Tuesday, 18 June 2013

Puncak Niaga issues (2)

I wrote before about Puncak Niaga.

Puncak Niaga has responded to the issues raised by MSWG, the link can be found on  MSWG's website, the full letter here.

Although I appreciate that the company has responded, I am not exactly convinced by the answers given:


Utilisation of proceeds was unclear (i):

Company basically agrees with that, but it happens more often. That could very well be so, but it would have been much better if there was a clear reason to raise money. Also, the company just declared a dividend, what is the use of on one side raising funds and on the other hands paying out dividends? It doesn't make much sense, all these exercises only cost money (commissions and expenses).


The dilution effect of the sukuk issue (ii):

If all shareholders receive free warrants pro rate to their shareholding, then that is a zero game for all shareholders involved. In actual fact, it is even a slightly negative game, since (again) expenses are occurred. Shareholders who are somewhat more clever with buying, selling and exercising of warrants due to a better understanding will make some money, at the expenses of the shareholders who don't understand them that well. There is no free money here.


The placees were not identified (iii):

"It is market practice that the placees are not identified". Unfortunately, this is indeed true, but I don't like this at all, I think the authorities should change this rule. At an IPO the existing shareholders are revealed, at one moment in the year, the top 30 shareholders are revealed, I think there is no reason why placees should not be revealed. If they don't like that, then they should not participate. Minority shareholders deserve transparency which parties receive these opportunities that are not available to others.


The profit sharing/bond yield and conversion price were not revealed (iv):

"The whole process took so long time in which conditions could have been changed". First of all, the company was not forced to go into this fund raising exercise. Secondly, there might be a lesson here to shorten the whole process. And lastly, if the rates are not known, how can the shareholders take a informed decision about the reasonableness of the exercise? The devil is in the details, the quality of the offer depends on these ratio's.


The company should have considered a right issue I which all shareholders could participate (v):

There was uncertainty regarding the underwriting. But the company didn't clearly state that it was not possible to underwrite the rights issue. A rights issue, in which each shareholder can decide for themselves to participate or not, makes much more sense and is much fairer to all parties involved.


The high gearing ratio (vi):

The company admits there are a lot of loans at the SYABAS level, but they are to be repaid by tariff hikes. Consumers better take note of this, they will foot the bill.


Puncak Niaga is a company with lots of Corporate Governance issues: a patchy track record with losses in four out of the last five years, the company is involved in many court cases, the CEO is paid wages that seem excessive, and the above issue has raised too many questions, despite the clarifications given.

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