Sunday, 12 November 2017

Sime Darby: what happened after its merger? (2)

Long article in The Star: Sizing up Sime Darby’s demerger

But what is missing?

First of all one simple number, how much will this demerger actually cost? Surely this number should have been disclosed in a transparent manner.

The previous exercise in which Sime Darby was merged with Golden Hope and Kumpulan Guthrie was rumoured to have cost RM 500 Million, that is a lot of money. Most likely this demerger will cost a similar amount of money. This cost is certain to happen, possible benefits are just projections, there is a large difference between a certain cost and possible future benefits.

Secondly, were the expectations of that previous merger met? According to this link:

Were those annual benefits of RM 400 - 475 Million ever realized? I strongly doubt it, Sime Darby's results have been disappointing since the merger. But would it not be better to analyze first what went wrong the last decade, and communicate these findings in a transparent way to the shareholders?

Thirdly, if this demerger really makes so much sense, why was it not done ten years earlier, when the merger took place? It could have saved hundreds of millions of fees and costs with the company having the possible benefits over the last decade.

Monday, 6 November 2017

China Ouhua: red wine and red flags (5)

I have written several times before about China Ouhua Winery, and not exactly in "glowing terms". To be more exact, I haven't found a single positive aspect regarding this company.

I was therefore rather surprised when I noticed the following:

According to the website of The Edge, Fundamental Score is defined as:

The Fundamental Score is a snapshot of a company’s fundamental strength, derived from historical numbers. For those who are not familiar with financial jargons, we have condensed some of the most often-used ratios into this "Score" to reflect a company’s profitability and balance sheet strength.

The Fundamental Score ranges from 0 to 3 for easy understanding. A score of 0 means weak fundamentals and a score of 3 means strong fundamentals.

The definition of the Valuation Score is as follows:

If you are unfamiliar with financial jargons, we have condensed several of the most-often used valuation benchmarks into a Valuation Score of 0 to 3 – to determine if a stock is attractively valued or not, at this point in time.

A Valuation Score of 0 means valuations are not attractive. Vice versa, a score of 3 means valuations are attractive.

That means that China Ouhua has a fundamental strength (1.80) that is better than average and a somewhat attractive valuation (0.90).

Somewhere in the database and/or algorithms of The Edge, something must have gone horribly wrong.

Surely both the fundamental and valuation score for China Ouhua have to be 0.00.

For more background on the company and to get a flavour what this company is about (hint: managing the winery is not exacty their forte), please check the previous articles.

Saturday, 4 November 2017

Bots can give "annual returns of over 40 percent" ......?

There is a lot going on in the fintech world and while I am hesitant about certain directions (I am definitely not convinced about digital currencies like bitcoin), I do agree that I might simply be wrong (some would say: "too old to understand this").

One new direction of fintech is regarding robot programs that place automatically trades based on programs provided and certain parameters that the user chooses. My eye caught the following announcement on TechInAsia's website:

Robo-investor AlgoMerchant begins trading after $2m-plus funding

Everyman securities trading platform AlgoMerchant will officially launch this month after raising more than US$2 million in funding from East Ventures and a “network of prominent individuals in the fund management and broking industry.”

The Singapore-based startup offers a range of robo-traders that allow investors of all shades – from part-time retail investors to professionals and high-net-worth individuals – to automate securities trading through their personal trading accounts.

The robo-traders use data analytics and machine learning tech to automate trading, while also avoiding delays and human error. The basic service is free, while a range of premium packages can be paid for.

AlgoMerchant said it collaborates with freelance quantitative traders  – in other words, those that specialize in automated trading – and data scientists from around the world to discover profitable investment algorithms. More than 1,000 traders tested out the service during its nine-month beta phase.

So far so good, it definitely sounds interesting.

But I almost dropped out of my chair when I read the following:

Forty percent returns

The startup claims that its bots can give everyday retail investors “an edge similar to resource-rich top quantitative hedge funds,” securing projected annual returns of over 40 percent.

Annual, consistent returns of over 40 percent are simply from another world. Even Warren Buffets returns would pale in comparison to those.

Just as an example, $ 10,000 would turn into $ 8,360,000 over 20 years using 40 percent returns. I guess we all would love that, it would for instance solve all pension problems of the world.

But worrisome, there is no basis whatsoever given in the article for these kind of returns, it looks like they are plucked from the sky.

On the company's website the only thing I can find regarding returns is this:

The majority of retail investors’ portfolios follow the returns of the market. AlgoMerchant’s strategies, however, are alpha-seeking and target upwards of 20% per annum.

Suddenly the "over 40 percent returns" has changed into "upwards of 20% per annum".

Following the same example, $ 10,000 would turn over 20 years into $ 383,000.

Not bad at all, but a rather far cry from the $ 8,360,000 based on 40% returns.

The graph supporting these claims is as follows:

Two obervations:

  • The starting point of any simulation is very important. In this case the company used January 1, 2008, in other words exactly at the start of the global recession. Thirteen months later equity markets are down 47%, the company claims Paladin (their algorithm) would theoretically be up by 45%, a huge outperformance by all means in a rather short while. But that crisis is a "one in a generation" event, it is very tricky to start a simulation exactly there.
  • After the crisis, the central banks started the largest financial "experiment" (QE, quantitative easing) ever, driving interest rates down to a level not seen in 5,000 years. Again, the question is, how would Paladin have theoretically performed under more "normal" circumstances?

My guess is that these hypothetical results are derived from optimising on the data itself, causing over optimisation (especially given the rather unique circumstances of the last ten years), and thus generating much too rosy projections of future returns.

Friday, 3 November 2017

Sapura Energy: excessive remuneration for Directors? (3)

Article in The Star: Sapura Energy tumbles on Mokhzani’s exit

One snippet:

Shares of Sapura Energy Bhd tumbled more than 9% in early Thursday trade following report that Tan Sri Mokhzani Mahathir is disposing off his entire stake in oil and gas services company.

This is the second time Mokhzani is offloading its stake in an oil and gas firm. In 2015, Mokhzani’s private vehicle, Khasera Baru Sdn Bhd sold off a block of 190.3 million shares in SapuraKencana Petroleum Bhd for close to RM820mil in total.

Industry players said Mokhzani’s exit did not come as a surprise. They added that Mokhzani believed the oil and gas industry was a global issue and prefers to redeploy his resources in other investments.

Mokhzani through Khasera Baru has a 10.10% stake in Sapura Energy. 

According to a term sheet, Mokhzani is looking to sell up to RM905.1mil of Sapura Energy shares.

The bookbuilding range for the offer represents 605 million Sapura Energy shares was between RM1.42 and RM1.49 a share.

The price range represents an 8% to 12.3% discount to Sapura Energy’s closing price of RM1.62 on Wednesday ahead of the bookbuilding launch.

Khasera Baru will not own any Sapura Energy shares after the sale.

"Industry players" said "Mokhzani believed the oil and gas industry was a global issue and prefers to redeploy his resources in other investments".

May be, but could this (yearly renumeration of RM 84M, most likely by the CEO) or this (RM 70M yearly fees, most likely to a company linked to the same person) while the company was losing more than half a billion RM over the last two years have to do with it?

Also taking into consideration that two resolutions were voted against by 18% and 22% of the votes, rather unusual in the Malaysian context.

The sale is suprising given that the share price is roughly at its lowest point of the last five years. Why would anybody want to sell now, especially since it looks like the price of oil has turned and oil inventories are running low?

I guess there is more to the story than "Mokhzani believing the oil and gas industry was a global issue".

Sunday, 29 October 2017

Hiap Teck untimely announcement by substantial shareholder

Hiap Teck made the following announcement:

One year and four months late, Shougang International gives a whole new meaning to the definition of "timely disclosure".

From the 2016 annual report:

Shougang International is still listed as a substantial shareholder, is that still correct?

I have written several times already about this issue, it should be relatively easy to automate these types of announcements regarding shareholding by directors and substantial shareholders. Why has that not yet happened?

Monday, 16 October 2017

CNLT, where is the enforcement?

From kehakiman's website regarding CNLT (Far East) Bhd, a company formerly listed on Bursa:

11. The Employees’ complaint of fraudulent trading straddled 8 allegations of fact that allegedly occurred between 2006 and 2008.  They were as follows:

(a) CNLT, primarily through its managing director, the Appellant, prepared or issued fictitious invoices in 2007 to an entity known as MTI (Far East) Sdn Bhd amounting to RM4,271,745.06 with a view to inflating or overstating its revenue, such that CNLT would appear to be a ‘going concern’, or at the very least, not as insolvent as it actually was;

(b) Overstating the value of the plant and machinery of CNLT;

(c) Siphoning of CNLT’s funds by way of payment of rental to Golden Privilege Sdn Bhd when there was no such tenancy agreement.  This company was controlled by the Appellant and the 7th defendant;

(d) CNLT’s assets in the sum of USD1,250,000 were dissipated or channelled to CNLT’s largest shareholder, JCT Limited, the 8th defendant after CNLT had been listed as a PN17 company;

(e)  CNLT, through inter alia, the Appellant caused 3 cheques in the sum of RM160,000.00 to be issued on 11 September 2007.  These cheques were encashed on 12 September 2007;

(f) Failure to cause CNLT to remit contribution to Employees Provident Fund (“EPF”) and Social Security Organization (SOCSO), both employer and employee despite deducting the requisite employee contribution since August 2007.  Neither was income tax paid, despite the requisite deductions having been made;

(g) The Appellant’s action in dissipating assets out of the reach of provisional liquidators in May 2008; and

(h) Payments were made out to preferred unsecured creditors, as well as some shareholders in the sum of not less than RM2,841,696.00 without validation at the time the restraining order dated 26.10.2007 was in force.

12. It was the Employees’ case that by reason of the foregoing matters the business of CNLT was carried on from 2006 onwards until it was wound up in January 2009 with intent to defraud creditors of the company, or for a fraudulent purpose.  For the purpose of the application of section 304 of the Act in this suit the creditors contemplated here were the Employees.

13. By this action, the Employees sought inter alia the following orders:

(a) a declaration that the business of CNLT had been carried on by the defendants with intent to defraud creditors of CNLT, in particular the Employees pursuant to section 304 of the Act;

(b) a declaration that the defendants shall be jointly and/or severally liable and personally responsible, without any limitation of liability for all of the debts or other liabilities of CNLT; and

(c) an order that the defendants, jointly and/or severally do pay the outstanding debt due and owing to the Employees by CNLT.

Very heavy accusations, and what did the judge decide?

18. At the end of the trial, the learned trial judge held that the Employees had proved 7 out of 8 allegations.  It was held that allegation (c), the siphoning of  CNLT’s funds by way of payment of rental to Golden Privelege Sdn Bhd, was not made out.  The learned trial judge found that payments to JCT limited were void as they were against the law prohibiting undue preference.

19. The learned trial judge accordingly held that the business of CNLT was carried on by the Appellant with intent to defraud the creditors of CNLT including the Employees pursuant to section 304 of the Act.  A declaration was made to that effect by the court.  There was however no such declaration granted in respect of the other directors of CNLT.  The court also held that the Appellant was personally liable to the Employees, to pay the Employees the sum of RM2,910,201.78 as claimed with interest.

Most of the proven allegations happened more than ten years ago.

A forensic report was made, with many observations similar to the above. The company however denied all in an announcement to Bursa. Since the judge held that seven allegations have been proved, the truthfulness of the contents of that announcement should be reviewed.

The above court case was a private affair by the employees who were disadvantaged. It seems they are winning their case, good for them, it must have been a quite costly and lengthy affair.

But what have the authorities done so far, for instance in regards to the minority investors who have been disadvantaged? From what I could find, not much.

Bursa reprimanded the company (I don't think anybody will be bothered by that) and delisted it (basically disadvantaging the minority investors by depriving them an opportunity to trade their shares). No action whatsoever was taken against any individual.

SSM obtained a conviction: "The Kuala Lumpur Sessions court today convicted Dato’ Prem Krishna Sahgal (‘Dato’ Prem’) for committing an offence under section 364 (2) of the Companies Act 1965. Dato’ Prem was sentenced to pay a fine of RM40,000.00 in default 6 months imprisonment."

It continues "SSM hopes the above decision will send out a clear message". I doubt that, I find the punishment very light, especially given the small chance of getting caught.

Where is the enforcement for any of the other (very serious) allegations, why have Bursa and/or SC still not taken any action in this matter?

Justice delayed is justice denied.

Friday, 13 October 2017

MUFG acquiring banks, but why sell CIMB?

Article from Bloomberg:

MUFG Seeks to Spend $900 Million on Acquisitions in U.S, Asia

One snippet:

Mitsubishi UFJ Financial Group Inc.’s lending arm is seeking acquisitions of about 100 billion yen ($890 million) in Asia and the U.S. to bolster its global operations, its top executive said.

Bank of Tokyo Mitsubishi UFJ Ltd., to be renamed MUFG Bank in April, would consider taking majority stakes in banks in countries such as Indonesia or India in addition to the U.S., Chief Executive Officer Kanetsugu Mike said in an interview. 

While Japan’s biggest bank has previously signaled interest in buying lenders in the countries, it’s the first time a senior executive has indicated how much it might spend. Mike, 60, said any decision would be based on strategic fit, price and profitability, while noting that U.S. targets are “expensive” at the moment.

Japan’s biggest banks are expanding abroad to make up for declining loan profitability and a shrinking population at home. In the U.S., MUFG owns a bank with a heavy presence in California, and is the largest shareholder in Morgan Stanley. It bought stakes in banks in the Philippines, Thailand and Vietnam in recent years.

Overseas business remains “a driver of growth for both the bank and the group,” Mike told a group of reporters at the lender’s Tokyo headquarters.

This seems like a rather clear intention, it wants to expand overseas by buying stakes in other banks.

But this is in rather stark contrast to MUFG selling its stake in CIMB only half a year ago, so why exactly did it do that?

Saturday, 7 October 2017

The "wonderful" world of QE

From Almost Daily Grant's, October 5th 2017 edition:

Irish buys are smiling

Yesterday, the Republic of Ireland issued €4 billion worth of five-year debt, priced to yield negative-0.008%, in a deal that was 2.5 times oversubscribed. 

That feat, remarkable on its face, is made even more so in contrast to the Republic’s pronounced struggles during the 2011 European sovereign debt crisis.  Amidst an ailing banking system that lead to the demise of the 134-year old Irish Nationwide Building Society and forced the government to supply bailout funds to Bank of Ireland and Anglo Irish Bank to forestall a similar fate, Irish sovereign borrowing costs spiked to panic-type levels.  Yields on 10-year government debt jumped above 14% in the summer of 2011, with five-year yields reaching even higher to nearly 17%. Just over six years later, investors are clamoring to lose money (it’s a sure thing if the bonds are held to maturity) by financing the same country. 

Then again, buyers of this deal have an ace up their sleeve.  Perhaps a non-economic quasi-governmental entity which has bought more than €1.7 trillion of government bonds this cycle (per the FT) might be willing to buy them out a premium.

From Yields of 17% in 2011 to the current -0.008% (yes, that starts with a minus sign) in 2017, what a difference! Welcome to the "wonderful" world of QE (also known as "money printing") in which everything is possible and assets continue to rise in price. Ireland, once a member of the infamous "PIIGS" group, must be laughing all the way to the bank.

One day this will all end badly and buyers of these (any many other) bonds will scratch their head in disbelief why the heck they bought these instruments in the first place. But when that will happen, who knows?

Monday, 2 October 2017

Empire City land: why the huge difference?

Article from The Edge: Empire City Damansara 2 land up for sale

One snippet:

.... it appears that these plots are the parcels purchased by Mammoth Empire in 2010 and 2011. Records showed that in 2010, Mammoth Empire had bought a 41-acre site and a 16.83-acre site on Jalan PJU8/8 from Saujana Triangle Sdn Bhd.

Saujana Triangle is a wholly-owned subsidiary of MK Land Holdings Bhd. Both parcels were purchased for an estimated RM130 million. The price of the larger parcel was an estimated RM55 per sq ft, and the smaller one at RM40 per sq ft.

In 2011, Foster Estate purchased another parcel of land along Jalan PJS 8/8. This 6.33-acre parcel was purchased from Crest Builder Sdn Bhd, a unit of Crest Builder Holdings Bhd, at RM57.53 million or RM208 per sq ft.

RM 40 per sq ft versus RM 208 per sq ft, why is the land bought from Crest at a price 5.2 times as high as the land bought from MK Land, roughly at the same time?

The difference looks extreme, minority shareholders of MK Land should query their company if the land was sold too cheap.

Sunday, 1 October 2017

Former Protasco director charged with RM 68 Million fraud (2)

Almost five years ago, Protasco announced what arguably is one of the most puzzling announcements I have seen of any Bursa listed company.

It was made during the XMas holiday as if to escape any attention, which (if intended) did indeed succeed, there was hardly anything written about the deal in the papers, while Bursa did not issue any query which is remarkable given the lack of details given.

I received an anonymous tip about it, and wrote "Protasco's Puzzling Purchase", and followed it up by about 30 other blog postings.

At the start of 2016 things finally seemed to move forward, I wrote "Former Protasco director charged with RM 68 Million fraud".

Now, after another two years, according to a recent article in The Star, "Ex-directors discharged from cheating case":

Two former company directors who were charged with cheating the board of directors, making a false declaration and criminal breach of trust involving more than RM80mil have been discharged from the case.

However, Datuk Ooi Kock Aun, 49, and Datuk Tey Por Yee, 40, have not been acquitted by the court

The order to discharge but not acquit them was given by Kajang Sessions court judge Surita Budin after deputy public prosecutor Muhammad Ilmami Ahmad made a proposition to withdraw the case.
The DPP said the Attorney-General’s Chambers had reviewed all the evidence in totality before deciding to withdraw the case.

Ooi and Tey were accused of cheating Protasco Bhd’s board of directors and its officers by withholding information that he had direct involvement with PT Anglo Slavic Utama, a company incorporated in Indonesia.

The offence, under Section 420 of the Penal Code for cheating, was allegedly committed at Protasco’s office at Level 2, Corporate Building Unipark Suria, Jalan Ikram-Uniten, Kajang, between November 2012 and Jan 30, 2014.

Both of them were also charged with making a false declaration to a Commissioner for Oaths in Jalan Metro Pudu, off Jalan Yew, on July 25, 2014.

Other papers have been very quiet about this discharge.

Where does this leave the minority investors of Protasco, which lost almost RM 100 Million in this case and a (possibly related) other investment in Indonesia?

Until now hardly any information has been provided, the most basic questions have been unanswered, for instance: who was the seller of the PT Anglo Slavic shares (in other words, the owner(s) of the BVI company)? And was he/she in any way connected to any of the then acting directors of Protasco?

It seems very unclear what the current status is, both from the regulators point of view or from Protasco's side. A very unsatisfactory situation all together.

Friday, 22 September 2017

Bumi Armada loses court case

Bumi Armada (defendants) lost its court case against Tozzi Industries (plaintiff), according to this judgment:

For the foregoing reasons, we grant the plaintiff’s claim against both defendants with damages to be assessed. We also order the defendants to bear the costs of this trial on liability, to be taxed if not agreed following the assessment of the damages. Costs of the assessment will be dealt with separately.

Probably nothing major, but still noteworthy.

Wednesday, 13 September 2017

Raising the bar for SGX delistings

Article in The Straits Times, some snippets:

For a company to be voluntarily delisted, a shareholders' meeting must be held where approval for the move must be received from 75 per cent of the shareholders present and where not more than 10 per cent disagree with the move.

The snag is that this feat is made easier because the listing rules here do not bar directors and major shareholders from voting - and since the major shareholder, usually also the company boss, is the party proposing the delisting move, the odds are stacked heavily against minority shareholders.

In recent years, however, some companies are being taken private at a very low valuation at the bottom of the business cycle, only to be relisted in another jurisdiction at a much higher valuation.

No wonder, some minority shareholders feel existing listing rules fail to give them adequate protection if an opportunistic major shareholder wants to delist the company and attempt to squeeze them out of their shares at unattractive prices.

..... the academics observed that there had been instances of IFAs assessing offers as being "fair and reasonable" even when the exit offer in question was at a steep discount of more than 30 per cent to the latest NAV of the takeover target.

Against this backdrop, I would say that the SGX listing manual is due for an overhaul.

Delistings have become a red-button issue among aggrieved minority shareholders. It is one area that urgently needs to be looked into when the rule book is revamped.

The same applies to Bursa, a revamp is needed in which minority investors receive more protection from delistings at a very low price, it is long overdue.

Thursday, 31 August 2017

Late "strong pick-up" by Bursa

Article from The Star, one snippet (emphasis mine):

Bursa Malaysia staged a late strong pick-up before closing, led by gains in selected blue chips such as CIMB Group Bhd, Axiata Group Bhd and MISC Bhd.

The benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI) closed 12 points higher to 1,773.16 yesterday, after a slow start to the week.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said foreign investors were net sellers yesterday despite the strong pick-up in the FBM KLCI.

It was a last-minute push before the long holiday, and it was quite unusual considering the results season is still ongoing,” he told StarBiz.

It was definitely unusual, let's zoom in on a few counters.

On 16:50:01 it was CIMB's turn, a sudden 32 cent jump in price:

Two seconds later UMW's turn, a 45 cent jump:

And one second later at 16:50:04 Timecom's turn, a 53 cent jump in price:

As a consequence, a sudden spike in the KLCI:

Who was (were) the buyer(s), may be a fund that needed to show good results at the last trading day of August?

It looks all very artificial, is this actually allowed, will SC take action?

Monday, 28 August 2017

PNB reveals secret of how it makes money to pay high dividends (3)

I wrote before about this subject: here and here.

A lot of articles recently about PNB and the new group chairman Tan Sri Abdul Wahid Omar, both in The Edge and in The Star.

Unfortunately, again what I called "the most important number" is missing, this is what I wrote before:

Lots of numbers are mentioned, but the most important number (per managed fund) is missing:
"The increase/decrease in the Net Asset Value (marked to market) per unit over 2016"

This is a pretty basic number, essential to measure the long term performance in the long run.

Once we know this number we can compare it to other funds, or to the total (that is taking into account dividends received) returns on Bursa.

A simple question: was this number positive over 2016? And how does it compare to the price investors pay per unit?

Disappointing that this all important number is not given, and that the journalists present didn't ask for it.

From The Edge:

This is not a Ponzi Scheme. As I said, in good times, we create reserves and we don’t distribute all the gains in any particular year. So, we will have those reserves to buffer the payment of dividends during the tough years,” said Wahid.

The point was raised as questions over whether the high dividend at PNB-managed Amanah Saham Bumiputera are real and sustainable have been bandied for some time.

It should be noted that even when the local bellwether FBM KLCI fell 39% year on year in 2008 — and the dividend payout by the Employees Provident Fund (EPF) dropped to 4.5% — ASB’s dividend remained at an envied 7%. Yup, that is 378 basis points above the so-called risk-free-rate or 10-year Malaysian Government Securities of 3.22%.

Well aware of the scepticism, Wahid offered simple logic instead of going on the defensive. “It is a very simple model in the sense that during good times, you don’t pay all the returns. So, we keep some reserves. And during tough times like the past three years, we’ve been realising returns from the unrealised gains. No magic. It’s a very basic model,” he explained.

The yearly distributed returns are known, why not make the realized returns (marked to market, after expenses) public? We can then compare them to each other to check if they match, if there are any long term trends and to compare them to returns from similar Malaysian unit trust schemes.

Monday, 14 August 2017

Sunday, 13 August 2017

Brdigewater returns faltered

Interesting article about Ray Dalio and Bridgewater, the largest hedge fund in the world, looking forward to his new book "Principles", soon to be published.

One snippet:

The transition comes as returns at the hedge fund’s flagship product have faltered, just like at other so-called macro managers. Since the beginning of 2012, Bridgewater’s Pure Alpha II has posted an annualized return of 2.5 percent, according to a document reviewed by Bloomberg Markets, a far cry from its historic average of 12 percent. It’s down 2.8 percent this year through July. (A smaller Bridgewater hedge fund, Pure Alpha Major Markets, has fared better, as has the company’s long-only product.)

Apparently it has not been easy to make money in the last six years, may be of some comfort for investors who have missed out mostly on the bull run of the US stocks:

Saturday, 12 August 2017

Dual class shares: another really bad idea (3)

Bursa announced the following rather terse media release:

There have been some misleading reports of late which have caused confusion on Bursa Malaysia’s position on the listing of dual class shares. Bursa Malaysia’s position has been misunderstood and taken out of context. We wish to inform that presently, we have no plan to facilitate the listing of dual class shares. In Bursa Malaysia’s pursuit to remain attractive and competitive, we are committed to uphold market integrity and ensure sound investor protection in all our market development initiatives.

One could deduct (although it is not written explicitedly) that facilitating dual shares might help Bursa to remain attractive and competitive, but would weaken market integrity and investor protection.

Wednesday, 9 August 2017

Dual class shares: another really bad idea (2)

I wrote before about this subject.

It seems that Bursa is still considering to allow dual class shares in Malaysia.

Just to show one "horror" case what might happen, Alphaville wrote about the company DryShips (listed as DRYS on the NASDAQ): "Who buys DRYS?".

One snippet:

Taking into account the rapid series of share consolidations Dryships has had down the years, the stock price has fallen from $1.483bn per share to $1.40.

So what’s going on?

We first looked at this thing last month, at which point the peak-to-trough stats stood at an historical high of $206m and a low then of 99 cents. Over the past fortnight, following fresh consolidation of the shares, the price has fallen 80 per cent.

The company has a market cap of $7.26m, but (as of July 21) it held cash of $58.6m and a book value of $652m, against debt of $237m. Its fleet of tankers and drybulk vessels stands at 39.

Confused? Here’s what’s happening.

In April this year DryShips, which is registered in the Marshall Islands, struck a deal with a BVI firm, Kalani Investments, whereby Dryships would sell up to $226m worth of stock to the BVI entity over a two year period.

The deal sees Kalani getting the DryShips stock at a discount and they quickly dump the newly-issued equity on the US market. The flood of stock depresses the share price, which falls below $1 — risking suspension under Nasdaq rules. So, once a month for the past four months, DryShips has enacted share consolidations — most recently at 1-for-7 — to get the price back above a dollar.

It’s these repeated consolidations which throw up the comic historic share price high of $1.483bn when the chart is reset.

The company is controlled by a Greek shipping financier, George Economou, through super-voting stock. Many of the vessels in the DryShips fleet have been acquired from Economou’s private interests — so if you follow the money you’ll see it is flowing from US investors, by way of the Caribbean, to his family estate.

David Webb wrote again about the dual class shares "One Board, One Regulator".

Webb also mentions many other issues that are relevant to Malaysia (and Singapore), for instance:

8. Full disclosure of the identities of subscribers (including beneficial owners of 10% or more of their votes or equity) and the numbers of shares subscribed in placings, whether at initial listing or subsequently. [in the Malaysian context, a six year old blog posting Private Placements: abolish them or limit them, nothing has changed]

9. Full disclosure of the identities of beneficial owners of counterparties to notifiable transactions (acquisitions, disposals or loans) by listed companies. No more hiding behind BVI curtains. [in the Malaysian context just one example: Protasco's Puzzling Purchase, the vendor being owned by Anglo Slavic Petrogas Ltd, a BVI company]

11. INEDs: boards or shareholders can continue to nominate candidates for election as Independent Non-Executive Directors, but controlling shareholders, executive directors and their associates must abstain from voting in the elections, due to their obvious conflict of interests. This will leave independent shareholders to elect the INEDs. Otherwise, INEDs serve at the pleasure of the King, making a joke of their independence.

12. Tighten the permissible general mandate to dilute existing shareholders by issuing new shares for cash, with a maximum of 5% enlargement in any year, at a maximum discount of 5% (currently: 20% at a 20% discount). Any larger size or discount should require a rights issue, or approval by 75% of votes cast by independent shareholders on a special resolution. This would raise HK pre-emption standards to the UK's.

And regarding legislation:

1. provide investors with access to justice in the form of class action rights. The loser-pays costs system will deter vexatious or meritless cases;

Monday, 7 August 2017

Sapura Energy: excessive remuneration for Directors? (2)

I wrote about this issue before, one snippet:

"We notice three government linked funds in the list of substantial shareholders. Will they make noise about the above remuneration? At the last AGM that did not happen, all resolutions were approved by a large majority of the shareholders."

The largest vote against any of the resolutions was only 2%.

The company held its AGM on July 25, 2017, and the results are as follows:

Of interest are resolutions 8 (payments of director fees) and 10 (authorising the directors to issue new shares) which received 18% and 22% of the votes against, a very large change compared to the voting behaviour of a year before.

It is safe to assume that the controlling shareholders voted in favour of the resolutions, meaning that the percentage of votes against from the non-controlling shareholders is even higher.

Are these the signs of some shareholder activism which starts to pop up at Sapura Energy? I most certainly hope so.

The Edge Malaysia (edition August 7, 2017) brought up another issue regarding related party transactions. It wrote an article "A RM70 mil annual poser at Sapura", one snippet:

"It is not clear why the listed company has to pay this fee to its controlling shareholder, which has epresentatives on the board holding executive positions and are paid alaries and director fees."

The amount can be found in the annual report, second part, page 189 (pdf page 139):

Surely the minority shareholders of Sapura Energy deserve a proper explanation on the above transactions.

Thursday, 3 August 2017

XingQuan: boardroom getting rather empty

Two more independent directors of XingQuan resigned, "Due to time commitment issue" and somewhat more specific:

As he will not be able to discharge and perform the duties and responsibilities of an independent director due to the expiry of the employment contract of the CFO in early May 2017, the resignation of Audit Committee Chairman in end of May 2017, the recent resignation of the other independent director, and the inability of the Company to secure suitable candidates to fill the aforesaid vacancies since May 2017, he therefore tender resignation as an independent director.

That means that the audit committee is now vacant, as is the department of independent directors. Any takers? If not, who will defend the rights of the minority investors?

I have warned several times about XingQuan, the first time (XingQuan: does the company believe its own cash?) almost exactly two years ago.

So far no visible action has been taken by the authorities. Did it really have to come this far? Fast, adequate action might for instance have prevented the rights issue, pouring more good money after bad. Or may be some of the assets could have been saved and liquidated, to the advantage of the minority investors.

In a unrelated case, the Securities Commission has taken action against a father and son for submitting false or misleading information. But the punishment is a mere reprimand and permanent moratorium regarding listings in Malaysia. I guess the perpetrators will simply shrug their shoulders and move on, the world outside Malaysia is pretty large after all.

The real test will be if the Malaysian authorities will be able to fine foreigners or impose a jail sentence. So far no action of that kind has ever been taken against any of the listed Chinese companies in Malaysia. Time will tell if it ever will happen.

If it turns out to be near impossible to impose these penalties, then Bursa should never have allowed foreign companies to list in Malaysia, because of the absence of any significant deterrent.

Wednesday, 2 August 2017

Public Bank: end of an era

From The Star: Public Bank Bhd chairman Tan Sri Teh Hong Piow to retire

Some snippets:

Public Bank Bhd chairman Tan Sri Teh Hong Piow will leave his post on Jan 1, 2019 but will remain as the bank’s adviser.

“The details relating to the appointment of the new chairman of Public Bank will be announced at an appropriate time,” the bank said in a statement.

Teh will assume the title “chairman emeritus” after he relinquishes his position as chairman of Public Bank.

This, according to the bank, is in recognition of his “par excellence contributions” over the past 51 years since he founded Public Bank on Dec 30, 1965.

He would also remain as an adviser.

Teh is also retiring from his role as chairman of Public Islamic Bank Bhd and Public Investment Bank Bhd with effect from Jan 1, 2018, but would stay on as non-executive director in both wholly-owned subsidiaries of Public Bank with effect from the same day.

“The smooth transitions of the succession of the chairmanships of Public Bank, Public Islamic Bank and Public Investment Bank are in place,” the group said.

Public Bank under Teh's leadership has been one of the biggest success stories on Bursa, may be the best, but definetely in the top one percent group.

I only have data going back to 1987, over that 30-year timespan Public Bank compounded 16.4% (vs. 8.4% of the KLCI (both total return, taking dividends into account).

That means that RM 10,000 invested in Public Bank in 1987 is worth RM 1,014,000 now, while RM 10,000 invested in the KLCI is worth now RM 118,600, an outperformance of about 8.5 times.

Public Bank itself is a component of the KLCI, so relative to the other 29 counters it would have done even slightly better.

All very impressive, and one good example how much a succesful buy-and-hold strategy through an investment in a good quality company can yield. No wonder there are a lot of happy faces at the yearly AGM meetings.

Public bank has never reported a loss, not even in the horrific Asian crisis of 1997/98.

Tuesday, 1 August 2017

Idea: Tracker Fund of Hong Kong (2800.HK) (3)

I recently have sold my Tracker Fund of Hong Kong (I wrote about it before here and here).

I don't think the price is now particularly expensive, but with a lot of risk globally and a quite high portion of the fund being invested in financials (of which I am not a fan) I have decided to take profit.

Given the recent increase in share price the dividend yield (one of the reasons I bought the share, that time close to 4%) has also fallen.

Including two dividends (of HKD 0.62 and HKD 0.15) the return is about 38% for a holding period of just over one year.

Disclaimer: this is not a recommendation. Please do your own homework and make your own investment decisions or ask advice from a professional advisor.

Saturday, 22 July 2017

FGV's lack of transparency

Good article in The Star: Why FGV should handle whistle blowers with care

Some snippets and some comments by me:

In fact, one of the reasons why the Employees Provident Fund (EPF), a stickler for corporate governance, disposed of its interest in FGV is because there was no separation of powers between the board and the major shareholders.

The provident fund, for instance, felt that the total remuneration package for the chairman, which was stated at RM2.67mil in the 2016 annual report, was seen as too high.

The powerful provident fund expressed its dissatisfaction on the way FGV was managed by disposing its shares. In fact EPF’s chief executive officer Datuk Shahril Ridza Ridzuan hardly completed a year as a board member of FGV.

I am sorry to say but I find this very disappointing from the EPF. By selling they even drove down the share price giving them an even lower price for the last shares they sold.

Could they not have done more? If they were unhappy about the Corporate Governance inside FGV then they could have voiced out their concerns, first internally, and when no adequate response has been issued, they can simply call for a press conference. Surely journalists from all major media outlets would show up and report on the issues. That would have forced the company to issue replies to some thorny issues and would have given some much needed transparency. Who knows, some M&As might have been prevented that way, for the benefit of almost all parties involved.

Only now, after Isa has been moved out of FGV does the board admit that the company lacked governance.

The problem with all the initiatives from Bursa and SC is that it looked like CG was good inside FGV. But FGV was simply ticking all the boxes.

"Real" CG is not about ticking boxes, but how the company handles itself for instance in cases of conflict of interest (rather common in Malaysia), transparency towards shareholders, major strategic decisions like M&A activities, etc.

The question is if FGV actually has improved its CG? From the announcements that have been made on the Bursa website I doubt it, I find hardly any relevant information on what has been going on the last few months, for instance nothing about:

  • The work done by Idris Jala, let alone the contents of his report (probably only the major shareholder is privy to this information).
  • The serious allegations by Zakaria (and others) regarding expensive, non-core acquisitions in the past
  • The real reasons for the resignation of the previous Chairman and who the new chairman is (the last might have been an honest oversight though)
  • The Edge Malaysia wrote a very good series of articles with lots of useful information (including interviews of the main persons involved), most of which was never revealed

He [Zakaria] should not be penalised for speaking out. Because this would render redundant all the governance structures and whistle blowing channels that are in place in FGV.

Exactly. Whistle blowing in Western countries is already difficult enough (many regret later on that they blew the whistle), doing the same in Malaysia (a country with the highest Power Distance Index in the world) is so much more difficult. We need to respect people who speak out based on conviction and proper information.

I hope to see a healthy dose of transparency in the near future, what was really going on the last few months, and a proper, honest evaluation of the controversial M&As FGV has done in the past. Several companies in Singapore (most notably SingPost and Singtel) have done so in similar situations (by an independent advisor under the guidance of the independent directors) and an extract of the final report has been forwarded to the SGX website. Will the same happen with FGV? We will wait and see.

MACC nabs two ex-real estate execs over Felda's UK hotel buy

Article on MalaysiaKini's website, some snippets:

"The Malaysian Anti-Corruption Commission (MACC) has arrested two former real estate executives as part of its investigation into Felda investment Corporation's (FIC) purchase of the four-star Kensington Hotel in London.

MACC in a statement today said the duo were arrested at 1pm when they presented themselves at the MACC headquarters to give their statement.

"Based on the investigation, the two were suspected of manipulating the hotel price (valuation) resulting in FIC overpaying tens of millions," it said.

MACC said when the purchase of the hotel was underway between 2013 and 2015, the two served as chief corporate adviser and director respectively at the real estate agency Raine and Home."

Most likely the writer means Raine and Horne (not Home), a valuer that has also done many valuations regarding property owned by Bursa listed companies, so I assume that Bursa and the SC will follow this case with interest. If the allegations of the above deal are true, then other valuations done by the same people might have to be reviewed as well.

If FIC overpaid tens of millions, then the logical question will be who benefitted from this transaction, hopefully MACC will answer that question soon.

Tuesday, 11 July 2017

"Lotte's Chemical Reaction"

A rather negative story about Lotte Chemical Titan from Bloomberg.

Some snippets:

Lotte Group seemed to be getting back to business after a rough year of court battles, family feuds and strained relations with China. 

Not so fast.

Believers in South Korea's fifth-largest conglomerate were hoping for a much-needed win with Lotte Chemical Titan Holding Bhd., the petrochemical unit that began trading in Malaysia Tuesday. Revival of the long-delayed 3.77 billion ringgit ($877 million) initial public offering, Malaysia's biggest since 2012, caps a period that has seen the group also take steps to settle family disputes and boost corporate debt sales.

But in the opposite of a typical IPO bump, shares of Lotte Chemical Titan fell below the opening price pretty much immediately -- and that was after the company cut the bottom of its price range to 6.50 ringgit a share, from 7.60 ringgit. By midday in Kuala Lumpur, the shares were down 2 percent.

Investors are right to bet against the newly listed company. The reason the Malaysian chemical maker cut its IPO price and trimmed the number of institutional shares has little to do with macro issues like equity demand and more to do with how Lotte missed a fundamental shift in the petrochemicals market.

While Lotte was hell-bent on getting the flotation done after taking the company private more than six years ago, it miscalculated in betting that the market would be willing to overlook the business's problems just because of a dearth of IPOs for large investors.

Back when Lotte took the unit private, the global economic recovery was driving strong demand for the raw materials used to make plastic and synthetic fibers used in everything from appliances to automobiles.

But as the years went on, Lotte Chemical did almost nothing to expand capacity -- unlike its global competitors -- despite having ample cash,  according to Smartkarma analyst Toh Zhen Zhou.

In the absence of investment, revenue growth slowed. Lower prices for inputs such as oil have helped prop up profit but as the sales outlook for products like cars weakens, demand for Lotte's offerings has waned. Meanwhile, raw material prices have declined and overcapacity in China is further pressuring the industry.

Is this really the best Bursa can do, as alleged by Bloomberg, the largest IPO since 2012?

A foreign company, again going through the "listed-delisted-relisted scenario", and with the above history?

Where are the homegrown Malaysian companies with increasing (international) revenues, juicy margins, high ROE, making unique products protected by IP (intellectual Property)?

Monday, 3 July 2017

Seth Klarman: "Margin of Safety"

Seth Klarman is a well known hedgefund manager behind the Baupost Group.

He wrote a book "Margin of Safety" that is long time out of print, and has quite a following, second hand books are sold for a small fortune on Amazon.

A discussion about the book can be found here, at an otherwise good forum about value investing.

The book is a bit outdated here and there, and mostly focussed on the US market, but other than that highely readable, and many topics and principles are timeless.

A download (from MediaFire) of Margin of Safety can be found here, at the second last comment.

Monday, 26 June 2017

Wing Tai GO: Pangolin not happy (3)

The Independent Advice is out and, as expected, the verdict is: "not fair but reasonable, accept".

More regarding this matter can be found on the following websites:

One snippet from the last source:

 .... unfortunately there is a ridiculous clause in the Malaysian Stock Exchange’s rules that insists on a 25% free float. This can be used as a weapon by potential acquirers of companies against minorities, as it is being used in this case. Basically, what WTS is saying is that once they get to 75%, the company will be in breach of the listing rules, that they will do nothing to rectify this breach and that they do not intend to maintain the listed status.

In Singapore, the minimum free float is 10%, which makes sense as it is in line with the compulsory acquisition threshold. I first complained about this crazy Malaysian ruling back in 2003 when Bumi Armada was privatised. Similar wording was used then. In the past couple of weeks, I have twice emailed Malaysia’s stock exchange chairman on this matter. No reply.

In a country where the majority of businesses are family-controlled, minorities need all the protection they can get. The current listing requirements make it easy for controlling shareholders to buy up their companies on the cheap. The authorities are failing investors.

Free float requirement for listed companies

Malaysia 25%
Indonesia 7.5%
Singapore 10%
Thailand 15%

This is indeed odd, and works very much against minority investors. The threat of holding shares in a company that might be delisted is not attractive to many, and definetely not to fund managers. And even if one would hold on, there is the chance that the shares will be mandatory acquired.

Pangolin's article continues:

The independent directors have appointed little-known Mercury Securities to give us independent advice. Cynics would contend that no board has ever appointed an Independent Adviser who will give guidance they don’t want.

In my very first blog posting in 2011 I wrote:

Immediately abolish all “Independent” Reports, they are useless and are even hurting the rights if the Minority Investors.

In every General Offer (GO) where the controlling shareholders want the minority investors to accept the (low) offer the recommendation will be "not fair but reasonable, accept".

When a GO is made according to the rules where the controlling shareholders want to keep the company listed, the recommendation will be "not fair, not reasonable, don't accept".

Independent reports give an undeserved air of credibility to the whole process of delisting, but in reality it is a complete waste of time and money.

In all those years since my first recommendation, basically nothing has changed. The wording used in the independent advice is now the rather curious "not fair but reasonable, accept" instead of "fair and reasonable, accept", and the quality of the independent report is somewhat higher, but the outcome is exactly the same, and minority investors basically don't stand a chance. 

Authorities should look into this matter and take concrete steps to level the playing field for minority investors:
  • The free float requirement should be reduced in line with neighbouring countries
  • Independent advice in the current form is a complete waste and even hampers minority investors
  • Independent directors should be appointed by the non-controlling shareholders, not by the controlling shareholders
  • The authorities should check if the controlling shareholders own or control shares held by nominees (so far enforcement in this matter seems to be close to zero)
  • Funds (especially Government Linked Funds which have been notoriously passive) should be engaged in shareholder activism, especially in these kind of exercises
  • Companies that are delisted should not be allowed to relist again; this would take away one of the incentives for delisting, since delisting will happen at a cheap valuation and relisting at a high one

Sunday, 25 June 2017

China government auditor detects fraud

Shocking (although not unexpected) article in The Malay Mail by Reuters: "China auditor uncovers 200b yuan in fake revenue at state firms", some snippets:

China’s government auditor said in its 2016 report published today that 18 of 20 central state firms it audited had inflated revenue by 200 billion yuan (RM125.4 billion) and profits by 20.3 billion yuan in recent years.

The companies audited include China National Petroleum Corporation, China Huaneng Group and Sinochem Group.

The report from the National Audit Office also said that due to inadequate risk control measures, the 20 centrally-administered firms had put overseas investments worth 38.5 billion yuan at risk.

Implications for China listed companies in Malaysia are bad, I expect things to be worse from an accounting point of view. Several of those companies are finally showing their true colours.

Will there be even a sliver of justice by the authorities coming down on the real culprits, and will the Chinese authorities lend a helping hand? I strongly doubt it.

With hindsight we are all experts. But the sad part is that many warnings were out there, already a long time ago. One of my first blog postings from 2011 (!) can be found here: China companies listed on BM.

"Where is Ze Moola" had written a lot about the same issue long before that.

Malaysian investors who poured hundreds of millions of RM in the IPOs of these companies have been hugely disadvantaged. Was this really necessary, should the authorities have listened more to the critical voices?

Wednesday, 31 May 2017

Sapura Energy: excessive remuneration for Directors?

From the annual report of Sapura Energy:

Those numbers seem very high, especially given the rather poor recent results of the company:

While the company lost a combined amount of RM 585,000,000 over the last two years, the directors earned a combined fee of more than RM 187,000,000 over the same period.

The share price over the last five years:

After reaching almost RM 5, the share price has declined by about 64%, nothing to shout about for the minority shareholders. And dividends have not been much better:

In other words: 37,000 shareholders received less in dividends than the Directors in remuneration. It seems the company is more interested in rewarding the Board of Directors than the shareholders.

If we look in more detail we notice the following:

Most of the remuneration for the directors is earned by a single person (I assume Sharil, the president and group CEO, although unfortunately the director is not named), and mostly based on performance.

But with the company losing more than half a billion over the last two years, the share price down a lot and the dividend cut, one wonders what the KPIs for that performance are.

The fees for the non-executive directors are also on the high side:

The major shareholders of the company:

We notice three government linked funds in the list of substantial shareholders. Will they make noise about the above remuneration? At the last AGM that did not happen, all resolutions were approved by a large majority of the shareholders.

Let's wait and see if the next AGM to be held in July will be any different.

Monday, 29 May 2017

Wing Tai GO: Pangolin not happy (2)

Article on the website of The Star:

Takeover offer for Wing Tai Malaysia seen undervalued

One snippet:

He further notes that only less than 15% shares in Wing Tai are held collectively by institutional investors, who are more likely to have the holding power.

“Even if they stand together, it will be difficult to pose any challenge to the offer,” he explains.

CIMB Research made the following comment:

We see this transaction as positive for Wing Tai, as it is earnings accretive by reducing minority leakage from WTM.

Loyal minority investors who held on to their Wing Tai shares throughout the years, through thick and thin, are now described as causing "minority leakage" to the majority shareholder.

Well, I guess that is one way to put it, definitely not mine though. Has the term ever been used when a company went for a listing, as in: "we want to IPO our subsidiary because we want to increase minority leakage"?

Saturday, 27 May 2017

China Automobile Parts: "bad reputation"? (3)

Things continue to worsen in regards to China Automobile Parts, PKF issued the following rather strong worded statement.

PKF retracted their 2015 audited accounts since the financial statements for FYE2015 do not give a true and accurate picture of the financial position of the company.

Unfortunately, appendix 1 and 2 (mentioned in the text) are not enclosed. That is a pity, they might provide details when things started to turn sour, and how bad things might be.

Audited accounts being retracted from a listed company might be a first in Malaysia, but definitely not for unlisted companies, 1MDB being a rather "famous" example of that.

SC sues Stone Master executive (3)

More and more developments in Stone Master, things are getting really murky.

The Edge Malaysia wrote an article "Stone Master Expose?"

From The Star's website  "Another one bites the dust", one snippet:

"Apparently, in consideration of the exclusive right to distribute the products of the Chinese companies, certain local representatives were paid a sum amounting to RM11.59mil in the form of a non-refundable deposit, of which RM11.54mil was subsequently paid by these local representatives to Chan, who is still a member of the board."

Luckily the last part is not correct, I wrote about this subject before, since then Chan has since retired, according to this announcement. Half a year too late, but at least it was done.

The article in The Star further writes about interesting developments in Samchem Holdings, one snippet:

Industrial chemicals distributor Samchem Holdings Bhd earlier in the week received a special notice from seven of its shareholders, who collectively hold 19.8 % in the company, asking for the removal of Ng Soh Kian as an executive director of the company.

Soh Kian was appointed as an executive director in February 2009, just four months before the company was listed. Interestingly, Samchem’s CEO Datuk Ng Lian Poh, the brother of the company’s founder and executive chairman, Thin Poh, resigned earlier this month. He resigned due to personal reasons.

Thin Poh, who has stepped in as acting CEO, holds a 44.14% stake in the company. Soh Kian has been steadily whittling down his stake in the company and now has only 0.26%.

No reasons were given for wanting to remove Soh Kian from the board by the seven .....

Thursday, 25 May 2017

SC sues 7 for insider trading

From the website of the Securities Commission:

Securities Commission Malaysia (SC) has filed a civil suit at the Kuala Lumpur High Court against seven individuals for insider trading involving the shares of Worldwide Holdings Bhd (Worldwide), a company previously listed on Bursa Malaysia.

Datin Paduka Low Siew Moi, Tan Cheng Teik, Liaw Huat Hin, Hoi Main Seng, Chua Keng Hong, Datuk Ter Leong Yap, and Ter Leong Hing were alleged to have been involved in the insider trading of Worldwide shares between 2006 and 2007.

In the suit filed on 18 May 2017, SC claimed that Low had communicated material non-public information, namely the proposed privatisation of Worldwide, which was undertaken by Perbadanan Kemajuan Negeri Selangor (PKNS), to Tan, Liaw, Hoi, Chua, and Ter Leong Yap, in breach of section 89E(3)(a) of the Securities Industry Act 1983. Low was the deputy general manager in PKNS and a director of Worldwide at the material time.

SC also alleged that Ter Leong Yap and Tan had further communicated the said information to Ter Leong Hing, and also Hoi and Liaw respectively. SC claimed that Tan, Chua, Hoi, Liaw and Ter Leong Hing breached section 89E(2)(a) of the SIA when they purchased Worldwide shares while in possession of the material non-public information.

SC is seeking a disgorgement of three times the profits earned by the defendants as a result of the insider trading and a civil penalty of RM1 million from each of the defendants.

Good that the SC chases insider trading activities, which have been rampant in Malaysia. Many significant corporate announcements have been preceded by a surge in volume and price, indicating that some participants were (most likely) privy to confidential information.

In a previous posting on this subject I wrote:

" .... the cases seem all rather old, the alleged events often took place 6-8 years ago. Does it really need to take such a long time before somebody can be charged?"

May be I was too mild, because the above case was 10-11 years old.

There is another interesting issue though, according to an article of The Malay Mail:

The Malaysian Anti-Corruption Commission (MACC) announced today it was cooperating with the National Chamber of Commerce and Industry of Malaysia (NCCIM) to fight graft, the same day the Securities Commission (SC) named NCCIM’s president as one of seven it was suing for insider trading.

The MACC said it has established a “network of cooperation” with NCCIM to fight corruption and also abuse of power, following a meeting between top officials from both the agency and the chambers.

“Businessmen play an important role in spurring our economic growth. The cooperation can help increase business activities and strengthen economic stability,” MACC said in a statement.

The chambers’ representatives were led by its president, Datuk Ter Leong Yap, who is also founder and executive chairman of Sunsuria Berhad, a property developer that is reportedly planning to launch projects with a total gross development value of RM1.55 billion this year.

However, SC announced today that it has filed a civil suit at the Kuala Lumpur High Court on May 18 against Ter and six others for insider trading involving the shares of Worldwide Holdings Bhd ― a company engaged in property environmental services, investment holding and medical device manufacturing businesses ― between 2006 and 2007.

Wednesday, 24 May 2017

Wing Tai GO: Pangolin not happy

Article in The Edge: "Wing Tai general offer seems unattractive".

Some snippets:

Controlling shareholders of Wing Tai Malaysia Bhd (WTM) want to take the property developer and apparel retailer private at RM1.80 per share.

The offer price is a 52% premium over its last traded price of RM1.18 on Monday before the stock was suspended from trading yesterday. However, it is 34% below its net tangible assets of RM2.73 per share as at March 31.

“WTM is massively undervalued at the takeover price of RM1.80,” said Pangolin Investment Management director James Hay. The asset management firm currently holds a 2% stake in WTM at an investment cost above RM2.

“Don’t forget there was a rights issue [in 2015 at RM1.15 per share],” said Hay, who pegs the fair value of WTM at RM3.63 per share.

His fair value is derived from sum-of-parts valuation, pricing the company’s retail unit (excluding its joint venture [JV] that operates Uniqlo stores) at RM132.8 million, or 28 sen per share, plus the 45% stake in the Uniqlo chain at RM211 million or 44 sen per share.

Also, Hay reckons that WTM’s high-end residential project Le Nouvel here could generate profit of RM100 million, or 21 sen per share.

Besides unsold properties and land bank, WTM manages a portfolio of 12 international fashion brands such as Topshop, Topman, Dorothy Perkins, Miss Selfridge, Warehouse, Burton and Furla. The company also owns a 45% stake in the JV with Japan’s Fast Retailing Co Ltd that operates 36 Uniqlo outlets in Malaysia.

Given the high premium offered, I think there is a serious chance that most minority shareholders will accept the offer and thus that the company will be delisted. That would mean the exit of another good company from Bursa.

Regarding the independent advise (still to be drafted), may I suggest another case of the intriguing "not fair but reasonable"?

Tuesday, 23 May 2017

Maxbiz CEO: “RM 50 million is nothing to shout about” (2)

I wrote before about this subject. Two of the many red flags I mentioned:

[2] Maxbiz and five directors received public reprimands and fines:
  • MAXBIZ had breached paragraph 9.16(1)(a) of the LR for failing to ensure that the 4th quarterly report for the financial year ended 31 December 2008 ("4th QR 2008") which was announced on 2 March 2009 took into account the adjustments as stated in the Company’s announcement dated 4 May 2009.
  • MAXBIZ had reported an unaudited loss after taxation and minority interest of RM6.227 million for the financial year ended 31 December 2008. However, the Company had on 30 April 2009 reported an audited loss after taxation and minority interest of RM76.926 million.
  • Bursa Securities also found that the directors of MAXBIZ to be in breach of paragraph 16.11(b) of the LR for permitting knowingly or where they had reasonable means of obtaining such knowledge the Company to commit the above breach.

[4] Directors own not even a single share:

The Securities Commission has now charged one of the above directors, this time for (allegedly) insider trading.

Securities Commission Malaysia (SC) today charged Dato’ Vincent Leong Jee Wai (Dato’ Vincent Leong) for insider trading of shares of Maxbiz Corporation Berhad (Maxbiz).

Dato’ Vincent Leong, 58, was charged at the Kuala Lumpur Sessions Court this morning with two counts of communicating material non-public information between November 2010 and January 2011 to one Leong Wye Keong when he should have known that Leong Wye Keong would tend to dispose shares of Maxbiz Corporation Berhad (Maxbiz). Dato’ Vincent Leong was at the material time the Managing Director of Maxbiz.

The material non-public information for the first charge relates to the decrease in Maxbiz’s shareholders’ equity which was close to Maxbiz being classified as financially distressed. The second charge concerns the classification of Maxbiz as a Practice Note 17 (PN17) company.

Dato’ Vincent Leong claimed trial to both charges. Kuala Lumpur Sessions Court Judge, Puan Azian binti Othman fixed bail at RM250,000 with one surety.  Dato’ Vincent Leong was also ordered to surrender his passport to the court.

Insider trading is punishable under section 188(4) of the CMSA, with an imprisonment term not exceeding 10 years and a fine of not less than RM1 million.

A certain "Leong Wye Keong" is mentioned in this court case (most likely as an aggrieved investor in a fund managed by SJ Asset Management). I am not sure if it is the same person, but it could very well be so, the name is not very common. The court case is against SJ Asset Management (and other parties).

I wrote before:

A strange coincedence is the fact that SJ Asset Management was the 2nd largest shareholder of Maxbiz, an asset management company being examined closely by the Securities Commission (SC) due to irregularities in its accounts.

It is a small world, isn't it?

The Securities Commission is quite active in enforcement regarding insider trading these days. Unfortunately, the cases seem all rather old, the alleged events often took place 6-8 years ago. Does it really need to take such a long time before somebody can be charged?