KUALA LUMPUR (Nov 19): The transformation of Armed Forces Fund Board must begin immediately as a prolonged suspension of the pension fund's activities risks liquidation of its assets, according to a report by the Public Accounts Committee (PAC).

Further delay could raise the indebtedness of the pension fund better known as LTAT and its flagship Boustead Holdings Bhd, the report said, based on testimony of three former LTAT’s top management after the plan dubbed Project Moonshot was halted by the Ministry of Defence (Mindef).

The value of LTAT’s existing holdings is projected to diminish to about RM10.5 billion without any intervention, former CEO Datuk Ahmad Nazim Abdul Rahman was quoted as saying in one of the proceedings.

The now-defunct Project Moonshot was expected to raise the value of LTAT’s assets under management to RM15.7 billion by 2025 from RM11.5 billion in 2023, according to the PAC’s findings from its proceedings involving LTAT published on Tuesday.

Separately, PAC chairperson Datuk Mas Ermieyati Samsudin in a statement, warned that the “critical cash flow position and multiple financial crises” at Boustead and its subsidiaries threaten to wipe out up to 50% of the funds’ value, or nearly RM5 billion of the contributors’ money managed by LTAT.

LTAT has invested RM5 billion into Boustead and its subsidiaries, including RM2.5 billion into the main holding company once listed on Bursa Malaysia. 

Liquidation risk refers to potential financial loss when an entity is forced to sell its assets rapidly and at unfavourable prices to meet immediate obligations.

The armed forces fund, which had RM13.1 billion gross and RM10.8 billion net book value as at April, is exposed to such risks, for example, when it paid out dividends to contributors in 2022 based on non-cash gains of RM189 million that was booked when LTAT’s associate company sold shares to another subsidiary of LTAT, PAC said.

In the report, LTAT responded to the dividend payment by highlighting that the fund still has sufficient book solvency ratio to make the payout, even after excluding non-cash gains.

Subsequently, Ahmad Nazim resigned on Jan 30 this year. The fund’s chairman General Tan Sri Raja Mohamed Affandi Raja Mohamed Noor and head of strategic asset allocation or senior director of strategy,Dayana Rogayah Omar resigned the following month.

According to Ahmad Nazim, Project Moonshot involves settlement of RM3.4 billion of Boustead’s debts, followed by a “capital repayment exercise which involves the restructuring of shareholdings of Boustead, which [LTAT] will transform so these income-generating assets will be held directly by LTAT”.

“So, instead of LTAT’s investment exposure to a single entity which is Boustead, we will [sic] have exposure to six strategic companies,” Ahmad Nazim was quoted as saying in one of the proceedings.

Under this plan, Boustead, which currently operates as a conglomerate with shareholdings in multiple operations from fuel retailer to plantation and pharmaceutical, will instead operate as a real estate business.

The intention is also for LTAT to keep exposure to Boustead’s fuel retailer arm Boustead Petroleum Marketing Sdn Bhd, plantation arm Boustead Plantations Bhd and listed pharmaceutical outfit Pharmaniaga Bhd (KL:PHARMA).

This will help improve operational efficiency, and the respective companies could then focus on enhancing value such as getting the right partners, Ahmad Nazim said. The sale of the Affin Bank Bhd (KL:AFFIN) stake to the Sarawak government is also part of Project Moonshot, PAC was told.

LTAT took Boustead private last year for RM1.15 billion, after a plan to rope in Kuala Lumpur Kepong Bhd (KL:KLK) as a strategic partner was axed. Instead of cutting its debt, Boustead took up a RM2 billion loan for the process, which includes snapping up shares from the open market.

In the report, the top management of LTAT is said to have completed a new transformation plan and awaiting the approval of its board of directors.

“After securing board approval, the plan will be presented to the minister [of defence] for approval, before being presented to the cabinet,” the report read.

PAC, in its report, recommended that the Mindef and LTAT be required to report to it the latest status of LTAT regarding its portfolio of companies, the restructuring of Boustead and LTAT’s direction before the end of this year.

In April, Defence Minister Datuk Seri Mohamed Khaled Nordin was reported as saying that LTAT’s restructuring would proceed.

“We only have one goal. We want to optimise the performance of LTAT with the best business model without giving up strategic interests in various entities that have great potential,” he had said.