Friday, 20 September 2013

Lending money to a related company is a no-no (2)

I received a lot of hits recently on my previous post of eight months ago:

Lending money to a related company is a no-no.

The reason for this is that Related Party Transactions (in the normal course of business) have to be approved yearly, and it was the time of the year again for Panasonic.

The circular to the shareholders can be found here.

Unfortunately, it seems that Panasonic wants to continue with its practice of lending out huge amounts of money to a 100% owned subsidiary (PFI, Panasonic Financial Centre Malaysia) of its controlling shareholder.

The important paragraph can be found here:

The lowest amount of money at the end of each month was a whopping RM 444,000,000.00!

Surely not all that money is needed as a reserve for a rainy day?

I don't have anything further to add to my previous article, I definitely can't improve on the way David Webb worded his objections against this bad governance practice.

I hope that active fund managers like Aberdeen Asset Management (they own 14% of Panasonic) and organisations like MSWG openly voice their dissatisfaction with the above matter at EGMs or in the press.

Hopefully one day Panasonic will change its way, and return back the excess cash to its shareholders in the form of a large cash dividend.

There are about 1,000 companies listed on the Bursa Malaysia, and Panasonic easily belongs to the best 100 companies, if not better, the above is therefore really a shame.

Unfortunately, it looks like there will not be a change any time soon, since the proposal to continue with these practices was approved. The exact amount and percentages of votes were not revealed though, which is also disappointing.

It would be interesting to know how government linked funds (GLFs) have acted on this matter, I have a suspicion that they are much to passive in voicing their concern and that they might not always vote in the best interest of the minority shareholders. They are managing public money, so there should be lots of transparency here.

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