KUALA LUMPUR: Lembaga Tabung Angkatan Tentera’s (LTAT) move to bring Boustead Holdings Bhd (BHB) private had stirred discussion on whether statutory funds should opt for a more diverse investment instead of concentrating on one.
Economist Dr Nungsari Ahmad Radhi said statutory funds, such as LTAT, whose monies belong to their subscribers – in this case Armed Forces personnel and retirees, should invest through fund managers, maximise the returns as a fund to benefit the contributors.
“Fund managers will invest in firms that do well and exit those that perform poorly, and it is unnecessary for statutory funds to hold a dominant position, much less a controlling position, and become involved in running the companies.
“The moment the statutory funds become a significant shareholder, it becomes a moral hazard of sorts, of which it is obligated to stay despite poor performance because it is ‘yours’, and you start to intervene, throw more money at the problem, which is other people’s money, monies on which you should secure returns,” Nungsari told Bernama.
To recap, LTAT has offered to acquire all the remaining 822.51 million (40.58%) ordinary shares in BHB for 85.5 sen per share for a total of RM703.25mil. BHB said, as at the latest practicable date, LTAT directly holds 1.2 billion BHB shares representing 59.42% of the total issued shares in BHB.
On the other hand, Practice Note-17 Pharmaniaga Bhd
, in which BHB owns 52% stake, blew a huge hole in BHB financials after it suffered a net loss of RM644.4mil in the fourth quarter ended Dec 31, 2022 amid a RM552.3mil provision for slow-moving Covid-19 vaccine inventory.
BHB’s 65% unit, Boustead Heavy Industries Corp Bhd (BHIC) has been struggling with a RM9.13bil contract awarded in 2011 to build six littoral combat ships. None has been delivered as yet.
From the standpoint of investors, he believes that holding dominant interests in corporations is a poor strategy as it is tantamount to crowding out the public share market.
“That is detrimental for liquidity and market attractiveness for investors. That has been the market’s concern,” he said.
Rather than investing in a handful of large corporations, he emphasised that institutional money could promote the growth of a number of smaller, private companies that are successful.
“LTAT probably has the most highly concentrated portfolio and with the transformation plan going on, it is trying to fix the issues afflicting Littoral Combat Ships and Pharmaniaga Bhd.”
Nungsari also said that a search on LTAT latest annual report showed that the annual report was dated 2019, which sums things up rather well.
Putra Business School economic analyst Dr Ahmed Razman Abdul Latiff agreed that the current system should be improved to encourage more general investments rather than focusing on a single company.
When asked if the statutory funds should shift their focus to other asset classes, he said it is not an issue, and that if the statutory funds want to invest in low-risk, government-guaranteed investments, they could keep a watch on Amanah Saham Bhd and Lembaga Tabung Haji.
“I agree that investment institutions should diversify their investments and not invest with a high percentage in just one company because the risk is high like what happened to Permodalan Nasional Bhd (PNB) which had invested in Sapura Energy Bhd and LTAT which in turn invested in Boustead.
PNB is the second largest shareholder in Sapura Energy, owning about 12%.
“Investment institutions should be monitoring the company’s performance rather than being involved in the management of the company,” he emphasised.
