KUALA LUMPUR: Lembaga Tabung Angkatan Tentera’s (LTAT) move to take Boustead Holdings Bhd (BHB) private has stirred discussion on whether statutory funds should opt for a more diverse investment portfolio rather than concentrate on one asset class.
Economist Dr Nungsari Ahmad Radhi said statutory funds whose monies belong to their subscribers, Armed Forces personnel and retirees in LTAT’s case, should invest through fund managers, maximise the returns as a fund and benefit contributors.
“Fund managers will invest in firms that do well and exit those that perform poorly, and it is unnecessary for statutory funds to hold a dominant position, much less a controlling position, and become involved in running the companies.
“The moment these statutory funds become a significant shareholder, it becomes a moral hazard of sorts, of which it is obligated to stay despite poor performance because it is 'yours’, and you start to intervene, throw more money at the problem, which is other people’s money, monies on which you should secure returns,” Nungsari told Bernama.
To recap, LTAT has offered to acquire all the remaining 822.51 million (40.58%) ordinary shares in BHB for 85.5 sen per share for a total of RM703.25 million. BHB said as at the latest practicable date, LTAT directly holds 1.20 billion BHB shares representing 59.42% of the total issued shares in BHB.
However, Practice Note-17 Pharmaniaga Bhd, in which BHB owns a 52% stake, blew a huge hole in BHB’s financials after it suffered a net loss of RM644.4 million in the fourth quarter ended Dec 31, 2022 amid a RM552.3 million provision for slow-moving Covid-19 vaccine inventory.
BHB’s 65% unit, Boustead Heavy Industries Corp Bhd (BHIC), has been struggling with a RM9.13 billion contract awarded in 2011 to build six littoral combat ships. None has been delivered as yet.
From the standpoint of investors, Nungsari believes that holding dominant interests in corporations is a poor strategy as it is tantamount to crowding out the public share market.
“That is detrimental for liquidity and market attractiveness for investors. That has been the market’s concern,” he said.
Rather than investing in a handful of large corporations, he emphasised that institutional money could promote the growth of a number of smaller, private companies that are successful.
“At any rate, LTAT is relatively modest compared to the others and the cost about RM10 billion, but it probably has the most highly concentrated portfolio and with the transformation plan going on, they are trying to fix the issues afflicting the littoral combat ships and Pharmaniaga Bhd.
Sharing the same sentiment, Putra Business School economic analyst Dr Ahmed Razman Abdul Latiff agreed that the current system should be improved to encourage more general investment rather than focusing on a single company.
When asked if these statutory funds should shift their focus to other asset classes, he said it is not an issue, and that if these statutory funds want to invest in low-risk, government-guaranteed investments, they could keep a watch on Amanah Saham Bhd and Tabung Haji.
“I agree that investment institutions should diversify their investments and not invest with a high percentage in just one company because the risk is high like what happened to Permodalan Nasional Bhd (PNB) which invested in Sapura Energy and LTAT which invested in Boustead.
PNB is the second largest shareholder in Sapura Energy, owning about 12%.
“Investment institutions should be monitoring the company’s performance rather than being involved in the management of the company,” he emphasised.
