Slightly More Details On the Supplementary LCS Contract

The LCS major equipment detailed. RMN graphic

SHAH ALAM: Boustead Holdings Bhd (BHB) and Boustead Heavy Industry Corporation (BHIC) on June 2 announced more details (though not much) on the supplementary contract on the LCS which was signed on May 31 by the Defence Ministry and Boustead Naval Shipyard Sdn Bhd.

In its announcement to Bursa Malaysia, BHB stated:

We refer to the announcements made on 16 December 2011, 1 October 2013, 17 July 2014 and 10 May 2021 with regard to the receipt of a letter of acceptance (“the Letter”) from the Ministry of Defence Malaysia (“MoD”) (acting on behalf of the Government of Malaysia) by Boustead Naval Shipyard Sdn Bhd (“BNS”), a subsidiary of Boustead Holdings Berhad (“BHB” or “Company”), the signing of the corresponding contract for the design, construct, equip, install, commission, integrate, test and trials, and deliver six (6) units of Second Generation Patrol Vessels with Littoral Combat Ship (“LCS”) capability for the Royal Malaysian Navy (“the Contract”) at a contract value of RM9 billion (“Project”) and the Cabinet approval in respect of the resumption of the Project.

The Company now wishes to announce that on 31 May 2022, BNS and MoD have entered into a supplementary contract (“Supplementary Contract”) to remobilise the Project, amongst others, to resume payment to creditors (Original Equipment Manufacturers, vendors and financial institutions). Apart from the activities to be undertaken by BNS towards remobilising the Project, there are no significant differences between the substance of the Contract and the Supplementary Contract.

Further developments on the above matter will be announced to Bursa Malaysia Securities Berhad in due course. Save for the interest of Lembaga Tabung Angkatan Tentera (“LTAT”) in BNS and BHB and Dato’ Ahmad Nazim Abd Rahman being the Chief Executive of LTAT and Director of BHB, none of the directors or substantial shareholders of the Company, or persons connected with them have any interest, direct or indirect, in the Contract.

This announcement dated 2 June 2022.

The announcement by BHIC

We refer to the announcements made on 16 December 2011, 1 October 2013, 17 July 2014 and 10 May 2021 with regard to the receipt of a letter of acceptance (“the Letter”) from the Ministry of Defence Malaysia (“MoD”) (acting on behalf of the Government of Malaysia) by Boustead Naval Shipyard Sdn Bhd (“BNS”), a major associate of Boustead Heavy Industries Corporation Berhad (“BHIC” or “Company”), the signing of the corresponding contract for the design, construct, equip, install, commission, integrate, test and trials, and deliver six (6) units of Second Generation Patrol Vessels with Littoral Combat Ship (LCS) capability for the Royal Malaysian Navy (“the Contract”) at a contract value of RM9 billion (“Project”) and the Cabinet approval in respect of the resumption of the Project.

The Company now wishes to announce that on 31 May 2022, BNS and MoD have entered into a supplementary contract (“Supplementary Contract”) to remobilise the Project, amongst others, to resume payment to creditors (Original Equipment Manufacturers, vendors and financial institutions). Apart from the activities to be undertaken by BNS towards remobilising the Project, there are no significant differences between the substance of the Contract and the Supplementary Contract.

Further developments on the above matter will be announced to Bursa Malaysia Securities Berhad in due course.

Save for the interest of Boustead Holdings Berhad and Lembaga Tabung Angkatan Tentera (“LTAT”) in BNS and BHIC, Dato’ Ahmad Nazim Abd Rahman and Encik Izaddeen Daud being the Directors of BHIC and BNS, and Tan Sri Dato’ Wira Aziah Ali being the Director of BHIC and BNS, none of the directors or substantial shareholders of the Company, or persons connected with them have any interest, direct or indirect, in the Contract.

An eagle eye view of the BNS facilities in Lumut. Note the hangars at the end which was built specifically for the LCS using the funds of the project, Behind the first LCS, is likely KD Kasturi undergoing a refit since late 2021. BNS

From both announcements, now we know that the supplementary contract allowed BNS to remobilise and resume the LCS programme. And more importantly, it will be paying its creditors from OEMs to vendors. Does this mean that BNS has gotten payment from the government and by how much? We know from previous statements that the BNS had to stop the project in November 2019 as it had run out of money. I do not think BNS need a supplementary contract from the government if it was using its own money or its parent companies, BHB and BHIC, to pay off its creditors. Based on the statements I am also guessing that another supplementary contract to show the new deadline for the delivery of the ships will be needed in the future as well as the VO for the equipment that had been pending.
— Malaysian Defence

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6 Comments

  1. Sounds like this is not the restart. This is payments for work already done. Does this mean the project will be spending RM9b for zero ships? If yes, good luck to MPA, LMS Batch 2 and 3, MRSS. Hopefully doesn’t affect the Air Force’s LCA and push the Nuri replacement further into the abyss.

  2. “payment from the government and by how much?”
    Well we do know there is still RM 3Bil in the project kitty left. But to complete all 6 ships will need Cabinet to approve a supplementary budget to cover the remaining shortfall and I guess another contract will cover the additional payments plus a firm deadline to complete.

  3. So by right that additional hangar built for LCS doesn’t belongs to BHIC but the government? So the gov can charge BHIC for using it right? IMHO BHIC been plying since day 1 & intended to overcharge the gov because they have leverage.

  4. No lah, it belonged to the shipyard. Anyhow as BNS and BHIC are government linked companies, the yard and its equipment are technically government owned

  5. When they will restart the project? How will they proceed? Focus on finishing the first ship or both LCS1 and LCS 2 simultaneously? And at what cost? Are we certain that additonal fund will get the RMN the first ship at least?

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