Who wins if Boustead is privatised?

Hidden value: While the low share prices usually provide good opportunities for privatisation, what LTAT is aiming for is to unlock the hidden value in Boustead Holdings.

WHAT used to be a cash cow for the Armed Forces Fund Board (LTAT) in the form of Boustead Holdings Bhd has turned into drag over the past two years.

The Boustead group, which is an umbrella holding company for LTAT with a 59% stake, hit a net loss of more than a billion ringgit for the first time last year at RM1.28bil, which further extended its losses of RM554.3mil in 2018.

And for the first time in many years, Boustead did not declare any dividend.

Looking back at its dividend payouts in the past, there has been a declining trend since 2012.

Boustead Holdings paid out 39 sen a share back in 2010 and 2011, which at its high share price of RM3.82 in 2011, translates to a dividend yield of 10.21%.

The dividends then went downhill every year, until 2018 when it paid out only 5 sen per share even as it posted losses.

So why does the LTAT want to take Boustead Holdings private with the company’s deteriorating financial performance?

The coronavirus (Covid-19) pandemic is not going to make things any better anytime soon and even the company remains cautious of its long-term prospects in delivering sustainable earnings to increase its shareholders’ value.While the low share prices usually provide good opportunities for privatisation, what LTAT is aiming for is to unlock the hidden value in Boustead Holdings and it can only do so by stripping off its assets. For that to happen, management will have to sweat its assets.

Sources said this was to ensure a sustainability in dividends to the LTAT, which are ultimately for the soldiers.

And so, the LTAT has come out to say that it is considering taking Boustead Holdings private at 80 sen per share and that it was finalising the funding for the deal which requires regulatory approvals.

The counter has fallen to an all-time low of 35 sen on March 23 and the talk of privatising Boustead Holdings has pushed its share price back up to 70 sen as of yesterday’s close.

The objective is to take it private, break up the assets and sell as they are worth much more on their own.

But the big question now is, will other funds be willing to accept the offer at 80 sen per share?

Even the group’s net tangible asset per share is already valued at RM1.85 a share.

“LTAT’s current offer at 80 sen per share is a premium to the market price which has been continuously depressed.

“It is lower than NTA because many assets under Boustead Holdings are distressed assets, illiquid and generate weak returns. There’s no cash flow and they are close to RM9bil in debts, ” sources said.

The sources added that the LTAT does not want to be held down by its investments in Boustead Holdings which is weighing on its dividends.

A shareholder says: “It is not fair to offer only 80 sen when the intrinsic value is much higher. Any upside should be shared with shareholders.”

In terms of listed subsidiaries, Boustead Holdings has a 57% stake in Boustead Plantations Bhd, 65% in Bousted Heavy Industries Corporation Bhd (BHIC) and 56% in Pharmaniaga Bhd, all of which were loss-making in 2019.

Boustead Plantations posted losses of RM144.01mil while BHIC and Pharmaniaga came in at RM116.64mil and RM149.22mil in losses respectively.

Other high value assets under Boustead Holdings are its 100% stake in UAC Bhd which it privatised in 2012,100% in Boustead Properties Bhd, 51% in MHS Aviation Bhd, 60% in Boustead Petroleum Sdn Bhd and 42% in Boustead Petroleum Marketing Sdn Bhd.

It also owns 66% of The University of Nottingham in Malaysia Sdn Bhd.

Boustead Holdings is also well-endowed when it comes to properties with varieties of assets such as commercial land and buildings, office complexes, oil palm estates and hotels.

As the group owns a majority stake in BHC, Boustead Plantations and Pharmaniaga, a mandatory general offer will trigger for all three entities should LTAT cement its decision on privatising Boustead Holdings.

It all lies with the shareholders now, whether they will accept the 80 sen offer by LTAT.

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