Saturday, July 14, 2012

What's PNSB's Debt Got To Do With Talam?

If there’s something to take home positively from the series of “exposés” from Datuk Chua Tee Yong and his band of Selangor MCA cheerleaders, it is that he will doggedly persist with making increasingly ludicrous allegations against the Pakatan Rakyat state government, even if it is at the expense of exposing himself as a half-baked accountant.

To date, he has not even responded to the billion ringgit mega-blunder he has made, or other alleged scandals over the land asset recovery by the Selangor state which were exposed as unscandalous.  He now alleges that the Selangor state subsidiary Permodalan Negeri Selangor Bhd (PNSB) was forced to take a supersized RM230 million loan to acquire land from Menteri Besar (Incorporated) as part of the Talam debt settlement agreement.

Firstly, it does not at all make any sense for PNSB to take a RM230 million loan just to recover outstanding debts of RM22 million from Talam.  Secondly, Datuk Chua himself admitted that he was not able to ascertain that PNSB had taken the hefty loan to purchase the plots of land in the Hulu Selangor constituency as the state firm’s 2011 audited accounts are not yet available.  Hence he’s really just shooting in the dark!

But even if we were to assume that he is spot-on, that a RM230 million loan was indeed taken by PNSB to acquire RM450 million worth of land assets, as audited, valued and recognized in the PNSB 2010 financial accounts, where is the impropriety in that?

In case Datuk Chua isn’t aware, PNSB is a property development company.  It has to acquire land to develop and construct, in order to sell and make a return for the company.  It is no different from any property development company, privately held or publicly listed or government owned. And if Datuk Chua isn’t familiar, it’s a concept called “land-banking”.  Hence the acquisition of land for future potential development is the normal course of business for a property development company!  Where exactly is the “scandal” in the above transaction?

What’s more, as a trained accountant, Datuk Chua should know that getting into debt is not in itself an adverse event for the company.  Otherwise, Malaysia’s largest property developers SP Setia Bhd, Sunway Bhd or IOI Corporation Bhd must be among the worst run companies because they carry debts of RM2.44 billion, RM2.42 billion and RM5.46 billion respectively in their books.

What is important is whether the liabilities that a company undertakes are sufficiently backed by its assets, and whether these assets can generate higher returns than the cost of funds.  In this particular case, it is clear that the RM450 million of additional assets as pointed out by Datuk Chua himself, is worth nearly double that of the debt.  So what’s the problem?
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