Activist investors in Singapore

From Bloomberg: "Activists Take Aim at Singapore's 'Buy, Pray, Hope' Model"

Some snippets:


Activist investors, having targeted companies in Japan and South Korea in recent years, have discovered a new playground in Asia.

In Singapore, where activist investing was virtually unheard of until now, two companies have found themselves in the crosshairs in the past month alone. Quarz Capital Management Ltd. urged retailer Metro Holdings Ltd. to return excess cash to investors and Dektos Investment Corp. pushed Geo Energy Resources Ltd. to change its debt structure, saying the coal-miner’s shares are undervalued by as much as 60 percent.

The investors are challenging a clubby, consensus-driven corporate culture where shareholder interests have traditionally taken a back seat. In doing so, they’re shining a light on a swathe of small companies that are undervalued, flush with cash and often ignored by analysts.

“We are on the cusp of change here,” said Lawrence Loh, associate professor at the National University of Singapore and director of the Centre for Governance, Institutions and Organisations at the NUS Business School. “Singapore is probably one of the best-kept secrets, it’s a very fertile ground for digging by activist investors.”

Engaging companies publicly came late to the market because generally, “boards and senior management prefer a collaborative approach, which is in line with Asian culture,” said David Gerald, president of the Securities Investors Association of Singapore, an industry group representing shareholders.

That may be starting to change as investors realize that reliability and transparency of local accounting and regulatory frameworks can work in their favor. Activist investors and short sellers are encouraging Singaporean shareholders to speak out at annual meetings and in discussions with management, said Dektos founder Roland Thng.

“In the past in Singapore, it was just a case of ‘I am a shareholder, I buy, I pray, I hope,”’ Thng said. “Now it’s a case of ‘I let my money really work hard for me. But with my voice, I can make it faster.”’

The more critical approach is spreading to retail investors -- a development that will ultimately benefit Singapore, according to Thng.

“Local investors are getting more daring, at least they know that they have the right to do that,” he said. “And that will give a boost to Singapore’s corporate landscape which still is a bit staid and more focused on consensus than in the U.S.”


This blog is all in favour of increased shareholder activism.

How about the situation in Malaysia, will activist investors take on the Board of Directors as well? The "clubby, consensus-driven corporate culture where shareholder interests have traditionally taken a back seat" corporate culture is even more prominent in Malaysia than in Singapore.

Would anybody dare to take on one of the "sleepy", underperforming GLCs, or would that be seen as "efforts to undermine the Malaysian economy". Those scary, threatening words (used to contain any critical remark) are heard more often lately.

Time will tell ....

Asian fund managers (4)

BFM interview with James Hay from the Pangolin Fund.

Some of the subjects:

• Nestle
• Public Bank
• Malaysia shunned at the moment, might indicate opportunity
• Hup Seng
• Padini
• Dairy Farm
• Excellent corporate governance
• Avoiding GLCs like Maybank, would these companies be able to compete outside Malaysia?
• Stressing importance of research, also on the ground

An earlier interview with Hay can be found here.

Fund managers underweight Malaysia

Research from JP Morgan shows that Emerging Market (EM) fund managers have a large underweight allocation for Malaysia. In a survey of key EM managers, only 2 were overweight versus 29 underweight. The resulting score of -27 being the lowest of all major EM countries (some small countries like Qatar having an even worse score).

From the picture on the right can be deducted that the underweight position for Malaysia has been steadily increased from 2008 onwards.

What could be the reasons for them being underweight? Possibly:

• Not very interested in the GLC's (Government Linked Companies)
• Low Daily Turnover on many counters, too low for large fund managers
• Fund managers still remembering the Asian Financial Crisis

I personally have a feeling that trading appears (sometimes) artificial, with large-cap counters (GLCs) being supported by certain (government linked) funds (GLFs).

Malaysia's weight in the index of EM countries has also substantially decreased, once one of the darlings of EM countries, its weightage is now only 3.9%.

Anyhow, not all is lost, Malaysia still might be a good hunting ground for value investors, but then more towards the small and medium cap stocks.

Minister to override corporate decisions made by the Board?

Another worrisome article on MalaysianInsider's website:

Government-owned companies will have to include a rule to follow directives issued by the finance minister despite the latter not being a legal entity on their boards, a move that could ignore corporate governance procedures and transparency.

This does indeed fly straight into the face of best CG practices.

"one MoF-owned company chief told The Malaysian Insider that such directives will make its board of directors mere “rubber stamps” for the government instead of making business decisions in the stakeholders’ best interest. “I chair a board of professionals but if the minister can give directives, then why even have a board? Perhaps Putrajaya should micromanage all these companies,” said the company chief, who declined to be named. He also pointed out there were corporate governance issues as the companies have to answer to the Companies Commission of Malaysia. “How can we justify a decision if we didn’t make it but it’s made by the minister or the ministry?” he asked."

I hope that the MoF will reconsider this plan.


Government-owned companies will have to include a rule to follow directives issued by the finance minister despite the latter not being a legal entity on their boards, a move that could ignore corporate governance procedures and transparency.

The Malaysian Insider understands a letter to the effect was issued in late April by the Ministry of Finance (MoF) following a query about instructions given by the minister to such companies despite a lack of rules to allow such directives.

Auditor-General Tan Sri Ambrin Buang (picture) confirmed his department had raised the query, saying the move was to ensure firms owned by the MoF complied with Putrajaya’s rules and regulations.

“I can now confirm that we did raise the query in the 2010 Auditor-General’s Report because we felt that such a clause is necessary to ensure compliance with government rules and regulations in government-owned companies or GLCs,” Ambrin said in an email response to questions by The Malaysian Insider.

“A clause like that will mean that it is mandatory that the company will act in compliance with government’s legislations and regulations as section 33(1) of the Companies Act 1965 states that the company’s M&A binds the company and its members,” Ambrin said.

“This clause will empower the minister to issue directives on general policies such as appointment, remuneration and dismissal of directors. In doing so it will enhance clarity, consistency and corporate governance as a whole,” he added.

Ambrin also said that the matter was being studied by the MoF.

But The Malaysian Insider sighted a copy of a letter issued by the ministry on April 24 to MoF-owned companies indicating the matter was a done deal, allowing the finance minister to override corporate decisions reached by consensus at their board meetings.

I chair a board of professionals but if the minister can give directives, then why even have a board? Perhaps Putrajaya should micromanage all these companies. — A company chief, who declined to be named

The letter told the MoF-owned firms to amend their Memorandum and Articles of Association (M&A) by inserting a clause to allow the minister to issue directives to the corporation that must be followed.
The letter states that the national Audit Department had raised an issue on the lack of a clause in the M&A and told the GLCs and MoF-owned firms to reply as to whether or not their M&A had the clause.

“Official instructions will be issued to the companies to create the clause in their respective M&A if the clause does not currently exist in the M&A,” the MoF said in the letter, signed by the MoF’s investment, incorporated companies and privatisation division secretary, Eshah Meor Suleiman.

However, one MoF-owned company chief told The Malaysian Insider that such directives will make its board of directors mere “rubber stamps” for the government instead of making business decisions in the stakeholders’ best interest.

“I chair a board of professionals but if the minister can give directives, then why even have a board? Perhaps Putrajaya should micromanage all these companies,” said the company chief, who declined to be named.
He also pointed out there were corporate governance issues as the companies have to answer to the Companies Commission of Malaysia. “How can we justify a decision if we didn’t make it but it’s made by the minister or the ministry?” he asked.

The company chief believed the issue arose due to excuses given by some company chiefs when queried by the Auditor-General and his staff.

“There are some who pass the buck to the minister and probably the Auditor-General wants this to be in black and white. But this is not how it should be done. Professionals should run the board, not government ministers or civil servants,” he said.

Wikileaks: GLC'S, unraveling the tangled web

Interesting article from WikiLeaks about Government Linked Companies (GLC's) and the difficulty of unraveling the tangled web of holdings:

http://wikileaks.org/cable/2006/10/06KUALALUMPUR1936.html

I refer to a previous posting on this blog:

http://cgmalaysia.blogspot.com/2011/08/where-is-malaysian-david-webb.html

"Increase transparancy by providing a Malaysian database similar to the one David Webb has provided on his website. This will be a useful tool for all serious investors and bring back their attention. Secondly, this will be a very useful tool for the enforcers themselves. Thirdly, journalists can tap from this source for their stories."


Summary: The Malaysian government,s ability to control market access through its holdings in government linked companies (GLCs) is an important consideration in our ongoing FTA negotiations. Unraveling the tangled web of government holdings is difficult. Much information is publicly available, but tracing through the linkages between government and commercial entities requires close familiarity with the local market and major players. Even then the results can be controversial, as demonstrated by a recent report that leaked from a local think tank. One of our objectives in the FTA negotiations is for the Malaysian government to compile an annual report on GLCs -- as was done in the U.S.-Singapore FTA. Even knowledgeable Malaysian officials will find this a daunting task, but they could be persuaded that it fits with the government,s program for improved GLC performance. End summary.

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Big Players, Thin Skins
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¶2. (U) According to a Malaysian Government website, Government- Linked Companies (GLCs) -- commercial companies in which the GoM has a direct controlling stake ) employ 5 per cent of the national workforce, account for approximately 36 per cent of the market capitalization of the Bursa Malaysia (the local stock exchange), and comprise 54 per cent of the benchmark Kuala Lumpur Composite Index. The Government of Malaysia manages its holdings in the GLCs through seven investment holding companies, or Government- Linked Investment Corporations (GLICs). The GLICs have differing mandates with varying roles and degrees of responsibility with regard to &executing Government policies and initiatives,8 particularly regarding industrial policy and development initiatives. While a number of Malaysia,s GLCs have been loss makers for decades, some efforts are being made to improve their accountability and profitability (see reftel).

¶3. (U) The role of the GLCs in the Malaysian economy is a sensitive matter, as they are inextricably linked with the government,s effort to advance the economic standing of Bumiputeras (ethnic Malays).

Recently, a respected local think tank produced a report for the government that, i.a., included recommendations on the management of GLCs and their use as agents of the government,s socioeconomic policy. The report asserted that through the GLCs, Bumiputeras already hold sufficient corporate shares to have surpassed the government,s headline goal of owning 30% of Malaysia,s wealth (government statistics say Bumis only own 18.9%). This claim caused such a stir that the president of the think tank publicly repudiated the study. The chief researcher resigned in protest. (Comment: We will report on this controversial study in more detail in a separate message.)

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One Hand Washes the Other
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¶4. (U) Sometimes the government exerts itself to protect the GLCs, and sometimes it,s the GLCs that serve the government.

High tariffs and bureaucratic impediments to importing a car -- including limits on the number of approvals and required signatures from three separate government ministries -- clearly were designed to benefit the government-owned automobile manufacturer Proton. On the other hand, Khazanah, the largest GLIC, recently bought back from Singapore a controlling share in Pantai, the company granted sole authority to issue Malaysian medical clearances for foreign workers. One Khazanah employee commented to Econoff that the driving reason for the re-acquisition was not good business but rather, "national pride." There was an understanding that Khazanah would have a majority stake but decision-making would remain in the hands of the company.

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Through a Glass Darkly
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¶5. (U) The level of publicly available information about Malaysia,s seven GLICs varies considerably. Khazanah, the largest GLIC (owned by the Ministry of Finance), publishes its holdings in a flow chart posted on its website, www.khazanah.com.my. Permodalan Nasional Berhad (PNB), a GLIC established specifically to promote the economic advancement of ethnic Malays (Bumiputeras), publishes financial data in its annual report available on its website, www.pnb.com.my. Some of the other GLICs have websites, but offer differing amounts of information on their holdings and strategies. In addition, these figures continually change as fund managers buy and sell on an ongoing basis.

¶6. (U) Information on the ownership of publicly-traded GLCs can be found in their annual reports. The Malaysian Securities Commission enforces requirements regarding publication of financial data on publicly- traded firms. Most listed companies disclose their top 30 shareholders, listing the percentage ownership of each. Summing up the percentages of shares held by the various GLICs among the top 30 is the first step to determining the share of government control. However, it also is important to note which GLICs are major shareholders, as the different GLICs are charged with different objectives ) some more politically driven than others. For example, the Employee Provident Fund (EPF) is charged with investing the retirement savings of Malaysian workers ) a responsibility not as politically charged as Permodalan Nasional Berhad,s (PNB) mandate to advance the economic interests of ethnic Malays. However, almost all the GLICs have at some point made sales or purchases of corporate shares in support of government objectives.

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You Can,t Know the Players without a Score Card
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¶7. (U) When tallying up GLIC holdings familiarity with the local players, including the multiple layers of subsidiaries of the GLCs, is essential. For example, Cement Industries of Malaysia (CIMA) lists only two GLICs in its top 30 shareholders with a combined holding of about 13%. However, CIMA,s top non-GLIC shareholder is UEM World, in which Khazanah holds a a controlling interest. UEM World holds nearly 54% of CIMA. At first glance, the government share appears to be 13 per cent, but tracing the linkages among GLIC subsidiaries it becomes clear that CIMA is effectively government controlled.

¶8. (U) Some other companies provide this information more clearly. For example, Pharmaniaga Berhad, a pharmaceuticals manufacturer, includes in its annual report a list of indirect holdings following its list of direct holdings. The list of the company,s top thirty shareholders does not indicate a majority government stake, but the &indirect8 holdings present quite a different picture: non-GLIC shareholder Trinity Saga is held by UEM World, which is controlled by Khazanah. Add up all the pieces and in fact the government has a controlling interest in Pharmaniaga. Without being familiar with the multiple layers of ownership, Trinity Saga,s GLIC connections would be easy to miss.

¶9. (U) Another example is Malaysian Airline System Berhad (MAS), which lists Penerbangan Malaysia Berhad with a 69.34 per cent holding. The government created this company solely to purchase MAS planes and lease them back to the airline. It is wholly owned by Khazanah. Another 11 per cent of MAS is held by the Employees Provident Fund (EPF). The third-largest shareholder is Amanah Raya Nominees. This is a government-managed trust fund for ethnic Malays.

¶10. (U) Publicly listed companies include the names of their Boards of Directors in their annual reports, often including bios and photos as well. Sometimes the annual report lists Board Members as &Independent8 or &Non-Independent8 as well as &Executive8 or &Non-Executive.8 Again, knowing the local players is essential to determining who has real decision making authority.

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Islamic Banks behind the Veil
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¶11. (U) Fundamental concepts underlying Islamic finance preclude Islamic banks from publishing lists of their shareholders. All depositors are considered &shareholders8 and banks are reluctant to make available to the public a list of top depositors, complete with the size of their accounts. Khazanah,s website reports that Khazanah owns 30% of Bank Muamalat, a local Islamic Bank, but Bank Muamalat,s annual report does not list its shareholders.

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Non-Traded Companies Face Some Disclosure
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¶12. (U) Non-listed companies are not regulated by the Securities Commission, but by the Commission of Companies in Malaysia (CCM). Regulations require non-listed companies to send annual financial statements to the CCM, which will release the information for a nominal fee (currently less than USD 3.00). Most of the larger companies submit financial data regularly; however, enforcement for some smaller companies has been inconsistent. A proposed merger of the SC and the CCM could lead to tighter scrutiny.

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Two "Golden Shares"
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¶13. (U) The government retains a "Golden Share" in two companies, MAS and Telecom Malaysia, dating from the time when these companies were 100 per cent government- owned. The &Golden Share8 effectively gives the Government veto power on Board decisions. Other corporations offer regular shares with one vote per share. We are not aware of any companies besides these two with special voting rights.

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Untangling the Web
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¶14. (SBU) Comment: In view of the role GLCs play in Malaysia,s economy and the government,s use of GLCs as policy agents, increasing the transparency of GLIC and GLC activities is an important goal in our FTA negotiations. But compiling the sort of annual report that Singapore is obliged to produce by our FTA with that country will be a major challenge for Malaysian officials. Not only are the relationships between government and commercial entities more complex in Malaysia than they are in Singapore; the political sensitivities are far, far higher. Malaysian officials will find reporting on GLCs a daunting task, but could be persuaded that this would support the government,s agenda for improved GLC performance (reftel). End comment.