(Chua Jr claims that it is a RM1 billion bailout by a reckless State Government and demands for a concrete answer. But the thing is, the Talam Debt Restructuring itself is very confusing and is not easy to be understood by the man on the street unless you are prepared to go into the details and analyse the debt restructuring ringgit by ringgit. Image source: http://www.themalaysianinsider.com)
The first I heard about Talam is when my colleague of mine was complaining about the half completed house that he bought from Talam. That was in the late 1990s and it was not a big news back then because there were a couple more housing developers who facing the same problems.
Now Talam, is back in the headlines, thanks to the so-called revelations by MCA’s Chua Tee Yong and whilst we wonder why now and why no similar revelations were made by Chua on BN deals (does PKFZ rings a bell?), the constant barrage of allegations on the Selangor State Government proves nothing but a menace to Pakatan Rakyat. DAP’s Tony Pua have countered these allegations rather well and have attempted to explain the reasoning behind Talam Debt Restructuring Exercise. But before one’s goes further into the micro details of the debt restructuring exercise, one needs to understand why we have the Talam issue in the first place.
For that, it will be prudent to read these 2 articles that explains the beginning of the Talam affairs.
First titled “Kicking into your own goal”:-
By exposing what the previous Umno-BN led GoS was trying hard to keep under wraps, Chua Junior may have unwittingly opened the proverbial Pandora’s box. I am, of course, referring to his Talam Debt Expose. If the current GoS had exposed this scandal, it would not have got even one line of coverage in the mainstream media (MSM). However, because it was MCA-BN that exposed it, it gets front-page coverage for weeks on end. Let us look at the details of the Talam Debt Settlement and see what skeletons are rattling where.
Debt Settlement of 2009
YB Teresa Kok had said on Tuesday that the Debt Settlement of 2009 was a continuation of the earlier Debt Settlement Agreements made in 2006 and 2007 — that means during the previous Umno-BN State Government.
One earlier Debt Settlement in particular is of great interest. That is, the one signed between Talam and Kumpulan Hartanah Selangor Berhad (KHSB) in 2005 — again, under the previous Umno-BN State Government. When this agreement was signed, Tan Sri Chan Ah Chye was a Director of KHSB and Talam was a major shareholder of KHSB. So this required KHSB calling for a Shareholders Meeting in 2005 to have the agreement approved by the shareholders. However, it was not done, as it would have meant that KHSB would have to appoint an Independent Adviser and all the shit would have been exposed — especially the ‘haircut’ or reduction that was being given to Talam from a more than RM150 million debt to slightly over RM100 million.
So Chua Junior did the Selangor voters a favour by exposing the issue and requesting for an investigation and action to be taken, as now the Bursa and SC can investigate the matter and take the appropriate action against the Board Members of KHSB in 2005. Interestingly enough, even the now controversial Debt Settlement in 2009 was also kept under wraps by the KHSB Board in 2009 — which was then still being controlled by Umno/BN — by not calling for another Shareholders Meeting to approve the 2009 Debt Settlement Agreement. I am sure the then Executive Chairman, Company Secretary, Board and Management were aware of the requirement to call for the Shareholders Meeting. But then, if they did, all would be exposed.
So, again, Chua Junior did the Selangor voters a favour by exposing the issue and requesting for an investigation and action to be taken, as now the Bursa and SC can investigate the matter and take the appropriate action on the Board Members of KHSB in 2009.
But what is this ALL?
How did Talam get to owe so much? Actually, the ‘problem’ started way back in the early 2000s when the then Umno-BN GoS was hard-pressed by unit holders of their unit trust, Amanah Saham Selangor or ASAS, to redeem their units for the minimum guaranteed price of RM1.00. The price of the units was then less than 30 cents. This shows the investment expertise of the then GoS, which can reduce a RM1.00 value to less than 30 cents.
Anyway, in order to show profits and redeem the units at RM1.00, the GoS came out with a plan, or I prefer to call it a devious scheme, to increase the value of their companies by having these joint-ventures with people like Chan Ah Chye. So, they created joint-ventures with their two public listed companies, Brisdale and SAP, and inflated the value by more than 300 million and then floated the shares through an IPO by creating two new companies, KHSB and Kumpulan Perangsang Selangor Berhad. The ‘profit’ made by the GoS in floating these companies were then used to redeem the units from the unit holders in 2003, just before the 2004 general elections. So, Prime Minister Najib Tun Razak was right, Malaysia can create history with their IPOs. This is yet another one.
But then what happened to the two companies, Brisdale and SAP? Brisdale is today under receivership and SAP is burdened with close to RM300 in million losses due to all these failed joint-ventures. So, as I said, Chua Junior did the Selangor voters a favour by exposing this issue.
Joint-Ventures
Let us now look at the controversial lands and the failed joint-ventures. In order to create the value for the IPO, the then GoS took, as what Chua Junior is now indicating, useless pieces of land, which are more than half underwater, and placed them in the joint-ventures at inflated prices. This then created the illusion and impression that the joint-ventures would be worth much more than they really were. So, today, Chua Junior has done the GoS a favour by showing that these lands were worthless pieces of land placed to create value and nothing more.
However, good, reputable and respectable property developers would say that land with 50% water, are now prime development land for Lakeside Properties. Look at the Mines, SunWay, CyberJaya, etc. In fact, KHSB, which also owns about 5,000 acres in the same area of Bestari Jaya, with about 50% underwater, recently signed a MoU with some Chinese investors to develop the 5,000 acres into an eco-city development with a value of more than RM8 billion. This is what I would call creating value and my hats off to the new Board and Management of KHSB, which I believe is only about a year old.
And then read Malaysiakini’s “Nathaniel Puts TALAM in Perspective” who also explains the Debt Restructuring Exercise:-
“Confusing” probably describes most of our initial attempts to get to the bottom of what the deal was between Talam Corporation and Selangor. With a little diligence, clear thinking and attention to detail however, most mysteries can be unravelled and articulated efficiently.
This article attempts to explain in easy to understand terms the background and context of this issue, how Selangor recovered the debt owed to it by Talam, and how this debt recovery differs from the bailouts we have seen at the federal level.
In the Beginning
The story begins in the late eighties and early nineties, with an engineer and project manager who worked in Selangor state subsidiary PKNS – one Chan Ah Chye. This man later goes on to form Talam Corporation, and before long – possibly due to close connections with the ruling elite in Selangor, then headed by BN Menteri Besar Muhammad Muhammad Taib – he becomes a major player in the Selangor property and development scene.
Over time, an extremely large amount of state land is alienated to Talam, who basically gets it for free. A strong imagination is not required to speculate in whose pockets any resulting profit eventually ends up. Talam’s modus operandi seems to be to pledge this land to the bank in exchange for huge loans, which they then use to finance their development and profit making projects. In essence, since they got the land free, they have successfully achieved money for nothing (it is uncertain as to whether “chicks for free” were involved). The ‘wise’ businessmen of that era believed in the dictum of never using your own money when you can use someone else’s. This heavy lending continued to characterise Talam’s business approach, and their loans consistently kept getting bigger and bigger.
Tumbling down
Of course, no student of recent economic trends is unfamiliar with the concept of a bursting bubble. The financial collapse of the late nineties brings Talam’s debt-ridden house of cards crashing down. An overgearing of loans and inability to service them halts various half-completed projects, rendering them idle, half-built ruins. Incredibly however, this does not prevent Talam and their political patrons from altering their basic modus operandi.
In 2001, under BN Menteri Besar Khir Toyo, three parcels of land are alienated by Selangor to Talam via their subsidiary Maxisegar Sdn Bhd, who undertakes to construct Unisel’s campus at an estimated cost of RM750 million. It will probably come as no surprise that Talam failed to complete this project. By September 2006, the company had been classified as an affected company under Practice Note 17 (PN 17), indicating dire financial straits.
New Sheriff in town
In 2008, when Khalid Ibrahim assumes the Menteri Besar’s post, he inherits a situation in which Talam owes the state of Selangor and its subsidiaries (among other creditors), a great deal of money. Urban legend has it that when Talam was called in to explain why they have never endeavoured to pay their debts, the sheepish reply given was, “No one ever asked us to.” Thankfully for the citizens of Selangor, there was a new sheriff in town.
Corporate finance is not only an area of expertise for Khalid (left) – it is a passion. With great gusto, he set out to solve this problem, and recover that which was owed by Talam to the people of Selangor. The problem was undoubtedly challenging, but after some work and careful strategising, a plan was set into motion.The end goal was simple: to leverage the assets still held by Talam to repay the debt Talam owed to the Selangor and its state subsidiaries.
The technical nitty-gritty
Making this happen was a technically complicated process that required considerable financial acumen. The summary is this: firstly, the debts that were owed by Talam to Selangor state subsidiaries were properly booked and accounted for – something that, very suspiciously, had not been done before. Once these debts were acknowledged by all parties, the debts were consolidated and transferred to one state subsidiary – Menteri Besar Incorporated (MBI), which was then responsible for collecting the debts from Talam in the form of land and cash.
The rest of this section explains how this was done.
It is a boring and complex explanation, but I list it here for the record and for those interested. Talam owed RM392 million to three Selangor state subsidiaries: KHSB, PIYSB, and PNSB. After acknowledging and booking these debts, the next step was to have another state subsidiary, Selangor Industrial Corporation (SIC), purchase these debts from the other three companies. A loan from CIMB Bank of RM 392 million was given to SIC to complete this purchase. In November 2009, the state exco and legislative assembly both approved a grant of RM392 million to MBI, which then used the funds to purchase the original consolidated debt from SIC. SIC then uses those funds to pay off their CIMB loan. The end result is as simple as the transaction itself is complex – without any major or excessive transactional expenses, Talam now owes the same amount of money to just one state subsidiary, instead of the original three.
Restructuring and successful collection
It is important to note that at no point are funds transferred from taxpayer monies to Talam. Funds have instead only been transferred from one pocket of the state to another. This differs wildly from federal bailouts of corporations like Indah Water Konsortium, MAS, or the Putra/Star LRT, where taxpayer money was injected directly into companies that had probably lost untold amounts via mismanagement, corruption and plundering.
The transfers in the Talam debt restructuring allowed for a structure in which there is a clear acknowledgement and accounting for the RM392 million owed by Talam, and a single company for them to pay it to. The story does not end there. Another extremely important milestone in this tale is that MBI has in fact already succeeded in recovering all RM392 million in debt owed by Talam. For those who would like to keep score, this recovery came in two forms. RM340.88 million was recovered via acquisition of land and assets: 1,322 acres of land in Bukit Beruntung worth RM150.28 million, 2,264 acres of land in Bestari Jaya worth RM105.3 million, 400 acres of land in Ulu Yam and 60% equity in Ulu Yam Golf & Country Resort worth RM22.2 million, 134 acres of land in Danau Putra worth RM52.1 million and five office units in Menara Pandan worth RM11.1 million.
The remaining RM51.12 million was collected in cash: RM12 million from sales of land in Puncak Jalil, RM5 million in cash assignments from EON, RM7.68 million in payments by Unisel for earthworks, RM9.04 million from the sale of 25.94 acres of land in Bukit Beruntung, and RM17.4 million from sales of 218 acres of land in Bestari Jaya. Go ahead, count it – it’s all there.
Now that one have read the 2 articles, the next question that one need to ponder is whether the Selangor State Government did the right thing when they decided to get SIC to obtain the loan from CIMB (and whether there were still liabilities unaccounted for – Read “Talam Debts for Dummies – Questions for Khalid“) and why the Menteri Besar did not publish the White Paper earlier (which would have cleared all doubts and spins for once and for all) as promised and why Tony Pua (instead of the Menteri Besar or the State Financial Advisor) is taking charge in answering most of the allegations by Chua Jr. Of course there is the question of why Khalid want to hire 5 international accounting firms to review the Talam Debt Restructuring which does not make any sense when the Debt Restructuring exercise is a done deal and there are capable accounting firms right here in the country to do the same review.
There is no easy answer for the above questions of course and it is made worse by the consistent barrage of allegations on the same issue from Chua Jr and very little effort (from the State Government) made to reply and to put to rest the issue for once and for all. And whilst we wait for a proper response by the State Government on the Talam issue, we should not also lose sight of the other side of the story on the Talam debts – the story of how a private entity end up owing millions of ringgit to State agencies which clearly happened when the Pakatan Rakyat was still in the wilderness and had yet to take over the control of the State.
The solution by Pakatan’s State Government may not been the best or the “cleanest” solution to the mess that they had to take over in 2008 but it is a solution nonetheless. The debt may have been collected in full without any bailouts with taxpayers money (other than perhaps the interest for the CIMB loan) as insisted by the State Government but this need to be clearly explained to the masses. Most of us agree that the Talam Debt Restructuring exercise is confusing (mainly because the debt is assumed and transferred to different parties) and that coupled with lack of access to debt restructuring papers and lack of financial understanding, the success of the debt collection seems to be obscured and laced with pre-election dirty politics.
We are aware that in any debt collection, there is a good chance that we may not be able to recover the debt in full. And since part of the repayment comes in form of land assets, the true recovery of the debt is highly subjective on factors like valuation, location, ready purchasers, etc. Thus creates the uncertainty on how much and how fast the State Government can sell those lands that they got in place of the debt. That is where the State Government need to work hard to convince the people that they have a solid plan in the event they have a problem to capitalise on the land obtained.
But what we are more interested is whether taxpayers money have been used to do multi-million bailout to Talam and whether there has been clear accountability, transparency and due diligence on the way the debt restructuring exercise was planned and executed. That is more important than harping on the value or the location of the land and that is is what we want to know from the Menteri Besar before the next general elections.
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