Boustead in race against time to reduce debt by RM7 billion

BOUSTEAD Holdings Bhd, a 59.43% subsidiary of Lembaga Tabung Angkatan Tentera (LTAT), is in a race against time to sell assets, consolidate its balance sheet and reduce growing debt as losses mount. The diverse conglomerate is in talks with its lenders to supplement existing loans, as well as refinance existing debt and give it more time to make payments, sources say.

Its heavy reliance on revolving credit facilities, which constitute the bulk of its total borrowing, is cause for concern.

Essentially, a revolving credit facility allows a borrower to draw on a line of credit and pay it off without having to apply for a new loan. But the borrower also runs the risk that lenders will withdraw the credit facilities at any time due to large losses or default.

Boustead’s financial statements for the third quarter ended September 30, 2020 (3QFY2020), show the group had revolving credit amounting to RM 3.6 billion, which represented 47% of the group’s total borrowings. from RM 7.7 billion at the end of September. Last year. Of the 3.6 billion ringgit of revolving credit, 3.19 billion ringgit (or about 89%) was short-term and 410 million ringgit long-term. He also had short-term loans totaling RM 273.1 million.

Sources highlight the urgency for Boustead to restructure its debts in order to have a sustainable debt structure in the future. This includes weaning off its reliance on short-term general-purpose debt, such as revolving credit. Contacted by The Edge, Boustead said he is currently “developing a major global strategy that will revamp the entire group’s business plan, which will be unveiled soon.”

LTAT’s recent decision to abandon its plan to privatize Boustead is also seen as a major setback for the latter, as it would have treated the group’s debt levels as a private entity and focused more on what it does. he can do better, sources say. However, the plan was aborted last month due to lingering uncertainty amid the Covid-19 pandemic, “which could further delay the privatization journey and create more uncertainty for the Boustead Group’s key businesses. “, indicates the pension fund of the armed forces.

Boustead shares have fallen 25% from their 52-week high of 82 sen since LTAT canceled its plan to privatize the conglomerate on February 2. The counter closed at 61.5 sen last Thursday, giving the company a market cap of RM 1.25. billion.

According to Boustead’s 2019 annual report, its main bankers are Affin Bank Bhd, Affin Hwang Investment Bank Bhd, Alliance Bank Malaysia Bhd, Ambank (M) Bhd, CIMB Bank Bhd, Malayan Banking Bhd, OCBC Bank (Malaysia) Bhd, RHB Bank Bhd and United Overseas Bank Bhd.

Boustead has incurred losses since the fiscal year ended December 31, 2018 (fiscal year 2018). In 9MFY2020, its net loss widened 29.7% year on year to RM 198.6 million and according to Kenanga Research the group is expected to continue to show volatile quarterly results based on its historical profit trend. It has postponed the release of its 4QFY2020 results for one month, following the one-month extension granted to all issuers listed by Securities Commission Malaysia and Bursa Malaysia, and is due to report the results this week.

In his latest report on Boustead dated December 1, 2020, Kenanga Research senior analyst Raymond Choo Ping Khoon predicted that Boustead would continue to post losses in fiscal 2020 and 2021. It has stopped hedging stocks. due to a lack of investor interest and losses in recent quarters.

Boustead continues to be weighed down by its trading and heavy industry divisions, but amortized by the pharmaceutical division and the recovery of the plantation.

On March 17, Pharmaniaga Bhd marked a return to black in fiscal year 2020, with a net profit of RM 27.49 million, due to the lack of a one-time accounting of the unamortized costs of the system. Pharmaceutical Information (PhIS) amounting to RM247 million in FY2019. Boustead Plantations Bhd also went black, posting net profit of RM 42.95 million in fiscal 2020 after two consecutive years of losses. This is explained by the improvement in the prices of palm products and the absence of any loss in value.

An industry observer, however, says the recovery in its pharmaceutical and plantation divisions is not enough to make up for Boustead’s woes.

The group’s low cash levels don’t help matters. At the end of September 2020, Boustead had 531.2 million ringgit in cash, which leads to a net debt of 7.17 billion ringgit compared to its shareholders’ equity of 3.53 billion ringgit (excluding perpetual sukuk and participations not not giving control). Net debt stands at 2.03 times.

Payments to perpetual sukuk holders

Boustead also faces annual payments to holders of its perpetual junior Islamic medium-term note program of up to RM 1.2 billion, which was established in 2013 when Tan Sri Lodin Wok Kamaruddin was managing director of the Boustead Group.

Perpetual bonds are recorded on the books as equity rather than debt, thus reducing the debt-to-equity ratio. However, perpetual bonds generally carry higher coupon rates because there is no predetermined term.

Boustead’s 2019 annual report shows that the perpetual sukuk has a progressive payout rate ranging from 6.1% to 6.25% per annum if it does not exercise its redemption option at the end of the fifth year, and increases by 1.5% per year for the sixth year. From the seventh year, the periodic distribution rate will be further increased by 1% per year for each following year, within the limit of 15% per year.

At the end of September 2020, Boustead had 622.1 million RM in perpetual sukuk, which would translate into an annual coupon payment of 53.5 million RM, assuming a coupon rate of 8.6%.

How will Boustead improve its debt problems? Boustead Group’s new chief executive, Datuk Seri Mohammed Shazalli Ramly, said in February that the group is aiming for a strategic asset sale as part of its plan to rationalize assets, creating value within the group’s core businesses. , the modification of business models for new sources of income, the rationalization of a few non-strategic assets, as well as venturing into the digital services and technologies sector as part of its “Reinventing Boustead” strategy.

It has already started the process of asset monetization, with the sale of an 82.84 ha plot of land in Penang in 2019 and Royale Chulan Bukit Bintang last year. On March 19, he sold his loss-making Boustead Cruise Center in Pulau Indah, Selangor, for RM 230 million, of which RM 120 million was used to partially repay the group’s loans, which is expected to generate interest savings of 6.2 million RM. per year.

According to its 2019 annual report, properties currently owned by the group include the Royale Chulan Damansara and Royale Chulan Hyde Park hotel assets in London, The Curve and eCurve business assets, and office assets such as Menara Affin, Wisma Boustead and Menara. Boustead in Kuala Lumpur. as well as Menara Boustead in Penang.

It also owns stakes in unlisted entities such as Irat Properties Sdn Bhd (50%), The University of Nottingham Malaysia Sdn Bhd (66%), MHS Aviation Bhd (51%), Cadbury Confectionary Malaysia Sdn Bhd (25%) , Kao (Malaysia) Sdn Bhd (45%) and Rakan Riang Sdn Bhd (20%), which holds the license of KidZania in Malaysia and Singapore.

Industry watchers say Boustead could also reduce its stakes in its subsidiaries through an investment or sale to raise new capital to ease tight cash flow. Boustead has stakes in four companies listed on Bursa Malaysia – Affin Bank Bhd (20.73%), Boustead Heavy Industries Corp Bhd (65%), Pharmaniaga (55.93%) and Boustead Plantations (57.42%) – as well than in a pharmaceutical company listed in Indonesia. company PT Millennium Pharmacon International Tbk (41%).

It is clear that significant challenges remain for Boustead and that much remains to be done to reduce its net debt and rebuild its balance sheet. Still, the uncertainty induced by the pandemic could slow its efforts to reap the rewards at hand.

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