Sunday 31 January 2016

To Cliq or not to Cliq? (5)

I have been rather sceptical about Cliq's qualifying proposal.

The company announced on Bursa the following (some snippets, emphasis mine):


.... the SC had vide its letter dated 29 January 2016 addressed to Maybank IB, returned the Application as the SC is unable to proceed with its review due to required information and documents that have yet to be submitted to the SC relating to several fundamental matters in relation to the Application that have yet to be addressed, in particular:

(i)         Supporting data used in the assessment of the volume of oil reserves by the independent technical expert that has yet to be provided to the SC. Without this, the SC is unable to determine if disclosures to shareholders of CLIQ are appropriate;

(ii)         An independent expert was appointed to provide a fairness opinion as required under item 4, Part F of Appendix 10B of the Main Market Listing Requirements issued by Bursa Securities (“Fairness Opinion”). However, the independent expert has relied on the asset valuation report prepared by the asset valuation expert, despite not taking a view on the reasonableness of the report and its contents, in arriving at its fairness opinion. This qualification has been specifically stated in its Fairness Opinion. As a result, shareholders of CLIQ would not have the benefit of a fairness opinion that encompasses all aspects that they need to consider to make an informed decision; and

(iii)        The technical reports prepared by the independent technical expert and the Fairness Opinion have not been updated to reflect the current oil prices trends. This is not in compliance with paragraph 3.34 of the SC’s Guidelines on Due Diligence Conduct for Corporate Proposals.

The Company has taken all reasonable efforts to address the above required information and documents in relation to the Application. However, the Company had also encountered certain unanticipated external factors beyond its control namely:

(i)         substantial drop in oil price since the signing of the SPA on 24 March 2015; and

(ii)         substantial depreciation of RM against USD which resulted in the shortfall of cash available to satisfy the purchase consideration for the Proposed Acquisition.

In addition, the Company was unable to obtain certain information from third parties to support the assessment of the volume of oil reserves and consequently, the relevant updated reports which were all required for the Application.

The Board will deliberate on the next course of action to be taken and an announcement will be made by the Company in due course.


I would like to add that the economy of Kazakhstan and its currency also have been hit severely by the sharp decline of commodities. I am pretty sure that therefore the sellers would like the deal to continue (all foreign money is probably welcome at the moment).

But is this deal at the agreed price, given the current situation in the oil and gas industry, in the best interest of the shareholders of Cliq? Time will tell.

Saturday 16 January 2016

Former Protasco director charged with RM 68 Million fraud

From Bernama:


"A former director of Protasco Bhd was charged in the Ampang Sessions Court today with fraud involving RM68 million, and making a false declaration, four years ago.

Datuk Tey Por Yee, 40, claimed trial to both charges.

On the first charge, he is accused of concealing information from the company's board of directors and officers that he had a vested interest in a company, PT Anglo Slavic Utama in Indonesia.

In so doing, he allegedly misled the victims into entering into an oil and gas investment agreement with PT Anglo Slavic Utama through the purchase of 63 per cent of PT Anglo Slavic's shares in Indonesia worth USD22 million (RM68,393,170).

The payment for the shares was allegedly channeled in stages to two CIMB PT ASU accounts.

Tey is accused of committing the offence at Protasco Bhd's office at Corporate Building Unipark Suria, Jalan Ikram-Uniten, Kajang here, between November 2012 and Jan 30, 2014.

On the second charge, he allegedly made a sworn false statement before Wern Li Morsingh, a Commissioner of Oaths that he did not have any vested interests in PT Anglo Slavic Utama, whether as a director or shareholder.

He is accused of committing the offence in the company's conference room at the same place on July 25, 2014."


Almost exactly three years ago I wrote "Protasco's Puzzling Purchase", the start of many articles about Protasco.

I wrote:

"The vendor is 99% owned by Anglo Slavic Petrogas Ltd, a company registered in the British Virgin Islands, no background is given, a search on the internet returns nothing; who is behind this company, what is their track record?"

In the second instalment of the series of articles I asked the question:

"An anonymous person pointed at the possible role that Adrian Ooi Kock Aun plays in the deal, he was appointed to the board of Protasco just before the deal was announced December 2012. He is the CFO of PT Inovisi Infracom Tbk, an Indonesian listed company that also invests in oil & gas. The guarantees that are given out are based on a large block of shares of PT Inovisi Infracom Tbk. Surely Adrian Ooi must be aware of the identity of this large shareholder who is most likely the person/company behind Anglo Slavic Petrogas, the seller. Should this information not be made public?"


It looks like the announced court case is hitting directly at the above issued raised, it will be interesting to follow.

Another question that remains unanswered: should the Board of Directors of Protasco have been more active in digging for information in this case? The same question can be asked regarding the authorities.

Wednesday 13 January 2016

HeveaBoard responds to accusations

It is not often that a listed company reacts on allegations from an unofficial source, but that is exactly what HeveaBoard did.

The Bursa announcement can be found here, the allegations as published on the i3investor website here.

Some snippets, with comments by me in red.


The contents made in those articles are untrue, defamatory and malicious in nature.

Does "The contents" refer to all contents, or only some (if so, which ones)?


The civil suit (“Suit”) filed in the High Court of Malaya in Seremban (“Seremban High Court”) in September 2014 is a suit brought under Section 181 of the Companies Act 1965 by the minority shareholders of HeveaWood Industries Sdn Bhd (“HeveaWood”) against the majority shareholders of HeveaWood (i.e. Yong Kian Seng @ Yoong Tein Seng, Yoong Hau Chun, Tenson Holdings Sdn Bhd, Firama Holdings Sdn Bhd and HeveaWood Industries Sdn Bhd). The minority shareholders alleged that they have been oppressed by the majority shareholders, and non payment of dividends by HeveaWood was one of the allegations made. On a separate note, the Company had not paid any dividends during the financial years ended 2009 to 2012 due to its financial position during that period of time. 

HeveaWood should not be confused with the Company. HeveaWood is a substantial shareholder of the Company and is a private limited company.  

This Suit had been decided by the Seremban High Court in favour of the majority shareholders. The minority shareholders have subsequently filed an appeal against the decision of the Seremban High Court.  

As the Suit does not involve the Company and is at the shareholders’ level, it is a private matter and there is no legal requirement for the Company to make any announcements to Bursa Malaysia Securities Berhad on the same. The Suit has no bearing on the governance of the Company.

That last sentence might be right from a legal point of view, but if the parties involved in HeveaWood are (substantially) the same who run HeveaBoard, then minority investors of HeveaBoard might be quite interested in this suit and the outcome of it.


As for the allegation of 700 containers of the Company being stranded in a port in South Korea in October 2015 due to non-conformance of quality standards, the Company reiterates that this is untrue. The South Korean authority had changed its standard of panel products from E2 boards to E1. As South Korean E1 testing standards differed slightly, the Company had decided to delay its shipment to South Korea pending clarification on new testing standards applicable to its products. As of to-date, this matter has been resolved.

Does that mean that 700 containers were indeed stranded and have now been processed?


In respect of the allegation of ingenuity accounting in that there were discrepancies between the amounts owed by related parties to HeveaWood and the amounts owed by the Company to related parties, the Company understands that in addition to the amount owing by the Company to HeveaWood, there are other amounts due from other related parties to HeveaWood. Hence, the alleged discrepancies. The amount owing to HeveaWood by the Company is intended to be repaid in 2016.

".... there are other amounts due from other related parties .....", that sounds very vague, was this not the right moment to clear the air regarding this matter, once and for all?

Saturday 9 January 2016

Rating agencies are mostly useless

I have written about rating agencies before, in not too positive terms, being hopelessly slow and conflicted.

Standard & Poor's has added further to this impression by downgrading Noble Group's rating to junk only now:


"S&P lowered Noble Group’s rating to BB+ from BBB- and placed it on watch for further possible downgrade, the ratings company said in a statement on Thursday, following a similar move by Moody’s Investors Service in late December. Noble’s dollar bonds due in 2020 dropped to a record low of 54.78 cents on the dollar, according to prices compiled by Bloomberg."


Iceberg Research, the company that started to roll the ball in this case almost one full year ago, wrote this about the downgrade:


S&P has downgraded Noble Group to junk today, following a similar move by Moody’s.

The downgrade validates one of our main arguments against Noble: this company has never been investment grade. In fact, the question is why did it take so long when it was clear that Noble has been bleeding cash for years, and after we showed that profitability was supported by dubious mark-to-market?

The decision will have an important impact on Noble’s liquidity and the perception of its creditors. This further complicates the refinancing of its debt. Noble’s annual results will soon be audited and we doubt that this time, EY will take more legal risks when they sign off on the accounts.

The financial manipulations were conducted to artificially preserve the investment grade rating. The accounting illusion is now over. With a share price down 71% since our first report, and strong doubts over the balance sheet, Noble is facing an even more acute crisis. The group is slowly moving toward bankruptcy.

Most of our arguments on Noble’s accounting have already become facts. This management has completely lost credibility. It is urgent for Noble’s stakeholders to replace Mr. Elman and Mr. Alireza before the company sinks with them.

Thursday 7 January 2016

Dangers of Private Equity

I am not exactly a fan of PE (Private Equity), have read to many horror stories about this industry. Too often it involves asset stripping and a huge amount of leverage. I guess there are exceptions though, although I haven't seen many.

One interesting read in this category is the following:

"Dick Smith is the Greatest Private Equity Heist of All Time"

"Want to know how to turn $10m in to $520m in less than two years? Just ask Anchorage Capital. The private equity group has pulled off one of the great heists of all time, using all the tricks in the book, to turn Dick Smith from a $10m piece of mutton into a $520m lamb."

And the not unexpected follow up:

"Why Banks Pulled the Pin on Dick Smith"

Sunday 3 January 2016

When will Hibiscus bloom? (4)

There has been confusion regarding the size of a stake in subsidiaries of Hibiscus Petroleum. The company was queried by Bursa and gave some answers.

It looks like a rather murky affair, with lots of legal angles, many of them in jurisdictions outside Malaysia, very difficult to evaluate. These kind of legal battles tend to be costly and can take a long time to resolve.

Kinibiz wrote an interesting article about the affair, some snippets:


This leaves Lime Petroleum Plc – in which Hibiscus Petroleum has 35% – with just 3.51% compared to 73.82% previously.

According to a report by Singapore Business Times, LPN cut its share capital from 382 million Norwegian krone to 80.32 million krone by accounting for 30.9 million krone of uncovered losses and transferring 270.8 million krone to other equity. Then 900,000 LPN shares held by Rex were cancelled and Rex then reinvested the 77.4 million krone it received into LPN for new shares.

On Dec 14, 2015, Singapore Stock Exchange-listed Rex International Holdings Limited, which owns Rex Middle East, announced that it now controls 98.77% of LPN – up from 73.82% –following a restructuring of the company’s capital.

....

In other words, surely Hibiscus Petroleum had knowledge of the exercise proceeding as a shareholder. What went wrong?

Among others, shareholders tracking Hibiscus Petroleum’s filings to Bursa Malaysia would not know much detail of what sort of restructuring took place at LPN. There is also scant information on how much was disclosed to Hibiscus Petroleum prior to the restructuring taking place and how accurate the company thinks this information may have been.

A number of questions rise for the average minority shareholder in Hibiscus Petroleum as well as the market at large, given the relative scarcity of information as to what really happened leading to this remarkable dilution in one company.


Hibiscus is raising money through a private placement (as it had done many times before), which will give some much needed support to its balance sheet. But at a share price much lower than most other shareholders paid for their shares, giving rise to large dilution.

From the moment that SPACs were announced by the authorities a few years ago, I have been very skeptical about them. I don't see yet any reason to change that stance.

Saturday 2 January 2016

Utusan crushes Buffett's track record (2)

Utusan was queried by Bursa regarding the mysterious deal in which they made such a huge profit in such a short timespan.

Some excerpts:

  • .... has since recently been more active in seeking to create its own land banks for future property development.
  • .... there is no property development projects which have been launched by Maqamad or to be launched. However Maqamad is in the process of finalising a certain land deal.
  • .... Utusan is unable to disclose the details of the land deal as it will jeopardise the successful financial and legal closure of the said land deal.
  • Shareholders' funds/Net Assets (‘NA’) (1,803,910)

In other words, hardly any concrete information except that there might be a "certain" land deal. All as expected, if I might add.

Although Utusan might have crushed Buffett's record, I doubt that Buffett would have the least interest to invest in this company.