Wednesday, 26 October 2011

EGM of AP Land is adjourned

(Amended version, I received very interesting feedback, changes in red)

Yesterday, October 25, 2011 was the EGM of Asia Pacific Land Bhd. (AP Land) to vote on whether to sell the group's assets and liabilities to Low Yat Holdings (M) Sdn Bhd (LYH) for 45 cent per share or RM 305 million. LYH owns 34% of AP Land and thus will abstain from voting.

Interestingly, the EGM was adjourned to November 8, 2011. This might indicate that things did not go as well as the major shareholders of AP Land had hoped for.

It turned out that an important error was made, in the circular it stated:

But in reality they found the proposal not fair. A big differcence since this is a huge red flag, it seldom happens that the non-related directors dare to give this opinion. So the good thing is that:
  • The non-related Directors dared to speak out
  • The error was admitted and corrected in a statement to Bursa Malaysia
  • The error was deemed to be important enough to adjourn the EGM to November, which seems indeed the right thing to do, since proxy voters might change their mind, knowing about this rather unusual warning
I still find it strange, if the non-related Directors find it unfair then they should try to come with a better, more fair solution. At least they could come with some alternatives.

Four MSWG (Minority Shareholder Watchdog Group) representatives took turns to "grill" the Board, a good development which is completely normal and accepted in Western countries (if the directors can't stand the heat, they should get out off the kitchen).

For the Chinese readers:

MSWG (Minority Shareholder Watchdog Group) wrote about the deal:
"Minority investors, who are the same men and women who believed the story of the major shareholders. Thus it is only right that major owners do right when the time comes to part. Our advice to minority shareholders of AP Land is vote wisely. With your small but influential ownership (10 lots and less) you already make up 90% of the total number of shareholders. Most of the 66% of shareholders eligible to vote on the proposed disposal are minority retail shareholders."

In The Edge Malaysia of October 24, 2011 Jennifer Jacobs wrote "D-Day for AP Land", one part of the article:

"But a minority shareholder, who is not happy with the offer, points out that AP Land has huge potential that can be unlocked if the privatisation does not go through. AP Land is poised for gigantic growth with massive property development in the pipeline coupled with strategic business in overseas resort development, tertiary education in Malaysia and China, and oil palm plantations in Indonesia's East Kalimantan. This should translate into future dividends and capital gains for shareholders if AP Land is not privatised, he says. With such great prospects for exponential growth, it is only pertinent to ask why the board of AP Land is willing to sell out to the major shareholders and that too, so cheaply. The biggest losers in this deal are the helpless minority shareholders like us, he adds."

I agree, I have seen too often that it takes time for a company to position itself for future growth, and that when the time is right it sells its assets too cheap. In this case, the price offered is at a huge discount of 57% to the adjusted audited net asset value. That doesn't sound very fair.

The other side of the coin are the hugely overpriced Related Party Transactions where a company buys assets from its major shareholders at inflated prices, many examples have been given on this blog.

For these practices to end, Malaysia needs:
  • Directors, who don't toe the line, who dare to speak up
  • Advisers, who write unbiased, high quality reports regarding the deals on the table
  • Institutions (Securities Commission, Bursa Malaysia and SSM) who take decisions without fear or favor, and who continuously amend the rules for a more level playing field
  • Razor sharp journalists, who bring up these issues in the right context, who are not afraid to write critical articles about the captains of industry, who have been protected for much too long time
  • Minority shareholders, who actively fight for their rights and vote accordingly
Regarding the Directors, I don't see any progress at all, but for the other items I do see some improvements. In this AP Land case, I obviously was too harsh regarding the non-related directors, so there might be hope as well on this front.

For AP Land, I really hope that the minority shareholders will put up a fight, that the deal will not go through, forcing the major shareholders either to increase their bid to a more reasonable price, or to start unlocking the value in the company. One simple way would be to sell certain assets (like the Rawang land or the plantations) in a public auction and to return the proceeds to all shareholders. I stick to this opinion. Some shareholders might have been with the company for ten years, they only received one single dividend, they clearly deserve a better deal than the one on the table.


  1. One of MSWG representatives asked a good question to the non-interested board, whether the Board which shall act in good faith and having fiduciary duty to protect the best interest of the minority shareholders, gave any attempt to negotiate for better offer price since the Board themselves felt that the offer was not fair from financial point of view.

    Disappointingly, the Board said no.

    I don't understand why didn't the Board do so, at least a try since no one shareholder will be unhappy to get better offer price.

    Ooopsss... not all shareholders... but the Interested Directors in the RPT...

  2. Don't mind if I share a link to a reporting of a Chinese Daily on the APLAND EGM since some of your blog readers can read Chinese.


  3. Thanks Anonymous for your comments,

    Can you please share, why was the EGM postponed, why was there no vote? How was the mood overall of the minority shareholders?

  4. I saw 4 representatives from MSWG took turn to "grill" the Board... and I think one of the questions was how the Board reconciled the different in opinions between the Audit Committee and the Board as stated in the circular?

    In the circular, it was stated that the Audit Committee was of the opinion that the offer was unfair but reasonable. And the Board was of the opinion that the offer was fair and reasonable.

    For you info, the non-interested Board made up of 5 directors, with 3 of them being the members of Audit Committee...

    Then the ED clarified that both the Board and Audit Committee having the same opinion, ie unfair but reasonable.

    After clarification, the Board wanted to proceed with the voting.

    However, MSWG protested and insisted the voting to be adjourned due to material error in the circular.

    Some shareholders who had sent in proxy forms could have voted based on the recommendation by the Board "fair and reasonable" printed in the circular not knowing the Board actually felt the offer was "unfair but reasonable"

    After discussing for 10 minutes, it was encouraging to see that the Board didn't bulldoze the meeting through but adjourned the meeting and give the shareholders the right to decide based on the corrected information.

  5. Unlike the AGM at E&O, the minority shareholders were quite passive and gentle at the EGM. Other than MSWG, only 2 shareholders came forward to ask questions

  6. Thanks for your comments!

    "Then the ED clarified that both the Board and Audit Committee having the same opinion, ie unfair but reasonable."

    Ah, that is indeed a big difference, I agree that it is a valid reason for adjourning, quite a big mistake in the circular. And good from the directors (both to adjourn and to say it is unfair), at least a few notches up in my regard for them. Still, I hoped them to advice to vote against or come with alternatives how to unlock the value in a better, more fair way.

    It is a pity the shareholders are so passive, takes time I guess. Or may be they found MSWG was doing a good job, nothing to add.

  7. By the way "grilling" the Board of Directors is a completely normal, accepted practice in Western countries, if the directors can stand the heat, they should get out off the kitchen. Or tall trees catch much wind.

    What you described as "grilling" is probably quite mild compared to Western standards.

  8. The Board recommended to vote for the Proposed Disposal because it is unfair but reasonable

  9. I admire the courage of the non-related directors to call the proposal "unfair". However, I find it strange logic to ask shareholders to vote in favor of an "unfair" proposal. It is their job to make it "fair", or not? Also, there is no real hurry, is there?

  10. I doubt it was their courage to call the proposal "unfair". I come to conclusion mainly after taking the independent adviser's opinion who said "unfair but reasonable"

    If you look at the independent adviser report, it appears the IA focused and highlighted the downsides of the company, and very minimal on the potential of the company.

    What do you think of the potential of the company when the related party who is the major shareholders and top 3 executive directors of the company wanted to take the company private?

    They saw something that IA didn't see?

  11. Ok, courage is may be too much, but is very rare that a director dares to show dissent to a proposal.

    The potential? I am not a property expert but I think that if they sell the assets through an auction that the minority shareholders will received at least double of what they will receive if they accept this offer.

  12. The Rawang land alone which has market value of about RM359 million worth more than offer price of RM305.

    The company has cash and bank balances of RM250million, more than sufficient to pay the rest of AP Land shareholders

    Potential from more than 9,000 hectares of oil palm plantation in Indonesia. Last batch of planting expected to complete by end of 2012. Start to see revenue Dec 2012.

    There are plenty assets under the group

  13. Thanks for all your very helpful comments, have amended the posting.

    I am pretty sure you are right, it also doesn't sound like it would be so difficult to sell the Rawang land or the plantations, there should be quite a healthy demand for it.