Monday, 19 September 2011

The Edge: Maybulk/POSH, EPIC, Kretam

In the Edge of September 19, 2011 a few interesting articles:

"POSH continues to be a thorn in Maybulk's side"

At a recent analyst briefing, Malaysian Bulk Carriers Bhd (Maybulk) CEO Kuok Khoon Kuan conceded that the company's 22.08% investment in associate company PACC Offshore Services Holdings Pte Ltd (POSH) was a disappointment. But while accepting the fact that POSH's performance was not as good as expected, he expressed optimism that the industry could have seen some of its worst times."

For the first time ever the management of Maybulk admits that the acquisition of POSH was a disappointment, I would call that a huge understatement. Related Party Transactions (RPT's) have a very bad name in Malaysia, but RPT's during economic crisis are even worse and this deal was no exception. An amount of more than RM 800 million cold hard cash from a Malaysian company was used to acquire a minority part of a much overvalued Singaporean company. The circular was as usual of very low quality, leaving out lots of important (and even essential) information, the valuation of the fleet was suspect (the valuer didn't support his own valuation anymore), the "independent" advice from KPMG was even worse. The Minority Shareholder Watchdog Group (MWSG) didn't want to fight this case for unknown reasons, very disappointing.

The deal went through after a heated EGM, I strongly suspect that funds like Bank Pembanguan Malaysia Berhad, EPF, PNB etc. voted in favor of the deal, as usual, since they alone could easily have blocked it.

I (a foreigner!) fought tooth and nail to stop this deal, but to no avail. I filed many well documented complaints with the Securities Commission (and implied to Bursa Malaysia who is responsible for the quality of the circulars). The case is still pending, almost three years have passed and still no action has been taken. That was one of the reasons for me to start this blog, the way genuine complaints are being stonewalled is simply unacceptable. If the intent is to actively discourage people from filing complaints, then the authorities are doing an excellent job.

I will write in detail about this deal in a few episodes. I still completely not understand how Maybulk, a company with an excellent trackrecord of highly regarded majority investor Robert Kuok, could force such a bad deal through. In an interview on September 9, 2011 Robert Kuok explicitly mentions how he always wanted to come up for the publics interest, not only his own. Were his lieutenants too eager, too sharp? Did the sugar deal with Tan Sri Syed Mokthar have to do with it? I have no idea, we probably will never know. But this deal was really, really bad and justice should be done, it is long overdue. Minority investors who held on to their Maybulk shares suffer up to this day, the share has underperformed the KLCI substantially and the dividend has been cut.

Fair compensation?
"shareholders who purchased EPIC shares after December 10, 2010, will not be entitled to the cash compensation. Is this fair, considering that the announcement that two Terengganu state entities had triggered an MGO for EPIC was only made on August 24 this year? That is a delay of more than eight months."

The above is about the cash compensation scheme where only shareholders can claim money who held the stock at December 10, 2010. It is an interesting dilemma.

PT's should be whiter than white
"Kretam's Holdings Bhd's recent acquisition of a piece of land in Sabah has rubbed some of its minority shareholders the wrong way. In the related party transaction, Kretam is acquiring, among others, Abedon Sdn Bhd, which owed the piece of land. Abedon and Kretam have a common shareholder in Datuk Lim Nyuk Sang, who is the CEO and controlled 55.63% of Kretam before the acquisition. The vendors received new Kretam shares and ICPS at an issue price of RM 2.30 each in exchange for the land valued at RM 413.2 million. The minorities contend that the exchange is lopsided as the deal imputed a much higher value for the piece of land than the value implied for Kretam's own landbank, based on RM 2.30 per share valuation.

RPT transactions are often onerous and to avoid suspicion, substantial shareholders would do well to ensure that such deals are whiter than white."

The problem with RPT's in Malaysia is that they are simply not white, they are black. The large majority that I have seen are plain bad, sometimes worse. There is a whole layer of protections for minorities (which seems to give ample protection), but in almost all cases they will all fail:
  • Directors (especially Independent ones) should speak up, they don't
  • The Independent Adviser should write an unbiased report, they don't
  • Bursa Malaysia should insist on unbiased circular plus independent report, they don't
  • PNB, EPF, LTAT, etc should vote against bad deals, they don't
  • And after the deal has been done, the Securities Commission should act on complaints, they don't
This is going on for a very long time, and still nothing has changed. And in the last Corporate Governance Blueprint 2011 there is no word about how to give minority investors a fighting chance in these kind of corporate deals.

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