This article first appeared in The Edge Malaysia Weekly on February 5, 2024 - February 11, 2024

THE immediate resignation of Lembaga Tabung Angkatan Tentera (LTAT) CEO Datuk Ahmad Nazim Abd Rahman from the armed forces fund was brought about by a letter from Minister of Defence Datuk Seri Mohamed Khaled Nordin dated Dec 15, 2023 — merely three days after he was appointed to head the ministry — with the instruction to put the restructuring of Boustead group on hold.

“Pursuant to the letter from the Minister of Defence … I set myself a Jan 30, 2024, [deadline] for a further decision on the way forward for the (restructuring) plan. Taking it beyond January would shorten the runway for the execution (of the restructuring), and present a significant risk to the balance sheet of LTAT and impact our ability to meet the minimum dividend target for this year,” Ahmad Nazim says in his resignation letter, dated Jan 30 and addressed to Tan Sri Raja Mohamed Affandi Raja Mohamed Noor, the chairman of LTAT, sighted by The Edge.

Ahmad Nazim adds, “Given the lapse of time, I am afraid I could no longer pursue the mission and fulfil the mandate of my job.”

When contacted by The Edge, Ahmad Nazim declined to comment.

In a text message in response to a question from The Edge on Ahmad Nazim’s departure, Mohamed Khaled, who has the mandate to oversee developments at LTAT merely says, “I respect his decision to resign and wish him all the best in his future endeavours.”

Ahmad Nazim in his resignation letter listed a number of key initiatives that were taken and achieved, including the privatisation of LTAT’s flagship Boustead Holdings Bhd at a cost that was significantly lower than the asset value, come up with a viable plan for Boustead Holdings’ 65%-owned unit Boustead Heavy Industries Holdings Bhd’s RM9.13 billion beleaguered littoral combat ship project and keep it out of the cash-strapped Practice Note 17 (PN17) category, structured a deal and buyout for Boustead Holdings’ 94.46%-owned unit Boustead Plantations Bhd, a regularisation plan for 60.45%-owned pharmaceutical giant Pharmaniaga Bhd, which is a PN17 company, and formulated a deal structure that raises RM1.4 billion for LTAT and Boustead Holdings from its holding in Affin Bank Bhd, among others.

“All of these key initiatives were executed with a single focus of concomitantly protecting LTAT from impairment, creating value for the fund and raising enough funds for Boustead Holdings to meet its debt obligations in 2024,” Ahmad Nazim’s resignation letter reads.

He adds, “But if preserving the status quo is the goal, LTAT would have to continue to live with the [opaque] legacy of Boustead group and the risk of having half our fund continuously exposed to a single entity with no clear oversight and ability to exercise control.”

Last year, LTAT was in the thick of corporate action and undertook two privatisations — one was that of its 59.42%-owned unit, Boustead Holdings, at 85.5 sen a share or RM703.25 million in total. The other, which is in the midst of being concluded, is the privatisation of 68%-owned unit Boustead Plantations for RM1.55 per share or RM1.11 billion in total.

The privatisation of Boustead Plantations comes after a deal with plantation giant Kuala Lumpur Kepong Bhd (KLK) was scuttled. LTAT and KLK were looking at privatising Boustead Plantations in a deal that would have seen the latter controlling a 65% stake and LTAT the remaining 35%, but concerns cropped up after it was highlighted that the deal entailed a bumiputera company selling assets to a non-bumiputera entity.

With the deal with KLK having fallen through, Boustead Holdings is privatising Boustead Plantations on its own, forking out RM1.11 billion in the process.

The problem, in a nutshell, is that close to 50% of LTAT’s investments are tied to Boustead Holdings and Affin Bank. This reduces LTAT’s overall liquidity position to about 20%.

To put things in perspective, Boustead Holdings’ balance sheet as at end-March last year (before its privatisation by LTAT and a delisting in end-June) indicated that it had total liabilities of RM10.56 billion, including total debt of RM6.8 billion. While Boustead Holdings’ asset base was huge at RM15.75 billion, it only had cash and bank balances of RM565.8 million.

In other words, saddled with underperforming and insufficient liquid investments, LTAT’s flexibility to diversify its portfolio for better returns is limited.

The armed forces fund had seen steady progress in restructuring and monetising its assets since January last year. It also paid a dividend of 5% in 2022 and was working to diversify its investment focus away from a single entity — Boustead Holdings.

One of the key initiatives under the restructuring was to address Boustead Holdings’ debt and its dividend debt structure. According to Boustead’s 2022 annual report, its finance cost for the year amounted to RM336 million.

Boustead Holdings, despite being an asset-rich entity with investments in plantations, property, building materials, ship repair and energy, spends most of its earnings on servicing its debts and leaving very little to be contributed to LTAT.

It is estimated that between 2017 and 2021, Boustead Holdings received dividends of more than RM1.3 billion from its subsidiaries, but LTAT received only one-third of this amount, leaving RM859 million trapped in the company.

Ahmad Nazim, who was appointed in June 2021, had led LTAT in a crucial restructuring to transform the RM11 billion fund into a sustainable retirement fund. 

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