Wednesday, 4 May 2016

More credible responses needed from S'pore firms accused of bribery abroad

Timely article from Mak Yuen Teen in the Business Times (Singapore). Some snippets:


..... allegations have been made in media reports about the possible involvement of some Singapore companies in bribery scandals overseas. The responses from these companies typically include an immediate denial of the allegations, and an assertion that the company has zero tolerance for corruption and a code of conduct prohibiting bribery and corruption.

.... every company will undoubtedly say it has a zero tolerance for corruption. I have never seen a company say it has some tolerance for corruption.

.... most companies have a code of conduct that prohibits bribery and corruption, and certainly none will have one that condones it. This does not guarantee that employees or third parties may not have violated the code.

In a recent case, overseas media reports said a leaked confidential memo from an overseas company accused of being a middleman in a massive bribery scandal commented that the Singapore company that was allegedly involved was an "ideal client" because it had lax anti-corruption controls, relative to other multinational clients.

[this is most likely a reference to Keppel, as described here]

Singapore companies that do business overseas need to take a good hard look at their compliance programmes, strategies, incentive systems and business practices and adopt a more measured approach when responding to bribery allegations. Rather than issuing a knee-jerk outright denial, chanting "zero tolerance for corruption" and "code of conduct" whenever such allegations surface, they should take allegations seriously and commit to reviewing their compliance programmes and undertaking their own investigations. Outright denial of bribery without any specific action may give the impression that the company has a head-in-the-sand attitude towards actual bribery risks out in the field. If the allegations subsequently turn out to be true, the company's initial response would be seen to be shallow and, over time, the company will lose its credibility.

Tuesday, 3 May 2016

Poor earnings growth for Bursa listed companies (3)

Article in The Star: "Bleak corporate earnings ahead".

An interesting sentence based on a note by UOBKayHian Research:


"Corporate earnings growth, which has derailed from gross domestic product (GDP) growth over the past three years, is just making a meek mid-single-digit growth recovery in 2016 ....."


The first part, corporate earnings have derailed from GDP growth over the past three years: exactly, that is what I have written about before.

The big question is: Why? I have no answer to that, except to note that I trust the audited annual numbers of the Top 30 companies listed on Bursa much more than the official GDP numbers.

Another issue is, which research house actually predicted three years of earnings decline for the Top 30 companies? My guess: not one.


The second part of the above sentence, "a meek mid-single-digit growth recovery in 2016".

That is a quite remarkable forecast, despite the current difficult environment, UOBKayHian expects a positive growth in earnings.

I don't agree with that, the numbers I have seen so far (mostly based on one quarter of earnings) are again a few percent lower than the 2015 numbers, which would imply a fourth straight year of declining earnings.


And finally: "It is no surprise that the FBM KLCI companies are viewed as the bellwether of economic growth".

Well, those are exactly the companies I have measured in my postings, and they have not been the bellwethers in the last three years at all, more in the contrary.

Saturday, 30 April 2016

AirAsia: why not a rights issue instead of a PP?

AirAisa announced that its founders Tony Fernandes and Kamarudin propose to increase their shareholding in the company by buying 559 million new shares in the company through a private placement.

The Star wrote an article about the issues at hand: "Who is bigger – Tony or AirAsia?"

First of all, I have never been a fan of private placements, rights issues are so much more fair, giving all shareholders a chance to participate. And if they don't want to participate (for instance because they don't have money at that moment), they can still sell the rights in the open market.

The rationale given in the prospectus is as follows (first paragraph):




I don't think the reasons given are strong: both the underwriting and the successful completion should be no issue since the 559 million shares to the founders are apparently already underwritten.

Secondly, it is stated that the issuance "indicates the continued commitment" of the founders "by making further substantial investments".

This would suggest that the founders have been doing this for a long time, increasing their stake in AirAsia by investing in new shares.

However, exactly the opposite has been the case, the founders have been disposing shares for a long, long time, and in huge quantities, more than 600,000,000 shares in total.

At the IPO Tune Air sold 86 million existing shares:



After the IPO in their 2005 annual year report they owned 1,045 million shares (44.8%), which they sold down in the open market to 529 million shares (18.9%) currently. Large disposals were made in 2005 and 2006, 2011 and 2014. There is not a single year in which the founders actually increased their shareholding.

That bags the question, why after twelve years of heavy selling do the founders now suddenly  want to increase their shareholding in AirAsia? Surely the minority investors, who will get strongly diluted by the proposed private placement, deserve a proper explanation.

Lastly, there is the following, rather remarkable issue:


"..... why Tune Air, which is their holding company, is disposing its stake in the market at about RM2 prior to the AGM? It does not look good for them to get placement shares at RM1.84 when Tune Air is reducing its stake at RM2. To be fair, in announcements to Bursa Malaysia, Tune Air has stated that the shares disposed were in favour of Datuk Abdul Aziz Abu Bakar, who is one of the founders of AirAsia. "


I would suggest to replace the private placement by a rights issue of comparable size, to shore up the balance sheet.

And if the founders of AirAsia want to increase their stake, well, they can go ahead and buy the shares in the open market. If they can sell hundreds of millions of shares in the open market then surely they can also buy those quantities at the same venue.

Wednesday, 27 April 2016

Sona Petroleum: a clear vote

It does not often happen that a proposal by the management of a Bursa listed company gets voted against by 77.4% of the votes, but that is what happened to Sona Petroleum:




With time running out, it seems extremely unlikely that Sona can propose an acquisition which will be approved by the shareholders.

"Yield seekers" seem to be a threat to the promoters of SPACs, it is therefore the duty off the management of these vehicles to:

  • Propose a really good deal
  • Communicate this clearly to the shareholders

Not an easy task.

With the promoters looking (again?) at a possible large loss of money, SPACs will most likely lose their shine.