Nothing wrong with Tabung Haji TRX land purchase, but…

Hazlan Zakaria, The Ant Daily

In itself, the purchase of the Tun Razak EXchange (TRX) land by pilgrimage fund Tabung Haji is probably not technically wrong nor questionable on the surface, though there might be questions on the business-side viability of the transaction.

After all it is standard practice for the company to invest in real estate and properties, as per Islamic requirements on commerce which must be in tangible goods or services.

And real estate development does give high returns to firms that invest in them, especially in high-yield projects like TRX, though observers have warned of a property glut in the Malaysian market.

And as has been announced by Tabung Haji, its directors who have decision-making roles with links to 1Malaysia Development Berhad which owned TRX, sat out of the fund’s deliberations pertaining to the purchase.

The concern perhaps is not in the technicalities and conflict of interest involving company officers and directors but the underlying reason of why the government-owned entity is investing in that particular project.

To illustrate the point further is perhaps that following Tabung Haji’s involvement in the 1MDB-owned development project are reports of the same move being considered by government pension fund KWAP.

Once again a government-owned fund is considering ‘investing’ in the project of the troubled sovereign investment arm.

Though KWAP has denied such entanglements, though adding that it was exploring investment opportunities in the local properties market.

Some may question if the Tabung Haji-TRX espose was the reason that the reported KWAP-TRX deal was scrapped, if it has existed in the first place.

What is perhaps the crux of the matter is probably laid out in Najib’s claim that the RM42 billion in loans taken out by 1MDB which is reportedly guaranteed by the government, is not lost as it is embodied in the TRX and Bandar Malaysia land bank.

“The RM42 billion is not lost. There, there are the 70 acres TRX and 500 acres Bandar Malaysia lands,” The Malaysian Insider quoted Najib telling hundreds of Umno Selangor members in Klang on May 16.

Pieces of the project which are seemingly being taken up by the other government-owned funds.

The question one can ask is, are public funds being used to inject funds into the cash-strapped 1MDB as creditors are lining up to collect the interest and principal of its RM42 billion debt outlay?

Reports have emerged of a consortium of banks led by Deutsche Bankcalling in for a repayment of the Malaysian government guaranteed, US$975 million loan.

This was after 1MDB’s debts to local banks were in near default as it only managed to service them recently via billions in funds the origins of whichwere questioned and accused to be from a government bailout or friendly loan from a local tycoon.

This is perhaps what is wrong, that public funds in the government-owned entities may be used to prop up the debt-ridden 1MDB via purchases of land in TRX which 1MDB got from the government for cheap anyhow.

Anyway as pointed out by DAP Petaling Jaya Utara MP Tony Pua, the investment poured into TRX and Bandar Malaysia is far from the RM42billion in loan commitments the sovereign fund now shoulders.

He said in a statement that the land in total costs 1MDB less that RM2 billion and it is worth only slightly more than RM5 billion, which scarcely covers the RM42 billion value Najib had lauded as the goldmine that TRX and Bandar Malaysia land bank supposedly is.

Najib had reportedly said when addressing the Selangor Umno members about the matter, that if he was a rich man he would buy TRX land as it would be worth a lot more 20 years from now.

But the rub is, while TRX land may be worth a lot 20 years in the future, one cannot equate future value to current missing funds.

As has been addressed by pundits and experts prior to this, the fact is, if 1MDB used up RM42 billion in acquiring assets or poured it into investment, there must be something to show for it that is equal to present book value of the entirety of the amount.

And indeed there are no such things proven thus far with the company having neither asset nor cash to show for the government-guaranteed billions of ringgit it handled.

Thus, one must worry that using the so called TRX-Bandar Malaysia ‘goldmine’ as a parable, the powers that be may now use other government-owned funds containing public monies to supposedly share in the good fortune.

But it may be that they will only serve as short-term bailouts to put cash in debt-ridden 1MDB’s outstretched hands.

As one friend of mine had said, “I think he meant landmine, not goldmine”.

A landmine that we the public may inevitably step on as public monies managed by the government may be used for more TRX investments to unlock future value and maybe give present day cash to 1MDB.