This is not a case of “the cat is out of the bag”. It is no secret that Lembaga Tabung Angkatan Tentera (LTAT) has been looking to sell Affin Bank, if the price is right. It has been reported in the news since 2021 and until recently again. LTAT’s total outstanding debt is at RM6.8 billion. Its Revolving credit, Perpetual Sukuk and coupons of RM843.8 million is due by Dec 2023; and Islamic Medium Term Notes plus coupons of RM1.77 billion is due by Sep 2024. Hence, the urgency to monetise its assets for debt repayment is more imminent than ever. I believe it is in the final lap. 

“Business wise, we have managed to create a new public equity portfolio to diversify away from our concentration in Boustead Group and Affin Bank Bhd.” - excerpt from Chief Executive’s Review LTAT Annual Report 2020. 

“Boustead Holdings and Affin have been looked at as core holdings... Are you looking at reducing stakes in these two core holdings?  Yes, that would have to be our strategy. The key is to rebalance and diversify our portfolio. But, of course, it will have to be done at the right price.” - excerpt from The Edge interview with LTAT CEO Dato Nazim ( 9 May 2022)

Boustead Holdings (BHB) and Affin Bank (ABB) alone make up 47% of LTAT ’s investment portfolio, before privatisation of BHB. Any rebalancing or diversification exercise of its portfolio to reduce concentration risk will see LTAT reduce its stakes in BHB and ABB. Actually, most of BHB’s value is ABB! According to the BHB Independent Advice Letter from Kenanga Investment Bank dated 17 April 2023, BHB’s portion of equity value in ABB was between RM1.54 billion and RM1.81 billion; represented approximately 1/3 of the estimated net value of BHB. 

LTAT owned a total interest of 45.6% in ABB ; comprising direct interest 33.2% and effective indirect interest 12.4% held via BHB. Post-privatisation of BHB, currently LTAT owns a total 1,037,348,220 shareholdings or equivalent to 48.7% of ABB issued shares after LTAT divested 4.8% equity interest to State Financial Secretary Sarawak (Sarawak) in April 2023.

Here is my analysis. Based on LTAT’s last filed Annual Report 2020 (LTAT did not file its Annual Report for the year 2021 and 2022) ; LTAT’s investment value in BHB and ABB (both its subsidiary companies) were stated at cost RM4,594,014,000 out of total assets RM9,652,385,000. The Auditor General Qualified Opinion stated LTAT filed its investment amount in BHB at RM2.551 billion. Therefore, I extrapolated that ABB’s value at cost was RM2,043,015,000. LTAT’s direct equity interest was 732,822,081 shareholdings and indirect equity interest via BHB was 432,816,893 shareholdings during that period (ABB Annual Report 2020). With that, I deduced LTAT’s total investment value in ABB at approximate RM3.25 billion; which accounted for 34% of LTAT’s asset under management (AUM) RM9.6 billion. 

According to the BHB Offer Document dated 23 March 2023, LTAT's priority is focused on rationalising the debt of BHB at this juncture. The other priority is to implement value creation for BHB, restructure, reorganize and rationalize its investments. Any investments undertaken by LTAT will be guided by the Strategic Asset Allocation (SAA) framework as embedded in the Section 15 of the Tabung Angkatan Tentera Act . LTAT officially launched its SAA framework or MAMPAN25 to the public on 13 July 2023. Few key points were revealed during the MAMPAN25 launch notably :

• reducing Boustead related exposure to 15%

• aims to grow AUM to RM15 billion 

• recover RM3.3 billion cost of investment

Whether it is to address its immediate debt obligations or to fulfill its mandate in the SAA framework, no matter how LTAT restructures, it is obvious that LTAT has to divest ABB in one way or another. However, for this to happen, LTAT and/or prospective acquirers are required to obtain Bank Negara Malaysia’s consent. While I agree with CEO Dato Nazim that there are “many ways to skin the cat”, there is “no room to swing the cat” when ABB occupied a large portion in LTAT portfolio. Its other assets were either too insignificant relative to its AUM and/or its debts obligation, or simply facing too many problems (eg. PN17 and PN17-potential).  More so, now that LTAT has to takeover Boustead Plantation minority shareholders’ stakes, piling another RM1.1 billion loan to its critical debt level. Therefore, in order to transform into a sustainable provident or retirement fund, “to diversify”, “de-concentrate”, “unlock the value”, “increased liquidity”, “no more significant controlling stake” , I believe that LTAT has no choice but to sell its crown jewel, Affin Bank (ABB). 

Back in April this year, LTAT divested 4.8% shareholding of ABB to Sarawak at RM1.97 per share; a huge discount to ABB’s NAV of RM4.67 per share and below LTAT’s investment cost as well. The divestment amounted RM221.7 million was just enough to cover BHB interest payment only for its debts due in Dec 2023. It was transacted at price to book ratio (PBR) of 0.4 times. Precedent transactions involving other banks listed in Malaysia were completed within a range of PBRs of between 0.9 to 2.3 times. Even, in the BHB Independent Adviser Circular by Kenanga IB valued ABB between RM3.23 per share (LOW range) and RM3.81 per share (High range), which in my opinion, grossly undervalued ABB.  I think that transaction was simply illogical as it was inconsistent with its “value creation” vision/mission/mantra. Perhaps a smokescreen?

Be it as it may, for the Defense Minister Dato Seri Mohamad Hassan to assure the public in the Dewan Rakyat session that LTAT will recover RM3.3 billion cost of investment in Boustead related businesses, increase liquid assets to more than 60% from current 20% ; and reduce Boustead related exposure to 15% is a very bold statement. Nevertheless I have the utmost faith that LTAT will deliver its best this time, discharge its duties and execute the SAA framework with unwavering dedication.   

- Sincerely, A minority shareholder of Affin Bank and Boustead Holdings (until its takeover). 

Disclaimer : In the interest of full disclosure and transparency, I hold a vested interest in Affin Bank Berhad (ABB). The opinion and content above is based on my personal analysis and assessment, and it does not constitute investment advice and is NOT intended to encourage or promote the purchase of Affin Bank securities and financial instruments or derivatives. The opinion presented above is for informational purposes only.