This article first appeared in Forum, The Edge Malaysia Weekly on November 25, 2024 - December 1, 2024

Six years since the financial woes of Lembaga Tabung Angkatan Tentera (LTAT) and Boustead Holdings Bhd came to light, there is still no firm plan in place to nurse either entity back to health.

This is one of the salient points of the Public Accounts Committee report on LTAT and Boustead and why the group continues to be bogged down in legacy issues that hinder dividend payments to the fund’s contributors, who are essentially the soldiers.

The objective of LTAT’s restructuring is to diversify its portfolio of investments and to be able to declare a sustainable dividend of 5% or more. It is also for LTAT to operate more like the Employees Provident Fund (EPF) instead of concentrating its investments in one company — Boustead.

Since 2018, there have been two teams at the helm of LTAT.

The first was led by Datuk Nik Amlizan Mohamed, who left in 2021. She was replaced by Datuk Ahmad Nazim Abd Rahman, who resigned early this year after his plan to reorganise LTAT did not go down well with new Defence Minister Datuk Seri Mohamed Khaled Nordin.

What’s evident from the PAC report is that both Nik Amlizan and Ahmad Nazim wanted to de-layer the group and reduce the influence of Boustead. In their plans, LTAT would directly own and control stakes in companies operating in the areas of plantations, property, defence contracts, retail of petroleum products and pharmaceuticals.

The logic was that LTAT was caught in a “dividend trap” where the companies operating under Boustead declared dividends that did not flow back to the fund.

Between 2017 and 2022, Boustead received dividends of RM1.3 billion from its operating companies. But the amount that was declared to LTAT was only RM426 million, which effectively hindered the dividend payout of the fund, which has a net asset value of RM10.8 billion.

According to Nazim’s plan, LTAT would partner strategic investors in businesses such as plantations, pharmaceuticals and petroleum products, leaving the fund to directly manage the property arm, which is sitting on valuable parcels of land.

The plan was to see LTAT realise the value of some of its investments and to use the proceeds to pare down its debt.

Another reason for the de-layering, which was not discussed at the PAC meeting, could be that an LTAT without Boustead would wean itself off the corporate culture of the past where everything hinged on one person — Tan Sri Lodin Wok Kamaruddin.

Lodin, a loyalist of disgraced former prime minister Datuk Seri Najib Razak, served as LTAT’s CEO for 36 years and Boustead’s group managing director for 27 years before stepping down in September 2018 after the change in government. His influence on Boustead then was overwhelming.

Based on the PAC report, Defence Minister Khaled, who replaced Datuk Seri Mohamed Hasan in December 2023, is in favour of a hybrid structure where Boustead will continue to hold some assets and drive the businesses.

The current management is in the midst of drawing up a plan that has some elements of both the previous ones, whereby LTAT will bring in strategic investors to drive some of Boustead’s companies.

This plan has not been presented to the minister or the LTAT and Boustead boards. According to the PAC report, Khaled wants to present the plan to the Cabinet for approval because he does not want a repeat of the botched privatisation of Boustead Plantations Bhd in October last year.

This effectively means that the politicians will decide on the restructuring of LTAT, which is asset heavy but cash flow light.

Another point that is evident from the PAC report is that all plans for the restructuring of LTAT will involve the disposal of assets as the way to bring down Boustead’s debt level.

The target is for Boustead to reduce its RM1 billion debt in three years. It used to be more than RM5 billion two years ago, but it is RM3.5 billion now, thanks to the sale of Boustead’s stake in Affin Bank to the Sarawak government.

In the latest development in asset disposal, Boustead has entered into two land transactions.

It is proposing to sell a piece of land in Semenyih to a joint venture with Eco World Development Bhd (KL:ECOWLD) for RM742.4 million. Eco World Development was picked after a “request for proposals” exercise.

Meanwhile, Boustead Plantations is in the middle of selling an estate to Kulim Hi-Tech Park, which is backed by the Kedah government.

Both deals are subject to approval from the Equity Development Division (formerly Economic Planning Unit), which is under the Ministry of Economy.

Asset disposal has always been a politically charged affair, especially in relation to LTAT and Boustead.

The fact that the Cabinet decided against a merger of Boustead’s plantation arm with Kuala Lumpur Kepong Bhd (KL:KLK) in October last year speaks volumes about why some commercially sensible deals may not work well for LTAT for reasons best known to the government.

Khaled is wary of the sensitivity of asset disposals at LTAT, hence his wanting the Cabinet to endorse the plan.

While he may be right to be cautious, it does not explain the need for Boustead’s existence. Why doesn’t LTAT take it upon itself to evaluate all proposals and drive the deals?

M Shanmugam (m.shanmugam@bizedge.com) is a contributing editor at The Edge 

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