PETALING JAYA: Tabung Haji and Felda-owned FGV Holdings should have each independently assessed Trurich Resources’ assets, operating performance and prospects before committing further funds into the failed joint venture, an economist said.
Barjoyai Bardai said the two government linked entities should have exercised caution since additional capital injections into an underperforming business could exacerbate losses if its underlying issues remain unresolved.
“Decisions (to inject additional funds) should not be made simply because substantial capital has already been spent,” he told FMT.
In its recently published report on Tabung Haji, the royal commission of inquiry (RCI) recorded a full impairment of the pilgrim fund’s RM364.31 million investment in Trurich after the venture’s insolvency left it with no remaining recorded value.
Meanwhile, in a 2019 disclosure, FGV reported approximately RM234 million in losses from the 50:50 joint venture which operated oil palm plantations in Kalimantan, Indonesia. FGV also disclosed that a further RM120 million had been injected into the venture as of Oct 30, 2019.
Barjoyai acknowledged that FGV’s reported losses and funding injections could overlap, and that an impairment did not necessarily translate into an equivalent cash loss.
In 2019, FGV acknowledged that Trurich’s RM1 billion valuation, made the previous year, had been overly aggressive and failed to account for the poor condition of its plantations.
Barjoyai said both partners should have carried out their own independent assessments rather than rely on optimistic forecasts.
Their boards should first have determined whether the causes of the losses could be addressed and whether further funding offered better prospects than asset sales, restructuring or an exit from the business, he said.
Additional funding should also be tied to clear recovery targets, spending limits and a mechanism to stop financing if those targets were missed, he added.
According to the RCI report, approval was obtained in December 2020 for the disposal of Trurich’s subsidiaries, with FGV and Maybank tasked with leading negotiations.
Barjoyai said approval alone did not guarantee a successful recovery, which would depend on factors such as the sale price achieved, outstanding debts, transaction costs and eventual net proceeds.
He said the disposal process must also be transparent, competitive and aligned with the interests of both shareholders.
“The measure of a successful recovery is not how long an investment can be kept going, but how much economic value can still be recovered with reasonable additional risk,” he said.
Wider economic cost
Barjoyai said capital tied up in struggling ventures could limit new investment opportunities, depending on an organisation’s cash position, access to financing and overall financial performance.
“It is not just about how much money has been lost, but how many economic opportunities may have to be forgone because investments failed to deliver adequate returns,” he said.
For Felda settlers and Bumiputera entrepreneurs, repeated corporate losses could mean less room for business development, training and productivity improvements, said Barjoyai.
He said spending cuts could also affect agricultural suppliers, contractors and transporters, while weaker expansion could limit new jobs.
Ultimately, said Barjoyai, institutional performance should be measured through higher productivity, incomes, business opportunities and jobs for the intended beneficiaries, rather than asset values alone.