PETALING JAYA: Boustead Holdings Bhd is unlikely be able 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 plantation, property and industrial, pharmaceutical, heavy industries as well as trading, finance and investment.
According to its annual report 2021, the group has over 16,000 employees across more than 80 listed and non-listed companies in Malaysia, Indonesia and the United Kingdom.
The Armed Forces Fund Board (Lembaga Tabung Angkatan Tentera or LTAT) is the conglomerate’s majority shareholder and also, has a 10.38% stake in BNS.
The investment analyst pointed out that Boustead Holdings is currently heavily in debt with a net gearing ratio of 120% and net debt of RM6.6bil as at end-2021.
The analyst also noted that BNS which is the builder of the LCS project, has obtained syndicated loan facilities of RM4.9bil (reduced from an earlier RM5.57bil) which is fully drawn down to date.
“These syndicated loan facilities are somewhat guaranteed by Boustead Holdings Bhd through their “letter of comfort” to the syndicated lenders or financiers. This means that Boustead Holdings would be required to meet the obligations of BNS, should it default,” said the analyst.
“The problem herein lies that Boustead Holdings itself is badly in debt and there was talk in the market in the past year that the group is seeking to unlock some values of its assets to raise cash including the rumoured sale or lease of 57% owned Boustead Plantations Bhd,” the analyst told StarBiz.
Also, if Boustead Holdings seeks to raise new funds or obtain fresh loan facilities, lenders would be apprehensive due to the group’s stretched balance sheet.
“Boustead Holdings Bhd may even resort to obtaining some sort of bail out from LTAT. In fact, it may go as far as LTAT itself or the government that will need to provide some form of credit guarantee should Boustead Holdings seek to obtain facilities to complete the LCS project,” said the analyst.
The analyst does not think it is reasonable to expect any bank or financial institutions to provide such credit, with so much scrutiny on the LCS project currently.
Meanwhile, it was reported recently that the Defence Ministry (Mindef) has proposed that LTAT take over BNS.
Mindef secretary-general Datuk Muez Abd Aziz was quoted in the Public Accounts Committee’s (PAC) report as saying a special purpose vehicle (SPV) will be formed to house BNS.
Muez said the proposal has not been approved by the Cabinet, and also pointed out that the SPV to build the LCS ships will be fully owned by LTAT.
Such a move will help ring fence the loans or funds that are granted for the LCS project.
By doing that, BNS will be removed from Boustead Holdings.
“If indeed true, it is in fact LTAT bailing out Boustead Holdings by taking over the LCS project and seeing it to completion via its own internal funds,” the analyst told StarBiz.
The analyst added; “This seems to be the only option and we have seen LTAT embarking on a series of corporate exercise in the past year such as the sale of Affin Hwang Asset Management Bhd to CVC Capital Partners and partial sale of the insurance arm Axa Affin by Affin Bank to Generali Insurance.”
Defence Minister Datuk Seri Hishammuddin Hussein said recently that the first LCS project is expected to be completed within the next year or two.
It was previously reported that RM1.4bil worth of government funds intended for the multi-billion-ringgit LCS project signed in 2014 was diverted for other purposes.
None of the ships have been completed so far, although five should have been delivered by this month, the PAC revealed in Parliament.