Economist questions basis for further funding in failed TH-FGV venture

Tabung Haji and FGV Holdings, as government-linked entities, should have independently evaluated Trurich Resources' assets, performance, and future prospects before committing more funds to the faltering joint venture, according to economist Barjoyai Bardai. He cautioned that injecting additional capital into an underperforming business could worsen losses if the root causes are not addressed.

In 2019, FGV reported a RM234 million loss from the 50:50 venture, which operated oil palm plantations in Indonesia, and had already injected RM120 million as of October 2019. The royal commission of inquiry (RCI) recently recorded a full impairment of Tabung Haji's RM364.31 million investment in Trurich after its insolvency left it with no remaining value.

Bardai stressed that decisions to invest more should not be based solely on past spending, and that recovery targets, spending limits, and a mechanism to halt financing if targets aren't met should be set. The RCI report noted that approval for the disposal of Trurich's subsidiaries was granted in December 2020, with FGV and Maybank leading negotiations.

However, Bardai warned that approval alone does not ensure a successful recovery, as it depends on factors like the sale price, outstanding debts, transaction costs, and net proceeds. He emphasized that the real measure of a successful recovery is the amount of economic value that can be recovered with reasonable additional risk, rather than simply keeping an investment going.

Bardai also noted that capital tied up in failing ventures can limit new investment opportunities and affect employment and productivity for affected groups, including Felda settlers and Bumiputera entrepreneurs.