THE Edge: It seems to many that the group is selling assets to pay dividends to shareholders. What is your comment?

Lodin: No, we are not selling assets to pay dividends. It just so happened that the offer to purchase those assets came at a time when our performance was not exciting ... while I [had] made the commitment that we would declare dividends every quarter and at a certain amount. It’s just a coincidence that it happened when the market was down and revenue was also down.

Even during the good times, I would have done the same thing if the same offer had been made to me, for example, the purchase of the quarry land in Kulai. The sale of 30% of the Jendela Hikmat project just came in last year. It came at the right time and it was an offer that I found difficult to refuse. I didn’t have control by holding 30% and, at that price, I would be making so much profit compared to what I had paid to acquire it earlier on, so why not?

So it’s not because [we needed] to pay the dividends ... because I also had the objective to reduce gearing. My target is 0.6 [times].

What is the timeline for the gearing target?

It is 0.9 times now. The target is 0.6 times within the next 15 months to two years.

The dividend rate for Lembaga Tabung Angkatan Tentera (LTAT) was 12% last year. Will you be able to sustain that this year, and going forward?

I hope so. But it’s tough going. The market is not that exciting and, in past years, we made decent profits from trading in the stock market. But [if] we look at the prices of blue chips such as Maybank Bhd and CIMB Group Holdings, they have come down so much. There are very few counters that are doing well and it’s difficult for us to make a good profit from the stock market. So we have to depend more on dividends and other sources of contribution.

Would you reconsider Boustead’s dividend policy if things do not improve as you expect?

Well, it’s not a policy statement but we have indicated to our shareholders that we will continue to declare at least 70% of our net profits. And we will honour that.

Early this year or late last year, it went up to 90%, I think.

Again, it’s a balance. If we don’t need the money and the banks are not pressing for payment on some of the loans, then we will just give it to shareholders. They have been loyal to us and it’s right that we repay their loyalty in the form of good dividends.

I hope to continue that policy, if possible … to give back more. This [coming] quarterly payment, I think we will continue with that. Sometimes, my finance director scratches his head [over this] and, unfortunately, he’s got no more hair now (laughs).

This is a commitment I made to my shareholders. We do not declare dividends on unrealised profit — that we do not do. It’s based on realised profit. Some people, they do it through window dressing and all that, but we don’t do that. There must be proper realisation of profit for us to declare dividends.

Are you under pressure to declare dividends at the Boustead level?

Well, not under pressure, no. But I would like to see [dividend payments] … because it benefits me as a shareholder also. But I’ve got to be fair. Just declaring dividends to fulfil my need to pay my interest or my principal, that’s not fair. Fair in the sense that we have excess money that we can give back to shareholders.

And as I’ve said, it’s got to be related also to the gearing level. If we can maintain the gearing level at 0.6 [times] and we’ve got excess cash that enables me to declare 5% to 6% ... I would do it.

So it’s a question of how you balance your cash flow, your profit and so on.

The whole idea is that our operation must be carried out on a sustainable basis at every level, be it at revenue, profit, cash flow, gearing and so on.

Do you think the high gearing is due to the overexpansion of the past few years?

Possibly, yes. Not only that, cheap money [too]. Why do I need to bother the shareholders when I can get loans at 4% to 5% with a return of 12% to 13%? So, it’s purely based on cost of funds.

And I’m not sure if this will change much in the next six months unless the US Federal Reserve’s (Janet) Yellen raises interest rates. So why should you impose upon the shareholders when you can get cheap funds from the market?

That’s what we’ve been doing. But the project must be viable and be able to pay for itself, at least … servicing the loans.

Has any shareholder come up to you during annual general meetings and say, please keep this dividend money and use it to repay borrowings?

No. I can’t recall. They’re asking for more and more (laughs).

Would it make sense to reduce the dividend payments for one or two years, bring down gearing and then raise them back to the normal level?

I view every project undertaken by the group on a standalone basis, in the sense that the project must be able to support itself. And this includes determining what sort of borrowings level is required. And they’ve got to incorporate it into the cost of funds. Then only you can see the true viability of the project.

But if they’re going to get easy money from the shareholders, then the proposal may be a bit misleading. I always work on the concept of setting the gearing at any level. But if you can do it on 100% gearing without support from the group, it is even better.

So you are using the bank’s money to produce profit with no capital required from the group, which to me is probably the most interesting proposition to the group. The less [of the] group’s money you use, the better it is. That’s how we evaluate business proposals. But if you need the group’s support, then it must be at the proportion of capital and borrowings.

What other assets do you plan to dispose of?

I am not going to be sentimental about assets. If you come to me with a price at a multiple of book value, I am quite prepared to consider. It is a question of achieving the balance of having a strong cash flow and sustainability of revenue and profits.

We are not desperate to sell assets. [If] a party comes and says, can we buy this piece of land — for example, where a BHP petrol station is located — from which it would take me 15 years to get returns and offers me something that I can earn overnight, I would say yes. We have done it at two or three stations.

So for the next one year, you’ll continue to dispose of assets and streamline your business?

Yes, it’s an ongoing process. Disposing of non-core assets and streamlining our business is ongoing. I will not compromise on that. We [can] take on new business, but if after a certain period of time it does not generate the expected returns, then … We have closed down about half a dozen [such businesses] over the past few years.

I will not hesitate [to close]. No sentimentality. I give you four or five years, if [there are] no results, thank you very much. If it’s a joint venture, then we [will] back out. That’s our strategy for the last five, ten years, and moving forward.

Do you see Affin in much better shape now compared with 1997/1998?

Much, much better. I was involved not only in 1997, but also 1984-85, when I first joined the board. When I first joined the board, it was horror stories all the way … the abuse, mismanagement, the corrupt practices. But today, at the board level, as far as I can see, we have got the risk-management parameters in place, we have a good risk manager, a strong internal audit.

On the board, we have a former federal court judge and people with strong corporate and legal backgrounds. So, it is a good combination.

I don’t expect the bank to be impacted too badly if there is a sudden decline in the economy. It is not like 1997, where we were among the worst hit because of our big exposure to some of the big corporates. The profile of borrowers is quite well spread now — corporates, individuals and so on.

Has Bank Negara Malaysia given approval for your reappointment as a non-independent and non-executive director of Affin Bank? We understand that you also hold board positions in other Affin Group companies, such as deputy chairman of Affin Holdings Bhd and chairman of Affin Hwang Asset Management. Have you obtained Bank Negara’s approval for those too?

The group is doing some restructuring. My reappointment to some of the board seats is presently being handled by Affin Holdings. 

What is your view on what people have been saying regarding the next consolidation in the banking industry?

We were chosen to be one of the banks. But moving forward, I don’t think the government and regulator will want to interfere too much in terms of the number of banks that they want to see operating in this country. One thing is for sure, the number of banks will be determined by market forces. Again, one of the elements or determining factors is capital. If you don’t have the stamina to invest in the financial institution, if you don’t have the patience to wait for the returns in the medium to long term, then probably you will not want to be a player in financial services. So, it has got to be based on whether you have the capacity or stamina to hold on to your investment, and whether you have the ability to sustain for the medium to long term. These are the two factors that will determine whether we are going to have five, six or eight banks. Of course, under the Financial Services Act, there is a requirement that individuals can only hold 10%, and institutions can hold up to 20%. At the moment, there is some flexibility.

Does Boustead have the stamina?

Yes, we would like to be in the banking group. It is unfortunate that the market price does not reflect the true value, but we believe that [the value] will recover. When the time comes, the value is going to reflect the situation.

So far, has anyone approached you [to buy a stake in Affin Bank]?

Not at 10 times book value. We have not made it known to the market that we are up for sale, and no one has approached us.

At the moment, you do not intend to sell?

At the moment, no.

You wear many corporate hats. How do you handle those different positions?

I’m very focused on how I conduct myself. If you go through the shareholding, you’ll find that it’s all under one group — LTAT. I’ve been with LTAT for 35 years. I like what I do there, and I think to some extent, I have contributed quite fairly to the returns that we give to the contributors — averaging about 11% per annum for the last 40 years. So, not bad lah.

I didn’t take anything from LTAT when I decided to take over the position of managing director of Boustead Holdings … that was in 1990. So even though I’m still CEO of LTAT and Boustead Holdings is a part of LTAT, I don’t take anything from LTAT in terms of salary and all that.

LTAT owns almost 60% of Boustead. This is my bread and butter, so to speak. Where I get money to buy milk for my children and my grandchildren and so on. And under Boustead, we have all the other companies you’ve mentioned — Pharmaniaga, BHPetrol, Boustead Heavy Industries Corp, Boustead Naval Shipyard Sdn Bhd — and 20% of Affin Holdings, in which LTAT owns 35%. They’re all related. In some, if not all, of these companies, I was involved in setting up, in listing, in acquiring and carrying out corporate exercises.

So I do not want someone to come in and disturb the strategies and game plans that we have prepared or have adopted to ensure that these are all investments that can generate good returns for shareholders and ultimately to LTAT and the armed forces personnel. So, the flow-through is very important, the synergy is very important. When we have companies within the same group moving in different directions, it’s not going to create value or unlock value for the ultimate shareholders.

Because of my understanding [of] and involvement [in the group] from day one, and due to my continued interest and commitment, I have accepted some of these positions. To me now, money is not the most important thing. It’s more about seeing through the harmonisation, unlocking of value and the production of results from our investments in all these activities.

It’s just business activities, but all under one group, and the whole idea is to make sure they come up with the best possible returns.

It sounds like Boustead’s profit prospects are getting better, but why are you offloading your own shares?

I don’t take money from anywhere. All my money is either borrowed or earned from working here (laughs).

It’s to pay back the bank. I sold a lot recently because Bank of Nova Scotia was pressing for payment. It’s nothing, it’s just that they have scaled down their retail activity.

They gave me one year, asked me to pay back the loan I took. They were very nice to me, so I said okay lah. I had no choice but to sell the shares even though the price was not very attractive ... it was below book value. I’ve got no other savings.

So it was not a reflection of what you thought about the group’s prospects?

No, far from it. And I’ve got a lot to spare in terms of shares, so why be greedy. Recently, there was a rights issue. I had to give an undertaking to take up the rights issue. I did it through borrowed funds and I promised them I’d pay, so I sold [the shares]. I feel sad because if I had kept the shares, the dividends would have been enough to service the interest and pay part of the loan. But [the share sale] was not an indication of confidence — more to pay back the bank, that’s all. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.