Abandon Ship, Scrap the LCS Part III

The rear of the LCS Maharaja Lela as seen during a media in August 2022 visit. LTAT

SHAH ALAM: Abandon ship, scrap the LCS Part III. In the second part of these series, Malaysian Defence wrote that one of the reasons to scrap the project was the fact that Boustead Naval Shipyard (BNS) might have to take legal action against five companies involved in it. This was based on the forensic audit of BNS and the LCS project conducted in 2019 (on the direction of BNS and BHIC officials then)

The forensic report alleged that officials of five companies – DCNS; MTU; CentraalStaal; Contraves Advanced Devices Sdn Bhd and Contraves Electrodynamics Sdn Bhd – involved in the LCS had colluded with officials of BHIC and BNS in financial shenanigans resulting in massive money drain and raising costs for the whole project.

It is likely that these shenanigans (whether BNS can deduct payments and take action against these officials, though its hand is weak as it happened due to its own officials involvement) will be a major contentious point during negotiations for the resumption of the LCS project and its delivery deadline in 2025. Their involvement in the project (four of them) is paramount that if they decided to withdraw completely, BNS is – for the lack of a better word – will be hanging in the air. (despite what the LTAT CEO has to say about it).

What I had assumed (legal action) had happened. On September 2, BNS’s public listed parent company, Boustead Heavy Industries Corporation Bhd (BHIC), announced that it had voided or cancelled the Letter of Awards issued by BNS to Contraves Advanced Devices Sdn Bhd (CAD) and Contraves Electrodynamics Sdn Bhd (CED) in 2011 and 2014 for the LCS project.

Reference is made to the announcements dated 9 April 2012, 2 October 2012 and 25 November 2014 in relation to various letters of award (“LOAs”) to CAD and/or Contraves Electrodynamics Sdn Bhd (“CED”), a wholly-owned subsidiary of CAD, from BNS, pertaining to, amongst others, procurement, engineering, integration and supply of combat management system, fire control, communication system, ammunition, radars, torpedos and missiles in relation to the contract for the design, construct, equip, install, commission, integrate, test, trials and delivery of the 6 (six) Second Generation Patrol Vessels with Littoral Combat Ships capability for the Royal Malaysian Navy (“LCS Programme”).

The Company wishes to announce that CAD and CED had received a notice dated 23 August 2022 (“Notice”) that the LOAs issued by BNS to CAD and/or CED under the LCS Programme are void.

i) Background information of CAD and CED, the recipients of the LOAs
CAD was incorporated on 27 October 1983 in Malaysia under the Companies Act, 1965. CAD is a 51%:49% joint venture company between BHIC Defence Technologies Sdn Bhd, a wholly-owned subsidiary of BHIC, and RD Investment AG.
The principal activity of CAD is manufacturing of electronic products and maintenance of military and defence equipment.
The current directors of CAD are Dr. Salihin Abang and Vice Admiral Dato’ Syed Zahiruddin Putra Syed Osman (R), both nominated by BHIC Defence Technologies Sdn Bhd, Mr. Gordon Douglas Hargreave and Mr. Frank Theodor Hoffman, both nominated by RD Investment AG.
CED was incorporated on 23 February 2012 in Malaysia under the Companies Act, 1965. CED is a wholly owned subsidiary of CAD.
The principal activity of CED is to provide and undertake system design, infrastructure and facilities, project management and integration works and services for the defence, commercial and industrial sectors, manufactures, installers, maintainers, repairers of and dealers in electrical and electronic appliances and apparatus.
The current directors of CED are Dr. Salihin Abang and Mr. Gordon Douglas Hargreave.

ii) Background information of BNS, the issuer of the LOAs

BNS was incorporated on 13 June 1990 in Malaysia under the Companies Act, 1965. The principal activities of BNS are construction, repair and maintenance of naval ships, weapons and electronics, design and engineering, fabrication of steel structures and commercial shipbuilding. The shareholders of BNS are BHB, Lembaga Tabung Angkatan Tentera (“LTAT”), Perstim Industries Sdn Bhd, a wholly owned subsidiary of BHIC with 68.85%, 10.38%, 20.77% equity interest in BNS respectively and one (1) fully paid special share held by the Minister of Finance on behalf of Government of Malaysia.
The current directors of BNS are Dato’ Ahmad Nazim Abd Rahman, Encik Izaddeen Daud, Laksamana Tan Sri Mohd Reza Mohd Sany, Tan Sri Dato’ Wira Aziah Ali and Encik Faisal @ Pisal Abdul Ghani.
3. FINANCIAL, LEGAL AND OPERATIONAL EFFECTS
The financial, legal and operational effects following the receipt of the Notice to BHIC cannot be ascertained at this juncture.
Further announcement on the financial effects, legal and operational impact following the issuance of the Notice together with any material development in relation to the foregoing will be announced to Bursa Malaysia Securities Berhad in due course.
4. APPROVALS REQUIRED
The Notice is not subject to the approval of any authority and/or the shareholders of BHIC.
5. INTERESTS OF DIRECTORS’, MAJOR SHAREHOLDERS AND PERSONS CONNECTED WITH THEM
Save for Dr. Salihin Abang and Vice Admiral Dato’ Syed Zahiruddin Putra Syed Osman (Retired), being the Directors in BHIC, CAD and CED, none of the directors or major shareholders of the Company, or persons connected with them have any interest, direct or indirect, in the LOAs and Notice.
6. STATEMENT OF DIRECTORS
The Board of BHIC is currently engaging professional advisers to assess available recourse in resolving this matter following the receipt of the Notice.
The Company shall continue to engage all relevant stakeholders to give its full cooperation in ensuring that the progress of LCS Programme will not be impacted in the best interest of national security.
This announcement is dated 2 September 2022.

Am I saying that BNS/BHIC should not take legal action against the companies named in the forensic report? Of course not. But voiding the two previous LOAs against CAD and CAE, may well be the start of BNS trying to recover money from them (which I had said before will not be strong as BNS officials were also alleged to have colluded in the actions). And it will take some time before any court case to take place, let alone for BNS to get a judgement to its liking. It must also be noted that CAD and CAE have also instituted legal action against BNS to recover money for the services it had rendered on the two now void LOAs.

Perhaps any legal action against CAD and CAE will not hamper the revival of the project as they are mostly involved in supplying equipment for the programme. Like CentralStaal – the steel supplier – most of their jobs had been completed. But the other companies named in the forensic report, do have a large impact in the resumption of the project

A close up of LCS 1 Maharaja Lela at the BNS yard in Lumut taken in 2018. Not much difference from the picture taken in 2022 apart from more paint had peeled off.

This latest development is again another blackmark for the LCS programme. Which yet again strengthened my believe that it is paramount that we simply scrap the project and restart with LMS Batch 2 ASAP.

— Malaysian Defence

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6 Comments

  1. The current directors of BNS are Dato’ Ahmad Nazim Abd Rahman, Encik Izaddeen Daud, Laksamana Tan Sri Mohd Reza Mohd Sany, Tan Sri Dato’ Wira Aziah Ali and Encik Faisal @ Pisal Abdul Ghani.

    How can the current PTL be on the Board?

  2. Agreed Marhalim but since when has common sense and practicality played a part in our planning? Since when have we genuinely bothered about the armed services getting what they need and the taxpayers their money’s worth?

    It’s politics and it’s bad politics for the politicians – who will indulge in politics – if they have to announce scrapping the programme. The LCSs, Kedahs, Little Birds and South Korean training ships are just the widely known examples of things going shite but as you know too well there is a long list of other cockups; not as big as Ringgit value bad not as widely known to Joe public; funds squandered; stuff not working as intended and the armed services told to keep quiet and accept what they’re given.

    Will we learn? No. We are just not bothered and have other priorities.

  3. I predicted BNS will gone bankrupt because nobody can save it. All the equipments bought will be claimed by creditors to settle debt. Unless mindef will bite the bullet and ask LTAT to take over the debts by absorbing BNS in which i dont think he got the balls to do so.

  4. No lah, the Defence Ministry has already stated months ago it had gone to court to declare that the LCS equipment including hulls and steel kits belonged to the government. It had done so as several BNS creditors had try to get foreclosure against the company for not paying them. As the ship yard is also owned by the government the creditors cannot do that also. I am not a legal expert but the creditors can try to get a foreclosure notice against BHIC or even Boustead proper to get them to pay their debts. More over they cannot allow BNS to go bankrupt as this would not allow the company to resume with the LCS project. A bankrupt company cannot sign contracts nor received payments. It also cannot pursue any legal action against any other company nor individuals.

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