What happened to TH Heavy, which Tabung Haji is distancing itself from?

KUALA LUMPUR (Sept 7): The recent statement by Lembaga Tabung Haji (TH) disassociating itself from now-delisted TH Heavy Engineering Bhd (THHE) came following THHE's alleged delay in delivering three vessels under a RM738.9 million government contract, which came to light last month.

TH said it is no longer a shareholder of THHE after opposition politician and former religious affairs minister Datuk Seri Dr Mujahid Yusof Rawa questioned the delivery delay of the offshore patrol vessels (OPVs) by THHE to the Malaysian Maritime Enforcement Agency, an agency under the Ministry of Home Affairs.

Muhajid also urged the Public Accounts Committee to investigate the matter, to prevent the recurrence of a case similar to the littoral combat ship (LCS) scandal, in which another government-linked company, Boustead Naval Shipyard Sdn Bhd, failed to deliver six LCS to the Royal Malaysian Navy under a RM9 billion contract, despite several deadline postponements and after over RM6 billion had been paid.

For THHE, the OPVs' delivery falls under a January 2017 contract that was secured when TH was the single largest shareholder of THHE.

In a Sept 3 statement, TH said it transferred its stake to government-owned Urusharta Jamaah Sdn Bhd (UJSB) "due to weak performance by the company and as it did not provide the expected returns to TH".

The THHE share transfer — alongside more than 100 more listed companies TH invested in whose shares underperformed — was actually part of a rehabilitation exercise for TH in December 2018. This was because TH's investments deteriorated to the point it was illegal for the pilgrim fund to pay dividends to its contributors.

In fact, TH's overall financial decline went beyond the contract and was at least nine years in the making, during which TH was the single largest shareholder of the troubled heavy engineering group, which only turned to shipbuilding six years ago.

Apart from the financial year ended Dec 31, 2019 (FY19), THHE has been loss-making since FY14.

How did the heavy engineering group, once a stock market darling, collapse on its own weight?

One OPV stranded with infra to deliver due in seven months

The contract for the supply of three OPVs was awarded to a 51:49 joint venture (JV) between Destini Bhd and THHE in 2017, when TH owned a 29.8% stake in THHE. TH transferred its THHE stake to UJSB in 2018.

In 2021, THHE, now under UJSB, bought the remaining stake in the JV from Destini for RM121,131. An 18-month extension was granted by the government to deliver the vessels in August 2022, from the original deadlines in February, May, and August 2020.

It is unclear if any of the vessels has been delivered by now. The Edge Malaysia weekly, quoting sources in its article for the Aug 15-21 publication, reported that THHE would unlikely be able to, what with the first OPV being stranded onshore without a slipway to launch it.

THHE's latest comment on the slipway was that it incurred RM13 million capital commitment in second quarter ended June 30, 2022 (2QFY22) for the infrastructure of a slipway at its fabrication yard in Pulau Indah, Klang, Selangor with completion expected by February 2023.

The Edge has reached out to the Ministry of Home Affairs for comment, but has yet to receive any response at press time.

More troubled projects

The OPV project is not the only failed project by THHE, of which TH first emerged as a substantial shareholder in late 2007 (then Ramunia Holdings Bhd) before becoming the controlling shareholder in 2012.

Recall that MISC Bhd was mooted to undertake a reverse takeover of the firm in 2008 — but later called it off due to "unsatisfactory due diligence findings".

THHE's fabrication yard in Pulau Indah was blacklisted by Petroliam Nasional Bhd for four years from April 2016 to January 2020 following non-performance of the Kinabalu Non-Associated Gas Development Project.

The company, after a two-year extension, also failed to deliver a US$900 million (RM4.05 billion) contract to charter a floating production storage offloading (FPSO) asset at the Layang oil and gas field offshore Sarawak in 2018. The project was eventually taken over by Yinson Holdings Bhd.

In the last nine financial years, THHE's worst year was FY16, when it incurred a net loss of RM365.84 million with a revenue of RM17.78 million, due to the absence of projects and the impairment of assets. By 2QFY22, its accumulated losses stood at RM645.99 million, with borrowings at RM151.87 million against cash of RM3.59 million.

Shares of THHE, which entered the Practice Note 17 status in April 2018, were suspended from trading from December 2021. THHE was delisted on Monday (Sept 5) after failing to secure an eighth extension to submit a regularisation plan to Bursa Malaysia. The counter last traded at one sen — a far cry from its peak of RM1.91 in 2008.

UJSB now owns a 64.45% stake in THHE. In 2020, the Ministry of Finance's special-purpose vehicle sought a waiver from making a mandatory general offer for shares it did not own in THHE following a preference share conversion exercise.