Saturday, 3 September 2011

PMI, serious Corporate Governance Issues

PMI (Pan Malaysian Industries Bhd) today issued its notice to shareholders:

I have blogged about PMI and its General Offer with delisting threat before:

Ze Moolah blogged three times about PMI:

In the most recent one,, he detailed how badly Minority Investors would have done if they had bought shares in 1993 due to all the rights issues and the falling shareprice due to the horrible financial results.

According to the latest year report there are only four directors in PMI at the moment, all non-executives. The only independent director in PMI is Ooi Boon Leong, 74 years old. However, I would doubt his independency since he has been with PMI for 20 years. He is also the Chairman of Pan Malaysia Holding Bhd. which is 69% deemed controlled by PMI. He was ousted as an director from Chemical Company of Malaysia Bhd. (CCM), a company partly controlled by MUI (again linked to PMI), most likely through the vote of Permodalan Nasional Bhd. (PNB). In the following article, Ooi is called a “Malayan United Industries Bhd (MUI) Group-linked directors”.

“Another tussle is brewing at Chemical Company of Malaysia Bhd (CCM). In its recent annual general meeting (AGM), both Malayan United Industries Bhd (MUI) Group-linked directors, Khet Kok Yin and Ooi Boon Leong @ Law Weng Leun, failed in their bid for a re-election. They were among five directors seeking re-election, but the other three, Datuk Tan Kay Hock, Datuk Mohd Hussaini Abdul Jamil and E Sreesanthan all passed their bid.

Instead of a simple show of hands, both Khet and Ooi’s re-election went through the ballot poll. Interestingly, the poll was called by CCM’s largest shareholder, Permodalan Nasional Bhd (PNB). For the record, PNB has a 27.63% stake at CCM, while MUI’s Pan Malaysia Industries Bhd is CCM’s second largest shareholder with a 26.94% stake. During the AGM, some 58% of shareholders representing some 294 million or 80.4% of total shareholders voted against these directors. At time of writing, it is still unclear why PNB called for the poll and why both MUI-group linked directors did not get enough support. Perhaps, this tussle is still too soon to call, expect more CCM events to dominate the headlines in the coming weeks.”

Unfortunately, as usual, we do not know the reasoning off PNB, which has always been much too secretive about its motives, similar to the other large institutional investors in Malaysia.

EPF has issued its Corporate Governance Principles and Voting Guidelines:

PMI doesn't seem to pass the Corporate Governance guidelines from EPF:

  • A minimum of 7 directors (PMI only has 4) for each listed company
  • A balance between executive and non-executive directors: there are only non-executive directors
  • A succession plan for directors exceeding 70 years old: PMI doesn’t seem to comply with directors of 72, 74 and 77 years old
  • Independent director’s term should be limited to 12 years: Ooi Boon Leong is already 20 years a director of PMI
On 8 March 2006 PMI had become an affected listed issuer pursuant to PN17. A restructure followed including a rights issue. That issue was not received very well by Minority Shareholders, the total acceptance was only 31.2%, most likely all by the Majority Shareholder who also took care of the excess applications.

The prospectus can be found here:

PMI had to make a forecast for the earnings and projected losses (page 86 & 87) in 2009, 2010 and 2011, which is what indeed happened. But interestingly enough, it projected profits from 2012 onwards due to:

  • Rental renewals at higher prices
  • Development profit from the project on the acquired land
  • Increase in price of MUI shares
  • Reduced interest expenses
If this projection is still valid, would it not be strange to delist the company exactly when it starts to turn around?

Probably the strangest of the whole exercise is why two large shareholders sold their shares, both exactly at Aug 25th 2011, for the paltry amount of RM 0.045, about the lowest price ever in the history of PMI. The shareholders (both companies are registered at the same address: 10th Floor, Menara Hap Seng, No. 1 & 3, Jalan P. Ramlee, 50250 Kuala Lumpur) are:

  • Hope Foundation, 241 million shares
  • Permata Bistari Sdn Bhd, 160 million shares
Even in 2011 the share has traded often between RM 0.055 and 0.070 cent (22% to 55% higher than the offer price), and just a few years ago in 2008 it traded at much higher prices, between RM 0.20 and RM 0.40.

It should be noted that the maximum price that was paid to Hope Foundation and Permata Bistari Sdn Bhd is the price that is offered to the Minority Investors, so its is very relevant for the General Offer. Interestingly, both companies have also invested in the past in Pan Malaysian Capital Bhd.

What can Minority Shareholders do?

They can file a complaint with the Securites Commission, preferable with a copy to the Minority Shareholder Watchdog Group:

I will email both organisations about the above issues, although I am not a shareholder of PMI.

Especcially relevant are the following issues:
(c) that fair and equal treatment of all shareholders, in particular, minority shareholders, in relation to the take-over offer, merger or compulsory acquisition would be achieved; and  
(d) in its response to, or making recommendations with respect to any take-over offer, merger or   compulsory acquisition, the directors of the offeree and acquirer shall act in good faith to observe the objects, and the manner in which they observe the objects, specified in this subsection,
Source: page 202, "Capital Markets and Services Act 2007"


  1. Yes, this bring back old memories. Page 36:

    "we are of the opinion that the conversion price is fair and reasonable considering (i) that the the par value of MUIB shares is RM 1.00"

    What does the par value have to do with the valuation? This is really a deliberate attempt to try to fool the Minority Investors of PMC.

    If I have time I like to work out how this has worked out for PMC shareholders, I guess I know the answer already (very bad), just like to confirm it.

    From all the corporate exerices (delisting of Metrojaya and subsequently moving it from PMI to MUIB, this above settlement of the intercompany loan with PMC, the delisting of PMI) there is a very clear pattern behind this all: MUIB is the chosen one. Are the Minority Shareholders of Metrojaya, PMI and PMC treated fairly? I don't think so. It is really about time the authorities start to take some action here.

  2. You remembered. :P

    Yup. The Independent Advice Circular used par value.

    Good example that these circulars are all garbage, eh?

  3. Correct, but there was much more wrong with the independent report. Juts interesting that remark with par value, it had nothing at all to do with the price, if anything it was a clear sign that things were very wrong with MUIB (huge accumulated losses, causing it to trade below par).

    I think the shareholders received a horrible deal for their cold hard cash, I think these convertibles were routinely trading for a very low price, wouldn't be surprised if they lost hundreds of millions of RM on this deal and that it was actually all the time clear already. Let me check it.