KUALA LUMPUR – Boustead Naval Shipyard Sdn Bhd (BNS), the main contractor for the littoral combat ship (LCS) project, was found to have poor financial capability and performance, and is expected to face serious issues in servicing loans amounting to close to RM1 billion.
This was among the findings made by the Governance, Procurement and Finance Investigation Committee (JKSTUPKK) following its forensic investigation in 2019 into the government’s procurement of six second-generation patrol vessels, its report of which was declassified today.
According to the 106-page long report, BNS was already found to lack the financial prowess to undertake the project since it was awarded the RM9 billion deal by the government on December 16, 2011.
This was underscored by the company’s request for deposit from the government amounting to RM1.8 billion, or 20% of the overall contract value, to kickstart the construction of the vessels.
The report noted that the amount was to pay suppliers and original equipment manufacturers (OEM) for the procurement of RM1.9 billion worth equipment and design and engineering services.
While not granting the full amount, the Finance Ministry had, between December 2011 and January 2014, approved a total of RM1.365 billion (14.95% of overall project cost) in deposit payments to BNS, and offered exemption for bank guarantees for RM836.9 million of the deposit.
Based on the committee’s report, the payments were made on four separate occasions, all of them before BNS and the government signed a formal contract for the LCS project in July 2014, the first of which was made on December 29, 2011, merely two weeks after BNS was issued its letter of award (LOA).
JKSTUPKK found that the RM1.365 billion deposit and bank guarantee exemption were also “beyond the norms” of the Treasury Circular and procurement regime which stipulates that the government shall not provide deposit payments over RM10 million to any local manufacturer or supplier.
“These prove that the company (BNS) has limited financial capability to implement the project,” it said.
According to the committee’s report, an analysis into BNS’ financial statements from 2014 to 2018 discovered that the firm had recorded losses in three of the five years.
The accrued losses had swelled to RM462 million as of 2018, pushing the company into the red with an equity of negative RM332 million then.
JKSTUPKK noted that the financial management and cash flow issues faced by BNS had caused delays in payments to OEMs and suppliers, subsequently resulting in postponements in the delivery of equipment and causing temporary stop on works in the shipyard.
The report further pointed out that in order to address its cash flow issue and to finance the LCS construction, BNS had sought loans from banks and its parent company Boustead Holdings Bhd amounting to RM956.86 million, of which RM354.96 million were short-term loan and RM601.9 million long term.
“Based on debt ratio analysis to measure the total percentage of assets financed by debt, we found the trend quite worrying.
“BNS is expected to face difficulties and inability to pay their debts and interests in the long term if its financial situation remains weak,” it said.
BNS has been mired in controversy since the release of the Public Accounts Committee report on the government procurement of the six LCS earlier this month, which recommended the Malaysian Anti-Corruption Commission to take prosecutive action against those behind the scandal.
So far, former navy chief Tan Sri Ahmad Ramli Mohd Nor, who had previously served as the managing director of BNS, has been charged in court with three counts of criminal breach of trust involving the multi-billion ringgit project. – The Vibes, August 17, 2022
