Tuesday, 21 February 2017

"Snap", the sound of voting rights

Article in The Star:

Snap arrives in London to woo sceptical investors ahead of IPO

Some snippets (emphasis mine):


Snap Inc, owner of popular messaging app Snapchat, kicked off its first investor roadshow on Monday, looking to persuade London money managers to back its initial public offering in the face of concerns about its growth prospects, valuation and corporate governance.

The U.S. company, which has yet to make a profit, is targeting a valuation of between $19.5 billion (£15.6 billion) and $22.3 billion from listing on the New York Stock Exchange, after cutting its initial target of $20 billion-$25 billion last week following investor feedback.

Some fund managers have said they will stay away from Snap given its decision to adopt a three class share structure - the first of its kind - that will mean shareholders who buy in through the IPO will not have any voting rights.


Yes, dear readers, mayhem has descended on us: people are asked to fork out billions of USD for a company with a history of losses and will receive no voting rights in return for that.

While all forms of engineering have made strong progress throughout the years resulting in a more safe and efficient world, financial engineering has been the one and only exception.

Time trusted principles (like one share, one vote) are abandoned in place of sheer madness, just for the sake of coming up with more extreme solutions, for which the consultants can charge handsome commissions.

One manager offered some "comforting" words:


"Snapchat offers a cocktail of hype, insane valuations, dubious fundamentals and weak governance. However, the same was said about companies like Google and Facebook when they listed," said Geir Lode, head of global equities at Hermes Investment Management.


Sunday, 19 February 2017

APFT: why the generous options for directors?

This is the share graph of APFT over the last five years:




And here are the financial results for the last five years:


Next to that, the latest audited accounts have an "emphasis of matter", quoting:

".... there are material uncertainties that may cast significant doubt on the ability of the Group to continue as a going concern."

In short, things have been pretty tough, both for the company and its shareholders.

But still the company announced that Directors would receive millions of options:




The usual reasoning for these kind of options is to allign the interests of shareholders and directors, but that seems to have been lost in the case of APFT.

Friday, 17 February 2017

Are there really no concealed placements to nominees of major shareholders in Malaysia?

From Hong Kong:

SFC seeks court orders against former chairman of Kong Sun Holdings Limited and China Sandi Holdings Limited


The Securities and Futures Commission (SFC) has commenced legal proceedings in the Court of First Instance to seek disqualification and compensation orders against Mr Tse On Kin, former chairman and executive director of Kong Sun Holdings Limited (Kong Sun) and China Sandi Holdings Limited (China Sandi), for devising a scheme to conceal his interests in the companies’ share placements in 2009 (Notes 1 & 2).

The SFC alleges that Tse, who was the chairman of the two companies at the material time, used a nominee company to subscribe for their placement shares, which were intended only for independent placees.


Tse also allegedly concealed his interests in the placement shares from the companies’ boards and shareholders in order to obtain them at discounts for which he should not have been eligible.


As part of the proceedings, the SFC is seeking orders to compel Tse to account for the profit he made from the sale of the placement shares in Kong Sun and to pay compensation to Kong Sun for the secret profit he made (Note 3).



In Malaysia both shares being held by nominees and the issue of private placements are a rather common practice (in the very large majority of private placements we will never know the names of the persons or companies that will receive the placement shares).

I am therefore almost sure that the above scheme to conceal interests must have happened at Bursa listed companies, probably frequently.

But why has there been hardly any enforcement at all in this area? Are the enforcement agencies not pro-active enough, doing some investigations, looking for clues, connecting the dots, following the money trail?

I don't suggest enforcement of this is easy, but a few successfully prosecuted cases would at least give some confidence that action is being taken and that perpetrators are at a risk.

Thursday, 16 February 2017

Sabana Reit: shareholder activism (2)

It seems that the activism (I wrote about it before) is progressing quite well, an interesting case to follow.

A new development was reported by The Edge:

Disgruntled Sabana REIT unitholder lodges complaint with CAD over valuation of Changi South property

A disgruntled Sabana REIT unitholder has lodged a complaint to the white-collar crime department of the Singapore police against the property valuation houses of Colliers, Savills and Knight Frank.
This is in relation to the valuation reports the three houses have done to support the acquisition of 47 Changi South Ave 2 by Sabana REIT from its sponsor Vibrant Group.

Colliers was engaged by Vibrant while Knight Frank and Savills were engaged by Sabana REIT's manager. The transaction requires the permission of minority unitholders at an EGM, which is yet to be scheduled.


Colliers, Savills and Knight Frank separately and independently did a valuation on the Changi South property using the Capitalization Approach and Discounted Cash Flow Analysis (DCF).


All three concluded that the property was worth exactly $23 million, which is also the price at which Vibrant will sell the asset to Sabana REIT.


Jerry Low Chin Yee, the unitholder of Sabana REIT who complained to the CAD, is questioning how Colliers, Savills and Knight Frank could have arrived at exactly the same valuation for the property. “In order for all three to come up with the exact valuation figure, they must have used the same future rental income, same assumed discount rate, same forecasted 30 years rent renewal payable and the same estimated terminal value etc," he says in his complaint to the CAD, a copy of which The Edge Markets has seen.


“Colliers, Savills and Knight Frank all agree that the Changi South property is worth exactly $23m. I can only hypothesize that they were given the same exact figures to value the property,” alleges Low.
If this is true, it begs the question of objectivity and independence of these and past valuation reports, says Low.


“It will be worst if all of them (including the vendor and the manager of Sabana REIT) actually conspire to come up with the exact $23m figure so that the property can be “properly” sold to the REIT at $23m in accordance to the code of collective investment scheme pertaining to Related Party Transaction,” adds Low.


Low says he does not have any evidence of wrongdoing but believes the matter warrants scrutiny “purely on the fact that for all three valuation houses to separately and independently come to a valuation of exactly $23m for a property with so many variables, is too much of a coincidence unless they are using the same input provided by either the Vendor or the REIT Manager. And the price of $23m was by design rather than by valuation.”



I hope the complaint will be dealt with soon, I agree that the matter warrants serious scrutiny.

In the Malaysian context, I have often seen strange valuations and independent valuers agreeing with them:

  • regarding RPTs: major shareholders injecting their private companies at skyhigh valuations in their listed vehicles
  • regarding privatisations: companies taken private for a song,

I have written about several cases, and complained in a few to the authorities, to no avail (no surprises there), although I was proven right at the end.

The only positive message is that things seem to have improved somewhat lately in Malaysia. Not much comfort though for the minority investors who were disadvantaged in the past for huge amounts of money.