The first offshore patrol vessel, KM Tun Fatimah, at TH Heavy’s shipyard in Pulau Indah in Klang, Selangor, in November 2020. Pic credit: Malaysian Defence.

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Let’s get down to business: as we are pretty much settled in with Anwar Ibrahim as prime minister, let’s talk about his government’s first so-called rescue of a public project.

On January 4, the PM took to the press to announce that the government will provide an additional RM152.6 million loan to ensure the completion of the first offshore patrol vessel (OPV) this year.

This is the second public project that has missed the deadline despite extensions. The other being the RM9.13 billion littoral combat ship (LCS) project which was awarded 11 years ago but not a single vessel has been delivered.

That day, Anwar said problems led to delays in the project’s completion and, therefore, his government had to take over the project. He even called on enforcement agencies to continue probing into alleged abuses of power.

“We have to save [this project]; these OPVs have to be completed according to schedule. Secondly we should not let anyone who is responsible for the abuse of power [and made] a fortune out of this project to go scot-free.”

The context to this so-called rescue is this: THHE Destini Sdn Bhd secured an RM738.9 million job from the government in January 2017, where the company was tasked to deliver three vessels for the Malaysia Maritime Enforcement Agency over a period of 42 months.

THHE Destini was owned by two listed companies: Destini Bhd (51%) and TH Heavy Engineering Bhd (49%). But TH Heavy acquired Destini’s stake for RM121, 131 towards the end of 2021.

Just before its exit, Destini said in its 2020 annual report that the government had approved an extension of time for the delivery of the OPVs from August 23, 2020, to August 22, 2022.

Furthermore, Destini said average progress for work on the OPVs were about 74% with the first vessel at 89.5% and targeted to be launched by end-August 2021. But after extensions, deadlines were missed.

The vessels are constructed at the TH Heavy’s yard in Pulau Indah.

Bailing out the bizarre

Anwar’s statement deserves some attention. Firstly, the additional loan provided to THHE Destini lacks details especially on repayment and safeguards in the event the company failed to do so.

Secondly, given that this is a rescue loan, is this a case of cost overruns just as what we’ve seen with the LCS? If yes, what happened to the RM738.9 million initially earmarked for the three OPVs?

The Edge reported in August last year that the first OPV aka KM Tun Fatimah would not be delivered on time as it was seeking a government rescue.

Citing sources, the business publication said the first vessel was stuck onshore as there was no slipway for the vessel to be launched. A slipway is a ramp for the vessel to roll or slide into the water.

In its 2021 annual report, TH Heavy said the development for this slipway was part of the project execution, as it will enable the construction and launching of the OPVs.

It went on to add the slipway would also allow the group’s Pulau Indah yard to undertake repairs of larger ships.

“... There was a delay in the construction of the multiple-berth slipway and, at this juncture, the group is only proceeding with lengthening the slipway up to its full design to remove water tide dependence for shipbuilding launching only.

“The group anticipates to complete the lengthening of the slipway activity in February 2023,” TH Heavy said.

To complete the slipway, TH Heavy claimed it had to commit RM13 million.

Behold, the basket case

In many ways, TH Heavy was a failure. Trouble began as early as 2008 when pilgrims’ fund Lembaga Tabung Haji (LTH) bought into Ramunia Holdings Bhd, the previous incarnation of  TH Heavy.

That very year, MISC Bhd also proposed to inject its oil and gas unit, Malaysia Machine and Heavy Engineering Sdn Bhd, into Ramunia. This would mean a reverse takeover.

But, the proposal, valued at RM3.2 billion, was called off after MISC cited unsatisfactory due diligence findings.

MISC postponed the completion of its due diligence three times before calling off the deal. This should have sent signals that things were not well with Ramunia.

Still, LTH emerged as a substantial shareholder in Ramunia in early November 2007, two months before the deal with MISC was announced, and aggressively accumulated shares until December 2008.

LTH turned out to be the biggest loser as it got stuck with almost 29.7% of Ramunia’s stock with a then a paper loss of some RM175 million.

This is after having accumulated Ramunia shares before the deal fell through and with Ramunia losing 70% of its market capitalisation after MISC pulled out.

That wasn’t the only bad news: TH Heavy’s Pulau Indah yard would be blacklisted by Petronas for four years from April 2016 to January 2020 after non-performance of the Kinabalu Non-Associated Gas Development Project.

Despite a two-year extension, TH Heavy also failed to deliver a US$900 million (RM4.05 billion) contract to charter a floating production storage offloading (FPSO) asset at the Layang oil and gas field off Sarawak in 2018.

Another listed O&G services player, Yinson Holdings Bhd, had to take over the project.

In the last nine financial years, TH Heavy’s worst year was FY16, when it incurred a net loss of RM365.84 million with a revenue of RM17.78 million, due to the absence of projects and the impairment of assets.

TH Heavy would then be transferred to Finance Ministry-owned Urusharta Jamaah Sdn Bhd in December 2018.

TH Heavy's annual financials from 2015 to 2022. Chart: KLSE Screener

This was part of a so-called rehabilitation exercise that then Pakatan Harapan government executed after it found that LTH’s investments weren’t panning out to the point it was illegal for the fund to pay dividends to its contributors.

By then it was classified as a PN17 company, a label the Bursa gives to financially distressed companies.

TH Heavy would be delisted in September last year after failing to secure an eighth extension to submit a financial regularisation plan to Bursa Malaysia.

The counter last traded at one sen. For context, TH Heavy peaked at RM1.91 in 2008.

Who’s who in the OPV mess

If we trace this problem all the way to 2008, when LTH first moved in to mop up Ramunia shares, the man helming the pilgrims’ fund then was Ismee Ismail.

Ismee served as LTH CEO from 2006 to 2016. He was also on the board of 1Malaysia Development Bhd (1MDB).

As for TH Heavy-Destini, when the JV was formed in 2017, the former was led by Ismee’s successor, Johan Abdullah, while Destini is controlled by Rozabil @ Rozamujib Abdul Rahman, who’s also an Umno politician.

Destini's annual financials from 2015 to 2022. Chart: KLSE Screener

The LTH chairman during the JV formation period was then Baling MP Abdul Azeez Abd Rahim from Umno.

Finally, the prime minister and finance minister was Najib Razak, particularly during the OPV saga. As MMEA is an agency under the home affairs ministry, the minister back then was Ahmad Zahid Hamidi, who’s now deputy prime minister in Anwar’s government.

That’s all for today

I’ll return on Wednesday with a subscribers-only post. Thanks for reading.

More than a slipway for delayed OPVs

RM739 million in public money remains unaccounted.