EPF: Loans for public housing scheme well protected

KUALA LUMPUR (Feb 9): The Employees Provident Fund (EPF) will lend an initial RM300 million to the government for the proposed sale of public housing, with such loans being made on commercial terms and with appropriate security to protect the interests of its members, said the provident fund.

In a statement on Wednesday, the EPF reiterated that with regard to the public housing scheme, the provident fund will not provide loans to the individuals, but to a special purpose vehicle of the Federal Territories Foundation (SPV FT Foundation) that will facilitate the transaction.

"The EPF would like to assure its members that all loans provided by the EPF to the government of Malaysia or its agencies are made on commercial terms and with appropriate security to protect the interests of our members," said EPF deputy CEO and head of investment Datuk Shahril Ridza Ridzuan in response to queries from the public regarding the said loan.

The EPF said it is currently in discussion with the SPV FT Foundation to finalise the terms of the loan.

"Essentially the terms entail an initial facility of RM300 million with any further loans to be granted at the discretion of the EPF Investment Panel subject to the satisfactory performance of the conduct of the account by the SPV FT Foundation.

"This will be reviewed 12 months from the date of the last drawdown of the RM300 million," it stated.

According to the statement, the SPV FT Foundation will enter into a lease arrangement (Ijarah scheme) with the individual participants, or the "purchaser" of the public housing.

The ownership of the houses shall remain with the SPV FT Foundation until the lease arrangement under the Ijarah scheme has been fully settled by the individual participants.

The loan to the SPV FT Foundation will be well secured as all housing units will be charged or assigned by the SPV FT Foundation to the EPF, with security cover of at least twice the loan amount.

In addition, there will be a cash retention of 25% of the disbursement of the EPF loan to the SPV FT Foundation to be set aside in a liquidity reserve account assigned to the EPF, together with the assignment of all cash flows.

"The terms of the loan agreement are within the risk appetite of the EPF as it is secured against assets and cash flow with a suitable guarantee on repayment of the loan made.

"We understand that the SPV FT Foundation will only select participants with good track records," said Shahril.

"The EPF has also requested that the SPV FT Foundation engage a suitable financial institution to manage the credit administration of this scheme to ensure good conduct of the individual accounts."

In the event of non-payment by the participants, DBKL will buy back the houses to secure the cash flow required for the repayment of the loan.

"Based on the terms and the security arrangements that we have put forth, the EPF is well protected and the annual 5.5% profit rate imposed on the loan is fair.

"The EPF is always mindful of members' concerns and would like to reiterate that their retirement savings are invested prudently within a framework of good governance and adopting a conservative risk-return profile," Shahril added.