BHIC Considers Sukuk to Fund LCS Construction Project

08 Juli 2021

BHIC to issue sukuk worth RM 4 billion to completes construction of LCS (photo : BNS)

Boustead considers Islamic bond to fund LCS construction project

Malaysia's state-owned Boustead Heavy Engineering Corporation (BHIC) is seeking to issue an Islamic bond worth up to MYR4 billion (USD962 million) to support its programme to construct six Maharaja Lela (Gowind)-class Littoral Combat Ships (LCS) for the Royal Malaysian Navy (RMN).

BHIC CEO Sharifuddin Md. Zaini Al-Manaf told Janes that the funding would be raised through the sukuk securities system, an interest-free finance mechanism akin to conventional bonds. According to Sharifuddin, the sukuk is required to meet shortfalls in Malaysian government funding, although he did not elaborate on the process of acquiring the bond.

He said the government had agreed to pay no more than MYR9 billion for the ships under a contract signed with BHIC in 2013. The LCS construction programme is led by BHIC subsidiary Boustead Naval Shipyard (BNS).

Under the contract, the government had paid MYR6 billion by September 2019, but work on the project halted that month as BNS, which is located in Lumut, Perak, ran out of cash to pay its workers and suppliers.

Sharifuddin said that funding issues were not attributed to technical issues but to “holding, storage, and amortisation costs” linked with a lack of government funding to support variation orders, or modifications to the work outlined in the original contract, which were signed off by the RMN and BNS in late 2017.

He said, “The cost overruns would only amount to MYR400 million if the government had signed off the variation orders by January 2018.” Sharifuddin said that approval of the variation orders has since been delayed by changes of government. The orders relate to changes to the LCSs' surface-to-surface missiles, decoys, and the vessels' integrated platform management system.

(Jane's)