The good news is that EPF had temporarily stopped accepting shares as collateral for loans to companies due to the current volatility in the stock market.
The bad news is that EPF loans to corporations peak in 1998-99 because EPF stepped in to provide loans to companies as banks turned cautious in extending credit after the Asian financial crisis in 1997. This appears to be another example of “fools rush in where angels fear to read” as far as EPF and other government-linked funds and agencies are concerned after the 1997 Asian financial crisis.
EPF's asset and investment allocation for loans and debentures saw a dramatic increase at the height of the financial crisis in 1997 reaching RM33.83 billion or 26.16 per cent of total EPF funds in 1997, RM38.43 billion or 26.58 per cent in 1998, RM39.87 billion or 24.61 per cent in 1999 and RM37.62 billion or 20.77 per cent in 2000 as compared to 8.2% a decade ago.
This was Ghafar’s explanation for the sharp increase in the volume of loans extended to corporate borrowers from 1997-1999: “Most other institutions were reluctant to lend, so that’s why we increased our loans”. (Asian Wall Street Journal).
The 9.7 million EPF contributors are worried that hidden in these gargantuan
EPF loans from 1997-1999 are high-risk, dubious and even downright
bad loans to crony companies made at the expense of the best interests
of the EPF members.
EPF should make public all loans it extended after the financial crisis
from 1997 to 1999 to ensure they are prudent and safe as EPF had
increased loans during this period to corporate borrowers when banks had
turned cautious in extending credit and the 9.7 million EPF contributors
are entitled to full accountability and transparency on these loans as
they are concerned about the safety, quality and yield of their RM181 billion
EPF funds.
The EPF contributors would want to know whether by using EPF funds to play the role of the “white knight” to save corporate borrowers by giving them increased loans which they could not get from banks after the 1997 Asian financial crisis, the EPF Investment Panel has put at risk the RM181 billion EPF funds of the 9.7 million EPF contributors.
The EPF contributors have yet to receive a satisfactory explanation and accountability for the EPF investment in the Time dotCom IPO fiasco which has caused some RM110 million losses to the EPF.
EPF had partially converted a RM500 million loan to Time Engineering Bhd in 1996 into equity in Time dotCom. Following Time Engineering's debt restructuring exercise, an agreement was reached to repay half the outstanding loan in cash and the other half as shares in Time dotCom at a price of RM3.30 each.
The EPF Investment Panel had acted in disregard of the interests of the 9.7 million EPF contributors in agreeing to the conversion of half of the loan to equity at such indefensible and inflated price which became the object of market ridicule, resulting in the biggest IPO flop in Malaysian history! Time dotCom fell 20 per cent of its IPO price of RM3.30 or RM2.64 on its public debut on March 12 and had since headed south and is now hovering at the RM2 level or some 40% below its IPO price.
The EPF should have insisted on full recovery of its RM500 million loan with interest - instead of allowing Time Engineering and Halim Saad to end up with RM900 million in cash at the end of the Time dotCom IPO at the expense of the EPF members.
Furthermore, the EPF has never explained why it had not declined the IPO "restricted offer" to take up another 2.85 million Time dotCom shares.
To ensure greater EPF accountablity and transparency, and the safety and quality of EPF investments which will total RM200 billion at the end of the year, there should be a complete restructuring of the EPF Board and the EPF Investment Panel to ensure that the EPF Investment Panel is responsible to the EPF Board and the EPF Board in turn is responsible to the 9.7 million EPF contributors through satisfactory mechanisms and representative organisations like the proposed EPF Contributors’ Association.
(12/4/2001)