This article first appeared in The Edge Malaysia Weekly on December 25, 2023 - December 31, 2023

Throughout the year, the armed forces fund, or Lembaga Tabung Angkatan Tentera (LTAT), and its flagship Boustead Holdings Bhd (Boustead) hogged the limelight, with the restructuring of the former taking centre stage.

In a nutshell, LTAT’s raison d’etre is to protect the fund, which is tasked with managing the savings of about 255,000 retired and existing armed forces personnel. With Boustead comprising about half of LTAT’s investment portfolio, the ongoing restructuring is of significance.

Attempts to whip LTAT back into shape created several interesting corporate manoeuvres, some of which fell through because of politics, while others exposed misgivings at the fund, which has some RM11 billion in assets under management.

In an exclusive interview with The Edge in October this year, LTAT CEO Datuk Ahmad Nazim Abdul Rahman had said, “LTAT, in the end, is a statutory body, a part of the government that serves both strategic and commercial objectives. We should make every attempt to extract the best value for the fund in all our commercial transactions. But we should also take cognisance of our strategic role as a government-linked investment company.”

Referring to the restructuring, he said: “We have gone through a rigorous process in coming up with the best deal structure that meets all our financial, commercial and strategic objectives, without having to resort to an outright asset-stripping exercise.”

As at end-March this year (for which the latest financials were publicly available before its privatisation), Boustead Holdings had total liabilities of RM10.56 billion, of which close to RM4 billion were short-term borrowings. During the period in review, while its total assets were pegged at RM15.75 billion, its deposits, cash and bank balances were only RM565.8 million.

The following is a summary of what took place at LTAT and Boustead.

Aspects of the restructuring

This year, LTAT undertook two privatisations — that of its 59.42%-held unit Boustead at 85.5 sen per share, or RM703.25 million in total; and the other, which is in the process of being concluded, is the privatisation of 68%-held unit Boustead Plantations Bhd (BPlant) at RM1.55 per share, which values the company at RM3.47 billion.

The privatisation of Boustead went through without any glitches, except for complaints that the offer price was low, at only 52% of Boustead’s net asset per share of RM1.64 as at end-December 2022. The same cannot be said of the privatisation of BPlant, which started off with the sale of 33% equity interest to plantation giant Kuala Lumpur Kepong Bhd, with KLK and LTAT jointly privatising BPlant at a split of 65:35.

The plans fizzled out, however, after certain politicians questioned the sale of assets by a bumiputera company to a non-bumiputera entity. LTAT, which was supposed to get a much-needed RM1.15 billion boost from the sale of the 33% stake to KLK, has ended up forking out RM1.11 billion to privatise BPlant on its own.

The deal with KLK was beneficial for LTAT, as the bulk of the upcoming expenditure, such as the replanting of BPlant’s ageing palms, would have been undertaken by KLK. The replanting could cost about RM150 million a year if 5,000ha are replanted — a costly affair, as about half of BPlant’s 73,500ha need to be replanted.

Prior to LTAT’s announcement of its plan to privatise BPlant, it had approached other bumiputera plantation companies to acquire the 33% stake in BPlant, but none would fork out the amount that KLK was willing to pay, nor the roughly RM2.26 billion for the 65% stake.

With LTAT now needing to cough up RM1.11 billion for the shares in BPlant it did not own, as opposed to getting paid RM1.15 billion for the 33% stake that would have been acquired by KLK, the government was forced to step in and inject RM300 million into LTAT and arrange a government guarantee for a RM2 billion loan.

So, instead of restructuring its debts, LTAT has had to take on more borrowings.

In the interview with The Edge in October, when asked about the sale to KLK being scuttled, Ahmad Nazim had said, “The overarching objective of transforming LTAT into a sustainable retirement fund remains. It’s just the strategy of achieving that can vary, depending on the situation or circumstances. So, the privatisation exercise does not mean a setback or something that would deter us from achieving that objective.”

Other significant corporate manoeuvres this year include LTAT selling a 4.95% block in Affin Bank Bhd to the State Financial Secretary Sarawak, with a larger stake likely to be hived off to the state at a later date.

Market talk has it that Sarawak is looking at a 20% stake in Affin Bank, and negotiations are ongoing.

LTAT, directly and via Boustead, has a 48.91% stake in Affin Bank, after it sold the 4.95% block to the Sarawak government in April this year.

LTAT’s Ahamd Nazim has mentioned before that the fund should be holding smaller stakes in companies, for ease of exit, and leave the management of companies to others.

The Pharmaniaga and BHIC conundrum

A pressing problem that LTAT and Boustead are facing is at 60.45%-controlled pharmaceutical unit Pharmaniaga Bhd, which has fallen into the cash-strapped Practice Note 17 (PN17) category as a result of an impairment of a staggering RM552.3 million, brought about by unsold Covid-19 vaccines.

Many are asking why the impairment at Pharmaniaga was done in total, and not in stages, which would have bypassed the PN17 quagmire.

At its close of 38 sen per share last Friday, Pharmaniaga had a market capitalisation of RM547.67 million.

Talking about Pharmaniaga in October, Ahmad Nazim had said: “For the company to [return] to a positive balance sheet, it would need at least RM500 million. But that doesn’t have to come entirely from LTAT. It can be done as part of a strategic partnership.

“There are many ways to approach a restructuring. It can be done through a strategic partnership, debt rationalisation or listing, maybe, of one of the companies.”

Meanwhile, 65%-subsidiary Boustead Heavy Industries Bhd (BHIC) is selling its 20.77% stake in embattled Boustead Naval Shipyard Sdn Bhd (BNS) to the government for RM1. BNS has been consistently bungling a RM9.13 billion contract to build six littoral combat ships (LCS) first awarded in 2011, but the project dragged on because of several issues, mainly BNS’ incompetence.

The contract has now been reduced to five ships as costs escalated. The first of the vessels was slated for delivery in April 2019, but the latest news reports have it that the first vessel will be delivered in August 2026, followed by the rest in April 2027, December 2027, August 2028 and April 2029.

The real issue is that the government has sunk RM6 billion into the RM9.13 billion LCS project with nothing to show for it. After spending two-thirds of the contract cost, not even one ship has been completed.

While there is talk about a Turkish party being brought in as a partner for BNS, this remains conjecture.

BHIC ended trading last Friday at 57 sen per share, translating into a market capitalisation of RM141.62 million.

The above are deals that have been either reported or made known. Much more has taken place behind the scenes, such as Boustead Petroleum Sdn Bhd, operator of BHP petrol stations, being wholly owned by the group now. Until February 2022, entities such as PE Petroleum Sdn Bhd — the vehicle of Datuk Mohamed Nazim Razak, younger brother of former premier Datuk Seri Najib Razak — held a 21.11% stake and Vitol Malaysia Sdn Bhd controlled 14.07%. In addition, Tan Sri Lodin Wok Kamaruddin, who helmed Boustead and LTAT for many years, had 5% equity interest.

Boustead Petroleum is now a key revenue generator for the group.

While Ahmad Nazim’s hands were tied at BPlant, at least there was some positive direction at LTAT with him at the helm. But will he be at LTAT long enough to make a real, positive impact? The new Minister of Defence, Datuk Seri Mohamed Khaled Nordin, may want to have his own man heading LTAT.

Whether Ahmad Nazim stays or leaves, what is almost certain is that LTAT is likely to be frequently in the news again next year.

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