Economist Faults Tabung Haji and FGV for Funding Failed Trurich Venture Without Independent Valuations

A royal commission of inquiry has now put a number on what Tabung Haji lost in Trurich Resources: all of it. In its recently published report on the pilgrim fund, the commission recorded a full impairment of the RM364.31 million Tabung Haji had invested in the venture, because Trurich's insolvency left the stake with no recorded value.

Trurich was a 50:50 joint venture between Tabung Haji and FGV Holdings that ran oil palm plantations in Kalimantan, Indonesia. FGV's own disclosures in 2019 put its losses from the venture at roughly RM234 million. The company also said a further RM120 million had been injected into Trurich as of Oct 30, 2019.

Economist Barjoyai Bardai, speaking to FMT, argues that the two government-linked entities should have been far more cautious about putting in more money. Fresh capital poured into an underperforming business can deepen losses if its underlying problems remain unresolved, he said. In his view, such decisions should not be made simply because a great deal has already been spent.

He pointed to the valuation at the root of the venture. In 2019, FGV acknowledged that the RM1 billion valuation placed on Trurich the year before had been overly aggressive and had not taken account of the poor condition of its plantations. Barjoyai said both partners should have carried out their own independent assessments rather than lean on optimistic forecasts.

He also set out what the boards should have done before approving more funding. They should first have established whether the causes of the losses could be fixed, and whether more money offered better prospects than selling assets, restructuring or leaving the business. Any extra funding, he said, should have been tied to clear recovery targets and spending limits, with a mechanism to halt financing if targets were missed.

Barjoyai was careful about the figures. He acknowledged that FGV's reported losses and its funding injections could overlap, and that an impairment does not necessarily equal an equivalent cash loss.

The RCI report records that approval was obtained in December 2020 to dispose of Trurich's subsidiaries, with FGV and Maybank tasked with leading negotiations. Barjoyai said approval alone does not guarantee recovery. The outcome would depend on the sale price achieved, outstanding debts, transaction costs and eventual net proceeds, and the process should 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," he said, "but how much economic value can still be recovered with reasonable additional risk."

He also pointed to a wider cost. Capital tied up in struggling ventures can limit new investment, depending on an organisation's cash position, access to financing and overall performance. For Felda settlers and Bumiputera entrepreneurs, repeated corporate losses could mean less room for business development, training and productivity improvements. Spending cuts could also reach agricultural suppliers, contractors and transporters, and weaker expansion could limit new jobs.

Institutional performance, Barjoyai concluded, should be judged by higher productivity, incomes, business opportunities and jobs for the intended beneficiaries, not by asset values alone. What the approved sale of Trurich's subsidiaries actually returns will show how much value is left to recover.