Saturday 7 December 2013

Ranhill Energy: is the fine really adequate? (2)

I wrote before about Ranhill Energy and the fines and reprimands that were handed out by the Securities Commission. Fast and good action, although I questioned the size of the fines, which appears to be extremely small compared to the size of the deal that was on the table.

According to this article in The Star "Ranhill Energy to retry IPO":

"Tan Sri Hamdan Mohamad is re-submitting the listing application of Ranhill Energy and Resources Bhd to the authorities in a second attempt at floating his water and power assets, sources said.

The move comes just after four months of Ranhill Energy’s initial public offering (IPO) being withdrawn, after it emerged that there had been a disclosure breach related to the suspension of the licences of its affiliate company, Perunding Ranhill Worley Sdn Bhd (PRW), by Petroliam Nasional Bhd for an indefinite period.

Subsequently, the Securities Commission (SC) imposed a fine of RM200,000 on the company, while Hamdan, who is Ranhill Energy’s substantial shareholder, was reprimanded and fined RM300,000 for the failure to disclose the licensing issue.

To recap, Ranhill Energy was supposed to list on Bursa Malaysia on July 31, with about 70% of its RM753mil IPO proceeds to be utilised for the repayment of borrowings. The SC instructed Ranhill Energy to postpone its IPO indefinitely on July 25 in view of the non-disclosure issue. On July 26, Ranhill Energy announced that it had terminated its IPO.

According to Ranhill Energy’s prospectus, it had debts of RM1.93bil and a gearing of 1.61 times as at the end of December 2012.

Investment bankers said that for the listing to be approved this time, Ranhill Energy would have to convince the authorities that the chief executive officer and its directors would not repeat the kind of mistakes they had made with regard to the disclosure of that contract.

They added that it could be an uphill task to garner sufficient investor interest in the company’s listing, considering the recent episode."

First of all, this is one of the articles citing unnamed "sources", we need to wait first for official conformation, to often these "rumours" turn out to be not true at all.

Secondly, it mentions "Ranhill Energy would have to convince the authorities that the chief executive officer and its directors would not repeat the kind of mistakes they had made with regard to the disclosure of that contract".

I think another, more important, matter on hand is that they have to convince the SC if it would be appropriate to apply for a listing so soon again. I actually strongly doubt that, I think it simply undermines the credibility of the market if a company can reapply for an IPO so soon after it made serious mistakes in disclosure. If that would be allowed, then the punishment as meted out by the SC definitely looks insufficient and doesn't act as a deterrent at all.

There is also another matter at hand, according to this article in The Star:
  • Perunding Ranhill Worley Sdn Bhd (PRW), a company controlled by Hamdan.
  • Ranhill Energy relies on PRW for contracts secured from Petronas and that this contract represented a material contribution to Ranhill group’s revenue.
In other words, Hamdan controls PRW, whichs secures contracts from PETRONAS, and (part of) these contracts are then passed through (after marking it up, I assume) to Ranhill Energy.

That means there is a large conflict of interest for Hamdan in dealing with PRW and Ranhill Energy. It would have been much better if PRW and Ranhill Energy would merge, to remove this conflict of interest situation.

A similar, unsatisfactory, situation happened in Metronic Global, which dealt with a company controlled by two directors, about which I wrote here. The additional problem there was that the receivables were "not able to receive", and that Metronic Global didn't seem to be very urgent in proceeding with that matter.

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