Having grown to become Malaysia’s largest Islamic property investment and management group within two decades of its 2006 establishment, Pelaburan Hartanah is currently undertaking a critical realignment in its business and operational focus.
Group Managing Director and CEO Mohamad Damshal Awang Damit told IFN Investor the mandate was set ahead of him taking the helm on 1st January 2023, starting with a review of assets – which had risen from an initial RM2 billion (US$447.13 million) government input to over RM11 billion (US$2.46 billion).
“The balance sheet also showed significant liabilities with seven distinct bank financing contracts at a weighted average funding cost of around 4.76%. So, we appointed (credit agency) RAM Rating Services for a more thorough review and to submit proposals for improvements.”
The result was an ‘AAA’ rating for Pelaburan Hartanah, leading to a capital-raising exercise to reduce the cost of its bank financing. The group launched a RM5 billion (US$1.12 billion) Sukuk program and issued a RM1.5 billion (US$335.35 million) first tranche in September 2024, which was twice oversubscribed.
“The Sukuk program allowed us to reduce our borrowing costs by over 100 basis points, which works out to annual savings of over RM14 million (US$3.13 million). There is also a reserve Sukuk issuance capacity to raise more funds at a lower cost.”
Another equally important consideration with the Sukuk program was to revise the repayment from arbitrary regular schedules to be synchronized with timing of proceeds that the group would receive from projects that it had invested into – which are being handled by external property developers.
“The Sukuk program allowed us to better manage our cashflow for more efficient deployment, rather than sitting passively in bank accounts,” explained Damshal. “The group can now actively pursue property opportunities, with attractive returns, that we may have otherwise passed up on before.”
Providing a minimum 5% annual returns is a key aspect of Pelaburan Hartanah’s mission as a government-owned company to increase ownership of prime commercial real estate assets in Malaysia for the benefit of the majority Bumiputera populace.
This socially-mandated benefit is channeled via the Amanah Hartanah Bumiputera Shariah compliant unit trust fund, where the cream of Pelaburan Hartanah’s property investments is parked – using income received from long-term leaseholds.
To ensure returns from RM5 billion worth of commercial properties injected into the unit trust fund will stay within the 5% mandated benefit, Damshal said more of the remaining properties valued at around RM6 billion (US$1.34 billion) still being nurtured by Pelaburan Hartanah would need to be seconded.
That was when the group found it tough to navigate the deal in force since 2010 for Maybank Asset Management to manage the unit trust fund. “The contractual terms didn’t allow us to provide extra beneficial services to our Bumiputera investors like Takaful coverage, Zakat contributions and more.”
Renegotiating the Maybank deal for in-house management by Pelaburan Hartanah from July 2024 also resulted in annual savings of RM22 million (US$4.92 million), said Damshal.
Keeping Maybank as a sales agent for the unit trusts, together with Bank Islam and Ambank, the fund’s management focus shifted to adding more sales channels as well as to potentially increase the retail subscriber base of about 80,000 currently.
“The main challenge is to ensure we have enough properties with the unit trust fund to justify the issue of more units while ensuring we can continue to provide the minimum 5% returns,” said Damshal. “Moving forward, we need to increase the yields and we are implementing strategies to achieve that.”
* Pelaburan Hartanah’s business realignment strategic plans will be featured in our next article.
