Thursday, 21 February 2013

Protasco, BFM interview

One kind soul pointed me at an BFM 89.9 interview with Datuk Chong Ket Pen, General Managing Director from Protasco. The interview can be found here. For those people who also like the video, the link is here.

The part about the oilfield acquisition starts around 19:30. Some quick notes by me, and my comments in purple:
  • Due diligence is in process, a consultant has been appointed (would it not be better first to do due diligence and then do a deal?)
  • Protasco has no real experience in oil & gas, but also in engineering, so hopefully synergy with their current engineering (many experienced hands burned their hands at the notoriously difficult industry)
  • RM 170 million is the asking price, might be negotiated downwards (again, why the hurry, why not investigate first?)
  • The RM 50 million cash paid is securitized and will be returned if the S&P agreement is cancelled (but against which securities at what value in which account, no details have been provided)
  • There will be a profit guarantee which will be the basic justification of the deal (but only secured against shares which represent a small part of the deal)
  • The deal is subject to renewal of the concession, which will expire in 2014 (again, why the hurry, why not first renew the concession?)
  • An announcement will be made 5/6 weeks later than the interview (January 29, 2013), so somewhere in the middle of March 2013
  • The previous Executive Deputy Chairman resigned a few months ago, no reason given
  • The 10% Private Placement was meant for the oilfield acquisition
All rather vague, as far as I am concerned, all the red flags are still there. Most importantly, there is no justification whatsoever for either the purchase price or the profit guarantee. It is not that the company that will be acquired made any profits that are comparable, in the contrary, the numbers provided were tiny and loss making.

We will have to wait how things will develop.


  1. Your comments are truly valid.

    However, a lot of times in business dealings, management cannot reveal much infomation until the acquisition is complete.

    I guess in time, we will see what transpires when they make the announcement.

    In this kind of scenario, an investor would have to "trust " the management and its track record. Good management will make mistakes no doubt too but a good management with a decent track record would a be good bet....

    Just my opinion

  2. Information from Bursa website shown that two major shareholders have acquired about 56% of the equity recently. 56% is a huge stake and investment.

    From my investment experienced, shareholders with high stake will have to doubly certain that their investment is safe and sound; and any new businesses can add value to their investment.

    One good investment experienced that I had was Yinson Holdings, a company specialised in road tranportation that had ventured into oil and gas business in Vietnam a year ago. I had my doubts too when they started the business costing huge investment, more than a billion ringgit. The major shareholder has closed to 60% equity. The worth of my investment had doubled.

    I guess I have to trust the wisdom of management with BIG stake in the company.

    1. Are you hinting that Datuk Chong & Tay Por Yee (or whoever he is representing) will soon launch a Selective Capital Repayment? At what price? Has an MGO been triggered?

      Last week's Announcement seems to show that the few newly appointed directors has been defending the stocks with huge acquisition. Could it be that the Fund Managers are already dumping the shares? Insider news?

  3. Dear M.A. Wind,

    Why not you write on the MRCB-Gapura deal? I think there could be some corporate governance issue here.

  4. Thanks for the tip, if I have time I will look into it, but first have to do some other research.

  5. The Star (business section) reported that Hong Leong Financial Group (HLFG) is taking HL Capital private at RM1.71 per share.

    However, HL Capital share close at RM1.96 yesterday. It was reported that a friendly party to HLFG, Datuk Dr Yu has been buying and increasing his stake in HL Capital to 6.98% with the purpose to help HLFG to delist HL Capital (without increasing the offering price).

    I hope Bursa can look into such unethical method of privatising a listed company.