MIC's beleaguered investment company Maika Holdings wants to dispose of its insurance arm to alleviate its financial burden caused by high loan interest repayment and accumulated losses suffered by the company.

To date, Maika has paid more than RM11 million in the form of interest to a bank on a loan taken in 2001. The loan was taken to increase Maika's paid-up capital in Oriental Capital Assurance Berhad.

And last year, the insurance company suffered a loss of RM9.33 million.

After taking these financial factors into consideration, the Maika directors agreed that the disposal of the insurance arm would be in the best interest of the company, said Maika chairperson Abdul Rashid Abdul Manaf in a notice sent out to shareholders on Wednesday.

He said that the Maika board had agreed to accept an offer from engineering firm Salcon Bhd to buy Maika's 74.16 percent stake in OCAB for RM129.8 million.

"With the disposal of the entire stake of 74.165 percent in OCAB, the company (Maika) will generate a cash inflow of RM129.8 million," said Abdul Rashid.

Now a resolution will be put forward at Maika's annual general meeting on Aug 30 to get the shareholders' approval to proceed with the deal.

OCAB is a general insurance company with a paid-up capital of slightly more than RM100 million. It was incorporated in 1976 and was one of the earliest insurers in Malaysia.

Failed listing bid

Maika started buying stakes in the insurance company since 1986 and became the major shareholder in 1994, holding more than 63 percent stake in the paid up capital of RM42.6 million.

Following a directive from Bank Negara in 2001 for all insurance companies to increase their paid up capital to RM100 million or more, Maika proposed a rights and bonus issue of its shares. It also acquired Capital Insurance Berhad in the same year.

To do these, Maika took a RM28.3 million loan from CIMB Bank, paying an interest rate ranging from 8.5 percent to 9 percent per annum.

According to Abdul Rashid, Maika had hoped to settle the loan by listing the insurance company on Bursa Malaysia.

The idea was, upon listing, to divest a 30 percent stake in the insurance company to a bumiputera partner and repay the loan.

"However, due to various reasons and the listing price, the listing exercise were deferred and subsequently aborted," added Abdul Rashid.

Now Maika is hoping that with the necessary approval from the authorities and its shareholders, the money raised from the sale of the insurance company could be used to settle outstanding loans to CIMB Bank and other obligations to Danaharta Managers Sdn Bhd.

At present the sum owed, plus interest, stands at RM55.5 million. Of this, Danaharta alone is owed RM36.2 million.

Abdul Rashid said the Salcon offer was a good one as the company was willing to pay RM1.75 per share, as opposed to the book value of RM1.03.

"In the best interest of the shareholders and the future of Maika, the time is right, considering the company's financial position and its loan obligations, to accept the offer," added Abdul Rashid.

Maika hopes that the sale will allow it to settle all its outstanding debts, and at the same time provide it with sufficient cash reserves.

The end of Maika

Shareholders however are not happy with the move. Many shareholders whom malaysiakini spoke to said that they would oppose the resolution calling for the sale of the insurance company at the AGM.

"Is this the end of Maika? Is that the plan? The insurance company is the only remaining active asset of Maika. By selling that too, what else has Maika has?" asked shareholder VK Vembarasan (left), a businessman.

He said that Maika directors must take responsibility as to why the insurance company suffered losses.

"They should give reasons to the shareholders," he said.

A former top leader in MIC also questioned the rationale for the sale of the insurance company.

"In the past many other money-making assets of Maika have been sold off cheaply. There were a clear mismanagement in the sale of these assets," said the leader who was also in the inner circle of Maika in the past.

"If they had been careful with those sales, Maika's financial position would have been much stronger now," he added.

He also said that the directors must also reveal as to why the listing of the insurance company never took off.

He blamed Maika directors for their bad business acumen.

"Many of their big projects are not heading anywhere. Companies bought at a hefty sun or set up with big plans have failed to take off," he said.

At present there are 14 inactive companies in Maika's stable. The insurance company, OCAB, until last year, was the only money-making entity.

Bad debts

In its 2006 annual report which has been sent out to the shareholders, Maika revealed that it actually registered an after-tax profit of RM4.6 million.

However it suffered a loss of RM9.03 million at group level, blaming the financial losses suffered by OCAB last year as the main reason.

The report said that OCAB had to write off bad debts amounting to RM13.9 million.

The annual report also stated that Maika has reduced its borrowings from RM53.3 million in 2004 to RM18.3 million currently.

Another of its subsidiary company, Semenyih Brickmakers owe RM34.3 million to Danaharta Managers.

Maika, a brainchild of MIC president S Samy Vellu, was established in 1982 purportedly to enable Indian Malaysians to have a share in the country's economic growth.

The company raised RM106 million in 1984 from 66,000 investors but some shareholders - after seeing little returns on their investments - have since accused the company of squandering the capital through dubious channels.

Many Maika shareholders were estate workers who had pawned their family jewellery and withdrew their life savings to invest in the company. The investment company, however, has been a spectacular failure with many of its business ventures failing to take off.

Maika's chief executive officer is Samy Vellu's son Vell Paari.