Tabung Haji in the limelight
Newly-appointed acting CIO gives an overview of the recent issues surrounding the pilgrim fund.
THE ongoing tussle at Petra Perdana Bhd has had an interesting side effect – it has thrust Lembaga Tabung Haji (LTH) into the limelight. The pilgrim fund lost its chief investment officer (CIO) soon after the eventful Feb 4 Petra Perdana EGM.
Following his departure, rumours had been swirling around that the CIO, Abdul Halim Alias, had left because of a fallout with the upper echelons at LTH.
While LTH’s newly appointed replacement for Halim vehemently denies his organisation is facing managment problems, Halim says otherwise. “I quit as I could no longer perform my duties without compromise,” he says.
There have also been a number of documents that have surfaced, attempting to level blame at the powers-that-be at LTH but the veracity of the information could not be confirmed.
Whatever the real story behind LTH and the Petra Perdana case may be, the situation has raised some pertinent questions about LTH. How much money does this fund have and more importantly, what criteria does it use to make its investments?
Indeed, LTH’s fund size is staggering, at RM23bil, considering the source of these funds – its over five million Malaysian Muslim depositors.
While the total figure is still small when compared with the Employees Provident Fund (which has about RM350bil), the key difference is that the pension fund receives most of its funds from companies; LTH’s monies are solely from the man in the street. It was set up in 1963 by Royal Prof Ungku Aziz to help Muslims finance their haj pilgrimages to Mecca.
But that does not mean LTH is a charity. It acts more like a savings bank that encourages Muslims to save money with them, to be used when the time comes for one’s pilgrimage.
Despositors are offered a subsidised package for the haj though. The cheapest package costs depositors RM9,980. According to LTH, a similar package sold by other providers costs RM12,600, indicating the amount of subsidy that the pilgrim fund provides.
LTH also pays a decent dividend, referred to as bonus, to its depositors, not unlike the EPF. But here’s one stark difference: A look at LTH’s financial statements indicate that the pilgrim fund relies heavily on stock market gains for its profit and dividend payouts.
For example, in 2007 stock market gains made up 66% of its profits. But this was not the case in 2008 when its contribution dipped to 23%.
As a result, profits for that year reduced, albeit not by much.
Winnings from selling its stock holdings made up close to half of 2009 net profit.
Stock market-centric
LTH’s stock market investments currently make up 43% of its total investments. This is unlike the EPF which has tended to put most of its money in fixed income products, that bear lower risk but also give it lower returns.
EPF’s stock market investments only make up 25% of its asset base, while Malaysian government securities, loans and bonds make up about 70% of its base. The EPF has said that its does this in order to achieve its prime goal of “capital preservation”.
So, is LTH forgoing the principle of capital preservation by having a high stock market exposure? Shouldn’t it focus on the lower risk fixed income type securities?
The pilgrim fund’s newly-appointed acting CIO Datuk Syed Saleh Abdul Rahman refutes the allegation that the fund is taking too much risk. “The other 57% of our investments are in properties, cash and fixed income. And ours is a prudent approach (in all our investments, including equities). Investing in fixed income assets is not the only way to achieve capital preservation,” he tells StarBizWeek in an interview.
Questionable stock selections
But not only is LTH’s stock market exposure relatively large, some of its stock selections have also raised questions.
LTH has two portfolios of listed equities. One is its core and strategic portfolio, where the pilgrim fund takes a longer-term view, gaining from the dividend income from its holdings.
The second is a portfolio of companies where it invests primarily for growth in capital appreciation. It is mainly the selection of stocks in the latter category that has drawn criticism.
Case in point: Ramunia Holdings Bhd. LTH owns over 25% of Ramunia. It became a substantial shareholder in Ramunia on Nov 2, 2007. On that day, Ramunia was trading at around RM1 per share. LTH subsequently steadily increased its investment in Ramunia, in a period when the shares were mostly trading within the RM1.20-RM1.40 band.
It raised its interest in Ramunia as the company became a take-over target of an MISC unit. Even before the deal was completed, LTH was busy mopping up Ramunia shares in the market.
But the MISC take-over was called off and Ramunia, which was loss making, saw its share price plunge. It currently trades at around 40 sen a share.
Md Noor A Rahman, who was LTH’s CIO prior to Halim, had told StarBizWeek in a previous interview that it is sitting on a significant paper loss in Ramunia. He said that the Ramunia investment is “probably the one black sheep” and he took full responsibility for the decision to invest in Ramunia.
He claimed that LTH had invested in Ramunia after doing its legwork on the oil and gas industry, including going on company visits and attending conferences.
LTH has also put a lot of money into Silverbird Group Bhd, a company that is struggling in the competitive food industry. It owns 27% of the company and has not seen the value of its investment increase.
More recently, LTH emerged as a placee of initial public offering (IPO) shares in Chinese shoe maker Xingquan International Sports Holdings Ltd.
LTH subsequently bought more shares in Xingquan from the open market. It now has a 5.76% in the shoe maker, which is still trading below its IPO price.
Then there’s Lityan Holding Bhd. It revived this ailing technology company by injecting its own information technology business into the company.
The spectacular share price movement of Lityan after this exercise brought more attention on LTH’s investment sytle but also raised questions as to why the pilgrim fund needed to inject its own asset into a listed company, after having already provided for the loss of that investment.
LTH also invests in ACE market stocks, something that most fund managers do not have the mandate to do.
“LTH seems to take strategic stakes in certain companies for reasons only known to them,” Kumpulan Sentiasa Cemerlang fund manager Choong Khuat Hock points out.
On the flip side, there are those who feel that LTH plays a very crucial role in the capital market.
Says the CEO of an ACE Market company: “LTH plays a crucial role as an investor. The EPF limits themselves to a certain number of companies on Bursa Malaysia, and most of these are the larger ones.
“LTH has a wide range of companies they invest in, they take a longer term view and engage companies on their future growth plans. Crucially, they are supportive of small and medium enterprises, something most other funds stay away from.”
Some spectacular gains
To be fair, LTH’s investment team has made some very good investments in growth stocks. If its investment team was not doing well, the pilgrim fund would be hard pressed to pay the kind of dividends it does.
Cases in point are its early investments in companies like Three-A Resources Bhd (where Wilmar International Ltd later emerged as a substantial shareholder), Mudajaya Group Bhd (the construction outfit whose share price had quadrupled over the last year and is now involved in the independent power producer business in India), Government e-services provider MY EG Services Bhd (which is showing a steady growth in both its earnings and share price) and rubber glove players Latexx Partners Bhd and Supermax Corp Bhd.
Perhaps the problem is one of perception. LTH could do more to explain its investment decisions. Says Federation of Malaysian Consumers Associations (Fomca) secretary-general Muhammad Sha’ani Abdullah: “LTH’s accountability and transparency of its investments is not satisfactory.”
Syed Saleh defends LTH’s position by noting that it uses very strict criteria for making its investments. “Investments typically go through the investment team, the risk assessment team and then the investment panel, followed by the board of directors and finally by the Minister in the Prime Minister’s department.”
When asked why LTH had invested in lesser-known or unprofitable companies, Syed Saleh said that the pilgrim fund will make an investment if the company concerned holds growth potential.
This need to invest in growth is understandable. The bulk of LTH’s profits come from capital gains of the stocks they invest in.
Insiders say this is why the pilgrim fund actively pursues high growth opportunities. For example, last year, LTH’s stock market gains totalled more than RM500mil.
And the reason why it needs to achieve such high profits is because it has to keep paying out attractive dividends. LTH’s dividend rates, if benchmarked against fixed deposit rates, are not too bad. However, they still trail the rates offered by EPF.
This begs the question: Despite EPF taking a more prudent approach to its investments, how is it that it is able to pay out higher dividends?
Part of the explanation could lie in the fact that more money is poured into the accounts of every single EPF contributor, compared with the savings that every LTH individual puts into his account.
Another reason is that LTH subsidises some of the haj pilgrimages it manages, a type of expense that the EPF does not have to incur.
Subsidising the haj
LTH also carries out activities related to the haj.
“We handle all the management issues of the pilgrims, their registration, their passport and visa. We give them classes for them to understand how they should perform once in Mecca. We also help to arrange their air travel, accommodation and medical needs,” says Syed Saleh.
Aside from being able to get a subsidised haj package and other related services, Muslims are also drawn to place their savings in LTH because it effectively takes care of their zakat obligations or alms giving. LTH pays zakat out of their profits before dividends are paid to account holders.
Muslims are also comfortable with the fact that LTH’s investments are only made in syariah compliant counters. While there seems to be some concern over LTH these days – the media recently received a complaint letter about LTH from 14 depositors, asking the pilgrim fund to respond to news articles suggesting that all is not well at the fund – it is likely that the majority of contributors are not overly concerned.
“I only have good words for LTH. They play a very important role for Muslims, many of whom would not have been able to go to Mecca if not for the fund,” says the deputy head of a large multinational company, who himself has an account with LTH.
By RISEN JAYASEELAN
risen@thestar.com.my
THE ongoing tussle at Petra Perdana Bhd has had an interesting side effect – it has thrust Lembaga Tabung Haji (LTH) into the limelight. The pilgrim fund lost its chief investment officer (CIO) soon after the eventful Feb 4 Petra Perdana EGM.
Following his departure, rumours had been swirling around that the CIO, Abdul Halim Alias, had left because of a fallout with the upper echelons at LTH.
Tabung Haji has more than five million depositors with accumulated deposits totalling RM23bil.
While LTH’s newly appointed replacement for Halim vehemently denies his organisation is facing managment problems, Halim says otherwise. “I quit as I could no longer perform my duties without compromise,” he says.
There have also been a number of documents that have surfaced, attempting to level blame at the powers-that-be at LTH but the veracity of the information could not be confirmed.
Whatever the real story behind LTH and the Petra Perdana case may be, the situation has raised some pertinent questions about LTH. How much money does this fund have and more importantly, what criteria does it use to make its investments?
Indeed, LTH’s fund size is staggering, at RM23bil, considering the source of these funds – its over five million Malaysian Muslim depositors.
While the total figure is still small when compared with the Employees Provident Fund (which has about RM350bil), the key difference is that the pension fund receives most of its funds from companies; LTH’s monies are solely from the man in the street. It was set up in 1963 by Royal Prof Ungku Aziz to help Muslims finance their haj pilgrimages to Mecca.
Despositors are offered a subsidised package for the haj though. The cheapest package costs depositors RM9,980. According to LTH, a similar package sold by other providers costs RM12,600, indicating the amount of subsidy that the pilgrim fund provides.
LTH also pays a decent dividend, referred to as bonus, to its depositors, not unlike the EPF. But here’s one stark difference: A look at LTH’s financial statements indicate that the pilgrim fund relies heavily on stock market gains for its profit and dividend payouts.
For example, in 2007 stock market gains made up 66% of its profits. But this was not the case in 2008 when its contribution dipped to 23%.
As a result, profits for that year reduced, albeit not by much.
Winnings from selling its stock holdings made up close to half of 2009 net profit.
Stock market-centric
LTH’s stock market investments currently make up 43% of its total investments. This is unlike the EPF which has tended to put most of its money in fixed income products, that bear lower risk but also give it lower returns.
EPF’s stock market investments only make up 25% of its asset base, while Malaysian government securities, loans and bonds make up about 70% of its base. The EPF has said that its does this in order to achieve its prime goal of “capital preservation”.
The pilgrim fund’s newly-appointed acting CIO Datuk Syed Saleh Abdul Rahman refutes the allegation that the fund is taking too much risk. “The other 57% of our investments are in properties, cash and fixed income. And ours is a prudent approach (in all our investments, including equities). Investing in fixed income assets is not the only way to achieve capital preservation,” he tells StarBizWeek in an interview.
Questionable stock selections
But not only is LTH’s stock market exposure relatively large, some of its stock selections have also raised questions.
LTH has two portfolios of listed equities. One is its core and strategic portfolio, where the pilgrim fund takes a longer-term view, gaining from the dividend income from its holdings.
The second is a portfolio of companies where it invests primarily for growth in capital appreciation. It is mainly the selection of stocks in the latter category that has drawn criticism.
Case in point: Ramunia Holdings Bhd. LTH owns over 25% of Ramunia. It became a substantial shareholder in Ramunia on Nov 2, 2007. On that day, Ramunia was trading at around RM1 per share. LTH subsequently steadily increased its investment in Ramunia, in a period when the shares were mostly trading within the RM1.20-RM1.40 band.
But the MISC take-over was called off and Ramunia, which was loss making, saw its share price plunge. It currently trades at around 40 sen a share.
Md Noor A Rahman, who was LTH’s CIO prior to Halim, had told StarBizWeek in a previous interview that it is sitting on a significant paper loss in Ramunia. He said that the Ramunia investment is “probably the one black sheep” and he took full responsibility for the decision to invest in Ramunia.
He claimed that LTH had invested in Ramunia after doing its legwork on the oil and gas industry, including going on company visits and attending conferences.
LTH has also put a lot of money into Silverbird Group Bhd, a company that is struggling in the competitive food industry. It owns 27% of the company and has not seen the value of its investment increase.
More recently, LTH emerged as a placee of initial public offering (IPO) shares in Chinese shoe maker Xingquan International Sports Holdings Ltd.
LTH subsequently bought more shares in Xingquan from the open market. It now has a 5.76% in the shoe maker, which is still trading below its IPO price.
Then there’s Lityan Holding Bhd. It revived this ailing technology company by injecting its own information technology business into the company.
The spectacular share price movement of Lityan after this exercise brought more attention on LTH’s investment sytle but also raised questions as to why the pilgrim fund needed to inject its own asset into a listed company, after having already provided for the loss of that investment.
LTH also invests in ACE market stocks, something that most fund managers do not have the mandate to do.
“LTH seems to take strategic stakes in certain companies for reasons only known to them,” Kumpulan Sentiasa Cemerlang fund manager Choong Khuat Hock points out.
On the flip side, there are those who feel that LTH plays a very crucial role in the capital market.
Says the CEO of an ACE Market company: “LTH plays a crucial role as an investor. The EPF limits themselves to a certain number of companies on Bursa Malaysia, and most of these are the larger ones.
“LTH has a wide range of companies they invest in, they take a longer term view and engage companies on their future growth plans. Crucially, they are supportive of small and medium enterprises, something most other funds stay away from.”
Some spectacular gains
To be fair, LTH’s investment team has made some very good investments in growth stocks. If its investment team was not doing well, the pilgrim fund would be hard pressed to pay the kind of dividends it does.
Cases in point are its early investments in companies like Three-A Resources Bhd (where Wilmar International Ltd later emerged as a substantial shareholder), Mudajaya Group Bhd (the construction outfit whose share price had quadrupled over the last year and is now involved in the independent power producer business in India), Government e-services provider MY EG Services Bhd (which is showing a steady growth in both its earnings and share price) and rubber glove players Latexx Partners Bhd and Supermax Corp Bhd.
Perhaps the problem is one of perception. LTH could do more to explain its investment decisions. Says Federation of Malaysian Consumers Associations (Fomca) secretary-general Muhammad Sha’ani Abdullah: “LTH’s accountability and transparency of its investments is not satisfactory.”
Syed Saleh defends LTH’s position by noting that it uses very strict criteria for making its investments. “Investments typically go through the investment team, the risk assessment team and then the investment panel, followed by the board of directors and finally by the Minister in the Prime Minister’s department.”
When asked why LTH had invested in lesser-known or unprofitable companies, Syed Saleh said that the pilgrim fund will make an investment if the company concerned holds growth potential.
This need to invest in growth is understandable. The bulk of LTH’s profits come from capital gains of the stocks they invest in.
Insiders say this is why the pilgrim fund actively pursues high growth opportunities. For example, last year, LTH’s stock market gains totalled more than RM500mil.
And the reason why it needs to achieve such high profits is because it has to keep paying out attractive dividends. LTH’s dividend rates, if benchmarked against fixed deposit rates, are not too bad. However, they still trail the rates offered by EPF.
This begs the question: Despite EPF taking a more prudent approach to its investments, how is it that it is able to pay out higher dividends?
Part of the explanation could lie in the fact that more money is poured into the accounts of every single EPF contributor, compared with the savings that every LTH individual puts into his account.
Another reason is that LTH subsidises some of the haj pilgrimages it manages, a type of expense that the EPF does not have to incur.
Subsidising the haj
LTH also carries out activities related to the haj.
“We handle all the management issues of the pilgrims, their registration, their passport and visa. We give them classes for them to understand how they should perform once in Mecca. We also help to arrange their air travel, accommodation and medical needs,” says Syed Saleh.
Muslims are also comfortable with the fact that LTH’s investments are only made in syariah compliant counters. While there seems to be some concern over LTH these days – the media recently received a complaint letter about LTH from 14 depositors, asking the pilgrim fund to respond to news articles suggesting that all is not well at the fund – it is likely that the majority of contributors are not overly concerned.
“I only have good words for LTH. They play a very important role for Muslims, many of whom would not have been able to go to Mecca if not for the fund,” says the deputy head of a large multinational company, who himself has an account with LTH.
By RISEN JAYASEELAN
risen@thestar.com.my
Comments
Post a Comment