This article first appeared in The Edge Malaysia Weekly on December 25, 2023 - December 31, 2023

IN late August this year, when The Edge met armed forces fund Lembaga Tabung Angkatan Tentera (LTAT) CEO Datuk Ahmad Nazim Abdul Rahman, he was in high spirits, and understandably so.

LTAT, which has some RM11 billion in assets under management, and its flagship Boustead Holdings Bhd (Boustead) had just announced the sale of a 33% stake in 68%-controlled Boustead Plantations Bhd (BPlant) at RM1.55 per share, or RM1.15 billion, to plantation giant Kuala Lumpur Kepong Bhd. The plan was for KLK and LTAT to privatise BPlant, with the latter retaining a 35% stake while the former acquires the remaining 65% equity interest.

The RM1.55 offer price was good, considering BPlant’s stock had been trading in the range of 17 sen to below RM1 since its initial public offering in 2014, and the higher levels were hit only after speculation of KLK’s offer heightened in the run-up to the actual offer.

After two corporate exercises — the privatisation of Boustead and the sale of the 33% stake in BPlant, which was underway — LTAT and Boustead could now focus on its pharmaceutical unit, Practice Note 17 (PN17) categorised Pharmaniaga Bhd, where a respected international player, a big name, was slated to buy in. LTAT has a 60.44% stake in Pharmaniaga.

Similarly, a white knight was also set to come into LTAT’s 65% unit, Boustead Heavy Industries Corp Bhd (BHIC), which had racked up accumulated losses of RM194.95 million as at end-September this year.

It looked like LTAT, which had been plagued with mismanagement issues for many years, could now settle some of its debts, starting with the RM1.15 billion from KLK’s acquisition.

To put things in perspective, Boustead’s balance sheet as at end-March this year (before its privatisation by LTAT and a delisting in end-June) showed it had total debts of a staggering RM10.56 billion, and its short-term liabilities were pegged at RM3.99 billion. While Boustead’s asset base was huge, at RM15.75 billion, it had only RM565.8 million in cash and bank balances.

Against this backdrop, Ahmad Nazim had managed to secure a strong partner for LTAT in its plantation business and avoid having to seek a handout or bailout from the government.

A source familiar with the situation says, “The sale of BPlant to KLK basically meant LTAT would not have to go to the government — bowl in hand — to seek help. What [LTAT] did was commendable, coming up with a market solution for their problems, without any [financial] assistance [from the government].”

While some questioned the offer being only a 16% premium to BPlant’s net asset per share of RM1.30 as at end-March this year, it has to be established that BPlant’s low share price was a result of scepticism towards the company’s outlook, with parent Boustead and ultimate parent LTAT being in weak financial health. BPlant was also saddled with ageing palms, with more than half of its 73,500ha of plantation needing replanting.

With the sale of 65% in BPlant to KLK, the plantation giant would manage and fund the replanting exercise, which, at RM30,000 per hectare, would cost RM150 million a year, if 5,000ha were replanted annually. Over the years, BPlant would need more than RM1 billion to undertake its replanting requirements, which was money it didn’t have.

Another feather in Ahmad Nazim’s cap was his successful negotiation with KLK for LTAT and Boustead to carve out two parcels of land from the sale of BPlant to KLK — the Balau Estate and Malakoff/Mayfield Estate — to undertake property development. The two are collectively 1,600 acres in size and pegged at a gross development value of RM8 billion.

No wonder, then, that Ahmad Nazim was in an upbeat mood.

It is also noteworthy that LTAT had been looking to hive off BPlant to another party at RM1 per share not long ago, and Ahmad Nazim himself had scuttled that specific fire sale and managed to come up with this sale, to rake in considerably more for LTAT.

Similarly, during the launch of LTAT’s strategy for 2023 to 2025 in July this year, former minister of defence Datuk Seri Mohamad Hasan highlighted how LTAT had almost lost control of Pharmaniaga, after well-connected individuals attempted to acquire the company at discounted valuations via what he termed the “highest leadership”, adding, in almost theatrical fashion, that such a deal could be concluded only “over my dead body”.

A few weeks after the earlier meeting, The Edge caught up with Ahmad Nazim again, but he was no longer the same individual — his slight swagger was gone and his confidence depleted.

His plan to revive LTAT had been thwarted by politicians, who questioned why the sale of BPlant had not been made to a bumiputera company.

It was revealed that 15 companies involved in the plantation sector — including Sime Darby Plantation Bhd, TH Plantations Bhd, Tradewinds Corp, and FGV Holdings Bhd — were invited to bid for the BPlant stake, but most of them either declined to participate or made too low an offer.

In July, five bidders — KLK; IOI Corp Bhd; YTL group; Tradewinds Corp, the plantation vehicle of businessman Tan Sri Syed Mokhtar Albukhary; and the Samling group — expressed interest in BPlant, but KLK snagged the deal with a high offer price and the carving-out of the two parcels of land to LTAT.

In parliament, when answering the opposition’s question as to why there was no bumiputera buyer for BPlant, Mohamad Hasan had said, “Tradewinds’ offer, for instance, was too low. Boustead Holdings as a company opted for the higher bid [from KLK] because they need RM800 million by year end, and another RM1.7 billion to redeem their Islamic Medium-Term Notes.” His reply apparently fell on deaf ears.

With the KLK acquisition scuttled, LTAT is now undertaking the privatisation of BPlant and will have to fork out RM1.11 billion, as opposed to raking in RM1.15 billion for its 33% stake, to avoid legal repercussions, as it had made a joint bid with KLK.

The same source says, “It’s a shame the plan was shot down … it gave [Ahmad] Nazim and LTAT some semblance of dignity.”

If market talk is to be believed, Ahmad Nazim’s days at LTAT may be numbered, after the new Minister of Defence Datuk Seri Mohamed Khaled Nordin took over, following the Dec 12 cabinet reshuffle.

The government has agreed to inject RM300 million, as a stopgap measure, into LTAT and provide a guarantee for a RM2 billion loan.

What good will the government’s assistance come to, however, if those tasked with running LTAT are not given a free hand to do what is best for the fund?

The turkey goes to those who used racial sentiment to scuttle a business deal that was attractive to both parties to gain brownie points from the electorate and leave LTAT in a worse-off position, burdened with more debt and costing taxpayers as well via the government injection. 

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