Boustead restructuring needed to transform LTAT into a sustainable retirement fund

KUALA LUMPUR: The restructuring exercise of the financially turbulent Boustead Group is needed to resolve legacy issues and transform the Armed Forces Fund Board (LTAT) into a sustainable retirement fund that generates good dividends, says Datuk Seri Mohamad Hasan.

The Defence Minister said almost 50% of LTAT’s investment funds are “trapped” in the Boustead Group and its performance is almost “entirely dependent” on Boustead’s financial position.

He added that Boustead’s liabilities amount to RM6.8bil.

Among the debts that have to be serviced in the near future include RM159mil credit repayment, perpetual sukuk redemption amounting to RM607mil in December and Islamic Medium Term Notes repayment of RM1.65bil in September 2024.

He also noted that Boustead Holdings Bhd, which is part of the Boustead Group, recorded its first loss in 2018 since its listing on Bursa Malaysia.

“Since then, Boustead has not been able to pay any dividends to LTAT. Boustead was only able to pay a dividend of 1.5 sen per share in the fourth quarter of 2022,” he said in the Dewan Rakyat on Monday (Oct 9).

“At this juncture, the Boustead Group is undergoing cash flow problems due to pressing obligations to service its legacy debts,” said Mohamad.

Therefore, Mohamad said the Strategic Plan 2023-2025 (Manpan25) which was launched in July was crucial.

“In case the restructuring cannot be implemented, Boustead Group will not be able to service its financial obligations and this will trigger a cross-default on all borrowings under Boustead Group amounting to RM6.8bi,” he said.

Boustead will then be at risk of going bankrupt and LTAT’s fund value will depreciate by close to RM5bil.

He added that restructuring Boustead Group will enable LTAT to reduce its dependence on the group for earnings.

Paring down LTAT’s holdings in Boustead Group will have a long-term positive impact on the Board.

Among them are the diversification of assets by 50% and only limiting asset holdings in Boustead to 15%, increasing the asset liquitability from 20% to 60% and recouping LTAT’s investment in Boustead which can later be reinvested in competitive assets which will ensure sustainable returns.

“As a retirement fund, LTAT should prioritise asset diversification and not hold substantial investment in certain investments which are not in line with the actual model of a retirement fund,” he said.

When winding up his ministerial explanation, Mohamad said there would be a restructuring phase to correct Boustead’s balance sheet.

“We have a very good balance sheet but we have cash flow problems.

“This is not a bailout. Bailouts are only for bankrupt companies. We are not bankrupt and have a lot of assets.

“We are very strong but we want to free LTAT from being trapped as an investment fund when it is supposed to function as a retirement fund,” he said.

The ministerial explanation was on the Boustead Group’s financial position and its impact on LTAT.

Mohamad said LTAT’s dividend rate increased to 5% in 2022 from 2% in 2018, indicating a recovery following transformation efforts undertaken over the past five years.

LTAT’s net profit increased to RM432.5mil in 2022 compared to RM221.0mil in 2018. LTAT’s cumulative earnings grew to RM498.7mil by the end of 2022 compared to RM38.7mil at the end of 2018.