11:40AM Jul 7, 2012

By Nathaniel Tan

Talam for Dummie

COMMENT Confusing probably describes most of our initial attempts to get to the bottom of what the deal
was between Talam Corporation and Selangor.
With a little diligence, clear thinking and attention to detail however, most mysteries can be unravelled and
articulated efficiently.
This article attempts to explain in easy to understand terms the background and context of this issue, how
Selangor recovered the debt owed to it by Talam, and how this debt recovery differs from the bailouts we have
seen at the federal level.
In the beginning
The story begins in the late eighties and early nineties, with an engineer and project manager who worked in
Selangor state subsidiary PKNS - one Chan Ah Chye.
This man later goes on to form Talam Corporation, and before long - possibly due to close connections with the
ruling elite in Selangor, then headed by BN menteri besar Muhammad Muhammad Taib - becomes a major
player in the Selangor property and development scene.
Over time, an extremely large amount of state land is alienated to
Talam, who basically gets it for free. A strong imagination is not
required to speculate in whose pockets any resulting profit
eventually ends up.
Talams modus operandi seems to be to pledge this land to the bank
in exchange for huge loans, which they then use to finance their
development and profit making projects. In essence, since they got
the land free, they have successfully achieved money for nothing (it is uncertain as to whether chicks for free
were involved).
The wise businessmen of that era believed in the dictum of never using your own money when you can use
someone elses. This heavy lending continued to characterise Talams business approach, and their loans
consistently kept getting bigger and bigger.
Tumbling down
Of course, no student of recent economic trends is unfamiliar with the concept of a bursting bubble.

The financial collapse of the late nineties brings Talams debt-ridden house of cards crashing down. An
overgearing of loans and inability to service them halts various half-completed projects, rendering them idle,
half-built ruins.
Incredibly however, this does not prevent Talam and their political
patrons from altering their basic modus operandi.
In 2001, under BN menteri besar Khir Toyo (right), three parcels of
land are alienated by Selangor to Talam via their subsidiary Maxisegar
Sdn Bhd, who undertakes to construct Unisels campus at an estimated
cost of RM750 million.
It will probably come as no surprise that Talam failed to complete this
project. By September 2006, the company had been classified as an
affected company under Practice Note 17 (PN 17), indicating dire financial straits.
New sheriff in town
In 2008, when Khalid Ibrahim assumes the menteri besars post, he inherits a situation in which Talam owes the
state and its subsidiaries (among other creditors), a great deal of money.
Urban legend has it that when Talam was called in to explain why they have never endeavoured to pay their
debts, the sheepish reply given was, No one ever asked us to.
Thankfully for the citizens of Selangor, there was a new sheriff in
town.
Corporate finance is not only an area of expertise for Khalid (left) it is a passion. With great gusto, he set out to solve this problem,
and recover that which was owed by Talam to the people of
Selangor.
The problem was undoubtedly challenging, but after some work and careful strategising, a plan was set into
motion.
The end goal was simple: to leverage the assets still held by Talam to repay the debt Talam owed to the Selangor
and its state subsidiaries.

The technical nitty-gritty

Making this happen was a technically complicated process that required considerable financial acumen.
The summary is this: firstly, the debts that were owed by Talam to Selangor state subsidiaries were properly
booked and accounted for - something that, very suspiciously, had not been done before. Once these debts were
acknowledged by all parties, the debts were consolidated and transferred to one state subsidiary - Menteri Besar
Incorporated (MBI), which was then responsible for collecting the debts from Talam in the form of land and cash.
The rest of this section explains how this was done. It is a boring and complex explanation, but I list it here for
the record and for those interested.
Talam owed RM392 million in debt to three Selangor state subsidiaries: KHSB, PIYSB, and PNSB. After
acknowledging and booking these debts, the next step was to have another state subsidiary, Selangor Industrial
Corporation (SIC), purchase these debts from the other three companies.
A loan from CIMB Bank of RM 392 million was given to SIC to complete this purchase. In November 2009, the
state exco and legislative assembly both approve a grant of RM392 million to MBI, who then use the funds to
purchase the original consolidated debt from SIC. SIC then uses those funds to pay off their CIMB loan.
The end result is as simple as the transaction itself is complex - without any major or excessive transactional
expenses, Talam now owes the same amount of money to just one state subsidiary, instead of the original three.
Restructuring and successful collection
It is important to note that at no point are funds transferred from taxpayer monies to Talam. Funds have instead
only been transferred from one pocket of the state to another.
This differs wildly from federal bailouts of corporations like Indah
Water Konsortium, MAS, or the Putra/Star LRT, where taxpayer
money was injected directly into companies that had probably lost
untold amounts via mismanagement, corruption and plundering.
The transfers in the Talam debt restructuring allowed for a structure in
which there is a clear acknowledgement and accounting for the
RM392 million owed by Talam, and a single company for them to pay it to.
The story does not end there.
Another extremely important milestone in this tale is that MBI has in fact already succeeded in recovering all

RM392 million in debt owed by Talam.

For those who would like to keep score, this recovery came in two forms.
RM340.88 million was recovered via acquisition of land and assets: 1,322 acres of land in Bukit Beruntung
worth RM150.28 million, 2,264 acres of land in Bestari Jaya worth RM105.3 million, 400 acres of land in Ulu
Yam and 60% equity in Ulu Yam Golf & Country Resort worth RM22.2 million, 134 acres of land in Danau
Putra worth RM52.1 million and five office units in Menara Pandan worth RM11.1 million.
The remaining RM51.12 million was collected in cash: RM12 million from sales of land in Puncak Jalil, RM5
million in cash assignments from EON, RM7.68 million in payments by Unisel for earthworks, RM9.04 million
from the sale of 25.94 acres of land in Bukit Beruntung, and RM17.4 million from sales of 218 acres of land in
Bestari Jaya.
Go ahead, count it - it's all there.
Facts trump hype - again
How can we summarise this? For more than a decade under BN, one corporation owed the state hundreds of
millions of ringgits.
Within a year or two of taking over, Khalid managed to collect on these debts, instantly increasing the amount of
money available to spend on welfare programmes throughout Selangor.
Scandal?
Yes, its a scandal that Talam was allowed to get the free lunch it did under BN, and its a scandal it took this
long for to create the change in government that succeeded in cleaning up the mess.
It would be insulting to suggest that this article is titled specifically in
the hopes that Chua Tee Yong (left) would take the time to carefully
peruse the facts within. Nevertheless, perhaps he may find the exercise
beneficial in his longer term efforts to maintain what little credibility
he has left.
Said credibility is shrinking at about the same rate at which he is
reducing the amount of money claimed to be misused by Selangor - from RM1 billion, to RM260 million, to
RM42 million. Before long, he may have to measure in sen instead.
Perhaps Chua fancies himself a Rafizi Ramli. What he fails to understand however, is that Rafizis exposes are
not just all about glamorous press conferences and big numbers. Behind every expose is a ton of hard work and

solid research.
Behind Chua appears only to be blind ambition that extends far beyond ability, and a shameful mainstream media
that think that hype can overturn facts.

NATHANIEL TAN believes this world is full of people, he was born to love them all. He blogs
at www.jelas.info and tweets @NatAsasi. He is also a consultant for the Selangor state government.

http://eprints.uthm.edu.my/2911/1/Ali_Abusalah_Elmabrok_Mohammed_1.pdf
FINANCIAL SITUATION OF PN17 COMPANIES LISTED IN THE MALAYSIAN
STOCK EXCHANGE

ALI ABUSALAH ELMABROK MOHAMMED

Many investors wonder why some companies turn into PN17. If it is scrutinized carefully, it seems that these
companies are usually poorly managed or do not have good 14 track records. Among the reasons why investors
continue to hold on to these PN17 companies include not keeping a proper track of the companies financial
performance; investors are not aware that they are holding on to stocks of companies that have been classified
under PN17. In some cases, the investors do not even notice that these companies have been delisted (Kok, 2010).
As at 9th August 2010, Malaysian Stock Exchange reported that there were17 companies delisted from the
Malaysian Stock Exchange, and one company that was successfully regulated came out of PN17 list. This company is
Talam Corporation Berhad. In normal circumstances, the Malaysian Stock Exchange, will impose suspension first
prior to commencing of de-listing procedures against the company to remove it from the official list of Malaysian
Stock Exchange (www.klse.com, retrieved on 21th October, 2010).

A closer look at Talam Corp Bhd

ACCOUNTABILITY / MALAYSIAN FINANCE/BUSINESS
21 NOV, 2009
The Selangor governments decision to approve an additional RM391 million budget allocation to Mentri Besar Inc
(MBI) to take over the debts owed by Talam Corp Bhd to three state agencies has stirred controversy.

Basically, under the move, MBI will use the money (via Selangor Industrial Corporation as a channel?) to settle the
amount that Talam owes subsidiaries of Selangor Development Corporation (PKNS), Kumpulan Darul Ehsan Bhd
(KDEB), Permodalan Negeri Selangor Bhd (PNSB) and Yayasan Pendidikan Selangor. The state government (via SIC?)
is then supposed to recover the amount due from Talam.
While critics are viewing it as a bailout or window-dressing, Mentri Besar Khalid Ibrahim says the rationale is to
ensure that Talam gives a higher priority to its debt (to the state), incurred over the last decade, ahead of its other

creditors. On 10 Nov, Khalid gave Talam three months to settle the debt, incurred in connection with several
property development projects. That remains to be seen.
In any case, I hope the Selangor state government will also take action against those responsible in the three state
agencies who allowed such a large debt to go uncollected for so long. What sort of security did they obtain from
Talam?
Whatever the reason for the takeover of the debts, lets take a closer look at Talam.
The Edge reported the following on 10 Aug 2009:
Talam, a township developer, has been classified as an affected company under PN17 since Sept 1, 2006, after its
auditors were unable to provide an opinion on its results for its FY2006 ended Jan 31. Talam also defaulted on several
of its term loans and bond obligations.
As part of Talams regularisation plan, the company issued a number of securities to various creditors, including the
now-defunct discount house Abrar Discounts Bhd. Abrar received preference shares, loan stocks and Islamic debt
securities worth RM423.35 million as settlement from Talam as part of the latters regularisation plan.
Profit/(Loss) before tax(at group level):

2009 RM60.6 million

2008 RM5.8 million

2007 (RM6.9 million)

2006 (RM772.6 million)

2005 RM130.8 million

Talam directors (click here)

Directors remuneration:

2009 RM1.9 million (9 directors, three of whom received more than RM300,000 each)

2008 RM1.8 million

Debt (non-current liabilities) to equity ratio: 0.5 (previous year 0.6)

Liquidity ratio (Current ratio):

Current assets: RM1.5 million

Current liabilities: RM2.4 million

Current assets:Current liabilities ratio = 0.6:1 (previous year same)

This means that its current (liquid) assets are much less than its liabilities due within a year.
Other payables amount to RM404.3 million.
Extract from Talam Annual Report 2009:

Other payables and accrued expenses

The obligation arising from the acquisition of land is in respect of obligations arising from the Universiti Industri
Selangor (UNISEL) project, whereby the Selangor State Government had alienated three parcels of land to the
Group in consideration for the development of UNISEL.
In 2001, Maxisegar Sdn. Bhd. (MSSB), a wholly-owned subsidiary, entered into an agreement with the State
Government of Selangor for the financing and construction of the main campus of UNISEL on 572.16 acres of land at
Berjuntai Bestari, Selangor Darul Ehsan for a total value of RM750 million. In return, the State Government of
Selangor had alienated three parcels of leasehold land to MSSB as follows:
Acres RM000
Batang Berjuntai 3,000 345,000
Taman Puncak Jalil 801 337,500
Saujana Damansara 110 67,500
Total 3,911 750,000
MSSB was unable to meet its financial obligation to bear the development and maintenance costs due of
approximately RM134.0 million (obligation due) of UNISEL and as such, in the previous financial year, the long term
portion of MSSBs obligation under the said agreement has been reclassified to current liabilities and it has entered
into an agreement with Kumpulan Darul Ehsan Berhad (KDEB) and Pendidikan Industri YS Sdn. Bhd. (PIYS) (both
of which acted as nominees of State Government of Selangor) whereby MSSB agreed to settle the obligation due by
transferring 1,715.9 acres of Batang Berjuntai land which the parties have agreed shall be valued for the purpose of
settlement at RM80,000 per acre to KDEB and/or PIYS. The settlement agreement is pending fulfillment of certain
conditions
precedent.
Substantial shareholders (based on Annual Report 2009):
(Based on Register of Substantial Shareholders as at 10 June 2009)
No. of Ordinary Shares of RM0.20 each
Direct Deemed
Name of substantial shareholders Interest %*4 Interest %*4
1. Tan Sri Dato (Dr) Ir Chan Ah Chye 130,769,592 6.78 854,561,543 *1 44.32
@ Chan Chong Yoon (TSDCAC)
2. Puan Sri Datin Thong Nyok Choo 7,493,945 0.39 977,837,190 *2 50.71
(PSDTNC)
3. Kumpulan Europlus Berhad 791,465,067 41.05
(KEURO)
4. IJM Corporation Berhad (IJM) 791,465,067 *3 41.05
NOTES:
*1 Deemed interested through his spouse, PSDTNC, his daughter, Chan Siu Wei and by virtue of his interest in
Pengurusan Projek Bersistem Sdn Bhd, Prosperous Inn Sdn Bhd, Sze Choon Holdings Sdn Bhd and KEURO
pursuant to Section 6A of the Companies Act, 1965 (Act).
*2 Deemed interest through her spouse, TSDCAC, her daughter, Chan Siu Wei and by virtue of her interest in
Pengurusan
Projek Bersistem Sdn Bhd, Prosperous Inn Sdn Bhd, Sze Choon Holdings Sdn Bhd and KEURO pursuant to Section
6A of the Act.
*3 Deemed interested by virtue of IJM holding 25% in KEURO.
*4 % shareholding based on voting share capital as at 10 June 2009 of 1,928,102,532.

On 17 July 2009, the Edge reported that Kumpulan Euro had disposed of a 9.10 per cent stake in Talam, a move
which was described then as puzzling.