This article first appeared in The Edge Malaysia Weekly on June 28, 2021 - July 4, 2021
With debts of RM7.9 billion as at March 31 this year, Boustead Holdings Bhd needs more than just a digital strategy to rejuvenate its fortunes.
After its shareholders’ meeting last week, group managing director Datuk Seri Mohammed Shazalli Ramly said that the group had embarked on a three-pronged strategy to strengthen its financial position. It plans to leverage technology and a digital push to venture into new businesses.
Technology and going digital are the new buzzwords for businesses that want to reinvent themselves. They are often used to catch the imagination of investors.
However, Shazalli, who carved a name for himself when he headed Celcom between 2005 and 2016, should be aware that Boustead is far from equipped to take advantage of technology and digital strategies to enhance its position.
It is very much a bricks-and-mortar company trying to shake off some legacy transactions that are dragging down its performance.
Boustead has debts of RM7.9 billion, of which 45%, or more than RM3.5 billion, is in the form of revolving credit and short-term loans. Revolving credit is a form of short-term credit where bankers can pull back the facilities after serving notice.
For a conglomerate such as Boustead that is heavy on assets but light on cash flow, having a large portion of short-term loans to carry long-term assets is an obvious mismatch.
Shazalli is well aware of the situation and towards this end, Boustead is disposing of its non-core assets to reduce its debts. This includes the sale of its hotels.
In fact, it is the gain from the sale of the Royale Chulan Bukit Bintang that enabled the group to post a decent profit in the first quarter ended March 31, 2021. The disposal resulted in a one-off gain of RM84.6 million, which is not far from the group’s profit of RM87.4 million.
Without the disposal, Boustead’s results would be weak. Obviously, Shazalli needs to first reduce its debts before taking the technology leap.
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