Independent review of Talam debt recovery exercise – Q & A
Published: Fri, 07 Sep 2012
1. Did the Selangor government bail Talam Corporation out for RM1 billion?
This is not a bailout. The State government had merely recovered debts owed to it by Talam Corporation (Talam). We are unable to comment on how the RM1 billion is derived as the amount is neither in the records of the state nor in the agreements with Talam.
2. If it was not a bailout, what was the exercise conducted by the Selangor government with regards to the Talam debts?
The state government carried out a debt settlement exercise. A debt settlement can be in the form of cash and/or assets. In this instance, assets were used as the mode of settlement. The exercise that was carried out was to recover assets from Talam through a settlement agreement for the debt owed.
3. What is the difference between a bailout and debt settlement/recovery?
Bailout constitutes acts of giving financial assistance to a failing business to save it from collapse. The provision of “financial assistance” is defined in Bursa Malaysia’s requirement as:
a) Lend or advance any money; or
b) Guarantee, indemnify or provide collateral for a debt.
In this case, the state did not provide any of the above to Talam and hence this is not a bailout. Debt recovery is, literally, claiming debts from your debtor of what is rightfully yours.
In this case, the arrangement between Talam and the state government is a debt recovery situation where a group settlement agreement (GSA) was signed. The agreement allowed the state to “take” Talam’s assets so that these assets can be sold for the state to recover its money.
4. When and how did Talam incur the debt?
The Talam debts – which amount to RM392 million – initially arose from dealings with state subsidiaries as below:
– Joint Venture Agreements between Permodalan Negeri Selangor Berhad (PNSB) of RM28.3million and Kumpulan Hartanah Sdn Bhd (KHSB) of RM115.1million;
– A privatisation agreement for the construction of Universiti Industri Selangor (Unisel) campus between the state government and Talam in 2001 of RM248.7 million.
5. Did the Selangor government recover all the debts owed by Talam?
Yes. All RM392 million has been recovered in the form of assets settlement.
6. How did the State government recover the debts?
The outstanding debts of RM392million from Talam to the state were recognised by both parties through a GSA between Talam and Menteri Besar Incorporated (MBI) dated March 12, 2010, and supplemental agreement dated April 9, 2010.
These debts were to be settled through transfer of lands/ properties from Talam to MBI.
A total of 14 assets were transferred consisting as the below:
– Nine plots of land and two properties amounting to RM671 million (with RM275 million encumbrances);
– cash repayment by Talam of RM5 million;
– debt transfer of RM7.7 million;
– equity transfer of RM4.2 million
7. Did the debt recovery exercise compromise the state government’s interest at any time?
No, the exercise did not compromise the state government’s interest as the exercise did not involve any cash. It was merely a debt settlement arrangement where Talam also undertakes that the state government will recover its RM392 million in full.
8. Was there any attempt by the state government to recover the debts from Talam before 2009?
Yes. The state government had entered into various settlement agreements in 2005, 2007 and 2008 to recover the debts from Talam. However, those settlements did not work out. The debt recovery was successful after Menteri Besar Tan Sri Abdul Khalid Ibrahim crafted out the present exercise which involves a global settlement agreement.
9. Did the exercise benefit the state government?
Yes, the state benefited from the exercise. Firstly the GSA had put the state government in an advantageous position where MBI received payment second to secured lenders when previously it was pooled together with other unsecured creditors of Talam. It then proceeded to recover all debts from Talam, in full, with no debt waiver by MBI.
10. Were there any irregularities during the transfer of the 14 assets stated above?
No irregularities were found during an audit of the transfer of the said assets. The assets were transferred by virtue of the Settlement and Supplementary agreements and the subsequent Sale & Purchase Agreements to the final buyers. Monies will flow to the relevant banks (to settle the encumbrances) and the balance to MBI. This process is being monitored closely by MBIto ensure all due amount is recovered in full.
11. There were accusations that some assets were overpriced thus causing losses to the state. What has the audit revealed?
The audit revealed that various valuation reports have already been performed by the state – both by external valuers and the government valuation department – for internal purposes. Subsequently, these valuations were referred to for this settlement exercise. Overall, these valuations supported the gross consideration which was agreed upon MBI. Hence, the records showed no situation of assets being overpriced.
12. What happened to these assets after they were transferred to the state government/ MBI?
These assets were sold to various parties. To date, 10 out of 12 settlement assets have been sold.
13. Were the assets eventually purchased by state government subsidiaries? If yes, which companies were involved? Did any of them suffer losses from any of the purchase?
Not all the settlement assets were purchased by the state subsidiaries. Two plots of land were actually purchased by third parties The subsidiaries which had purchased the assets are:
- Perbadanan Kemajuan Negeri Selangor (PKNS) – RM16.9 million gross
- PNSB – RM438.5 million gross consideration
- KHSB – RM44.7 million gross consideration
No losses are anticipated from these purchases. Development plans have already been made for the lands purchased. With these plans, the subsidiaries are expected to make developers’ profit in the future.
(** Gross consideration = Consideration before deduction of bank encumbrances.)
14. Could it have been better for the state government to sell the lands to third parties instead of state subsidiaries?
Since the price of the lands are already locked in at the gross consideration as agreed in the settlement agreement, it does not matter who purchases the land. The state government/MBI will not make any gain or suffer from the sale of assets.
Since the state and its subsidiaries wish to develop the land themselves, these lands were sold to the said companies.
15. Was the entire process a good commercial decision made by the state? If yes, why?
Yes, it was a good commercial decision as the exercise had led MBI to recover the Talam debts in full with no debt waiver.
* Prepared by: Press Secretariat of the Menteri Besar’s Office Checked and approved by KPMG