KUALA LUMPUR (BLOOMBERG) – Malaysia’s Finance Ministry has approved a plan to revive the balance sheet of Lembaga Tabung Haji, a state fund tasked with helping Muslims save for a pilgrimage to Mecca.

The government will form a special purpose vehicle that will take over as much as 19.9 billion ringgit (S$6.53 billion) of the fund’s under-performing assets, Managing Director Zukri Samat said in Kuala Lumpur on Tuesday (Dec 11).

The move would allow the fund to balance its books by year-end and enable it to keep paying out dividends to finance Haj journeys, he said.

The plan allays immediate concerns over Tabung Haji’s finances, but it shifts the burden on to the government, which already has a widening budget deficit. The fiscal gap is set to reach 3.7 per cent of gross domestic product in 2018, the largest in five years.

A state-commissioned audit had earlier found that Tabung Haji’s financial statements were overstated as it failed to record impairments when the value of its equity investments declined, according to the Star newspaper, which cited a PricewaterhouseCoopers report presented to Parliament.

The fund had a 1.43 billion ringgit loss in 2017, instead of the 3.41 billion ringgit net income that it reported, the newspaper said.

Between 75 to 80 per cent of the assets transferred to the Finance Ministry’s SPV would be equities, especially those with unrealised losses of 20 per cent or more, Mr Zukri said.

The rest will be made up of property with less than 2.5 per cent yield, he said.

The SPV will exchange the assets for 10 billion ringgit of Islamic bonds and 9.9 billion ringgit of Islamic redeemable convertible preference shares.

The zero-coupon sukuk will mature in seven years after being sold at a discount to yield 5 per cent, while the shares will have no maturity and no dividend.

Tabung Haji is reviewing its investments and may exit unfavourable sectors, as well as look into cutting the cost of performing the Haj, Mr Zukri said.

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