The murmurs surrounding the going-on at the Human Resource Ministry particularly HRF and HRD Corp was loud during the PN government and under the MIC Deputy President, Dato Seri M Saravanan. There were much talked about within the human resource training industry.
So, the current noise over HR Ministry or HRDF or HRDC is not the first time. In April last year, a senior officer to the then Minister of Human Resource, V Sivakumar was detained. Till today, the conversation remain over the delivery of the said RM97 million caught on tape. The admissibility of the evidence is another issue.
Public suspect a cover-up because the Minister is from DAP. Its for the same reason current Minister Steven Sim is being criticised for inaction. However, on record, Steven did the right thing and was acknowledged by PPBM-chaired PAC for appointing an independent professional auditor.
There was also a "visit" by MACC to the HRDF office back in April 2019. And, although Saravanan denied, the talk back then was of an MACC raid on the Human Resource Ministry back in July 2022.
The reputation of the HR Ministry had long preceded them that whisteblower Edisi Siasat dare to point their finger at Saravanan, MIC President Vigneswaran, CEO Shahul Hameed, and the naturalised Malaysian and Corporate Mafia-linked owner of Bestinet , Amin Bangla.
It is no surprise that PAC, Auditor General and MACC pursued HRDC. Thus, there is no reason HRDC should threaten to sue the Edge for the following expose.
HRD CORP'S INVESTMENT, governance come under scrutiny
By Cheryl Poo and Anis Hazim / The Edge Malaysia
18 Jul 2024, 02:00 pm
This article first appeared in The Edge Malaysia Weekly on July 8, 2024 - July 14, 2024
THE Public Accounts Committee’s (PAC) inquiry into the affairs of the Human Resources Development Corporation (HRD Corp), particularly its investments and governance structure, has opened a can of worms.
HRD Corp celebrated its 30th anniversary last year. It was formed in 1993 with the noble intention of funding the upskilling of employees on the basis that companies were not spending enough to develop their human capital. In relation to the objective, the government agency began collecting from registered employers a 1% levy on Malaysian employees’ monthly wages across the sectors covered by Pembangunan Sumber Manusia Bhd (PSMB).
Over the years, the collection of the levy expanded into the wider economic sector and consequently, the annual amount collected ballooned. The fear now is that the government agency, which is flush with cash, has become a breeding ground for investments that may not be viable.
This is evident from the PAC’s findings where it says a significant amount of the levy collected has been put into risky investments related to the equity market. It highlighted the put and call options that HRD Corp had entered into in its investments related to equities.
The government agency’s investments went up a significant 66% to RM1.44 billion last year from RM869.7 million in 2022. The fair value of its equity investments stood at RM612.77 million compared with RM352.47 million the year before.
According to the PAC report, HRD Corp’s funds that were invested in these instruments came from unutilised levy.
Unutilised levy is the sum collected from employers who have been deregistered due to cessation of business or the levy has been unutilised for a period of two years. Last year, the unutilised levy amounted to RM31.8 million.
The PAC concluded in the report that the investments were not presented to HRD Corp’s board of directors despite being requested by the directors.
When grilled by the PAC and Auditor-General, Elanjelian Venugopal, a former CEO of the Human Resources Development Fund, admitted that the organisation was not an expert in investment and had lost RM80 million in 2022 because of put and call options.
“The investment team at HRDF is a very, very weak team. In 2022, HRD Corp reportedly lost RM80 million through investing in put and call options. So, it is not quite clear how it works because they didn’t specify [anything]. But they lost money,” he said.
“They are losing money every year, right? The question then becomes [whether] they are capable of doing this kind of investment. Or who is capable there to advise the board to invest in or [enter] riskier ventures?”
Having been with the organisation since 2018, Elanjelian was replaced by Datuk Shahul Hameed Shaik Dawood on April 1, 2020. At about the same time, Datuk Nelson Renganathan was appointed to the board as chairman by Datuk Seri M Saravanan, who became human resource minister in March that year when the Perikatan Nasional administration was in power for 18 months.
Nevertheless, Nelson exited the board after five months and was replaced by Datuk Seri Jamil Salleh on Oct 14. Given that Jamil was the chairman of both the investment panel as well as the board of directors, HRD Corp’s management justified that the investment panel did not need to report its investment activities to the board.
Note that there has also not been a representative from Bank Negara Malaysia on its board of directors, as required by the Act under which HRD Corp was formed, since 2017 or 2018.
Data from the PAC’s report shows that HRD Corp collected a total levy of RM2.13 billion from 89,912 registered employers, which employed 4.59 million employees, in 2023. The amount collected had grown to RM1.809 billion in 2022 from RM475 million in 2020 as more sectors were required to pay the levy under the PSMB Act 2001.
According to the report, HRD Corp’s assets under management stood at RM3.77 billion in 2023 (unaudited), up from RM3.12 billion in 2022 and RM2.268 billion in 2021.
How did HRD Corp purchase a RM154 million building without board approval?
Another matter raised by the PAC was HRD Corp’s involvement in several “dubious property deals”, most notably the purchase of a RM154 million building without the approval of its board.
Elanjelian said the six-storey building in Bangsar South was intended to be the new headquarters of the government agency, according to the PAC report released last Thursday. The move did not happen as it had become a “controversial issue”, he added.
“We had [some] history in 2017, when we purchased the building for RM154 million, right? Then for many years, it was empty. We purchased it with the view of relocating there [Bangsar South]. We were trying to rent it out [but couldn’t] because there was a RM10 million bribe that was involved ... MACC was supposed to take action but stopped when the government [administration then] collapsed,” said Elanjelian.
“But I saw the document because they [the MACC officer] were interviewing me about the RM10 million bribe involved. So, the question is always like why is HRDF buying buildings? Because sometimes it is not necessary and [at] HRDF, we were trying to bring down the number of staff because we wanted to take this fund and put it in fixed deposits, not to invest it,” he added.
The PAC report revealed that HRD Corp had paid a 50% deposit, or RM120 million, for the purchase of Menara Ikhlas in Putrajaya that was worth RM202.5 million in February 2021. However, the transaction was later cancelled more than a year after the deposit was paid.
The deposit paid was more than 50% of the purchase price of the building, which was “somewhat unusual because the deposit that should have been paid is only 10% of the purchase price, the report stated. Further, the contents of the sales and purchase agreement was “a lease to purchase agreement”, it noted.
The PAC also flagged the purchase of a block of a commercial building called Sutera Avenue in Kota Kinabalu for RM16 million, which was not tabled at the board meeting. While the purchase was approved by the company’s investment panel, the board of directors was asked to sign the statement without being given complete information on the property.
In addition, the Auditor-General’s report flagged a suspicious disbursement of training grants, totalling RM51.69 million, by HRD Corp to 3,726 individuals who attended training multiple times under the Gerak Insan Gemilang scheme. Also, 234 participants in the scheme were flagged as suspicious for having identical names and identification numbers.
When contacted by The Edge, HRD Corp did not respond directly to the questions raised concerning the “suspicious grants, investments and irregularities pertaining to property purchases”, but referred to its press statement where it acknowledged the shortcomings highlighted in the reports by the Auditor-General and PAC, and maintained that the levy collected from employers should only be used to train their employees.
It also said that following an audit process for the 2019-2023 period, it has made several improvements, such as cancelling the Skills Passport Project without incurring costs or losses to HRD Corp or the government, and introducing the Strategic Initiative Account, which is segregated from the levy trustee account, for better transparency and efficiency in managing its finances.
The findings on HRD Corp have drawn the attention of Prime Minister Datuk Seri Anwar Ibrahim, who called for priority to be given to management, governance and accountability in the issues raised by the Auditor-General’s report.
After the Ministry of Human Resources submitted a report on the mismanagement issue involving HRD Corp to the Malaysian Anti-Corruption Commission last Friday, the MACC said it would examine all the documents related to the findings in the latest Auditor-General’s report concerning HRD Corp to determine if there had been any element of wrongdoing.
In the subsequent issue, Edge revealed the questionable investment of HRDC:
Companies HRD Corp has invested in
22 Jul 2024, 05:00 pm
This article first appeared in The Edge Malaysia Weekly on July 15, 2024 - July 21, 2024
THE Human Resource Development Corporation (HRD Corp) has come under scrutiny following the Public Accounts Committee’s (PAC) inquiry into the government agency’s investment portfolio and asset purchases.
HRD Corp has invested in at least 10 Bursa Malaysia-listed companies, based on data compiled by The Edge (see table).
The environmental, social and governance (ESG) movement is gathering steam, but how much of it is real, and how much is hot air? Across industries, transparent and accountable ESG reporting is crucial to ensure that companies are on the right track to improve their environmental and social performance, strengthen governance and earn the trust of stakeholders. However, the lack of standardisation and challenges in quantifying impact have made the evaluation of ESG performance a difficult task.
Last week, the National Audit Department revealed that HRD Corp bought shares in Widad Group Bhd (KL:WIDAD) under a put and call option (PCOA) agreement on Oct 12, 2020.
In the briefing notes, the National Audit Department stated that HRD Corp’s entry price in Widad was at 62 sen a share. Widad’s share price fell off a cliff, dropping from 49 sen in mid-January to a low of 5.5 sen last Friday.
Widad’s annual report for 2023 shows that HRD Corp owned a 3.12% stake, or 96.46 million shares, as at April 18. That block of shares is worth RM5.31 million compared with its investment cost of RM59.8 million.
Based on last Friday’s closing prices, the value of HRD Corp’s stakes in the 10 companies stood at RM565.6 million. HRD Corp’s 2023 annual report shows that its equity investments amounted to RM612.77 million, which is 75% higher than the RM352 million in 2022.
Among the 10 companies, HRD Corp’s investment in Chin Hin Group Bhd (KL:CHINHIN) seems to be faring well as the share price has surged nearly 57% over the past 12 months, partly driven by its one-for-one bonus issue in early May.
Bloomberg data shows that HRD Corp sold some 41.66 million Chin Hin shares in June. It is currently left with 41.66 million shares, which are worth RM140 million based on last Friday’s closing of RM3.36.
HRD Corp also has a position in Chin Hin’s property arm — Chin Hin Group Property Bhd (KL:CHGP). Its 2.39% stake, or 15.79 million shares, are worth RM37.74 million based on RM2.39 a share.
Chin Hin owns a 61.56% stake in CHGP.
Meanwhile, HRD Corp also invested in the Hextar group of companies, namely Hextar Global Bhd (KL:HEXTAR) and Hextar Industries Bhd (KL:HEXIND), according to the companies’ latest annual reports.
HRD Corp holds a 2.6% stake in Hextar Industries amounting to RM35 million, and a 1.64% stake in Hextar Global which is worth RM56.83 million in total, based on last Friday’s closing prices.
Shares in Hextar Global have gained 21% over the last one year, and more than 67% in the last two years, to 89.5 sen apiece, while Hektar Industries’ share price has gained 13.4% year on year (y-o-y) and 54.3% in the last two years to 49 sen a share.
HRD Corp also holds shares in the Berjaya Group of companies, namely Berjaya Corp Bhd (KL:BJCORP), 7-Eleven Malaysia Holdings Bhd (KL:SEM) and Berjaya Food Bhd (KL:BJFOOD), as the latest annual reports show. The government agency has 4.12% equity interest in Berjaya Corp worth RM79.35 million, a 4.5% stake in 7-Eleven Malaysia worth RM100 million and a 4.9% stake in Berjaya Food worth RM46.46 million.
Shares in Berjaya Corp gained 20% y-o-y and 49% over the last two years to 34.5 sen a share. 7-Eleven’s share price has been flattish over the last one year but has surged 30% over the past two years to RM2 apiece. On the other hand, Berjaya Food’s share price has fallen 16.9% year to date because of the boycott of Starbucks over the Israel-Palestine conflict. The stock has fallen 18.55% over the last two years.
HRD Corp’s other investments are a 2.85% stake in NCT Alliance Bhd (KL:NCT), 3.36% in Teladan Group Bhd (KL: TELADAN), 4.38% in MAG Holdings Bhd (KL:MAG) and 0.84% in Sasbadi Holdings Bhd (KL:SASBADI).
HRD Corp began investing in Sasbadi in 2020, but it is no longer listed in the company’s 2023 annual report.
Teladan and NCT Alliance are related to Chin Hin group and Hextar group, which have common shareholders in the Chiau families and Datuk Eddie Ong Choo Meng.
According to the 2023 annual reports, Ong owns a 2.07% stake plus 4.64% warrants in Melaka-based property developer Teladan. Meanwhile, Chin Hin’s executive chairman Datuk Seri Chiau Beng Teik owns a 1.23% stake in Teladan. Over at NCT Alliance, CHGP owns a 4.84% stake in the company, while the Chiau family holds a 9.11% stake.
NCT Alliance ended the week at 51 sen a share, giving it a market capitalisation of RM852.4 million. Teladan last traded at RM1 (market cap: RM812.6 million), MAG Holdings closed at 18 sen (RM300.36 million) and Sasbadi at 18 sen per share (RM76.32 million).
HRD Corp, which collected more than RM2 billion in levies from over 80,000 employers last year, had investments in various kinds of capital market instruments amounting to RM1.45 billion at end-2023. It had invested RM612.8 million in equities, RM170.3 million in redeemable cumulative convertible preference shares (RCCPS) and RM135.5 million placed with unit trusts.
According to its 2023 annual report, the investment in securities came with put and call options “to manage price risk exposure arising from certain equity investments held”.
The government agency explained that the put option allowed it to “put” (sell) the shares in hand back to the original vendor at the original purchase price plus a premium that ranged between 8% and 8.5% a year. Likewise, the call options allowed it to “call” (buy) shares that it originally owned at the original price plus a premium of between 8% and 8.5% a year.
As such, the options are only financially feasible if HRD Corp’s counterparty has the financial resources to fulfil its obligations.
In the case of Widad, it was reported that HRD Corp bought its stake in the company at 62 sen a share in 2020. Today, the counter is trading at six sen.
Executed alongside an initial share sale agreement, the PCOA included a moratorium from Oct 15, 2020, to Oct 14, 2021. The agreement was renewed on Oct 12, 2021, extending the moratorium until Nov 30, 2022, following approval in an investment panel meeting.
Complications arose on Nov 30, 2022, when the investment panel committee rejected a proposal for a second renewal of the agreement, citing Widad’s failure to pay the agreed premium on the investment.
Widad appealed on Feb 8, 2023, agreeing to have HRD Corp purchase additional shares at no charge to average down the cost, while committing to premium payments via instalments.
The investment panel committee then overturned its previous decision in a special meeting on April 5, 2023, and approved the second renewal of the PCOA for one year, from Dec 1, 2022, to Nov 30, 2023.
The Minister of Finance Inc subsequently approved the renewal on Oct 16, 2023, setting a renewal price of 54 sen, down from the initial entry cost of 62 sen. The renewal was formalised on Nov 30, 2023.
We stand to be corrected, but apparently a reliable market source claimed HRD Corp also invested in a call and put option arrangement with the defunct Serba Dinamik.
Knowing Serba Dinamik's financially distress position, they are unlikely able to honour both the call and put option thus the premium paid (or perhaps referred as investment) by HRD will be considered a total lost.
HRDC claim the unrealisable profit from the investment is far more than the losses and the M&A allows for setting up of an Investment Panel. Question is what sort of investment and criteria to the investment made by the Investment Panel? Were they qualified to undertake investment?
And, were there any form of collusion between the management of HRD and the main shareholders of invested companies since most of the shares are not exactly of investment grade status?
There is no doubt of the occurrence of a total breach of governance.
The extent of leakages, misappropriation of fund and possibly outright embezzlement arising from abuse of power and corruption maybe be more than that reported by media. Government must investigate further and hold the wrongdoers accountable.
No cover-up also for any fellow PTD high officials. When first heard of the wrongdoings in the Ministry, it is widely said to involve an acting KSU in which there was reluctance by the Minister to request for a permanent KSU appointed.
Perhaps, it is only a rumour.
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