Published November 4, 2008

Questions raised over RM5b EPF loan

But Malaysian government official says concerns are largely misplaced

By S JAYASANKARAN
KL CORRESPONDENT

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FEARS that a state-linked investment fund is being lent RM5 billion (S$2.1 billion) by Malaysia's biggest pension fund to help it meet debt obligations are largely misplaced, a government official told BT.

A news website has raised questions about the government's directive to the Employees Provident Fund (EPF) to lend RM5 billion to state-managed Valuecap, pointing out that the fund owed shareholders RM5.1 billion and that the debt is due in February.

The Malaysian Insider said yesterday that Valuecap, which was set up to invest in undervalued shares, issued RM5.1 billion of bonds in March 2003 that were taken up equally by its three state-linked shareholders - investment agency Khazanah Nasional, civil service pension body Kumpulan Wang Amanah Pencen and trust agency Permodalan Nasional.

The website said that the debt was supposed to be repaid in February 2006 but the company was given three more years, until February 2009.

'Since these debt instruments were not listed and are not tradeable, the three shareholders are probably still holding the bonds today,' the website said.

A month ago, the government proposed that the EPF lend Valuecap RM5 billion to invest in the stock market given its mandate - to invest in undervalued stocks during distressed times.

'In view of its impending obligation to repay its shareholders, however, questions arise over whether the loaned funds will be used to redeem the bonds,' the website said.

That, however, is unlikely. 'We are in it for the long term,' a government official told BT. 'And the bonds could be rolled over to simply be converted into equity.'

Even so, the questions come against a backdrop of unprecedented uncertainty and volatility.

The stock market has plunged 38 per cent from its peak late last year - a fact not lost on The Malaysian Insider.

'At end-2006, Valuecap's investments were valued at RM4.8 billion,' said the website. 'Since then, the stock market has lost 21 per cent of its value.

If Valuecap's investments have tracked the stock market, they could be worth RM3.8 billion currently.'

The Malaysian Insider conceded that Valuecap had been meeting its coupon payments with the aid of a sinking fund.

'At December 2006, the sinking fund stood at roughly RM780 million, and it held RM1.7 billion in cash and deposits,' said the website.