KUALA LUMPUR, Sept 2 ― Patriot president Brig Gen (Rtd) Datuk Mohamed Arshad Raji raised concerns today over talks of a purported plan to privatise Boustead Holdings Berhad, claiming the move could expose the conglomerate to corruption.
The allegation particularly drew attention to an unnamed group “with strong links” bidding for a 20 per cent stake in the firm, estimated to be worth RM1.4 billion. The Armed Forces Pension Board (LTAT) controls Boustead through a 59 per cent stake.
Patriot, a group representing retired security personnel, claimed a successful bid would allow for privatisation and delisting, which would make Boustead’s board decisions and transactions opaque to public scrutiny and oversight.
English daily The Star reported on August 29 that “a group with strong links” has made an offer for a 20 per cent stake in Boustead following talks that its main shareholder, the Armed Forces Fund Board (LTAT), is looking to privatise the company.
The privatisation push is said to be a part of a restructuring plan to overturn the company’s poor fortunes. Despite wielding assets worth RM16 billion and four listed companies with a total value of over RM2 billion, the conglomerate is said to be heavily in debt and cash-stricken.
“As Boustead Holdings is rich in assets and the listed flagship company of Armed Forces Fund Board (LTAT), Patriot is naturally concerned and cautions against conduct of criminal breach of trust,” the group said in a statement.
“The report also mentioned another offer from a private equity firm to fund the privatisation and restructuring of Boustead, and also the possibility of Boustead management buyout,” it added.
“In all likelihood, deals and backroom board decisions have already been made before bits of information are released to the media, in particular concerning the group with strong links acquiring 20 per cent stake of Boustead.”
Boustead’s total assets are valued at RM16.7 billion and a market capitalisation of RM1.4 billion. It has controlling stakes in four listed companies ― Boustead Plantations Bhd, Affin Holdings Bhd, Boustead Heavy Industries Corp Bhd (BHIC), and Pharmaniaga Bhd.
The conglomerate also owns the Royale Chulan Hotel chains and several properties located on prime.
Boustead and Affin Bank alone make up half of LTAT’s equity portfolio.
Rumours about the planned privatisation of Boustead had surfaced in media reports as early as May, fueled by the armed pension fund’s announcement that it would attempt to restructure itself amid challenges that predate the Covid-19 crisis.
Although the restructuring plan has yet to be finalised, news reports suggested that the move could entail LTAT buying out the remaining Boustead shares.
In a report published in May, New Straits Times citing sources said the fund has received approval for a loan to finance the deal. LTAT had already said it is prepared to offer 80 sen per share, less than half of its net tangible asset value of RM1.74 per share, according to The Star.
But the swirling rumours had sparked talks about opposition to the privatisation move within Boustead itself. The Star in the same report quoted sources as saying that the company is fending off the attempt with their own plans “that could entail a management buyout.”
Last month, Boustead announced a plan to embark on a three-year transformation programme it said was aimed at strengthening “prospects” and “unlocking values”, although LTAT is likely to shrug off the proposition since the exercise would yield little dividends.
Little is known about the group that made the offer, but Patriot claimed the bid would still be undervalued compared to Boustead’s net worth, particularly of BHIC.
The subsidiary, a small-capital listed company that has contracts to build six littoral combat ships and contracts for long-term maintenance, repair and overhaul (MRO) of military assets, owns the most advanced shipbuilding yard in the country located within the Lumut naval base.
“As such, BHIC is a corporate gem but vulnerable for hostile takeover,” Mohamad Arshad said.
“The successful party could also help to play down the shares price of BHIC to say 50 sen. They then marked down the book value of investment to market. Thereafter their investment could be sold off to certain preferred parties at a small premium,” he added.
“This would end up in big losses to LTAT, in the end, resulting in LTAT crying to the government for bailout. This eventuality should not happen and must not be allowed to happen.”
The troubled littoral combat ships (LCS) contract is the company’s biggest liability. Patriot claimed the crux of the problem lies in the Ministry of Defence’s (Mindef) delay in recognising the ships’ Variation Orders (VO) and delay in approving the contractor.
The deposed Pakatan Harapan administration was said to be on the verge of approving the VOs totalling RM 1.4 billion earlier this year. The decision was left hanging after a new government came into power.
The delay in issuing the VO makes Mindef partially responsible for BHIC’s financial predicament, Patriot argued.
“With the RM1.4 billion, BHIC could bring a portion of it into book profit, pay off debts to contractors, and seek bridging loans to complete the LCS project,” Mohamad Arshad said.
“Interested parties with business acumens know they can do a lot with the VOs once approved.”