Tuesday 1 October 2013

XiDeLang: why does it want to raise money?

Received a comment from Imenwe about XiDeLangs announcement of a rights issue.

The "meat" of the proposal can be found here:

Lets try to dissect the parts:
  • A Rights issue, which means [a] new shares and [b] money from shareholders to the company (comparable to a negative dividend); apparently it needs more money;
  • Free warrants, sounds great, until one realizes that all shareholders will receive them (pro rata), and thus there is no value created; however, if at the maturity date the warrant is "in the money", all holders of the warrants should exercise them, meaning another stream of money from shareholders to the company; apparently the company needs even more money;
  • Free Bonus shares, again, sounds great, until one realizes that all shareholders will receive them (pro rata); in plain English: a useless exercise which results in the cake being cut into more pieces.

The utilisation of the proceeds:

First of all, these kind of proposals cost money, in this case RM 1 Million. Not that much (given the amounts involved), but still, why waste precious money?

Secondly, the proposed utilisation is for the "D&P Centre", with a maximum amount mentioned of RM 112 million.

We would expect the company not to have enough funds, but after checking the latest accounts, is seems it actually does have ample funds:

Profit in the last quarter (RM 24M) and half year (RM 45M) were also healthy, although down compared to the year before.

That leaves one intriguing question: if XiDeLang has ample cash to pay for the new building, why does it propose the rights issue?

The company should not transfer money from shareholders (rights issue, exercise of warrants) but should instead transfer excess cash to shareholders (dividends).

The proposal seems puzzling, to say the least, and does raise enough questions.

In general: China listed companies on the Bursa Malaysia are acting in a suspicious way, on one side they are reporting healthy earnings and strong balance sheets, on the other hand they completely don't act like it.

I guess Bursa can not stop these kind of rights issues, nor can it force companies to distribute excess cash to its shareholders.

But it can stop the source of all these problems, by not allowing anymore China listed company to list on Bursa. And that is long overdue.


  1. Will you put this company into your list of fraud cases in Bursa< well I mean potential fraud case?

  2. The company will feature on my list of suspect companies, but all China based companies are on it already.

    A good test would be to look at all China based companies, and to check which company has consistently received the lowest interest rate on its cash holdings. That would be a prime candidate for a company systematically overstating its cash balance. I hope to have some time in the future to do that comparison.

  3. Not sure what investors are thinking...

  4. In the "good old days" (the 1990's) any announcement (bonus, rights, warrant, ICULS, preferably a combination of these) would attract attention and the share would rise in high volume. I thought that "investors" who chased issues like that were all flushed out, hopefully after learning their lesson. Now I start to doubt .....

  5. http://www.bfm.my/sm-salvatore-dali-malaysiafinance-xdl-financial-blogger.html