KUALA LUMPUR (Dec 24): Boustead Heavy Industries Corp Bhd (KL:BHIC) shareholders have given the nod for the fabrication and engineering company to dispose of its 51% equity stake in Contraves Advanced Devices Sdn Bhd (CAD) to German defence firm Rheinmetall AG for RM54 million.

The disposal of the littoral combat ship (LCS) subcontractor was approved by shareholders during an extraordinary general meeting (EGM) held on Tuesday, BHIC said in a statement.

A total of 137 shareholders holding 446.66 million BHIC shares or 99.56% of voting shares approved of the deal at the EGM, as opposed to 47 shareholders holding 1.98 million shares or 0.44% of voting shares.

The disposal will result in a loss of RM14.82 million to BHIC, which has already been recognised in its September quarter.

BHIC, which is 65%-owned by Boustead Holdings Bhd (BHB), said the disposal is in line with its strategic realignment of businesses, which includes disposing of non-core assets to pursue new opportunities in defence and commercial segments.

BHIC owns the 51% stake in CAD through its wholly-owned unit BHIC Defence Technologies Sdn Bhd. The remaining 49% is owned by Rheinmetall through RD Investment AG.

The sale “aligns with BHIC’s earlier disposal of its 20.77% equity in Boustead Naval Shipyard Sdn Bhd or BNS (now known as Lumut Naval Shipyard or Lunas) in April 2024, which facilitated the shipyard’s takeover by the Ministry of Finance, Inc”, the statement read. 

The 20.77% stake was disposed to MOF Inc’s unit Ocean Sunshine Bhd in April for RM1.

BHIC chief executive officer Feroz Razi Ramli said the sale will further strengthen the group’s financials following the RM417 million debt settlement exercise in early 2024 and facilitate the strategic realignment of its business moving forward.

Meanwhile, Boustead Holdings Bhd (BHB) group CEO Izaddeen Daud said that the disposal allows BHIC to pursue its objective of becoming “the preferred strategic partner in defence and security”, he said.

Of the proceeds, BHIC has earmarked RM31.81 million for future investment in the aerospace, marine, weapons and combat systems sectors, as well as the commercial segment. Another RM21.67 million is to be reserved for working capital.

As of Sept 30, BHIC’s cash and bank balances stood at RM66.23 million, while it has total borrowings of RM10.39 million. Trade and other payables totalled RM111.76 million.

CAD and its subsidiary had their engineering contracts for the six LCS terminated by project contractor BNS in August 2022. They sued BHIC for the termination, but the suit was later struck out after BNS paid CAD a settlement to resolve commercial issues in regard to the LCS project. The settlement was previously reported to amount to RM479.72 million.

Shares of BHIC closed unchanged at 41 sen on Tuesday, giving it a total market capitalisation of RM231.35 million. Year-to-date, the stock has fallen 14.6%.