Boustead Holdings can no longer go into debt

PETALING JAYA: Boustead Holdings Bhd is unlikely to take on more debt to support its 82%-owned Boustead Naval Shipyard Sdn Bhd (BNS) in completing the Littoral Combat Ship (LCS) project, according to an investment analyst.

Boustead Holdings is a diversified conglomerate with core businesses in plantations, real estate and industrials, pharmaceuticals, heavy industries as well as trading, finance and investment.

According to its 2021 annual report, the group has more than 16,000 employees across more than 80 listed and unlisted companies in Malaysia, Indonesia and the UK.

The Armed Forces Fund Board (Lembaga Tabung Angkatan Tentera or LTAT) is the majority shareholder of the conglomerate and also holds a 10.38% stake in BNS.

The investment analyst pointed out that Boustead Holdings is currently highly leveraged with a net debt ratio of 120% and net debt of RM6.6 billion at the end of 2021.

The analyst also noted that BNS, which is the builder of the LCS project, secured syndicated loan facilities of RM4.9bil (reduced from a previous RM5.57bil) which is fully drawn down as of today.

“These syndicated loan facilities are in some way guaranteed by Boustead Holdings Bhd through their “letter of comfort” to syndicated lenders or financiers. This means that Boustead Holdings would be required to meet the obligations of BNS, should it default,” the analyst said.

“The problem here is that Boustead Holdings itself is highly leveraged and there has been talk in the market over the past year that the group is seeking to unlock certain values ​​from its assets to raise funds, including the rumored sale or lease of 57% owned Boustead Plantations Bhd“, the analyst told StarBiz.

Additionally, if Boustead Holdings were to seek to raise new funds or secure new lending facilities, lenders would be concerned due to the group’s strained balance sheet.

“Boustead Holdings Bhd may even resort to some sort of bailout from LTAT. In fact, this may go as far as LTAT itself or the government who will need to provide some form of credit guarantee if Boustead Holdings seeks facilities to complete the LCS project,” the analyst said.

The analyst doesn’t think it’s reasonable to expect any bank or financial institution to provide such credit, with so much scrutiny on the LCS project currently.

Meanwhile, it was recently reported that the Ministry of Defense (Mindef) had proposed that LTAT take over BNS.

Mindef Secretary General Datuk Muez Abd Aziz was quoted in the Public Accounts Committee (PAC) report as saying that a Special Purpose Vehicle (SPV) will be formed to house the SNB.

Muez said the proposal had not been approved by Cabinet and also pointed out that the SPV to build the LCS ships would be wholly owned by LTAT.

Such a decision will help to close loans or funds granted for the LCS project.

In doing so, BNS will be removed from Boustead Holdings.

“If true, it’s actually LTAT bailing out Boustead Holdings by taking over the LCS project and bringing it to fruition through its own internal funds,” the analyst told StarBiz.

The analyst added; “That appears to be the only option and we have seen LTAT embark on a series of corporate exercises over the past year, such as the sale of Affin Hwang Asset Management Bhd to CVC Capital Partners and the partial sale of the Axa Affin insurance branch by Affin Bank to Generali Assurances.

Defense Minister Datuk Seri Hishammuddin Hussein recently said that the first LCS project is expected to be completed within a year or two.

It was previously reported that government funds worth RM1.4 billion intended for the multi-billion ringgit LCS project signed in 2014 had been diverted for other purposes.

None of the ships have been completed so far, although five are expected to have been delivered by this month, the PAC has revealed to Parliament.

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John A. Bogar