PETALING JAYA: Boustead Naval Shipyard (BNS), the company embroiled in the Littoral Combat Ships (LCS) scandal, was in bad financial shape, running up losses amounting to RM462mil between 2014 and 2018.
This led to payments to the original equipment manufacturer (OEM) and suppliers of the LCS project to be delayed, according to a report that was declassified yesterday.
What’s worse, BNS is expected to face serious issues in servicing loans amounting to nearly RM1bil.
The report highlighted the poor financial management and cash flow issues faced by BNS and said the company had “limited financial ability” to carry out the project.
It cited BNS’ financial statements from 2014 to 2018, where the company had losses of RM462mil, affecting the company’s equity (with RM130mil of paid-up shares) to negative RM332mil.
It said that with payments to OEMs and suppliers delayed, “these companies refused to supply raw materials and parts, causing construction works at the shipyards to be stalled”.
“Up to May 31, 2019, the overall position of BNS’ creditors amounted to RM801.11mil, and the LCS project creditors totalled RM733.55mil,” the report read.
With BNS unable to pay them, seven OEMs halted work on the LCS project, the report said.
It also said salary issues and late payments to subcontractors led to a lack of manpower, skilled welders and quality control.
“External sub-contractors from the Lumut shipyard refused to send their welders.”
Things are not likely to get better soon with BNS struggling to service loans of nearly RM1bil.
Up to May 31, 2019, BNS had loans amounting to RM956.86mil, of which RM354.96mil were short-term debts and RM601.90mil were long-term debts.
The report added that another RM50mil in loans was obtained by Boustead Holdings Berhad (BHB).
“The debt-ratio analysis to measure the percentage of assets financed by debts found a worrying trend.
“BNS is expected to face difficulties and inability to pay its interest and debt in the long-term if its financial situation continues to be weak,” read the report by the Special Investigating Committee Report on Procurement, Governance and Finance.
The report stated that BNS had applied for a deposit of RM1.8bil – or 20% of the contract value – to kickstart the LCS project.
“The deposit was needed to pay OEM and suppliers for the acquisition of parts, services for the design and engineering that was estimated at RM1.9bil,” it said.
However, the Finance Ministry did not grant the full amount.
Instead, it approved RM1.365bil – or 14.95% of the total contract value of RM9.128bil.
“The Finance Ministry also gave an exemption for bank guarantees amounting to RM836.9mil for the approved deposit,” the report read.
The report described as “out of the ordinary” the ministry’s approval of RM1.365bil to BNS and bank guarantees exemption.
This is because the Treasury Circular and procurement regime states the government cannot provide deposit payments of over RM10mil to any local manufacturer or supplier.
“This shows the company (BNS) had limited financial ability to carry out this acquisition,” said the report.
The investigating committee for the 106-page declassified report released by the Public Accounts Committee (PAC) was led by former auditor-general Tan Sri Ambrin Buang.