Fixing the LTAT muddle

Why not put LTAT or other troubled GLICs under the EPF? After all, if LTAT’s main purpose is to ensure healthy dividends for its members, isn’t that what the EPF does very well for its own members?

WHAT now for Lembaga Tabung Angkatan Tentera (LTAT)?

There is a lacuna at its top management after the resignation of top officials while debt obligations at wholly-owned Boustead Holdings Bhd need to be addressed.

Two units of Boustead continue to bleed profusely and are debt-laden, namely Boustead Heavy Industries Corp Bhd (BHIC) and Pharmaniaga Bhd.

LTAT’s structure, a legacy issue, is out of whack as it does not have direct access to its prized assets which are trapped in Boustead. A previously planned restructuring exercise to address this doesn’t seem to be panning out.

This leads us to the main question: How will LTAT, given the quagmire, continue to maintain a healthy dividend payment to the country’s servicemen?

What is not to be forgotten is the raison d’etre of LTAT, which is to look after the welfare of the country’s soldiers.

There is no doubt that what needs to be done is to unlock value in some assets, to ensure LTAT gets dividends from well-run companies, and to get rid of non-performing assets that have very little chance of being turned around. LTAT sits on around RM10bil worth of assets.

One could argue that LTAT’s situation is the result of political interference — the Defence Minister has been changed multiple times since 2018. And it’s still unclear how and why the proposed sale of Boustead’s plantation arm was called off.

Boustead, which uses most of its cash flows to service debt, could have potentially restructured its debt to have lower interest payments, according to bankers familiar with the group.

Following the failed sale of Boustead Plantations, which LTAT privatised at a huge cost, the group must restart the sale.

This time, the sale process should be more open and transparent. Let the world know that this asset is for sale and why it is in the interest of LTAT and its soldier members that the sale needs to proceed to the highest bidder.

It is a prized asset that many will be willing to pay a handsome price for. It would possibly be the only large plantation company in Malaysia for sale and it has an attractive landbank across the peninsula that can be unlocked for property development. It is no wonder that Kuala Lumpur Kepong Bhd (KLK) was keen to buy it.

Then comes Affin Bank Bhd and the good news is that the Sarawak government is already looking at buying more of the bank. The market capitalisation of Affin Bank is RM6bil.

LTAT holds a 28.79% equity stake, while Boustead holds a 20.02% stake. Those stakes or part of it, if sold to the Sarawak state, will fetch a pretty price.

Then there’s another jewel in the crown — Boustead Petroleum Marketing Sdn Bhd (BHPetrol). This money spinner, said to be worth some RM2bil, could also be sold.

It may make more sense to place the business under LTAT, which can receive all dividends directly, especially since it receives a steady stream of subsidies from the Ministry of Finance (MoF) even during downturns.

Those deals would be the easy part. Now come the troubling assets — BHIC and Pharmaniaga.

To put it mildly, these are not the best run companies in Malaysia Should these companies continue to be a drag for LTAT?

Should LTAT be involved in these businesses in the first place? It is evident that the group is not able to run these businesses successfully and efficiently. As such, it should get rid of these companies.

LTAT managed to “hand” over the beleaguered LCS project to the as part of an earlier restructuring.

Pharmaniaga could be sold to the highest bidder, again in via open tender for the world at large to participate. Buyers ought to be aware of the conditions attached to government concessions that Pharmaniaga has and price that in.

This requires a lot of effort and professional management. This will not be easy, and this is why some critics predict that LTAT won’t be able to get out of its quagmire, and in the end, its minimum 5% dividend to retired soldiers might be questioned.

Why then not just put LTAT under the management of another investment manager with a much better track record at managing investments and paying out sustainable dividends?

Why not put LTAT or other troubled government-linked investment corporations (GLICs) under the Employees Provident Fund (EPF)? After all, if LTAT’s main purpose is to ensure healthy dividends for its members, isn’t that what the EPF does very well for its own members?

This article first appeared in Star Biz7 weekly edition.

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