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Talam’s Debt Recovery Exercise Revisited

April 22, 2010

Dr Dzulkefly Ahmad, MP of Kuala Selangor  (Siri – Apakah anda masih ingat?)

Granted, the decision of the Selangor state government to recover the debts owed by Talam Corp Bhd to state subsidiaries of Kumpulan Hartanah Selangor Berhad (KHSB), Universiti Industri Selangor (PIYSB) and Permodalan Negeri Selangor Berhad (PNSB), has led to a hue and cry by the public. Not quite appreciative of the actual mechanics, the anxiety by lay public was quite understandable.

Arguably, reasonable and innocent questions were rife, like why borrow RM391 millions to recover a debt of RM391 and could it not be better spent in other things for the people than to save Talam.

Little wonder why the State Government of Selangor was accused of bailing out Talam, a private township developer, of a crime and an abominable ‘sin’, all Pakatan parties pledged and waged war against, in the last General Election.

In consonant with Pakatan open government policy of accountability and transparency, this semi-popular article attempts at revisiting and explaining the rationale while hopefully simplifying the entire mechanics of this debt-recovery exercise.Unlike typical bail-outs conducted by the BN government where money were actually injected or handed out to ailing private or privatized companies, like RM1.6 billions to IWK of Berjaya Group, RM10.3billion to MAS of Naluri Bhd or RM6billions to Putra/Star LRT, this debt-restructuring exercise conducted by the state government of Pakatan in Selangor didn’t handout any money to Talam Corporation Berhad.

A more recent example (December 2009) smacked of a downright bail-out is exemplified by the RM320m interest free, unsecured, back-loaded 20-year loan facility that was given to SYABAS, the concessionaire in water distribution in the state of Selangor, now in great financial stress.

In contrast, let it be again stressed that Talam Corp Bhd didn’t receive a single cent out of this debt-recovery exercise. Besides, neither did the state government use the tax-payers’ money as alluded by many nor did the state subsidiaries to whom Talam originally owed, received any cash injections as a result of this exercise. Umno and the BN have a penchant for that i.e. failures are nationalized and profits privatized, but the Pakatan’s states have to, not only do it better but differently. Simply put, all these presumptions were unfounded and the allegations made, including by academics, extremely unfortunate.

To recapitulate, Maxisegar Sdn Bhd (MSSB) in 2001, a wholly-owned subsidiary of Talam Corporation Berhad, entered into a contract with the State Government of Selangor to finance and construct the Main Campus of UNISEL on 572.16 acres of land at Berjuntai Bestari, Selangor for a total development cost of RM750 million.

In consideration of the cost incurred, the State Government of Selangor had alienated three parcels of leasehold land to MSSB as in Batang Berjuntai (3000 acres valued at RM345million), Taman Puncak Jalil (801 acres valued at RM337.5million) and Suajana Damansara (110 acres valued at RM67.5 million).

MSSB defaulted in the final delivery of the UNISEL project. In its 2009 annual report, Talam said it had been unable to meet its financial obligation to bear the development and maintenance costs of about RM134 million in the Universiti Industri Selangor (Unisel) project.

Meanwhile Talam Corp Bhd couldn’t also deliver and fulfil its financial obligation in several real estate joint-venture development projects with the above-mentioned state subsidiaries. All these debts however only came to be noticed and uncovered by auditors appointed by the Pakatan’s State Government of Selangor. The debts were in most cases previously neither fully recognised nor well recorded in the books of the state subsidiaries as the creditor. That is at best irresponsible and scandalous at worst. The previous state government and the state subsidiaries concerned must be put to task accordingly.

To make matter worse for the State Government, Talam Corp Bhd has been classified as an affected company under PN17 since Sept 1, 2006, for failing to pay off its outstanding loans and bond obligations while its auditors were unable to provide an opinion on its results for its FY2006 ended Jan 31.

Talam’s executive director, Chua Kim Lan said Talam was targeting to complete its regularisation plan by May this year, for the company to have its Practice Note 17 status removed. Chua said after completing the regularisation plan, the debt level of Talam will be reduced from RM3 billion to RM300 million.[1]

Talam is looking at disposing of about 3,000 acres (1,214ha) of land from its current landbank of 7,000 acres. The largest tract of land to be disposed of would come from the company’s Bandar Bukit Beruntung development.   Talam’s current projects alone and in joint-venture with others, like IJM Corp Bhd etc, have a combined gross development value of more than RM1.4 billion as claimed by the Executive Director.

Talam has considerable land-bank for development in prime areas in the Klang Valley such as Ampang, Sepang, Puchong, Bukit Jalil and Rawang.

According to Bloomberg data, the net tangible asset (NTA) per share for Talam is 18 sen, while the share was trading at 9.5 sen last Thursday. Talam’s landbank, according to its 2009 annual report, amounted to 5,792 acres as at Jan 31, 2009. The value on the books came up to RM1.13 billion, including development costs[2].

In other words, the state government runs a risk of writing off these as bad debts if no proper action is taken.

The overarching objective of the debt recovery exercise is for the state government to take over the ‘ownership’ of the debt, as it is in a better position to secure the receivables. The rationale is to ensure that Talam Corp Bhd gives a higher priority to its debt (to the state), incurred over the last decade, ahead of its other creditors. “Previously, we (the state) were at the lower rung of creditors, now we want to be at the top rung,” quipped the Mentri Besar.

In a smart maneuver of what is known as ‘round-tripping’ in the financial discipline, the state government has now taken over the debt from the state subsidiaries and currently in a better position to squeeze Talam directly as to fulfill its debt obligation.

The procedures could be summarized as follow (as schematized in the diagram):

i)                    Confirmation of Debts. An amount of RM392millions was agreed upon and agreement signed by Talam and the various state subsidiaries namely KHSB, PIYSB and PNSB to confirm the debts owed by Talam.

ii)                   Assignment of Debts Agreement. Talam and the state subsidiaries later undertook an agreement to assign the debt to the state government. The state government of Selangor now takes full ownership and responsibilty of recovering the Talam’s debt.

iii)                 Receivable Purchase  Agreement. The State Government initiated the move by firstly getting the Selangor Industrial Corporation (SIC) to purchase the debt owed by Talam, from the State Government, by paying a cash amount of RM392 million to the latter. In order to execute the purchase, the SIC had earlier made a cash borrowing from a bank (the CIMB) of an equivalent amount of RM392 million. That is the first Receivable Purchase Agreement in placed.

iv)                 Receivable Purchase  Agreement. Acting merely as a ‘conduit’ or a special purpose vehicle for the whole exercise, the SIC now sells this debt to the Menteri Besar’s Incorporated (MBI), an investment arm of the State Government. MBI is to receive a grant from the State Government an equivalent amount of RM392million for payment to be made to SIC.

Since the State Government of Selangor did not have that allocation in the State’s budget for 2009, the meeting of the Selangor State Exco on the 2 November witnessed the tabling, debate and decision to consent MBI the grant of RM392 million from the State Government.

A supplementary supply (budget) enactment was later tabled and endorsed by the State Legislative Assembly on the 9 November for the grant of RM392 million to be allocated to MBI, in the light of executing and realising the objective of the Debt-Restructuring exercise.

Subsequently MBI then buys over the debt from SIC signing the second Receivable Purchase Agreement and paying a cash payment of RM392 million on the 10 November. With the cash payment received from MBI, SIC pays off the borrowing they did to inititiate the whole cascade of the debt-recovery exercise.

The ‘roundtripping’ finishes with SIC paying off its borrowing and the entire cost sustained by the State Government only pertains to the legal and financial cost of borrowing undertaken by SIC. And amount of RM140,000 (or RM70,000 a day) was bandied around without this writer an ability to ascertain its actual cost. Legal and financal consulting were taken care off, as it was handled in-house i.e using expertise within the State Administrative staffs including that of the good office of the Menteri Besar.

With the procedures clearly spelt out, the State Government of Selangor could now placate all grouses and address the various accusations once levelled against them. The goverment neither used the tax-payers’ money to pay-off the debts of Talam in a typical bail-out of saving a crony nor were the state subsidiaries compensated any cash after having committed the various far-from-satisfactory -jobs in their joint-venture endeavours with Talam.

Similarly the cynical questions from the academics as to who benefited from the exercise and why did the state government gave the debt buy-over utmost importance are now self evident. Already there is early success to prove the claim of the state government that their business decision is both sound and economically viable.

The former MB of Selangor and perhaps the entire Najib’s administration must be cursing themselves for not resorting to such clean and smart financial solutions, arguably more befitting with and in adherent to their “Rakyat-First and Performace Now” rhetoric. But as they say it, ‘you could only give what you have’. And frankly they don’t have it. Slogan without substance only breeds contempt and distrust.

With the last step of the procedures in place, the objective of the State Government taking over the receivables from its subsidiaries via MBI,  is now achieved. MBI, an investment arm of the State Government is well positioned to now press for Talam to fulfil its debts obligation or faces the prospects of foreclosure and liquidation on its assets and properties if it failed to pay up by then. On 10 Nov, Tan Sri Khalid Ibrahim gave Talam three months to settle the debt, incurred in connection with several properties[3].

Very recently, the Selangor MB, Tan Sri Khalid Ibrahim proved his detractors wrong by successfully collecting more than RM50 million in cash and assets from developer Talam Corp Bhd1[4]. “We have so far collected more than RM50 million and we hope to collect the rest within the year,” Khalid told The Malaysian Insider last night.[5]

The MBI and the State Government will eventually silent all critiques when a substantial debt owing by Talam Corp Berhad is back in the consolidated fund of the state. The onus is now on the Pakatan’s state government to fully realise their claim of competency, accountability and transparency in matters of fiscal governance and fiduciary role.

That shouldn’t be difficult for the MB and his EXCO, God willing, InsyaAllah.

 


[1] Talam on track to exit PN17, Chua Kim Lan,  The Edge Financial Daily, January 11, 2010.

[2] KEuro’s move to pare Talam stake puzzling, The Edge Malaysia, Issue 767, Aug 10-16, 2009

[3] Selangor wants Talam to pay up RM391m in 3 months, The Edge Malaysia, 10 November 2009.

[4] http://themalaysianinsider.com/index.php/opinion/suflan-shamsuddin/index.php/malaysia/55298-selangor-mb-silences-critics-with-rm50-million-debt-recovery

[5] The writer has just been informed that by publication date of this writing, the Selangor Government would have recouped the entire amount as it is now a matter of time before the deal is finalized.

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11 Comments leave one →
  1. Joe A permalink
    April 22, 2010 4:30 pm

    Dear Dr Dzul

    A well written acticle on the Talam debt to the Selangor State Government and how the later recovering same. Wonder how Selangor , if under BN rule , would have recovered or just forgiven the entire debt as Talam/Chan Ah Chai is a crony. The Selangor State Government is in a very strong position here as almost all of Talam/Europlus/related companies future development land bank in Selangor and the State Goverment/local councils have the authority to approve plans /oc etc. If these jokers don`t pay up tighten the screws and they can never come out of PN 17 and go to oblivion. Also enter registrar caveat on all lands held after getting consent judgement and only remove them if the debt is paid. The State can use these monies recovered to help/assist the Rakyat even better. Why should an elite , a listed company, be entiled for this ill gotten wealth and try to get away without paying back as a Gentleman, but paying back only when forced. Thanks for the article, Dr Dzul, and keep up the good work. Regards

  2. mut permalink
    April 22, 2010 7:31 pm

    How Talam got into so much debt trouble reeked of BN style “kerja”. Kera is more like it. The Ketuanan Melayu fellers are an insult to decent humans everywhere; now that the current government is in a much better position to unwind the mess of debt that Talam is in, they are studiously avoiding discussing how Talam came into this state of affairs.

  3. April 23, 2010 12:16 am

    Salam

    Dear Dr Dzul

    I thought I was reading a sound credit proposal prepared by a global bank – brilliant!

    Alhamdullilah.

    Keep up the great work Selangor State Government!

  4. malaysianparent permalink
    April 23, 2010 4:01 am

    Salam Dr.
    Great Stuff. TS Kahlid was in his element here. Looks like this might just be a win -win – win situation huh…

  5. Black Arrow permalink
    April 23, 2010 4:46 am

    Salam Dr. Dzul,

    I have always said that Pakatan Rakyat have got the best economists/brains to be in charge of Putrajaya especially the financial situation of the country.

    Dr. Dzul’s treatise is on par with the World Bank or IMF report.

    Only Pakatan Rakyat can rescue the economy.

  6. Concerned Rakyat permalink
    April 23, 2010 4:49 am

    Salam Dr Dzul. I read with interest of what the Selangor state govt is doing with Talam group which development has caused many head and heart aches for the buyers.

    My question is on the transfer of Title(s) in which the landowner is PKNS but the developer is the Maxisegar group (part of Talam Corpn) now bankrupt and have been wound up by the Court.

    What is happening is that Strata Title(s) have been issued BUT PKNS refuses and/or ignores the request from the owners to effect the transfer of the Strata Title on the basis that they require the Developer to confirm to them that the Owner is the right party to transfer.

    If the Developer has been wound up and NO Liquidator is appointed, who do the Owner/Buyers turn to in order to get things moving…

    Most of the affected area is in Pandan Jaya but Landowner is PKNS. Kindly look into this matter since PKNS is part of the Selangor State investment arm.

  7. April 23, 2010 5:12 am

    Excellent article, able to convince critics and doubters.

    Financial mess requires proper legal procedures to solve and to be able to do so without use of public funds is really commendable.

    The work of in-house corporate and/or merchant banking expertise must have saved the State significantly.

    Another good reason to support Pakatan Rakyat.

  8. April 24, 2010 12:50 pm

    Hi Doc

    Would appreciate if you gave max publicity to my letter to MIkini published todat at http://www.malaysiakini.com/letters/130103 and titled:

    “Maika share sale an election gimmick?”

    It might help voters see straight at HS.

    “I refer to the Malaysakini report New firm takes over Maika Holdings.

    The salient facts about G Gnanalingam’s recent offer to buy out all Maika shareholders are as follows:

    1. Maika’s paid up share capital – RM125 million.

    2. Gnanalingam’s offer price – RM106 million or RM0.85 per share.

    3. Oriental Capital Assurance Bhd’s (Ocab) paid up share capital is RM100 million and as at Dec 31, 2008 it’s audited NTA was about RM103 million.

    4. Maika’s investment in Ocab’s share capital is 74.165% or 74,174,640 shares, ie, Maika is Ocab’s holding company as it has both more than 51% equity shares and control in Ocab. Maika’s CEO Vell Paari a/l Samy Velu also sits on the board of directors of Ocab.

    5. Prior to Gnanalingam’s buyout proposal, there were two other offers to Maika as follows:

    a. RM129 million or $1.75 per share by Salcon

    b. RM149 million or $ 2.01 per share by Usaha Tegas, the holding company of tycoon Ananda Krishnan.

    The Salcon offer was frozen by a court order taken out by Nesa Cooperative, Maika’s single largest shareholder who had objected on the grounds that Maika’s 74% investment in Ocab had not been independently valued.

    Nesa had recommended the investment in Ocab be sold by open tender. Nesa also revealed there were two other parties interested in acquiring Ocab’s shares, one from Europe and another from Australia.

    As to the RM149 million offer by Usaha Tegas, apparently Maika rejected this offer as it could not accept certain pre-conditions insisted upon by Usaha Tegas. What these pre-conditions were have not been revealed by Maika’s directors.

    In the light of the above, I demand the board of directors of Maika explain:

    1. Why do they think Gnanalingam’s offer of RM106 million is suddenly acceptable to them when they unequivocally know there are local market players in the insurance business and foreign parties who are willing to pay more?

    2. Why are they unwilling to offer the Maika or Ocab shares for sale by open tender with a reserve price of say, RM150 million, given the Usaga Tegas offer? If as Gnanalingam says, Maika’s debts are RM30 million, the net minimum proceeds of RM120 million would be a fair and handsome reward to Maika’s shareholders who for some 20 years have received no dividends while there was a period when their CEO was paid a remuneration of RM15,000 per month.

    As to Gnanalingam being quoted as saying he’s doing ‘national service’, he contradicts it by saying he will need six months to find another financier which suggests he is looking at flipping the Maika/Ocab shares for a quick gain. So much for national service.

    Financiers may do charity work and make sizeable donations from their profits and gains, but their natural predatory instincts mean they will always squeeze out the juicy bits of the best deals for themselves.

    It seems clear to me, and for the matter any sane person, that the Maika/Ocab shares are worth a hell of a lot more than Gnanalingam’s RM106 million offer.

    The RM64,000 question is why Samy Vellu, Vel Paari and the Maika board of directors appear to be not interested in maximising returns to their long-suffering shareholders which include themselves by supporting the lowest offer?

    Is there a deal behind the deal?”

    Thank you.

    dpp
    we are all of 1 race, the Human Race

  9. khalidbinkarim permalink
    May 6, 2010 5:54 am

    Doc..

    U guys think u r brilliant coming up with this scheme?>

    Do u realise that INNOCENT people are affected by your scheme?
    Do u realise that they have the risk of losing their hard earned dollars cos of the short sightedness of ur scheme?
    Do u realise that it is wrong to use powers given for a specific ( and good reason) to punish the INNOCENT ppl in your fight with another person?
    Do you realise ur scheme is very ZALIM to some unfotunate ppl caught in the middle?Isn’t this berDOSA?
    Do u realise that INNOCENTS are being made sacrificial goats in ur scheme?
    U nok gocah dgn Talam..jgn go n pukul innocent ppl..ok?

    U might think I m an UMNO cybertrooper..no sir..u can ask Nik Nazmi why I am so frustrated.

    At the end of day..you have no regard for collateral damage to INNOCENTS…and that betrays the PAS ideology.

    Thanks and may u be happy with ur decisions

  10. Joe A permalink
    May 13, 2010 5:56 pm

    Dear Dr Dzul

    Khalid bin Karim has a valid point here. There is another issue joined together with the Debt that must be seriously considered and resolved. This issue is the many house buyers in dire straits after purchasing houses from the Talam group , abandoned, no strata or subdivided titles, very poor locations, etc and with savings /bank loans to be serviced etc. The State Government can use the monies recovered from talam to really help this house purchasers. There should be a concerted and sincere effort and not like the quite rent waive for Europlus properties during HS byelection. Guess people who voted for PR in Selangor want to see a real people friendly approach. Then , they can understand. Only few layman can understand recovery of a coporate debt. This not only for talam group but all abandoned/ miserable housing projects in Selangor. Set up a strong task force on this issue and not wait for the Federal Govt/agencies to resolve and get all the credit. There must credible change and not repeat what the previous state government was doing. Don`t just buck up and seem to be attending to the necessary when a by election come. It should be that WE RECOVERED THIS MONEY TO ASSIST ALL AFFECTED HOUSE BUYERS IN SELANGOR. Regards Dr Dzul

  11. anakrombau permalink
    October 30, 2012 3:01 pm

    Despite this clearcut explanation, why are the BN functionaries still blaming the present state govt of Selangor on the issue. Arent there any feeling of shame among them that is a problem entirely created by the previous state governments?

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