This article first appeared in The Edge Malaysia Weekly on October 9, 2023 - October 15, 2023

LEMBAGA Tabung Angkatan Tentera (LTAT) and its chief executive Datuk Ahmad Nazim Abdul Rahman are in the spotlight after a botched deal involving plantation giant Kuala Lumpur Kepong Bhd (KLK). In a nutshell, KLK was slated to take up a 65% stake in Boustead Plantations Bhd (BPlant) with LTAT, via its debt-laden unit Boustead Holdings Bhd, retaining a 35% stake.

The first part of the strategic collaboration agreement between the three parties involved KLK acquiring 33% plus one share in BPlant from LTAT and Boustead for RM1.15 billion — funds which LTAT and especially Boustead really needed to settle their debts, including bond payments due at the end of this year.

However, the deal has been aborted. LTAT sought out other solutions and has proposed to take BPlant private for RM1.1 billion on its own.

In an interview with The Edge, Ahmad Nazim sheds some light on his plans and what the scuttling of the KLK takeover of BPLant means to the bigger picture of getting the group back to financial health.

The Edge: The privatisation exercise involving BPlant, was it a backup plan, a Plan B to the KLK acquisition of BPlant?

Datuk Ahmad Nazim Abdul Rahman: No, it wasn’t a Plan B, but we looked at the larger interest of the capital market because the deal with KLK was supposed to be done as a joint offer from LTAT, Boustead and KLK. So, we believe there is a legitimate expectation from the minority shareholders of BPlant that this general offer (GO) will proceed, even if the deal [with KLK] is terminated. So, to preserve the integrity of the capital market, we decided to proceed with the GO anyway … There was a promise made to take BPlant private which, as advised by our lawyers, gave rise to a legitimate expectation on the part of the minority shareholders that the GO would proceed.

How will you fund this privatisation exercise? It’s about RM1.1 billion?

Well, as far as LTAT is concerned, we do have internal funding to undertake this exercise. 

Taking BPlant private, it goes against what you said earlier — that LTAT as a fund will hold smaller stakes in companies and leave the running of these companies to others.

Yes, that was the original idea. As the deal has been terminated, we just have to take a longer route to meet our objectives. The objectives remain, which are to resolve the issues at Boustead and for LTAT to diversify our holdings, our investment portfolio especially, so that we meet the objective of achieving a minimum of 60% liquid assets, from the current 32.5%. We just have to take a longer route to achieve those objectives.

Does it mean that you may sell the company at a later date, after you take it private — a portion of the company maybe?

BPlant is only a part and parcel of the whole scheme to restructure Boustead group. This is the only game changer that will put LTAT on the path of sustainability. Now that the restructuring of BPlant is taking a different trajectory, we would need to go back to the drawing board to reformulate our strategy and approach to BPlant. The goals and objectives remain the same, but there are many ways to skin the cat.

Has the restructuring hit a brick wall?

I wouldn’t say hitting the wall. This is just a longer route of getting there. The overarching objective of transforming LTAT into a sustainable retirement fund remains. It’s just the strategy of achieving that can vary, depending on the situation or circumstances. So, the privatisation exercise does not mean a setback, or something that would deter us from achieving that objective.

There is a RM1.7 billion Islamic Medium-Term Note that needs to be redeemed. Boustead needs RM800 million by year end. Now, LTAT — without the funds from KLK — has to fork out RM1.11 billion to take BPlant private. Does LTAT have the funds?

Yes, the GO is just one element. But the other element in this exercise is similar to what we planned with KLK, which is for LTAT to acquire up to 33% from Boustead, so that it can raise sufficient funding to settle the borrowings.

The remaining shares [owned by minorities] is about 32% that will be under the GO. That will cost about RM1.11 billion. So, that acquisition of up to 33% that was originally planned with KLK will now be undertaken by LTAT. So, that will raise about … at the current offer price of RM1.55, [allow] Boustead to raise about RM1.15 billion.

Isn’t that like a right hand, left hand deal?

Well, it is a strategy that would allow Boustead to raise sufficient funding to partially settle the debt.

When you say to preserve the integrity of the capital market, can you explain? Is it about BPlant’s share price?

As a responsible capital market participant, we have a duty to preserve the integrity of the market, to ensure there is fairness in terms of the treatment of the minority shareholders. The minority shareholders got a legitimate expectation when the deal with KLK was announced. But the collapse, or rather the termination of the deal, does not or should not be to the detriment of the minority shareholders. Hence, the reason why we decided to proceed with the GO.

Wouldn’t it be easier and cheaper to just explain why the deal did not go through, rather than getting LTAT to take up the shares?

From a legal point of view, there is a legitimate expectation on the part of the minorities. And from a commercial point of view, it would probably be easier for us to undertake a restructuring exercise outside the purview of the public market.

How does this affect your other plans for restructuring? Other assets that LTAT is also looking at selling? It looks as though you have to sell the assets to only bumiputera companies, if you want to sell.

At this stage, the restructuring or rebalancing of the investment portfolio of LTAT may not necessarily involve a divestment or sale. It can be done in many ways, like entering into strategic partnerships while partially divesting our stakes. But we have no plan to divest any of our assets entirely.

Depending on the nature of the business of the companies, because each has to be treated differently. If you look at the group holistically, we have companies like BHP Petrol, which at the moment is a good asset for us, a dividend-paying asset. We have Pharmaniaga Bhd, which is currently in PN17, so that has to be treated differently. There is a requirement for capital injection so we can fix the balance sheet, the business, moving forward. There is BHIC (Boustead Heavy Industries Corp Bhd), also in a difficult situation that requires a treatment specific to the problem of the company. Boustead Properties [Bhd] also has problems of its own. So, each company has to be treated differently, but our restructuring exercise does not involve a full divestment of any of the companies.

Are you disappointed that the deal with KLK didn’t go through?

This is part and parcel of a merger and acquisition exercise. LTAT, in the end, is a statutory body. A part of the government that serves both strategic and commercial objectives. We should make every attempt to extract the best value for the fund in all our commercial transactions. But we should also take cognisance of our strategic role as a government-linked investment company. So, there is no disappointment.

What is important is that we have gone through a rigorous process in coming up with the best deal structure that meets all our financial, commercial and strategic objectives, without having to resort to an outright asset-stripping exercise.

We heard that the original plan was to sell BPlant via a direct negotiation to a prominent company and a partner at RM1 per share. Is this true?

The original plan was for full divestment, which we eventually stepped in and didn’t agree to. We wanted it to be done as an open process, so that we can extract the best value.

But the financial situation at LTAT has not been resolved. Can LTAT sustain itself in taking this longer route?

I think we can, and I’m confident that we can achieve that eventually. You have to make a difference between LTAT’s financial position and Boustead’s financial position. LTAT’s financial position is relatively healthy. Our retained earnings last year stood at about RM500 million. We have been able to declare sufficiently healthy dividends for last year, from 2% in 2018 to about 5% last year. Our reserve remains as per our reserve policy, which is 2% of our AUM (assets under management). So, we have been able to maintain that reserve level at all time, and with the privatisation exercise of Boustead that was completed early this year, we have been able to elevate our solvency ratio from below 100% to 103% now.

So, there have been many positive impacts from our transformation exercise that we have undertaken over the past two years. But of course, the long-term sustainability of the fund is very much dependent on the restructuring of Boustead. That is the game changer for us because Boustead now represents close to 50% of our investment portfolio, and it will not be sustainable for any pension fund to have 50% of its investment portfolio concentrated in one company. So, there is a need for us to diversify away. But of course when it comes to Boustead with all these related issues, we need to do it through a longer route — take the company private, restructure and eventually diversify our holding in the best way possible, rather than diversifying when the company is at a loss.

LTAT’s last filed annual report is in 2020. Any chance you can share your latest financials, debt level, cash, gearing, profitability or losses and revenue? Also, your total assets and liabilities?

Let us look at this financial metric — our retained earnings increased from RM39 million in 2018 to RM500 million in 2022. Our dividend payout rose from 2% in 2018 to 4.1% in 2021 and 5% last year. Our high-quality liquid assets in the form of Malaysian Government Securities increased from 0 to about 10% today. Meanwhile, our AUM increased from RM9.7 billion in 2021 to almost RM11 billion today, contributed partly by the enhancement of asset value at LTAT. These numbers are a manifestation of the transformative effect of the ongoing restructuring at LTAT.

Can you provide us with exactly how much you need for Boustead, BPlant and BHIC, because this group represents 50% of your investment portfolio?

I can’t say with certainty the exact amount but there are different ways to approach the restructuring. 

First step is to ensure that Boustead is in a position to repay its debt to avoid significant impairment at LTAT.

Secondly, the immediate issue that we need to address next is Pharmaniaga’s capital injection. If you read the news, for the company to be back to a positive balance sheet, it would need at least RM500 million. But that doesn’t have to come entirely from LTAT. It can be done as part of a strategic partnership arrangement with a strategic partner.

There are many ways to approach a restructuring. It can be done through a strategic partnership, it can be done through debt rationalisation, it can be done through a listing exercise, maybe, of one of the companies.

Are there any assets that can go for listing?

Yes, with the right rationalisation, streamlining of the assets, there is that possibility, especially at our properties. Potentially, for Boustead Properties, if we do the asset restructuring right, then I think the company should be in a position to eventually go for IPO (initial public offering).

What is the plan for BPlant after it is taken private? In the past, it would sell land. Will that continue? Will you change the management, so that BPlant can achieve better operational efficiency?

I can’t give you a specific answer to that. We have to go back to the drawing board on how to achieve that objective.

Is there a golden share anywhere that the government has for it to dictate your decision?

No. Well, LTAT is still a statutory body, a part of the government with commercial and strategic role.

Initially when you were doing the restructuring, it was supposed to be without funding from the government, right?

Yes, the original plan did not involve any capital injection from the government. We will continue to pursue market solution in our restructuring. 

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