WITH its debt at a massive RM7.5bil, it is no wonder that talk is that Boustead Holdings Bhd
’s asset monetisation programme is shifting to higher gear. Word is that its crown jewel, namely, its holding stake in Affin Bank Bhd, could be next.
This week, tongues have been wagging about Boustead. The conglomerate’s share price movement is proof of that. Amidst a dour market, shares in Boustead yesterday closed 11 sen or 16% higher to 76 sen apiece.
Boustead’s shares rose a total of 26% this week, compared with the FBM KLCI which was down 1.4%.
This week, Boustead said it will continue with its initiative to reduce borrowings to an “optimal level” by selling non-strategic assets and monetising property inventories. It also said it would be “reprofiling and rebalancing its funding structure with financial institutions” and seeking to strengthen its financial position and increase the group’s value.
“We shall also rationalise non-strategic assets to strengthen the standing of the group’s reinvented core businesses and leverage on new ventures within the technology and digital space, ” said Boustead group managing director Datuk Seri Mohammed Shazalli Ramly.
“We shall also rationalise non-strategic assets to strengthen the standing of the group’s reinvented core businesses and leverage on new ventures within the technology and digital space, ” said Boustead group managing director Datuk Seri Mohammed Shazalli Ramly.(File pic)
However, he did not specify which assets have been earmarked for disposal and how much the group is targeting to reduce its debt level. Boustead did not reply to questions from StarBizWeek as at press time.
Boustead is an asset-rich group. It has a total of RM16bil in assets. Its share price is currently trading at half of its net asset per share of RM1.54. However, what is interesting is that sources say that there have been discussions about the sale of Boustead’s 20% stake in Affin Bank. It should be noted though, that this idea has been in the market for some time now. But valuation issues have been a stumbling block.
“Talk of Boustead selling its stake in Affin has resurfaced. Now it seems that it entails a piecemeal move, with the conglomerate beginning with divestments in its insurance and asset management units, ” a source says.
As one industry expert puts it, what could be going on in Boustead is that the group will go through a restructuring to improve its core businesses. It is still left to be seen which businesses that Boustead would consider to be its core. The conglomerate is involved in plantations, property development, pharmaceuticals, heavy industries, trading, finance and investments.
One source suggests that Boustead may want to focus on pharmaceuticals, plantations and heavy industries. If this is the case, then clearly its stake in Affin Bank should be up for sale. But the bank needs some amount of fixing before it becomes an attractive asset for sale.
As it stands, the bank is dragged down by a high cost-to-income ratio, low capital and a loss-making life insurance unit. It should be noted that the largest shareholder of Affin is Lembaga Tabung Angkatan Tentera (LTAT) with a 35% stake, followed by Hong Kong-based Bank of East Asia Ltd with 24%. Notably, LTAT also controls Boustead with a 59.42% stake.
In 2019, Affin was talking to parties to sell its money broker unit Affin Moneybrokers Sdn Bhd, but did not go through with the deal due to pricing issues. Late last year, there were news reports about Affin Bank considering an initial public offering (IPO) of its asset management unit Affin Hwang Asset Management Bhd which would have seen RM500mil being raised from the market. However, there has been little development of that todate.
Affin Bank owns 63% of Affin Hwang Asset Management, which is the country’s third-largest money manager by assets, after Public Mutual Bhd and Principal Asset Management Bhd.
Interest in Affin Bank picked up this week after the bank went into an agreement with Italy’s largest insurer Generali to sell some of its stake in its insurance units. Under the agreement, Affin and Generali will form a joint venture to develop their life and general insurance businesses in Malaysia.
Affin will dispose of 21% of equity interest (currently 51%) in AXA Affin Life Insurance Bhd (AALI) and about a 2.95% stake (currently 49.95%) in AXA Affin General Insurance Berhad (AAGI) to Generali.
“Affin looks to form a new joint venture with Generali and create the second-largest general insurer in Malaysia, along with paring down interest in its loss-making life insurance unit. Upon completion, Affin will hold a 30% stake in both entities. Overall, we view it as a positive development despite earlier hoping to see a full exit from both its insurance businesses, ” says Hong Leong Investment Bank Research (HLIB).
If Affin Bank was up for sale, the question is who are the suitors? The last and successful merger in the country’s banking industry was in 2018 between Malaysia Building Society Bhd (MBSB) and Asian Finance Bank Bhd (AFB). The MBSB-AFB merger took place more than four years after the aborted mega-merger proposal between CIMB Bank, RHB Bank and MBSB in 2014.
Last year, a proposed merger between Malaysian Industrial Development Finance Bhd and Al Rajhi Bank hit a snag after a year of negotiations. One obstacle for banking mergers relates to valuations. On average, Malaysian banks have been trading at 0.9 times their book values, according to data by HLIB Research.
Affin Bank is trading at the lowest in terms of price-to-book value. The country’s smallest lender is trading at 0.4 times its book, followed by Alliance Bank Malaysia Bhd and AMMB Holdings Bhd at 0.6 times, respectively.
The selling of a stake in Affin would be a much-needed exercise for both LTAT and Boustead.
Last year, LTAT described the fund’s investment portfolio as “risky”, “not suitable” for a pension fund and highly concentrated. The Army fund said Boustead Holdings and Affin Bank alone make up 47% of the fund’s portfolio.
Shares of Boustead and Affin Bank have been on a decline over the past years even before the coronavirus (Covid-19) crisis hit the global economy. The share price of Boustead is currently trading at 76 sen apiece, far off from its price five years ago at close to RM3. Meanwhile, Affin Bank’s share price was last traded at RM1.75, almost half of its value three years ago.
For Boustead, the group is in a race to sell its assets to improve its depleting cash and to pare down its mounting debt that stands at RM7.5bil. In the financial year 2020 (FY20), the group’s cash position fell to RM395.8mil from RM853.3mil in FY19. In FY20, Boustead paid a whopping RM407.3mil in interest alone.
Boustead was a privatisation target of LTAT but the plan was shelved in February due to the current “challenging economic environment arising from the Covid-19 pandemic”.
Following the announcement of the aborted privatisation, Boustead introduced a plan dubbed “Reinventing Boustead” in a bid to rejuvenate the company that includes an asset monetisation plan.
The group completed the sale of a 82.84ha parcel of land in Penang in 2019 and Royale Chulan Bukit Bintang last year. This year, it has announced the disposal of its loss-making Boustead Cruise Centre in Pulau Indah, Selangor, for RM230mil and a parcel of land located along Jalan Cochrane for RM233.4mil cash. While the market is definitely excited about Boustead’s plan, the current market uncertainty would be a challenge for the group to reduce its debt and boost its revenue.
