A former Maika Holdings insider smells a rat in the proposed sale of the investment company's only cash cow - insurance company Oriental Capital Assurance Bhd.

He suggested that there were more to the proposed sale than what was being publicly mentioned by the company in its annual report for 2006.

The report, which has been sent out to all shareholders in time for the Maika's annual general meeting on Aug 30, cited heavy financial burden caused by high loan interest repayments and accumulated losses suffered by OCAB as the reason to sell it.

Maika hopes to obtain approval from its shareholders at the AGM to sell OCAB to engineering firm Salcon Bhd for RM129.8 million.

Until last year OCAB was the only money-making subsidiary in Maika's stable, which also includes 14 inactive companies, one heavily burdened with debt and another facing a RM5 million legal suit.

"It is strange that the insurance company suddenly faces heavy debts when a decision has been made to sell it off," said the source who wished to remain anonymous.

He wanted to know if there were kickbacks involved in selling the insurance company to Salcon, which is headed by former Malaysian envoy to the United Nations Razali Ismail (right).

Salcon is a listed company which mainly deals with maintenance of water and wastewater treatment facilities.

"What do they know about insurance? Has a due diligence study been done on this proposed sale? Why are they interested in this insurance firm?" asked the source.

He added that it was a known fact that other companies headed by Razali have been offered lucrative road construction jobs in India in deals brokered by Works Minister S Samy Vellu.

Killing the golden goose

Samy Vellu is the founder of Maika, which is an investment arm of MIC, of which Samy Vellu is the president. His son Vell Paari (photo) is the chief executive office of Maika.

"So was there an exchange of favour here?" the source queried further.

He said that the proposed sale of OCAB would mean a dark future for Maika as the investment arm would not have any more subsidiaries to bring in any revenue.

"Why do you want to sell it just after one year of losses? In the past, Maika has been patient with many other non-performing companies," he charged.

Many other shareholders have expressed similar fears that Maika would be facing closure with the sale of its 'golden goose'.

The former insider also disputed claims by Maika that the sale of OCAB would allow the company to have a healthy RM70 million in cash reserve.

"That will only be a paper reserve. Maika has no cash flow. Accumulated losses and heavy debts have nearly wiped put the company. Only OCAB kept Maika going," he said.

Neither Vell Paari nor other Maika officials were available for comment.

Burdened by debts

Maika chairperson Abdul Rashid Abdul Manaf, in a notice sent out to shareholders on Wednesday, said the insurance company suffered a loss of RM9.33 million last year as a result of writing off bad debts amounting to RM13.9 million.

He also added that 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 OCAB.

Maika's outstanding loan, plus interests, stands at RM55.5 million.

After taking these financial factors into consideration, Maika directors agreed that the disposal of the insurance arm would be in the best interest of the company, said Abdul Rashid.

He 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 was established in 1982, purportedly to enable Indian Malaysians to have a share in the country's economic growth. It raised RM106 million from 66,000 investors.

The investment company, however, has been a spectacular failure with many of its business ventures failing to take off, leaving the investors on the lurch.