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Malaysian Government Takes Share of Shipyard to Advance Delayed LCS Program

Malaysia shipyard
Malaysia's first LCS was launched in 2017 but has not yet been delivered (Royal Malaysian Navy file photo)

Published Aug 23, 2023 4:27 PM by The Maritime Executive

Boustead Heavy Industries reported that it has agreed to sell a 20 percent stake in its shipyard operation to the Malaysian government as the latest step designed to save a decade-old effort to build new frigates for the country’s navy. Further, the company reports in a stock exchange filing that the government informed it in May of its intent to take total ownership of the Boustead Naval Shipyard.

The company’s primary customer is the Royal Malaysian Navy. It operates three shipyards near the Straits of Malacca on the west coast of Malaysia Peninsular as well as one government-owned shipyard. The biggest among them, and also the biggest in Malaysia in terms of capacity, is Boustead Naval Shipyard, which is located next to RMN's base in Lumut. The company was started in 1990 operating at times as the Naval Shipyard and PSC-Naval Dockyard.

BNS was awarded a contract in October 2013 that called for the construction of a total of six frigates based on France’s Naval Group Gowind-class corvette design. Malaysia and France entered into a technology transfer agreement for the class of ships. They were designed to modernize the navy’s capabilities with reports calling the ships a versatile class capable of defense against surface, sub-surface, and airborne threats.

The first vessel in the class known as the Maharaja Lela-class littoral combat ship was launched in August 2017. The original contract called for the first of the ships to be handed over by April 2019. The shipyard was to deliver additional vessels at six-month intervals with the last delivered by October 2021. 

 

Malaysian government will take a 20 percent stake in the shipyard to ensure completion of the LCS program (BNS)

 

There have been numerous charges of fraud and corruption in the program leading to construction delays and cost overruns. In 2019, it came out that the program was just past the halfway mark despite contractual requirements to be at the three-quarters mark by the third quarter of 2019. The original program cost was set at $2.2 billion but the government said it was expecting up to a three-year delay and significant cost overruns. Latest estimates are that the program could cost $2.4 billion even after the government said it would be scaled back to five ships from the originally planned six frigates. 

The government recently completed a sixth supplemental contract with the shipbuilder. Reports vary saying the first ship would be delivered as early as November 2024, with others reporting the first ship will be delivered in August 2026. The fifth ship is reportedly due in April 2029.

Faced with continuing delays and cost overruns, Boustead Heavy Industries reported it agreed to sell its entire stake of 20.77 percent of BNS to a company controlled by the Ministry of Defense for a “nominal amount.” Boustead Holdings will continue to have a 68.85 percent stake in BNS with the Malaysian Armed Forces Fund Board, a pension fund, also holding a small position in the shipbuilder. 

The company said the decision to hand over a portion of the ownership of the yard is part of an operational and organizational restructuring to streamline and realign while ensuring BNS is able to complete the construction and delivery of the LCS to the Royal Malaysian Navy. In May, the government informed the company that it planned to acquire 100 percent of the shares of the shipyard in order to ensure the completion of the LCS program. They expect to complete the initial sale of the 20 percent stake during the fourth quarter of 2023.