Friday, 9 November 2012

Did Astro employees buy shares on margin?

The article "What can Astro do for its employees?" on the website of The Star suggests that employees of Astro might have bought shares on margin:

"Last week Astro had a town hall meeting with their staff to talk about the share price fall and it is really up to the company to handle the situation because no organisation will like to have a group of disgruntled employees. There may be the pressure of margin calls for those who had taken financing to buy their allotment of shares. There might be employees who might not have the ability to hold on to their shares."

The share of Astro has indeed performed quite badly:

On the other hand, a decline of 12% is not exactly shocking. If employees did indeed buy shares with borrowed money during the IPO and can't even stand a loss of this magnitude, then something is very wrong.

The writer offers a piece of advice:

Astro perhaps needs to figure out what it can do to assist their employees. A bonus or ex-gratia payment or even a one-off payment based on a pre-determined price below the IPO price to employees will do a lot to help those in need. That show of goodwill will certainly cure any grouses employees will have and it will automatically lower their holding cost of Astro's shares. It's a goodwill gesture but it's one for Astro to make.

I disagree very much with this advice. First of all, there is no free lunch here, money that will be used to bail out employees will come out of the pockets of others, in this case other shareholders of Astro.

Secondly, from the point of view of "moral hazard" this is really, really bad advice.

If indeed employees have bought shares on margin, then first of all there should be a transparent investigation, based on what information and assumptions they did that.

The Malaysian authorities are proud of the 3 large IPO's this year, but cracks have started to appear. I hope there will be an evaluation say one year in the future how this all panned out, with transparency which "cornerstone" investors held on to those shares, which sold their shares for a quick buck.


  1. I am all for Astro helping its employees but could not help thinking that the management have let them down big time. The majority of the employees would seek management help to arrange for financing for their share entitlements and I suspect a program was put in place for just that purpose. Were they properly warned about the vagaries of share market?

    Further, I agree with your view that Astro should not come to the rescue of its employees by using company's fund directly or indirectly.

    So who are these people who are selling in the market and most likely taking losses? Perhaps we could have some thoughts on that?

  2. Yes, we need transparency, a lot of it.

    Instead of Astro helping employees (at a cost for the shareholders who are already not a happy lot), may be the people who profited so much in the past can offer some help?

  3. Agree with your assessment, specifically on the moral hazard element of it. There is no good reason for Astro to bail out its staff who, in this case, must be treated as ordinary shareholders.

    If they do want to compensate them for the decline in share price, they must do the same for all shareholders, e.g. capital repayment, special dividend, etc. (And no, I swear I'm not an Astro shareholder).

    Furthermore, I personally have issues with companies allotting IPO shares to employees; if you really want your staff to benefit, give them options instead, which at least gives them some protection from the swing in the market.

    I don't think there should be a witch-hunt about who's selling down though. I disagree with positions that suggest that market volatility is a bad thing especially in a market like Bursa that is often criticised for its poor velocity.

    Two things come to mine about Astro: It was overvalued and investors suspect that much and two, Astro decided against a Greenshoe, which is fairly common for IPOs of this size. I think it was a bad decision (a bad bet, if you will) rather than anything conspiratorial to forego the Greenshoe.

    Finally, one last comment on the giant IPOs pushed through this year. I suspect that the decline in Astro's share price is indicative of a a new element of uncertainty creeping into share trends post-IPO, even for blue chips. And here's where I'll throw in a shameless plug for Nate Silver's brilliant book, The Signal and The Noise. Great stuff about predictability.