This article first appeared in The Edge Malaysia Weekly on July 4, 2022 - July 10, 2022

THE senior management of Boustead Holdings Bhd, led by managing director Datuk Seri Mohammed Shazalli Ramly, is understood to be exploring the possibility of a management buyout (MBO) of the diversified conglomerate that owns a bank, a pharmaceutical company and oil palm plantations, among others, say two sources familiar with the matter.

“It’s being talked about, I am sure. From what I know, the biggest obstacle is obtaining funding [for the MBO endeavour]. It has been sorted out, so there is a possibility it [the MBO] could happen,” says one of them.

The other says he is aware of such a plan but is not sure whether Boustead Holdings’ controlling shareholder, Lembaga Tabung Angkatan Tentera (LTAT), would be agreeable to the move. The armed forces pension fund controls 59.42% of the conglomerate, which is its key dividend contributor.

“I’m not sure if LTAT will be positive on the MBO … It’s not easy to accumulate such a vast variety of assets. Once sold, that’s it, it’s gone. So, what can LTAT buy to replace those assets?” he says.

Shazalli did not manage to pick up the call when The Edge contacted him for comment. He replied with a text message, however, saying that he was visiting some estates, so the mobile reception was not good.

Meanwhile, a Boustead Holdings spokesperson said in a short message, “The Edge on May 9 quoted LTAT CEO Datuk Ahmad Nazim Abd Rahman as saying that it was the investment body’s strategy to look at reducing its stake in Boustead Holdings. Thus, it is LTAT’s prerogative, as our controlling shareholder, to decide on the divestment after taking into account the various options, methods and considerations.”

The Edge had an interview with Ahmad Nazim two months ago.

The spokesperson notes that the management acknowledges that Boustead Holdings is one of LTAT’s biggest investments. “Thus, we are very focused on the continuous efforts of the restructuring and enhancing the value of the group through our ‘Reinventing Boustead’ strategy and the strategic pivot towards becoming an ESG-focused conglomerate, or what we call internally BIJAU (short for ‘Boustead Hijau’). The initiatives that we are executing have started to bear fruit, with Boustead Holdings returning to a full-year profit in FY2021. In the next two years, we will continue to remain focused on executing the business plans that we have established in the previous year.”

Based on last Friday’s closing price of 72.5 sen, Boustead Holdings’ market capitalisation stood at RM1.47 billion. It is not clear how much of a stake the MBO will entail, or whether LTAT is even looking to part with its shares.

Other than LTAT, the only other substantial shareholder of Boustead Holdings is pension fund Kumpulan Wang Persaraan (Diperbadankan). It is noteworthy that KWAP has been a substantial shareholder of the conglomerate since mid-July 2013.

If LTAT divested its entire block of shares, or 33.3% equity interest, a mandatory general offer would be triggered, requiring the management to buy the remaining shares in Boustead Holdings, unless a waiver is sought.

Some may argue, however, that the current share price may not be reflective of the deep value in Boustead Holdings. As at March 31, it had net assets per share of RM1.76, or total assets of RM17.09 billion — a gauge of the amount the group could fetch if all of the assets were stripped out.

Boustead Holdings’ cash balances amounted to RM855.2 million, while its short-term debts and long-term borrowings stood at RM3.75 billion and RM3.04 billion respectively. The group also had RM322.2 million worth of assets classified as held for sale as at March 31.

In terms of earnings performance, the diversified group returned to the black in the financial year ended Dec 31, 2021, with a net profit of RM479 million after it had been loss-making for three consecutive years.

For its first financial quarter ended March 31 (1QFY2022), the group chalked up a net profit of RM290.3 million on revenue of RM3.44 billion. In the previous corresponding period, Boustead Holdings posted a net profit of RM43.1 million from RM2.09 billion in sales.

Several of Boustead Holdings’ key assets are publicly traded companies, including its 57.42% unit Boustead Plantations Bhd, 51.84%-owned Pharmaniaga Bhd, 65%-held shipbuilder Boustead Heavy Industries Corp Bhd (BHIC) and 20.85% stake in Affin Bank Bhd.

At its closing share price of 60 sen last Friday, Pharmaniaga’s market capitalisation was pegged at RM786 million, while Boustead Plantations shares were last traded at RM1.25 apiece, valuing the planter at RM1.79 billion. BHIC ended the week at 48 sen, translating to a market value of RM119.3 million, and Affin Bank had a market capitalisation of RM3.95 billion with its closing price at RM1.86.

It is noteworthy that LTAT has a direct stake of 10.59% in Boustead Plantations, 8.62% in Pharmaniaga, 8.16% in BHIC and 33.08% in Affin Bank.

There are also other assets under Boustead, such as Boustead Properties Bhd, which was privatised in August 2008; UAC Bhd, which was privatised and delisted in early 2013; Boustead Hotels & Resorts Sdn Bhd, which has eight hotels under its umbrella, including Royale Chulan Kuala Lumpur in the city centre, Royal Chulan in Damansara, and Royale Chulan Hyde Park in London, among others.

Other interesting assets include a 66% stake in the University of Nottingham in Malaysia Sdn Bhd; 94% in MHS Aviation Bhd, which has a fleet of helicopters and aeroplanes offering air transport services; and 59.82% in Boustead Petroleum Sdn Bhd, which operates more than 400 retail service stations across the country.

In September 2019, there was talk of Boustead Holdings looking to sell its petrol station business. For some reason, however, it failed to take place and the talk then was that some shareholders had objected to the sale.

Truth be told, Boustead Holdings has been in the news largely for a RM9 billion contract to build six littoral combat ships awarded in 2014 after talks commenced in 2011. The group has an 82% stake in Boustead Naval Shipyard Sdn Bhd, which undertakes such contracts. The first vessel was slated to be delivered in 2019, but not a single one has been delivered so far, even though the government has paid Boustead Holdings RM6 billion.

Despite the critics, the government has decided to continue with the contract as there are 400 vendors involved, more than 100 of which are companies owned by Malaysians and of which 90% are linked to Malaysian armed forces veterans.

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