Monday, 2 September 2013

And Indofood makes an offer .....

The Minzhong/Glaucus saga took yet another turn, this time majority investor Indofood (PT Indofood Sukses MakmurTBK) made an offer to acquire the shares of Minzhong for SGD 1.12 per share. The announcement can be found here.

Surely most minority investors of Minzhong, who must have worried a lot over the weekend, will be happy with this new development.

Minority investors of Indofood however might not share this joy, the share of Indofood went more than 9% down today on the news of the acquisition.

If Glaucus will still respond to the defence put up by the management of Minzhong, I don't know, I definitely hope so, but it might not be useful anymore given the take-over offer by Indofood.

Since Indofood is a listed company, observers might still be able to follow the future performance of Minzhong. And that might give an indication who eventually was right, Glaucus or the management of Minzhong or both to a certain extent.

Today in The Straits Times a rather strange (at least in my humble opinon) article appeared under the title "Time to rein in errant short-sellers" by Goh Eng Yeow.  The article is behind a paywall, but the text can be found here.

Some snippets, with my comments in red:

"The time has surely come to deal with the foreign short-sellers who have been wreaking havoc on the local stock market."

Wreaking havoc? Only two companies, Olam in November 2012 and Menzhong last week, while both have had their fair share of criticism before the reports of the short sellers came out.

Olams case: in response to the report the company has shored up its balance sheet with a rights issue, has tidied up its balance sheet and has increased communications with the investors. Olam also dropped its planned court case against Muddy Waters. Net effect has been (very) positive for the shareholders of Olam.

Minzhongs case: Glaucus came with a report that looked initially quite impressive, Minzhong came with a decent, equally lengthy answer, Glaucus has yet to respond.

For both companies, the jury is still out, much too early to tell, especially in Minzhong's case.

But even more interesting, who wrote the following:

"Those which act responsibly like Glaucus by providing full disclosure can complement regulatory efforts and should be viewed as an important component of the governance framework."?

The answer is none other than The Business Times, sister organisation of The Straits Times, both owned by SPH.

"The latest attack came last week and sent the market into a spin, yet the basis of the seller's claims against a locally listed firm did not appear to stand up to much scrutiny."

One single China based company send the Singaporean share market into a spin?

Glaucus' report does not stand up to much scrutiny? Everyone his opinion, but I think it is much too early to draw that conclusion. I don't think the statements by Minzhong have been checked yet, also, there is still enough room for questions.

Short-sellers sell borrowed stocks in the belief that the share price will fall, resulting in a handy profit if their bets prove correct.  But the means some of them use to try to herd other investors into making those bets pay off leave much to be desired.

And what about people who have long positions and make all kind of bullish projections/rumours, not based on any reality, sending the shares up, enabling them to sell their shares at a profit?

There has to be symmetry in this argument, Glaucus is at least transparent about it's position.

But the fact is that Glaucus has a chequered record. US-listed China real estate website play SouFun Holdings, which it attacked in April, has since doubled in price.

There is no short-seller with a 100% track record. There is also no fund manager being "long" with a 100% track record of making profits. Being a short-seller is extremely tough, since on average shares will increase in value.

True, there are US activist hedge funds that claim to play a vigilante role in the market by uncovering fraud in misbehaving publicly listed firms by taking up "short" positions against them and then publishing damning reports to drive the share price down. Since they are people who purportedly put their money where their mouth is, this is supposed to give credence to their allegations. But the fact remains that most of these operators are unregulated, unlicensed research outfits, unlike the professional stock analysts employed by banks and stockbroking outfits, who are subject to a host of tough rules imposed by the Monetary Authority of Singapore (MAS) and the Singapore Exchange.

I am following the share markets for more than 20 years, but I have never taken any report from any broker ever serious. In much too many cases they are conflicted and simply can't issue a "sell" advice, even if they want to. To assume otherwise would be extremely na├»ve.

"Professional stock analyst", sorry to say, I find many disappointing, if they would really be good they probably would be fund manager.

The fact that MAS is regulating their operations has nothing to do with the quality (or lack of it) of the broker recommendations.

What the MAS has to do is to examine Glaucus' allegations carefully and determine if any securities laws have been broken - and ask for redress from its US counterpart, if this is indeed the case.

And what the SGX has to do is to examine Glaucus' allegations carefully and determine if any securities laws have been broken by Minzhong - and ask for redress from its China counterpart, if this is indeed the case.

On our part, efforts should be made to level the playing field. For a start, let us make it mandatory for all short-sellers to disclose their positions. The current practice of asking them to volunteer the information simply does not wash.

I am all in favour of transparency. But now we are at it, shouldn't all writers of all reports also declare their positions, be it short or long?

If the SGX (or Bursa Malaysia for that matter) doesn't want these kind of short-sellers, then they should simply ban short selling: "if you can't stand the heat, get out of the kitchen".

If there had been more of these short-sellers a few years ago, who had signalled the many, many fraud cases in China listed companies on the SGX, surely the damage would have been much more limited, the SGX would have taken more measures at an earlier stage, the public would have incurred much less damage and the reputation of the SGX would have been much better.

"Time to rein in errant short-sellers", I would prefer "Time to rein in errant journalists".


  1. M.A. Wind,

    I agree with you if only short-sellers had challenged the S-chips in SGX much earlier, less retail investors would have been hurt today.

    Retail investors can be a funny group.

    When a S-chip has gone to zero due to fraud, no one question the sell-side analysts on their blue sky optimistic forecasts and lofty target prices? And that's OK?

    Where were the media journalists on these "errant" long only analysts?