Tabung Haji – SPV to rehabilitate underperforming assets

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TH’s Group MD announced that an SPV will take over its non-performing assets and rehabilitate them. It will issue RM10 billion sukuk and RM9.9 billion Islamic Redeemable Convertible Preference Shares (RCPS) to fund the exercise.

What are RCPS? Redeemable means the pref share holder can ask the SPV to pay back the value of the shares in cash. Convertible means it can be converted into ordinary shares in the SPV.

But what is Islamic RCPS? Are pref shares shariah-compliant?

Pref shares are normally issued to give priority in dividend payments compared to ordinary shares. If there is just so much money to pay dividends, the pref shareholder gets paid first and up to the amount agreed. The balance is then given to ordinary shareholders. In effect, ordinary shareholders “tanazul” their profit, which is accetable.

If the SPV gets into trouble and is liquidated, who gets paid first? If it is the pref shareholder, then it is not Shariah-compliant. You cannot tanazul losses. Both pref share and ord shareholders are co-investors in the SPV and must share in the losses proportionately according to their capital contribution.