Sunday, 28 September 2014

Protasco's Puzzling Purchase (7)

Three independent directors of Nexgram resigned according to announcements on the Bursa website (here, here and here).

The three directors were unanimous in their reason to resign:

"Because of the newspaper report on Protasco Berhad filing legal suit against a director of the Company."

Quite remarkable to give a development in another company as the reason for ones resignation.

The Star published an interesting article regarding this same matter: "More than meets the eye".

"The resignation of three Nexgram Holdings Bhd directors, following a suit by Protasco Bhd against Nexgram founder Tey Por Yee, has raised some eyebrows within industry circles. Observers are questioning the reasons for the directors resigning from Nexgram right away following the suit. The directors in question are Leou Thiam Lai, Ungku Razak Ungku Rahman and Yap Siok Teng. Nexgram, in announcing their resignations to Bursa Malaysia, said that they had resigned “because of the newspaper report on Protasco filing a legal suit against a director of the company”. It, however, did not elaborate. Questions are being raised as to whether there is something else brewing in Nexgram which caused this succession of events."

For the time being it seems Nexgram is "rather light" on independent directors. That however didn't stop the company (listed on the ACE market) from making another announcement, from The Star again:

"Nexgram, which started off as a mobile applications and platform provider, said the proposed acquisition would allow it to “participate in Fiji’s economic development and growth process, which is still currently in the early stages of development” and that the proposed deal would be financed by a combination of internal funds and/or bank borrowings."

I don't immediately see the synergy between a Malaysian based tech company and a Fiji based developer.

Regarding Protasco, an interesting situation seems to be that the company is not taking any steps to remove Tey Por Yee and Ooi Kock Aun as directors, despite filing a legal suit against them for "breach of their fiduciary and statutory duties including the duty to disclose their interest in the transaction, conspiracy to defraud Protasco and the making of secret profit".

Apparently, both Tey and Ooi are still welcome to stay on as directors of Protasco and to join board meetings.

There is quite an interesting web of connections between Protasco, Nexgram and PT Inovisi Infracom Tbk. To be continued.

Wednesday, 24 September 2014

Protasco's Puzzling Purchase (6)

Protasco further announced the following details:

Total amount of claims against the defendants

Against the 1st Defendant
-         A payment of USD22 million;
-         Pre-judgment interest on USD22 million pursuant to Section 11 of the Civil Law Act 1956 from the date of the Writ of Summons until the date of judgment at an interest rate of 5% per annum;
-         Post judgment interest on USD22 million pursuant to Order 42 Rule 12 of the Rules of Court 2012 from the date of judgment till full and final settlement thereof at an interest rate of 5% per annum; and
-         Damages for the breach of the Restated SPA.

Against the 2nd and 3rd Defendants
-         A payment of USD27 million;
-         Pre-judgment interest on USD27 million pursuant to Section 11 of the Civil Law Act 1956 from the date of the Writ of Summons until the date of judgment at an interest rate of 5% per annum;
-         Post judgment interest on USD27 million pursuant to Order 42 Rule 12 of the Rules of Court 2012 from the date of judgment till full and final settlement thereof at an interest rate of 5% per annum;
-         Damages for fraud and conspiracy; and
-         General damages, aggravated and exemplary.

Protasco must have filed their version of the chain of events related to the mysterious purchase with the court. These documents (and the possible articles the defence might produce) must contain many interesting details that are still unknown to many at this moment.

Except for this court case, the big question is if the authorities should take further action. The severity of the alleged events seems to suggest that they might have to look into that.

Monday, 22 September 2014

Protasco's Puzzling Purchase (5)

A pretty shocking (albeit not unexpected, at least for this blogger) announcement by Protasco:

Protasco Berhad (“Protasco” ) wishes to announce that Protasco has today filed a legal suit at the Kuala Lumpur High Court against PT Anglo Slavic Utama (“1st Defendant”) and two of its directors, namely Tey Por Yee (“2nd Defendant”) and Ooi Kock Aun (“3rd Defendant”) (“Legal Proceeding”).

Protasco’s claim against the 1st Defendant is for the refund of the Purchase Price paid under the Restated SPA dated 28 January 2014 and/or damages and/or for damages arising from the breach of contract. Apart from the Restated SPA being void, and as a further or alternative claim, as the Conditions Subsequent were not fulfilled within the Condition Period, Protasco proceeded to terminate the Restated SPA and demanded for the return of the Purchase Price from the 1st Defendant vide its letter dated 4 August 2014.
Protasco’s claim against the 2nd Defendant and the 3rd Defendant is premised on the breach of their fiduciary and statutory duties including the duty to disclose their interest in the transaction, conspiracy to defraud Protasco and the making of secret profit. Protasco is seeking damages against the 2nd Defendant and the 3rd Defendant.
Protasco wishes to state that the Legal Proceeding it has initiated has no significant immediate adverse impact on the current financial position of Protasco. Protasco will make impairment on the Purchase Price if necessary in consultation with its Auditors.

I wrote many times about Protasco and the rather strange proposed acquisition of the Indonesian oil & gas company which didn't seem to make much sense at all (at least to me), most notably here, here, here and here.

Thanks (of course) to the (anonymous) person who drew my attention to this interesting case in the first place. Keep the good comments coming!

Thursday, 18 September 2014

Wall Street Is About To Slowly Torture Macau Investors

I wrote before a very positive story about Macau, this time a very negative story.

The two are perfectly complimentary to each other: short term a bad outlook (partly due to a significant slow down in the Chinese economy), long term a good outlook.

On a personal note, a friend of mine is living in Macau for quite a while and has never seen a blue sky for such a long period. In other words, the Chinese factories, who usually are responsible for the air pollution, are not running on full steam. There are many other similar indicators.

Investors worldwide should be cautious.

From Business Insider:

"Wall Street is turning its back on Macau after months of gaming stock sell offs and the lowest revenue of any summer since 2012.

But it's happening slowly and painfully — with analysts shaving off a percentage point here and there as bad news just gets worse.

That shouldn't be the case, Ray Young of Sterne Agee argued in a recent note in which he took his gross gaming revenue [GGR] estimate to 0%.

Most analysts are still sitting around at 3%.

"We believe our new estimates eliminate a trend representative of “Chinese Water Torture” - constant minor downward estimate revisions on the heels of mostly known GGR disruptive issues," Young wrote.

In other words, all Macau's devils are already here.

This weekend, horrid economic data out of China served as another all-around reminder of what Macau was (and would continue to be) lacking for some time — enough gamers to play the games.
High roller play has suffered the most, disrupted by a $1.3 billion heist that sucked cash out of the financing system Macau uses to fund VIP play.

Even more disruptive has been Chinese President Xi's corruption campaign. After going to Macau and checking things out, Young believes that the campaign isn't just impacting high roller play. Mass market players are feeling it too, and things are about to get even more strict.

"A new anti-money laundering (“AML”) framework may be adopted in Macau within the next 30 days," Young wrote in a note. "While the framework has a few new components, one Government contact believes the real risk for some will be a new “spirit of enforcement” which will come in tandem with the new framework, especially as it relates to know your customer (“KYC”) rules."

In other words, the government might start to care about who spends money in Macau and where they got their money from."

Masterskill: who is Gary How? (2)

I wrote before about the put and call option of Gary How.

Masterskill announced the termination of the said agreement.

He [Mr. How] has expressly confirmed that the he is unable to complete the purchase of the First Party’s shares within the Call Option Period (within 6 months from the date of Call and Put Option Agreement)

Was the agreement ever serious? I always had my doubts (as had the few people who commented on the posting), as expressed in above blog post. The whole sequence of events poses more questions than that is gives answers.

Gary How and related parties are still directors of the company, while holding only a very small percentage of the shares.

Thursday, 11 September 2014

"The Great Australian Investment Ponzi"

A friend pointed me at an interesting, hard hitting blog with the above title, written by someone who calls himself "Dr. Benway".

From Wikipedia: "Dr. Benway is the name of a recurring character in many of William S. Burroughs' novels, including Naked Lunch and Nova Express. He is referred to only as "Dr. Benway" or "Doc Benway" (his first name is never revealed).

He lacks a conscience and is more interested in his surgical performance than his patients' well-being."

The last sentence does indeed seem to be valid for the blog.

In the blog, rather specific cases are mentioned regarding Australian listed companies.

Some of the companies have links to companies listed on the Singapore or Malaysia exchanges, so readers of this blog might be interested.

The readers should themselves judge if they agree with the contents and/or if the wording chosen by "Dr. Benway" is too strong/controversial for their taste. As usual: "reader beware".

Articles regarding the Blumont group: here, here and here.

Articles regarding the Catcha group: here, here and here.

Other articles: here, here and here.

Macau: a new direction

Impressive video from Bloomberg about Macau and its future plans.

This must have an impact also on Malaysia and Singapore, both regarding entertainment and MICE.

Monday, 8 September 2014

Turning S$ 98K into S$ 876M in one month time?

Article on the website of Channel News Asia:

"US firm buys Singapore instant messaging developer HotApps for S$876m"
  • United States company Fragmented Industry Exchange (FIE) will be buying Singapore eDevelopment's (SeD) subsidiary, HotApps International, for US$700 million (S$876 million).
  • SeD had acquired HotApps International, a Singapore-based virtual startup, for S$98,000 in August this year.

That looks like a pretty impressive return in such a short while. Is it possible that HotApps is really that hot?

In a press release on Thursday (Sep 4), the Singapore Exchange (SGX) Catalist-listed SeD said FIE will acquire HotApps for 1 million new shares at US$10 each and US$690 million worth of zero-coupon perpetual bonds - for a total of US$700 million. Once the deal is completed, FIE will hold HotApps - an instant messaging software developer - as a wholly owned subsidiary, it said. SeD, in turn, will own 99.84 per cent of FIE, assuming full conversion of the bonds and the exercise of a call option, it added.

And that seems to be the explanation, there is no cash changing hand, it is purely a paper transaction. The parties did confirm a valuation of US$ 700 million, they basically could have chosen any valuation, especially a valuation close to the S$ 98K for which HotApps was bought just a short while ago. But that would not sound that sexy of course.

David Webb wrote about the CEO of SeD, Chan Heng Fai, in his capacity as Managing Chairman of Xpress Group Ltd, an article that I found so interesting that I mentioned it before. Minority shareholders of SeD might want to take note of that article, after fastening their seatbelts.

"Taking the 15 years together, the Chan family has taken pay of $492.8m, and the total profit attributable to shareholders was...well, there wasn't any. It was a total loss of $247.5m. And let's be clear, none of this pay was a breach of the Listing Rules - because the Listing Rules contain no constraints on such atrocious behaviour. During the same 15-year period, the Webb-site Total Return on the shares was -69.15%."

Sunday, 7 September 2014

The joke is on the auditors when it comes to true figures

Rather frightening (but not unexpected for insiders) article from the SCMP. And very relevant for Chinese listed companies on Bursa or SGX. Although the listed companies are audited by companies in Malaysia and Singapore, the subsidiaries in China are done by Chinese auditors.

It's been such a depressing week. Let's share some jokes.

And the best jokes are the financial figures of many mainland private enterprises, and the fact that some investors actually believe them.

Talk to any auditor or forensic accountant and he or she will tell you why. Here are a few real cases. Sales confirmation is where audit work begins before an initial public offering. Letters are sent to a company's buyers to verify if it has indeed sold what it claims.

More than a decade ago, unsuspecting accountants trusted company management to post the letters seeking confirmation from buyers on their behalf. Unsurprisingly, many got burned by falsified confirmations.

Auditors began to post the letters themselves. Once again, they were cheated. How? Apparently some staff of companies planning listings kindly showed the auditor his or her way to the nearest mail box or office, which turned out to be a fake or a real office with a "fake" postman.

Some auditors were met by "actors" dressing up as managers in real or fabricated offices
The auditors switched to couriers. By now, some of you will have rightly guessed that companies began to hire "actors" to dress up as courier men to collect the parcels.

The trick was uncovered in one case when some hundreds of confirmation letters, supposedly delivered by couriers and then purportedly returned by mail by buyers from all over the mainland were found to bear the chop of just one post office.

The logical response was for auditors to get their own staff to take the letters to the couriers' collection points, listed on their official websites.

Sounds fool-proof? Not necessarily. In at least one case, the company got hold of the reference numbers for the parcels, tracked them down, recalled them, manipulated them and then posted them back to the auditor.

It's no easy task. Think about getting dozens or even hundreds of men and women to bring falsified confirmations to various parts of the country so that they will bear stamps from different post offices on different days to make them look real.

The logistics are amazing.

Bank statements are another way to verify a company's numbers. If the business is real, it should show up in their accounts.

But some auditors were met by "actors" dressing up as bank managers in real or fabricated offices. When auditors then resorted to online statements, other tricks cropped up.

The company's finance officer would insist that the online statement be viewed in his office for security reasons. So under the eyes of the auditor, the officer would log on to his computer, key in the password to the account and show that every number was in line with his claims.

"In our case, it was uncovered by one of our junior staff who jotted down the website on the screen, searched for it in Hong Kong and found nothing," said an auditor at a mid-sized firm.

When confronted, the finance officer said: "Oh, because of security concerns, it can only be reached by a computer within the mainland." It was subsequently confirmed to be a fake.

How about site visits and stock counting to check the figures? Well, staging a robust business using workers, stock and even factories borrowed from friends is not unheard of.

When suspecting auditors began to hide outside factories to count the number of trucks bringing goods in and out, drivers were hired to run empty trucks around the clock. When some smart auditors uncovered lies from the shallow tyre prints of the trucks, stones and bricks were added to make it appear they were carrying products from the factory.

These tricks may sound crude and become obsolete as the mainland economy increasingly becomes digitised and transparent. The cat-and-mouse-style evolution of the scams, however, tells of unyielding determination and creativity in book-cooking.

This is because the returns are massive. Upon listing, one gets three things: the cash from the public offering; cheap bank loans by pledging the listing proceeds and a controlling stake.

At the same time, the penalties are minimal. After all, the Hong Kong regulators cannot throw you in jail unless you are stupid enough to cross the border or you have messed up with someone powerful.

Remember China Forestry, which was found to have cooked its books with falsified bank statements in 2011? No one has been penalised so far.

Thursday, 4 September 2014

Shenzhen: visiting the world's manufacturing ecosystem

Great article by Joi Ito about the amazing ecosystem in Shenzen, one snippet:

Next we went to another kind of market. When we walked in, bunnie whispered to me, "EVERYTHING here is fake." There were "SVMSMUG" phones and things that looked like all kinds of phones we know. However, the more interesting phones were the phones that weren't like anything that existed anywhere else. Keychains, boom boxes, little cars, shiny ones, blinky ones -- it was an explosion of every possible iteration on phones that you could imagine. Many were designed by the so-called Shanzhai pirates who started by mostly making knockoffs of existing phones, but had become agile innovation shops for all kind of new ideas because of the proximity to the manufacturing ecosystem. They had access to the factories, but more importantly, they had access to the trade skills (and secrets) of all of the big brand phone manufacturers whose schematics could be found for sale in shops. These schematics and the engineers in the factories knew the state of the art and could apply this know-how to their own scrappy designs that could be more experimental and crazy. In fact many new technologies had been invented by these "pirates" such as the dual sim card phone.

The other amazing thing was the cost. There is a very low cost chipset that bunnie talks about that seems to be driving these phones which is not available outside of China, but they appear to do quad-band GSM, bluetooth, SMS, etc. on a chip that costs about $2. The retail price of the cheapest full featured phone is about $9. Yes. $9.

Tuesday, 2 September 2014

Aircel-Maxis case: are the Malaysian authorities refusing to cooperate? (2)

Astro Malaysia Holdings Berhad announced today:

"Astro Malaysia Holdings Berhad (“AMH”) refers to the media statement issued by Astro All Asia Networks Limited ("AAANL") that the Central Bureau of Investigation, India (“CBI”) has on 29 August 2014 filed a charge-sheet in relation to, among other things, AAANL's acquisition of shares in Sun Direct TV Private Limited in 2007. The media statement states that AAANL has learnt from media reports in India that the charge-sheet names AAANL, Mr. T. Ananda Krishnan and Mr. Augustus Ralph Marshall, amongst others.

Mr. T. Ananda Krishnan has a deemed substantial indirect interest in both AMH and AAANL while Mr. Augustus Ralph Marshall is a non-executive director of AMH as well as a director of AAANL.

We wish to clarify that AAANL is a separate and distinct legal entity and is not a member of the AMH Group of Companies.

This charge does not implicate, nor impact AMH, the entity listed on Bursa Malaysia Securities Berhad."

Maxis Berhad announced today:

"Maxis Berhad refers to the announcement made on 10 October 2011.

Maxis Berhad refers to the press release issued by Maxis Communications Berhad (MCB) today pertaining to media reports that the Central Bureau of Investigation, India has on 29 August 2014 filed a charge-sheet in relation to, among other things, MCB’S acquisition of Aircel Limited from Siva Ventures Limited in 2006. The charge-sheet names, amongst others, MCB, Mr. Augustus Ralph Marshall (a non-executive director of Maxis Berhad and MCB)  and Mr. T. Ananda Krishnan (who has a deemed substantial indirect interest in both Maxis and MCB).
This development does not implicate and will not have any impact on Maxis Berhad, the entity listed on Bursa Malaysia Securities Berhad."

That is of course good news for the current shareholders of Astro Malaysia Holdings Berhad and Maxis Berhad.

But the case is still highly relevant for Astro All Asia Networks Limited  and Maxis Communications Berhad, both their Board of Directors and their shareholders, during the above mentioned acquisitions in 2006 and 2007. And thus also for the Malaysian authorities.

Interestingly, both companies were subsequent to the alleged events delisted, Maxis Communications Berhad in July 2007, Astro All Asia Networks Limited  in June 2010.

And both were relisted again, but under a different name and in a different corporate structure: Maxis Berhad in November 2009 and Astro Malaysia Holdings Berhad in September 2012.

And both in such a way that "this charge does not implicate, nor impact" them, according to the above two announcements.

Was that one of the reasons behind the delisting and subsequent relisting (in a different structure) of both companies?

More information at The Malay Mail:

"Maxis denies wrongdoing in Indian telco scandal, scrambles for investment treaty shields"