SHAH ALAM: Boustead Heavy Industries Corporation Bhd (BHIC) lost some RM14.82 million by selling its 51 per cent equity stake in Contraves Advanced Devices Sdn Bhd (CAD) to Rheinmetall AG, a German automotive and arms manufacturer. CAD was the company which was given the most contracts for the LCS project. Rheinmetall owns a 49% stake in CAD.
BHIC’s wholly owned subsidiary, BHIC Defence Technologies Sdn Bhd, which holds the stake in the CAD, reached an agreement with Rheinmetall following negotiations that began in December 2023.
BHIC shareholders voted to approve the disposal of its 2.55 million shares, valued at RM54 million, during an extraordinary general meeting held on December 24. The proposal was approved even though BHIC lost some RM14.82 million by selling the stake to Rheinmetall. BHIC has recognized the loss in September quarter report.
“The disposal represented a 51% equity stake in CAD and was deemed as a strategic move that will facilitate the group’s growth moving forward,” said BHIC said in a statement.
When the proposed disposal of the stake was announced on December 10, the company said:
The Proposed Disposal provides an opportunity for the Company to fully exit
and monetise its investment in CAD, whilst also providing a surplus cash
flow of RM54 million arising from the sale of its equity in CAD. The proceeds
will enable the Group to maintain adequate reserves which can be readily
deployed to capitalise on future viable investments as part of business
expansion, in a timely manner as and when such opportunities arise. In
addition, such proceeds also provide the Group flexibility in respect of
financial allocations for its working capital requirements. Such financial
flexibility may allow the Group to carry out its operations in a more timely
and efficient manner.
Further, the Proposed Disposal is being undertaken as a group wide
transformation initiative to pave the way for BHIC Group to streamline its
entities to operate and grow more efficiently, reprioritize its objective to
explore new viable opportunities as well as implement value creation that
will expand its normal course of business, specifically in the defence sector
and also into commercial and aerospace segments.
BHIC may face a potential one-off loss on fair value investment arising
from the expected pro forma loss on Proposed Disposal amounting to
RM14.82 million. Although a preliminary assessment has been
conducted by the management to derive the pro forma loss impact, the
actual amount of loss on fair value investment will depend on the fair
value of CAD upon completion of the Proposed Disposal and subject to
fair value adjustment review with auditors
It is interesting to note that BHIC did not state the issues surrounding CAD and the company which blew up due to the issues with the LCS project. For context go here here.
With the disposal of the CAD and the LCS project, BHIC now relies on the submarine ISS contract, its aviation company and work on RMN naval guns to achieve its profit targets. It must be noted that BHIC – in the proposal document – stated that it uses RM21 million a month to pay salaries and other commitments.
BHIC got CAD when it took over PSC-NDSB Sdn Bhd in the late 90s and renamed the dockyard to Boustead Naval Shipyard which in turn had been taken over by the government. CAD was supposed to supply and maintain the CMS and other equipment – fire control radar/eo – on the LCS but since the governmen had taken over the shipyard – renaming it Lumut Naval Shipyard – the job now falls to the new company.
It is unclear whether the loss mentioned in the proposal meant that the BHIC had paid some RM68.82 million for its stake in CAD when it took over from PSC-Naval Dockyard Sdn Bhd.
By the way, Lunas on December 20 announced that the first LCS – PCU Maharaja Lela – has been downslip into water again to undertake further works. She was put back on the hardstand on November 13. Under the sixth supplemental agreement, the ship is supposed to undertake harbour trials last month.
— Malaysian Defence
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Never ending losses. Shame. 14millions may not sound much but to the ordinary people it is A LOT!