LTAT’s dilemma


  • Corporate News
  • Saturday, 29 Aug 2020

For LTAT, Boustead and Affin Bank alone (in which LTAT owns a direct 35% stake in) make up half of its entire portfolio. Hence the plans it has on any restructuring of Boustead will be crucial to LTAT’s fortunes.Any decision though, will be a tough one to make.

LEMBAGA Tabung Angkatan Tentera (LTAT) is likely in a quagmire on how to deal with its prized jewel namely Boustead Holdings Bhd.

The latter is an asset-rich but cash flow-stricken and debt-laden conglomerate, involved in businesses ranging from plantations to pharmaceuticals and from properties to heavy industries.

Sources say that LTAT has received various proposals on how to deal with Boustead.

One of which entails an offer from a group with strong links which is seeking to acquire a 20% stake in Boustead with the intention of restructuring the ailing conglomerate.Meanwhile, the management of Boustead are also fending off attempts by LTAT to privatise the group, with their own plans that could entail a management buyout, sources said.

LTAT itself has been approached by a private equity firm exploring the possibility of funding the privatisation and restructuring of Boustead.

“LTAT is considering various proposals on how to restructure Boustead, which partly explains why it (LTAT) has not made a firm decision yet, ” explains one source.

From the look of things, LTAT does need to privatise Boustead in order to embark on a necessary restructuring in order to extract value from the conglomerate.

To be sure, last month Boustead announced a three-year transformation plan that is aimed at strengthening the group’s prospects and unlocking values. However such a programme is likely to end up with Boustead not providing its parent LTAT that owns close to 60% of the latter, with any dividends.

Going by that scenario, LTAT would be more inclined to privatise Boustead and extract values in a quicker way. A fund manager says that he is not surprised LTAT has received multiple proposals for Boustead considering the wide asset base of the latter.

Boustead has total assets of RM16.7bil and controls four listed companies, Boustead Plantations Bhd, Affin Holdings Bhd, Boustead Heavy Industries Corp Bhd and Pharmaniaga Bhd. It also has a host of other unlisted assets.

The value of Boustead’s stake in the four listed companies already is worth RM2bil, which is 43% higher than Boustead’s own market capitalisation of RM1.4bil.

Boustead also owns the Royale Chulan Hotel chains in Damansara, Penang and London, office towers such as Menara Affin and Menara Boustead, The Curve mall as well as land in prime locations such as Jalan Cochrane and Mutiara Damansara.

In addition, Boustead owns a 42% stake in Boustead Petroleum Marketing Sdn Bhd popularly known as BHPetro with more than 300 retail service stations located throughout Peninsular Malaysia.

For LTAT, Boustead and Affin Bank alone (in which LTAT owns a direct 35% stake in) make up half of its entire portfolio. Hence the plans it has on any restructuring of Boustead will be crucial to LTAT’s fortunes.Any decision though, will be a tough one to make.

For one, the regulatory process of taking the conglomerate private has also been at play.

Just this week, LTAT said it received the approval of Bank Negara to buy out Boustead, which owns a controlling stake in Affin Bank Bhd.

The fund would also need to get other regulatory approvals including the Securities Commission and Bursa Malaysia for any privatisation plans it has of Boustead, considering the exercise will entail five listed companies including Boustead.

Recall that last month, LTAT revealed that it had intentions of privatising Boustead.

LTAT, which holds 59.44% stake in Boustead, said it is considering to make an offer of 80 sen per Boustead share to buy out the remaining shares it does not own.

That price is way below Boustead’s net tangible asset (NTA) of RM1.74 per share. This will likely mean that minority shareholders would be reluctant to sell their stake at 80 sen.

The minority shareholders of Boustead include institutional funds Retirement Inc Fund (8.9%) and Employees Provident Fund (5%), as well as Tan Sri Lodin Wok Kamaruddin (2%). Lodin was Boustead’s long standing deputy chairman and managing director serving for almost 27 years before he stepped down in 2018.

Boustead had in June filed a suit against Lodin, its former chairman Tan Sri Mohd Ghazali Che Mat and five other directors for purported breach of fiduciary duty and is seeking jointly from them a sum of RM35.37mil.

Sources say that Lodin could be a dissenting shareholder in a privatisation attempt by LTAT.

Boustead currently suffers from a high debt strain which resulted from its past expansion exercises.

It had total borrowings of RM7.9bil against shareholders’ equity of RM3.5bil as of June 30 this year.

Boustead has already embarked on reducing its debt by selling some non-core assets.

For instance, recently Boustead put up one of its properties, currently tenanted by Affin Bank, for sale as the bank mulls its move to new headquarters in Tun Razak Exchange.

The sale of the Affin’s headquarters comes slightly more than a month after Boustead inked a deal to sell 2.93 acres in Jalan Cochrane near the MyTown shopping centre.

Both of the deals were reported to be worth almost RM200mil. It was reported by an English daily that Boustead has listed almost half a billion ringgit worth of the assets to sell for this year in a bid to improve its balance sheet.

For now though, the market does not seem convinced that LTAT would even carry out its privatisation of Boustead at 80 sen a piece. This is going by Boustead’s share price which closed at 70 sen on Friday.

Note:

In our story titled “LTAT’s dilemma - Fund contemplating on how to restructure Boustead” published on Aug 29 in StarBizWeek, Boustead Holdings Bhd said there is no attempt by the company to fend off a privatisation exercise from Lembaga Tabung Angkatan Tentera (LTAT), nor is the company in any discussion to conduct a management buyout.

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