This article first appeared in The Edge Malaysia Weekly on October 7, 2019 - October 13, 2019

THE need for cash may explain why Boustead Holdings Bhd was looking to sell its petrol station business under Boustead Petroleum Marketing Sdn Bhd (BPM), though that was blocked by other shareholders (see “Vitol blocking Boustead Petroleum sale?” on Page 12).

Even the proposed BPM sale is a double-edged proposition. The petrol retailing business generates about RM97 million in cash for Boustead Holdings annually. To justify a sale, proceeds should theoretically generate the same value or more.

Assuming a RM1 billion valuation for BPM, paying off RM1 billion in borrowings using the sale proceeds would save Boustead Holdings about RM55 million in annual interest costs (assuming an average interest cost of 5.54% per annum). However, that means there is a shortfall of RM42 million to worry about.

That said, it is understood that Boustead Holdings believes it can fetch as high as RM2 billion for BPM.

BPM aside, Boustead Holdings’ interest in Affin Bank Group is another potential monetisation avenue. It is known that Tan Sri Lodin Wok Kamaruddin had previously sought potential buyers for the stake.

“At this juncture, BPM and Affin Bank Group are contributing to the group and continue to remain key performing assets for us. That being said, the group is always on the lookout for ways to strengthen our diversified investment portfolio and extract the best value from our investments,” Boustead Holdings says.

It is worth noting, however, that on its balance sheet, assets classified as held for sale have not changed in the six months to June 30, 2019. The figure remains at RM330.3 million, the same as at Dec 31, 2018, suggesting potential asset sales remain a fluid consideration.

Yet another prospect is the outstanding variation order claims for the Littoral Combat Ship (LCS) contract that was awarded to Boustead Naval Shipyard Sdn Bhd (BNS).

Boustead Holdings controls 68.85% of BNS, while public-listed Boustead Heavy Industries Corp Bhd (BHIC) is a 20.77% shareholder. The Ministry of Finance has one share and the rest is owned by Lembaga Tabung Angkatan Tentera (LTAT). Boustead Holdings controls 65% of BHIC.

To recap, major cost overruns from the LCS contract contributed to BHIC reporting a RM108 million net loss from RM169 million in revenue in FY2018, its worst full-year result in six years. Any payment from the government on the claims would be a major boost to Boustead Holdings, BHIC and LTAT.

“We are mindful of the urgent need to turn BHIC around in order to move forward. The turnaround plan is dependent on the final approval from the Government of Malaysia for the variation order claims for the LCS programme,” BHIC said via email.

Meanwhile, another prospect is the outstanding reimbursement for the government takeover of the Automated Enforcement System (AES) concession from Irat Properties Sdn Bhd, a vehicle 50%-owned by Boustead Holdings, and 49.2% by LTAT.

Recall that Irat Properties had taken over the concession in 2015 under invitation from the then government. After the 2018 general election, the new government acquired the concession and promised to reimburse the 2015 acquisition costs of RM555 million, though the payments do not seem to have materialised so far.

In August 2018, former LTAT chairman Tan Sri Mohd Anwar Mohd Nor criticised the RM555 million reimbursement and said the previous government had agreed in writing to pay LTAT’s full investment costs plus a 12% return per annum for the 30 months that LTAT owned it.

According to Boustead Holdings’ FY2015 annual report, its subscription cost for 50% of Irat Properties back then was RM127.8 million.

Finally, one other scenario is a potential cash injection from its parent LTAT. However, this would lead to even greater exposure to Boustead Holdings for LTAT (see Page 76).

When asked, LTAT CEO Nik Amlizan Mohamed tells The Edge in an interview that there are presently no such plans. If there is need to, LTAT will evaluate such a proposal from an investment perspective, she adds.

“We will put good money after good investments and if it makes sense, we will do it. LTAT will safeguard our investments. We will do whatever is necessary to make sure that our investments for the long term will be sustainable,” Nik Amlizan says.

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