SHAH ALAM: Boustead Heavy Engineering Corporation Bhd (BHIC) is scheduled to hold an extraordinary general meeting this Friday. Among others the public listed company shareholders will vote the proposed disposal of Boustead Naval Shipyard (BNS) to MOF Incorporated company, Ocean Sunshine Bhd (OSB).
The resolutions are likely to be passed at the EGM which will be held virtually. The EGM will be held just two days before the deadline for the disposal of BNS to OSB.
In a circular to shareholders and posted on Bursa Malaysia, BHIC stated that it expected the disposal exercise will take place by the first quarter of 2024. Based on this, I believed that the full privatisation of BNS will only take place next year.
Anyhow apart from voting on the proposed disposal to BNS, there are other things shareholders have to vote on among them a proposed debt disposal via the issuance of new shares of BHIC. As I am not a financial analyst, please go to Bursa Malaysia or BHIC websites for a look on the circular to shareholders and notice for the EGM.
However, I must point out among the reasons for the debt disposals were the fact that BHIC had debts due to a failure of one its subsidiary, Boustead Penang Shipyard (BPS) to complete a contract to build three tankers which was awarded to it. BPS -located at Pulau Jerejak – was returned to Penang government (date unknown) as the shipyard could no longer build big ships and offshore platforms once the second Penang bridge was completed in 2014. BHIC had taken financing facilities to build the tankers on behalf of the subsidiary and when it failed to deliver the tankers on time, the contract was cancelled. It then left BHIC to settle the debts and now it had to undertake the debt proposal to settle the loans. If you want more details go the websites I mentioned above.
The circular gave a detailed explaination on the BNS disposal though.
Background of the Proposed Disposal of BNS
We had on 21 August 2023, announced that our indirect wholly-owned subsidiary, Perstim
Industries Sdn Bhd had entered into the BNS SSA with Ocean Sunshine Berhad in respect of
the proposed disposal of 27,000,001 ordinary shares representing approximately 20.77% of
the equity interest in BNS. BNS is also our associated company. The BNS SSA is expected to
be completed within the 1st quarter of 2024. One of the conditions precedent for the completion
of BNS SSA is the execution of the ITRRA to be entered into between BHIC (as authorised by
its relevant subsidiaries to enter into the ITRRA on their behalf) and BNS for the repayment of
a sum of RM383,939,549 and/or such other sum due and owing by BNS to BHIC and its
relevant subsidiaries (as detailed below) which shall be subjected to verification in the due
diligence review and to be mutually agreed thereto by the parties to the ITRRA, being the total
repayment sum owing by BNS to BHIC and its relevant subsidiaries.
As at the LPD, the repayment sum of RM383,939,549 under the ITRRA are owed by BNS to
our Company and the following relevant subsidiaries (“Relevant Subsidiaries”):
BHIC Electronic and Technologies Sdn Bhd;
BHIC Allied Defence Technology Sdn Bhd;
BHIC Defence Techservices Sdn Bhd;
BHIC Submarine Engineering Services Sdn Bhd;
BHIC Navaltech Sdn Bhd; and
BHIC Marine Technology Academy Sdn Bhd.
Any delay in the Proposed Disposal of BNS will not result in any material impact to our Group
as we have already fully impaired our Company’s cost of investment in BNS and BNS’s carrying
value in our Group is nil due to equity accounting of BNS’s losses in previous years. The gain
on disposal will be RM1.00 once completed. Further, if the Proposed Disposal of BNS is
terminated, BNS will remain as our Group’s associate company.
The amount to be repaid by BNS under the ITRRA to our Group is uncertain as our Company
is still in negotiations with both BNS and Ocean Sunshine Berhad. Once the amount to be
repaid is finalised, our Company will be required to write-off any difference between the finalised
amount and the amount owing. Pending execution of the ITRRA, such amount owing may be
subject to expected credit loss assessment in our Group’s financial statements.
Notwithstanding the above, our Company has the right to legal recourse against BNS to recover
the amount owing. Our Company will utilise any amounts received from BNS under the ITRRA
for the redemption of the preference shares and business operations.
In relation to whether the Proposed Disposal of BNS will trigger PN 17, our Company will assess
our position following the completion of the Proposed Disposal of BNS and the agreed outcome
of the ITRRA. For avoidance of doubt, the Proposed Debt Settlements will not result in our
Company becoming a PN 17 Issuer.
In the past, BHIC was able to benefit from the sales and cash flows generated from trade
activities related to BNS’s business operations. However, since commencement of discussions
on the Proposed Disposal of BNS, these trade activities have ceased.
BHIC stated in the circular even if BNS was disposed, the company was still to benefit from the defence related contract namely the Royal Malaysian Navy’s submarine – the refit and the in-service support contracts and maintenance of helicopters for the Royal Malaysian Air Force.
Our Company has established our presence in the submarine, aerospace, weapons, and
combat systems sectors, delivering MRO services to high-profile clients such as the Royal
Malaysian Air Force (RMAF), Royal Malaysian Navy (“RMN”) and the Malaysian Armed Forces.
We intend to focus on ensuring the timely delivery of projects within cost expectations for the
existing contracts awarded by Ministry of Defence for the Interim In-Service Support (MRO
services) to the RMN submarines as well as for its Submarine Facilities Upkeep (maintenance
of the naval shipyard) which are expected to contribute positively to our Group’s earnings in
Further, being a strategic investee company of LTAT and in line with its Strategic Plan 2023-
2025 (MAMPAN25), we will endeavour to secure other defence/government contracts and
explore viable opportunities to expand its services into the private sector in-line with our areas
of technical expertise to further strengthen our prospects. This will be supported by our
established facilities which include an aeroservices centre, coupled with our experienced
personnel in maintenance. These strategic plans are to propel our Company towards becoming
a high-performing and sustainable organisation
It must be noted that this story was based on a release by BHIC on December 14. I was told that the BNS issue was mentioned in the release as part of the debt settlements which were to be voted in the EGM. And the BNS part was never to be voted by the shareholders.
HT to DM.
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