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11th April 2020

This a is a follow up to our last statement issued on 6 April urging LTAT (Armed Forces Fund Board) to protect the shares of Boustead Heavy Industries Corporation (BHIC) Bhd. Patriot has made the case for BHIC, being a strategic and having a monopolistic business in designing, constructing, and supplying of naval assets; and with book orders to supply naval ships, variations orders approved, MRO (maintain, repair and overhaul) contracts sealed, BHIC’s future is like a star shining bright. Its potential for mega profits is both envious of others and entices a hostile takeover. 
The suggestion of a hostile takeover of BHIC may sound farfetched and speculative. For the keen eyes (many among Patiots are veterans and also veterans of the stock market) looking at the trading trend of BHIC stock at Bursa Malaysia since early March 2020, the positioning of the Sell Q (offer prices and quantities) and the Buy Q (bid prices and quantities) especially during the last ten minutes before closing at 5 pm, supports to this argument. BHIC shares price has been consistently pressed down, a strategy commonly used by a takeover party.  
Being a small listed company with just 248.46 million shares, taking over by a third party is less cumbersome. Hypothetically, a takeover party would try to buy up as many shares from the open market at the lowest price possible. After that it is likely to make an offer to buy a certain percentage out of the 65% BHIC shares owned by Boustead Holdings (BH) Bhd, taking advantage of the debt conundrum faced by BH. Also, negotiate with Ministry of Finance to acquire Urusharta Jamaah’s18.6 million BHIC shares.   
BH has audited borrowings of RM7.53 billion as at 31 Dec 2018. The average interest rate on its total borrowings at 5.54%, is not sustainable. BH’s 2018 annual report reveals a committed capital expenditure of RM1 billion for FY2019. The annualised cash flow is insufficient to meet its capital expenditure, and obviously nothing to pay for dividend. It is in a dilemma of either having to borrow more or sell existing assets to meet its capital expenditure. Past reports had it that BH and LTAT were keen to sell its petrol station business, banking and financial business, the Royale Chulan Hotel, and the ‘sale’ of LTAT land that did not materialise. 
The Edge Weekly (30 March 2020) has reported that Urusharta Jamaah Sdn Bhd, wholly owned by the Ministry of Finance, has started selling the shares in the current weak market. At the end of 2018 Urusharta had bought over the 18.6 million (or 7.5% shares capitalisation) BHIC shares from Tabung Haji at RM2.50 per share, presumably to bail out Tabung Haji. It is obvious that the government, through the Ministry of Finance is desperately in need of funds. What may soon become obvious is the likelihood of Urusharta disposing off the entire holding of BHIC shares at a negotiated price slightly above the depressed market price. 
Under the current circumstances of a depressed equity market in a fast approaching recession, Patriot can only observe helplessly things turn from bad to worse. Enough has been said regarding past mismanagement of our government and also that of the LTAT board. Time and again we emphasised the need to bring out the umbrella early to cushion against the impending hardships. As veterans, Patriot’s immediate concern is the protection of the interest and welfare of the military personnel. 
To maximise value for BHIC, Patriot has the following suggestions:
1. LTAT and BH must not sell a single share of BHIC to raise capital for its capital expenditure.
2. If the MOF through Urusharta is to sell off the BHIC shares to raise much-needed funds, it must be sold at the price it bought, i.e., RM2.50 per share. This is because of the value and potential mega profits in BHIC.
3. It is immoral for a takeover party to be allowed to prey on BHIC while soldiers have to slog, ever ready to defend our nation against external threat, and even right now put in the forefront to assist in movement control. An impending takeover is considered hostile because it is not altruistic towards LTAT and the military, but merely for profits. LTAT, being the pension fund for military personnel, must continue to have a majority stake of BHIC. 
4. In view of the current battered-down of BHIC shares, LTAT and BHIC should carry out price support. BHIC can also be promoted to other public sector-link funds like EPF, KWAP, SOCSO, unit trust funds, etc., for support. The management of LTAT must work hard and be seen to be doing so.
5. The management of LTAT and BHIC makes a decision to recognise half of the approved variation orders value of RM1.4 billion as revenue and then as profit after deducting the bank’s financial cost, and be reflected in the next quarterly report to Bursa Malaysia.    
6. To maximize the value of its shareholders, after the Q12020 results on BHIC are released, a one-off dividend of 20% can be declared. This will cost about RM50 million, which is insignificant compared to the profit that can be realised from half the value of the variation orders. The declaration of dividend will be morale booster for military personnel, plus giving confidence to those in the corporate circles. BHIC shares price should then fly high. 
7. Following the declaration of dividend, offer a one free warrant for every one share held and set a reasonable conversion price of one warrant equals to 50 sen (based on the current market price, but can be higher). With this, the price of the mother share and the price of the warrant should climb fast, each supporting and pushing up the price of the other. 
8. Subsequently declare a bonus share issue of perhaps three new free shares for every one share held. The number of existing shares, about 250 million, will increase to one billion. It will provide good liquidity for shares trading. It gives impetus for the shares price to surge, which is good for LTAT and the welfare of the military personnel. 
Patriot would like to reiterate that BHIC is a strategic company and LTAT must not lose its majority holding stake. With the confirmed book orders to construct and supply the littoral combat ships and the littoral mission ships, the MRO contract jobs, the excellent business potentials, and sustainability of the business due to the Navy’s 15 to 5 Transformation Plan, all these ascertained the future of BHIC to soar high. Whatever the actions taken in the immediate and intermediate future, the interest of the military personnel must be protected.
BG Dato Mohamed Arshad Raji (Rtd)
President, Persatuan Patriot Kebangsaan