares in O&G stocks.

“The land is not churning out any yields ... and we are not so good in the O&G and hotel businesses,” he said.

Zukri hopes to complete the exercise within three weeks to restructure TH’s balance sheet, where its assets will equal liabilities come Jan 1, 2019.

In exchange for the RM19.9bil “underperforming” assets, the government will issue a sukuk (Islamic bond) worth RM10bil and Islamic redeemable convertible preference shares (i-RCPS) worth RM9.9bil through the SPV.

The sukuk will have a seven-year maturity period at a zero-coupon rate to be issued at discounts yielding 5% per annum and will not be guaranteed by the government.

Meanwhile, the i-RCPS do not have a maturity date and dividend.

Zukri pointed out that there would be no cash transactions involved between the SPV and TH. “We believe that seven years should be enough for the assets to turn around.”

Upon completion, he said TH would have a clean balance sheet with assets equalling liabilities at RM77bil for FY18, enabling it to continue paying dividends to depositors.

As of now, it has been reported that TH’s asset and liability gap is estimated at more than RM9bil.

According to a report by Pricewaterhouse-Coopers, TH would not be able to declare dividends for many years to come if the balance sheet is not restored.

“The gap between the assets and liabilities is RM9bil. If the RM9bil hole is not covered, no hibah (dividends) distribution is possible, not just for 2018 but also in the coming years,” stated the Rehabilitation and Restructuring Plan of TH report released on Monday.

Additionally, TH will come under the supervision of Bank Negara, moving forward.

“We are confident that in 2019, it will be back to business as usual for us,” Zukri said. 

https://www.thestar.com.my/business/business-news/2018/12/12/th-cutting-exposure-to-stock-market/