Chances Of Tabung Haji Recovering Full Al-Rawda Arbitration Award Balance Low - Expert

By Nurunnasihah Ahmad Rashid

KUALA LUMPUR, Aug 18 (Bernama) -- The chances of Lembaga Tabung Haji (TH) recovering the entire outstanding 899 million Saudi riyal (1 Saudi riyal=RM1.09) arbitration award from Al-Rawda Real Estates Development & Project Management Co Ltd are slim, said an expert.

Universiti Teknologi MARA (UiTM) Faculty of Management and Business senior lecturer Dr Mohd Iqbal Mohd Noor emphasised that winning an arbitration proceeding does not guarantee the recovery of the full amount awarded. 

“Recovery depends largely on the ability to trace and enforce assets belonging to the company or its personal guarantors.

“The key issue at this stage is whether the parties responsible have sufficient, identifiable and enforceable assets to satisfy the award,” Mohd Iqbal told Bernama.

He said of the 899 million Saudi riyal ordered to be paid, only 14.9 million Saudi riyal, or about 1.7 per cent, had been paid, while the Saudi Arabia-based Al-Rawda was reportedly not financially capable of settling the full amount.

Between 2015 and 2017, TH entered into lease agreements with Al-Rawda for four hotels in Makkah and Madinah, making upfront payments totalling approximately RM1.55 billion for lease terms ranging from 10 to 18 years.

TH later engaged Al-Rawda to manage and operate the hotels under separate management and operating agreements, with the rental value totalling 2.49 billion Saudi riyal.

As part of the security arrangements, TH obtained a promissory note backed by a personal guarantee from Al-Rawda owner Dr Mashhor Ali Omar Al-Madudi.

Commenting on the financial protection structure in the Al-Rawda transaction, Mohd Iqbal said that for high-value agreements, investors would normally require asset collateral and bank guarantees to ensure strong financial protection, while promissory notes and personal guarantees would serve only as additional safeguards.

He said if a transaction proceeded despite the absence of a bank guarantee and an incomplete due diligence process, it indicated a significant governance failure.

“When risks have been identified, but control mechanisms do not function, those mechanisms are deemed to have failed in the decision-making process.

“In the context of financial governance, the key issue is not whether the investment made a profit or loss, but whether the risks were identified, assessed and given due consideration before the investment decision was approved,” said Mohd Iqbal.

He noted that standard operating procedures for overseas investments by government-linked investment companies should stipulate a staged assessment process before approval.

Mohd Iqbal said risk, legal and commercial assessments should be completed before funds are disbursed, while recipient companies should also provide guarantees from financially sound institutions or collateral backed by assets of equivalent value.

“Funds should be disbursed in stages based on predetermined performance targets. This approach allows early action to be taken if investment performance begins to deteriorate.

“Any exemption from the stipulated requirements should be subject to a higher level of approval, with clear justification properly documented,” he said.

On TH’s financial position in relation to the Al-Rawda investment, he said the full RM1 billion impairment made in 2024 showed that TH had adopted a conservative approach by taking into account the possibility of losses on the asset.

“However, the full impairment did not mean TH should stop pursuing the claim, and as long as there remained a possibility that assets could be traced and enforced against, efforts to recover the money should continue.

“TH’s current approach can be considered reasonable, in that it no longer treats the amount as certain to be recovered, while at the same time continuing efforts to recover as much as possible through the tracing and enforcement of assets that can still be identified,” said Mohd Iqbal.

He also said the government should establish a transparent and robust independent review mechanism amid an increasingly complex investment and financial environment.

However, Mohd Iqbal said that such a mechanism does not necessarily require the establishment of a new agency.

“A more transparent, independent and integrity-based risk assessment mechanism is important to reduce investment risks, particularly for large-value overseas transactions.

“Assessors should also have expertise in finance, international law and the relevant industry,” he said. 

-- BERNAMA