From Hong Kong:
SFC seeks court orders against former chairman of Kong Sun Holdings Limited and China Sandi Holdings Limited
The Securities and Futures Commission (SFC) has commenced legal proceedings in the Court of First Instance to seek disqualification and compensation orders against Mr Tse On Kin, former chairman and executive director of Kong Sun Holdings Limited (Kong Sun) and China Sandi Holdings Limited (China Sandi), for devising a scheme to conceal his interests in the companies’ share placements in 2009 (Notes 1 & 2).
The SFC alleges that Tse, who was the chairman of the two companies at the material time, used a nominee company to subscribe for their placement shares, which were intended only for independent placees.
Tse also allegedly concealed his interests in the placement shares from the companies’ boards and shareholders in order to obtain them at discounts for which he should not have been eligible.
As part of the proceedings, the SFC is seeking orders to compel Tse to account for the profit he made from the sale of the placement shares in Kong Sun and to pay compensation to Kong Sun for the secret profit he made (Note 3).
In Malaysia both shares being held by nominees and the issue of private placements are a rather common practice (in the very large majority of private placements we will never know the names of the persons or companies that will receive the placement shares).
I am therefore almost sure that the above scheme to conceal interests must have happened at Bursa listed companies, probably frequently.
But why has there been hardly any enforcement at all in this area? Are the enforcement agencies not pro-active enough, doing some investigations, looking for clues, connecting the dots, following the money trail?
I don't suggest enforcement of this is easy, but a few successfully prosecuted cases would at least give some confidence that action is being taken and that perpetrators are at a risk.
Showing posts with label Private Placement. Show all posts
Showing posts with label Private Placement. Show all posts
Friday, 17 February 2017
Monday, 7 November 2016
XOX: even more dilution
From The Star "Betting on a big name", some snippets:
Over the week, smallish firm XOX Bhd said it was proposing to issue 250 million new ordinary shares of 10 sen per subscription share to Macquarie Bank Ltd, as part of a fund-raising exercise to boost expansion of its Voopee mobile application.
That’s about 42.03% of the existing issued and paid-up share capital of the company.
“This would allow XOX to preserve cash flow for reinvestment and/or operational purposes; and is an expeditious way of raising funds from the capital market as compared to other forms of fund raising such as a rights issue exercise,” the company said.
On the surface, this begs the question, why would a global bank buy into a small firm? A loss-making one at that.
Investors would do good to not merely chase big names that seemingly emerge in firms.
While it is not impossible for such firms to attract quality investors, sometimes the investments are done on behalf of individuals using the bank as the conduit. If that were the case, then the money is really coming from individuals and not the bank itself.
Sometimes, a good name is all it takes to attract the attention of retail investors looking for a “good” buy. What follows after that is anybody’s guess.
I have written before about XOX, more specifically here:
... current shareholders (who might include loyal shareholders who bought shares of XOX at its IPO price of RM 0.80), who inject further money to subscribe to the rights issue, and who inject even more money to exercise their warrants, will in total only receive 36% of the enlarged shares in the maximum scenario.
And almost all of the dilution due to the restricted issue and SIS will be done at a price that is only a small fraction of the RM 0.80 that shareholders paid at the IPO.
Is this the way the company wants to reward its loyal shareholders?
From the above article it seems that the loyal shareholders are "rewarded" again, this time with a dilution of 42%, again at a fraction of the IPO price.
Next to that is the issue which party is really behind the exercise, is it Macquarie bank, or one of its customers? Surely minority shareholders are entitled to know that.
Over the week, smallish firm XOX Bhd said it was proposing to issue 250 million new ordinary shares of 10 sen per subscription share to Macquarie Bank Ltd, as part of a fund-raising exercise to boost expansion of its Voopee mobile application.
That’s about 42.03% of the existing issued and paid-up share capital of the company.
“This would allow XOX to preserve cash flow for reinvestment and/or operational purposes; and is an expeditious way of raising funds from the capital market as compared to other forms of fund raising such as a rights issue exercise,” the company said.
On the surface, this begs the question, why would a global bank buy into a small firm? A loss-making one at that.
Investors would do good to not merely chase big names that seemingly emerge in firms.
While it is not impossible for such firms to attract quality investors, sometimes the investments are done on behalf of individuals using the bank as the conduit. If that were the case, then the money is really coming from individuals and not the bank itself.
Sometimes, a good name is all it takes to attract the attention of retail investors looking for a “good” buy. What follows after that is anybody’s guess.
I have written before about XOX, more specifically here:
... current shareholders (who might include loyal shareholders who bought shares of XOX at its IPO price of RM 0.80), who inject further money to subscribe to the rights issue, and who inject even more money to exercise their warrants, will in total only receive 36% of the enlarged shares in the maximum scenario.
And almost all of the dilution due to the restricted issue and SIS will be done at a price that is only a small fraction of the RM 0.80 that shareholders paid at the IPO.
Is this the way the company wants to reward its loyal shareholders?
From the above article it seems that the loyal shareholders are "rewarded" again, this time with a dilution of 42%, again at a fraction of the IPO price.
Next to that is the issue which party is really behind the exercise, is it Macquarie bank, or one of its customers? Surely minority shareholders are entitled to know that.
Wednesday, 28 September 2016
AirAsia: were all parties at the EGM equally informed? (2)
Announcement from AirAsia:
" ..... that the Company and the Subscriber have entered into a third supplemental letter dated 27 September 2016 in respect of the Subscription Agreement to extend the Cut-off Date of 27 September 2016 for a further period of sixty (60) days and expiring on 26 November 2016, or such longer period as the Parties may mutually agree in writing."
" ..... that the Company and the Subscriber have entered into a third supplemental letter dated 27 September 2016 in respect of the Subscription Agreement to extend the Cut-off Date of 27 September 2016 for a further period of sixty (60) days and expiring on 26 November 2016, or such longer period as the Parties may mutually agree in writing."
The first announcement about this share placement was on April 1st, 2016, about half a year ago.
Basically what the founders of AirAsia have received is a free call option on 559 Million AirAsia shares.
With AirAsia not paying any dividend (in other words no loss by buying the shares later) and the Cut-off Date being extended several times (saving interest charges, at least a few Million RM per month), it looks like a rather sweet deal for the founders of AirAsia.
I wrote before about this placement.
Saturday, 28 May 2016
AirAsia: were all parties at the EGM equally informed?
AirAsia announced its latest quarterly results, the results were great, way above expectations and the share rose RM 0.28 to RM 2.40.
Yes, life can be good, that is, if you are a shareholder of AirAsia.
But life can be even better if you are allowed to buy 559 millions AirAsia shares at a price of RM 1.80.
And that is exactly what Tony Fernandez (Group CEO) and Kamarudin (Executive Chairman) are allowed to do through a private placement (PP). One of the largest I have seen on Bursa done by controlling shareholders.
On May 9, 2016 at the EGM non-interested shareholders approved the PP, as is required by the rules. So is everything above board?
Well ...... there is a nagging issue if all parties actually had the same information available at the EGM.
On one side surely Fernandez and Kamarudin must have known about the 2016/Q1 results, may be not in all detail yet, but at least the key numbers, and they must have known that the numbers were way better than expected by the analysts and the market.
On the other side, the non-interested shareholders were left in the dark, the official results were simply not yet announced, that would happen only about three weeks later.
According to data from Bloomberg analysts were surprised by the numbers: the results were 400% above expectation, pretty stunning.
Yes, life can be good, that is, if you are a shareholder of AirAsia.
But life can be even better if you are allowed to buy 559 millions AirAsia shares at a price of RM 1.80.
And that is exactly what Tony Fernandez (Group CEO) and Kamarudin (Executive Chairman) are allowed to do through a private placement (PP). One of the largest I have seen on Bursa done by controlling shareholders.
On May 9, 2016 at the EGM non-interested shareholders approved the PP, as is required by the rules. So is everything above board?
Well ...... there is a nagging issue if all parties actually had the same information available at the EGM.
On one side surely Fernandez and Kamarudin must have known about the 2016/Q1 results, may be not in all detail yet, but at least the key numbers, and they must have known that the numbers were way better than expected by the analysts and the market.
On the other side, the non-interested shareholders were left in the dark, the official results were simply not yet announced, that would happen only about three weeks later.
According to data from Bloomberg analysts were surprised by the numbers: the results were 400% above expectation, pretty stunning.
The authorities should look into this situation, shareholders are supposed to have roughly the same amount of information when making an informed decision. The possible insiders knowledge of the Q1/2016 results appears to be material. If there was indeed a clear information bias, then minority shareholders should have been protected.
As written before, the whole issue could have been easily avoided if the company had replaced the PP by a rights issue of the same size, allowing all shareholders to participate.
Saturday, 30 April 2016
AirAsia: why not a rights issue instead of a PP?
AirAisa announced that its founders Tony Fernandes and Kamarudin propose to increase their shareholding in the company by buying 559 million new shares in the company through a private placement.
The Star wrote an article about the issues at hand: "Who is bigger – Tony or AirAsia?"
First of all, I have never been a fan of private placements, rights issues are so much more fair, giving all shareholders a chance to participate. And if they don't want to participate (for instance because they don't have money at that moment), they can still sell the rights in the open market.
The rationale given in the prospectus is as follows (first paragraph):
I don't think the reasons given are strong: both the underwriting and the successful completion should be no issue since the 559 million shares to the founders are apparently already underwritten.
Secondly, it is stated that the issuance "indicates the continued commitment" of the founders "by making further substantial investments".
This would suggest that the founders have been doing this for a long time, increasing their stake in AirAsia by investing in new shares.
However, exactly the opposite has been the case, the founders have been disposing shares for a long, long time, and in huge quantities, more than 600,000,000 shares in total.
At the IPO Tune Air sold 86 million existing shares:
After the IPO in their 2005 annual year report they owned 1,045 million shares (44.8%), which they sold down in the open market to 529 million shares (18.9%) currently. Large disposals were made in 2005 and 2006, 2011 and 2014. There is not a single year in which the founders actually increased their shareholding.
That bags the question, why after twelve years of heavy selling do the founders now suddenly want to increase their shareholding in AirAsia? Surely the minority investors, who will get strongly diluted by the proposed private placement, deserve a proper explanation.
Lastly, there is the following, rather remarkable issue:
"..... why Tune Air, which is their holding company, is disposing its stake in the market at about RM2 prior to the AGM? It does not look good for them to get placement shares at RM1.84 when Tune Air is reducing its stake at RM2. To be fair, in announcements to Bursa Malaysia, Tune Air has stated that the shares disposed were in favour of Datuk Abdul Aziz Abu Bakar, who is one of the founders of AirAsia. "
I would suggest to replace the private placement by a rights issue of comparable size, to shore up the balance sheet.
And if the founders of AirAsia want to increase their stake, well, they can go ahead and buy the shares in the open market. If they can sell hundreds of millions of shares in the open market then surely they can also buy those quantities at the same venue.
The Star wrote an article about the issues at hand: "Who is bigger – Tony or AirAsia?"
First of all, I have never been a fan of private placements, rights issues are so much more fair, giving all shareholders a chance to participate. And if they don't want to participate (for instance because they don't have money at that moment), they can still sell the rights in the open market.
The rationale given in the prospectus is as follows (first paragraph):
I don't think the reasons given are strong: both the underwriting and the successful completion should be no issue since the 559 million shares to the founders are apparently already underwritten.
Secondly, it is stated that the issuance "indicates the continued commitment" of the founders "by making further substantial investments".
This would suggest that the founders have been doing this for a long time, increasing their stake in AirAsia by investing in new shares.
However, exactly the opposite has been the case, the founders have been disposing shares for a long, long time, and in huge quantities, more than 600,000,000 shares in total.
At the IPO Tune Air sold 86 million existing shares:
After the IPO in their 2005 annual year report they owned 1,045 million shares (44.8%), which they sold down in the open market to 529 million shares (18.9%) currently. Large disposals were made in 2005 and 2006, 2011 and 2014. There is not a single year in which the founders actually increased their shareholding.
That bags the question, why after twelve years of heavy selling do the founders now suddenly want to increase their shareholding in AirAsia? Surely the minority investors, who will get strongly diluted by the proposed private placement, deserve a proper explanation.
Lastly, there is the following, rather remarkable issue:
"..... why Tune Air, which is their holding company, is disposing its stake in the market at about RM2 prior to the AGM? It does not look good for them to get placement shares at RM1.84 when Tune Air is reducing its stake at RM2. To be fair, in announcements to Bursa Malaysia, Tune Air has stated that the shares disposed were in favour of Datuk Abdul Aziz Abu Bakar, who is one of the founders of AirAsia. "
I would suggest to replace the private placement by a rights issue of comparable size, to shore up the balance sheet.
And if the founders of AirAsia want to increase their stake, well, they can go ahead and buy the shares in the open market. If they can sell hundreds of millions of shares in the open market then surely they can also buy those quantities at the same venue.
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.
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.
Monday, 9 March 2015
XOX: from bad to worse ..... (2)
I wrote before about XOX's proposals, one snippet:
"In other words, current shareholders (who might include loyal shareholders who bought shares of XOX at its IPO price of RM 0.80), who inject further money to subscribe to the rights issue, and who inject even more money to exercise their warrants, will in total only receive 36% of the enlarged shares in the maximum scenario.
And almost all of the dilution due to the restricted issue and SIS will be done at a price that is only a small fraction of the RM 0.80 that shareholders paid at the IPO.
Is this the way the company wants to reward its loyal shareholders?"
The official circular is out. It is a rather long document (108 pages), but what I completely miss is a proper discussion about the huge dilution that normal shareholders will endure if the proposal is approved. In my opinion, it should have been included in the following paragraph:
I find it dubious to mention enhancing of shareholders value without discussing the dilution that they will face.
If one follows all the numbers that are given in the document, then one should be able to work out the dilution. But why is this not transparently presented, accompanied by a proper discussion about the reasoning behind it all?
I have no problem with the rights issue (in which all shareholders can participate), but very much with the huge Restricted Issue (Private Placement) and the massive SIS (Share Issue Scheme).
The Directors will participate in the SIS, and are thus very much conflicted in this exercise (at least that is admitted in the brochure).
I hope that MSWG will be present at the EGM and will grill the Board of Directors about the huge dilution for the minority shareholders.
Bursa Malaysia and the Securities Commission should revisit the rules regarding Private Placements and ESOS/SIS schemes, and limit them to a decent maximum (like 5% or 10% of the outstanding shares of a company).
"In other words, current shareholders (who might include loyal shareholders who bought shares of XOX at its IPO price of RM 0.80), who inject further money to subscribe to the rights issue, and who inject even more money to exercise their warrants, will in total only receive 36% of the enlarged shares in the maximum scenario.
And almost all of the dilution due to the restricted issue and SIS will be done at a price that is only a small fraction of the RM 0.80 that shareholders paid at the IPO.
Is this the way the company wants to reward its loyal shareholders?"
The official circular is out. It is a rather long document (108 pages), but what I completely miss is a proper discussion about the huge dilution that normal shareholders will endure if the proposal is approved. In my opinion, it should have been included in the following paragraph:
I find it dubious to mention enhancing of shareholders value without discussing the dilution that they will face.
If one follows all the numbers that are given in the document, then one should be able to work out the dilution. But why is this not transparently presented, accompanied by a proper discussion about the reasoning behind it all?
I have no problem with the rights issue (in which all shareholders can participate), but very much with the huge Restricted Issue (Private Placement) and the massive SIS (Share Issue Scheme).
The Directors will participate in the SIS, and are thus very much conflicted in this exercise (at least that is admitted in the brochure).
I hope that MSWG will be present at the EGM and will grill the Board of Directors about the huge dilution for the minority shareholders.
Bursa Malaysia and the Securities Commission should revisit the rules regarding Private Placements and ESOS/SIS schemes, and limit them to a decent maximum (like 5% or 10% of the outstanding shares of a company).
Monday, 2 March 2015
The perils of Private Placements
This blog has warned many times about the perils of Private Placements (PPs).
Rita Benoy Bushon, CEO of MSWG, wrote an excellent article about this matter in Focus Malaysia:
In short:
I like to add that minority shareholders in unlisted companies are often protected through the "right of first refusal", any new shares have to be offered first to the existing shareholders, who can take it up pro rata to their shareholding.
Rita Benoy Bushon, CEO of MSWG, wrote an excellent article about this matter in Focus Malaysia:
In short:
- Why the need for PPs?
- Why not consider a rights issue in which all parties can participate?
- No transparency regarding the placees of PPs.
- The discount widens if the share price rises (and the PP can be aborted if the share price decreases).
- The urge for a limit on the size of a PP, say 10% of the shareholding through regulatory approval.
I like to add that minority shareholders in unlisted companies are often protected through the "right of first refusal", any new shares have to be offered first to the existing shareholders, who can take it up pro rata to their shareholding.
Sunday, 8 February 2015
Lay Hong: large private placement and substantial share issue scheme
Regular readers of this blog will know that I am not a fan of private placements (PP).
If a company really needs money then a rights issue is much more fair, all investors will have the opportunity to participate, and those we don't want to can sell their rights in the market.
When a company's major shareholders are engaged in a battle for control and the company announces a PP, then alarm bells should go off.
Lay Hong is such a company, which announced a large private placement, combined with a substantial SIS (Share Issue Scheme).
I am also not a fan of SIS or ESOS either, I would prefer a system where employees receive a bonus for hitting some long term targets. That seems much more transparent (for shareholders) and fair (for employees).
"Serious Investing" wrote a good article about the Lay Hong private placement.
MSWG wrote the following in their newsletter of February 6, 2015:
MSWG has a very valid point, Lay Hong's earnings track record is not that great, can it really increase earnings by such an amount that the dilution caused by the PP and the SIS will be offset?
From it's last year report:
If a company really needs money then a rights issue is much more fair, all investors will have the opportunity to participate, and those we don't want to can sell their rights in the market.
When a company's major shareholders are engaged in a battle for control and the company announces a PP, then alarm bells should go off.
Lay Hong is such a company, which announced a large private placement, combined with a substantial SIS (Share Issue Scheme).
I am also not a fan of SIS or ESOS either, I would prefer a system where employees receive a bonus for hitting some long term targets. That seems much more transparent (for shareholders) and fair (for employees).
"Serious Investing" wrote a good article about the Lay Hong private placement.
MSWG wrote the following in their newsletter of February 6, 2015:
MSWG has a very valid point, Lay Hong's earnings track record is not that great, can it really increase earnings by such an amount that the dilution caused by the PP and the SIS will be offset?
From it's last year report:
Tuesday, 19 March 2013
SPAC's: Boon or Bane?
Initial Public Offers (IPO's) for Special Purpose Acquisition Companies (SPAC) seem to be the flavour of the month on Bursa Malaysia. The following companies are either listed, or will be listed soon:
In my opinion:
While engineering in general has brought us so much good (cheaper, better, stronger solutions), financial engineering hasn't, in the contrary. Unfortunately, financial engineering is getting more and more popular on Bursa Malaysia.
- Hibiscus
- CLIQ Energy
- TerraGali Resources
- Australaysia Resources & Minerals
- Sona Petroleum
Some general remarks about SPACs:
- The companies have no track record, assets, turnover or brand names
- The managers receive large chunks of shares (about 20% of the issued capital) for a very cheap price, almost for nothing
- They still receive millions a year in management fees
- Listing fees are high, often around RM 20 million (depending how much money is raised), to be paid from money raised
- Shareholders often receive warrants, that sounds interesting, but is neutral when all parties receive warrants; on top of that, sometimes the insiders have warrants with a lower exercise price
- Shares offered often are at about 25% premium to NAV, meaning the net asset value has to rise by 33% just to equal the IPO price
- Often difficult financial structures are used, for instance Hibiscus issued RCPS and CRPS, "alphabet soup" instruments designed by financial engineers that will be much too difficult to analyse for the huge majority of the retail investors
- I also noticed already a Private Placement for Hibiscus, another concern
In my opinion:
- SPAC's are very good for the managers, they have almost nothing to lose and still earn good wages
- The verb is "you can't have your cake and eat it", but SPAC's managers prove the verb is wrong
- Minority shareholders pay for the dilution by and fees for the managers, and carry almost all of the risk
- In a basket of listed global mining or energy blue chips, companies with proven track records; some examples are BHP, Barrick Gold, Royal Dutch Shell, Total, Statoil, etc.
- Or (if an investor has no time to analyse them) in well managed funds who invest in these areas (Blackrock for instance has some decent energy, gold and mining funds)
- Or (if people deem the management fees of these funds as too expensive) in energy or mining ETF's with very low fees
While engineering in general has brought us so much good (cheaper, better, stronger solutions), financial engineering hasn't, in the contrary. Unfortunately, financial engineering is getting more and more popular on Bursa Malaysia.
Thursday, 14 February 2013
Huge dilution for SP Setia shareholders
SP Setia has announced a private placement (PP) of 321 million shares (15% of the outstanding shares) at a price RM 2.94 per share, a 7% discount to the market price.
According to this article in The Star, Affin Investment Bank likes the PP:
"We are generally positive on the announcement. We believe there are several long-term benefits from the shares placement".
But strangely enough, Affin doesn't mention at all what happened before regarding the General Offer by PNB. I blogged about the controversial issues regarding this GO.
The independent advise from AmInvestBank was that the price of RM 3.95 was not fair and not reasonable, and recommended shareholders to reject the offer.
So how is it possible that an offer at RM 3.95 is not fair and not reasonable, while a private placement (to a few selected parties, minority shareholders are not able to participate) at a 26% lower price is "generally positive"? To make things worse, the exercise will even cost the company about RM 10 million in expenses.
I wrote about private placements in the past.
David Webb launched his "Vampire" project, and proposed a maximum of 5% of the outstanding capital for private placements at a discount of maximum 5%. In other words, the PP of SP Setia would fail on both of his criteria.
Unfortunately, this is not the only dilution, there will be more. The company announced a "Long Term Incentive Plan" (LTIP) of options and grants, up to 15% of the outstanding shares, which could lead to another 369 million shares.
"Serious Investing" made an excellent post about this.
What I would like to add is that the prospectus of the LTIP was very vague how much it actually would disadvantage the minority shareholders. Although this lack of transparency seems to be normal in Malaysia, it is rather strange, since the disadvantage can be easily calculated:
"Only an accounting treatment?" I assure the reader that although there is indeed no cash outflow, there is a very real disadvantage for the minority shareholders, a large dilution, and that the potential cost is not "only an accounting treatment".
People who invested when SP Setia was listed would have done very well. However, that is not a reason to be cheerful about these two, highly dilutive exercises. Minority shareholders will be diluted by about 32%, and that is huge, by all standards.
Although these exercises are brought to vote, realistically minority shareholders have no chance at all to fight them. They should therefore be better protected by legally limiting the size of both private placements and incentive plans (like ESOS and share grants).
And circulars should really give a more transparent picture of the real cost involved for minority shareholders, either in money or in dilution.
According to this article in The Star, Affin Investment Bank likes the PP:
"We are generally positive on the announcement. We believe there are several long-term benefits from the shares placement".
But strangely enough, Affin doesn't mention at all what happened before regarding the General Offer by PNB. I blogged about the controversial issues regarding this GO.
The independent advise from AmInvestBank was that the price of RM 3.95 was not fair and not reasonable, and recommended shareholders to reject the offer.
So how is it possible that an offer at RM 3.95 is not fair and not reasonable, while a private placement (to a few selected parties, minority shareholders are not able to participate) at a 26% lower price is "generally positive"? To make things worse, the exercise will even cost the company about RM 10 million in expenses.
I wrote about private placements in the past.
David Webb launched his "Vampire" project, and proposed a maximum of 5% of the outstanding capital for private placements at a discount of maximum 5%. In other words, the PP of SP Setia would fail on both of his criteria.
Unfortunately, this is not the only dilution, there will be more. The company announced a "Long Term Incentive Plan" (LTIP) of options and grants, up to 15% of the outstanding shares, which could lead to another 369 million shares.
"Serious Investing" made an excellent post about this.
What I would like to add is that the prospectus of the LTIP was very vague how much it actually would disadvantage the minority shareholders. Although this lack of transparency seems to be normal in Malaysia, it is rather strange, since the disadvantage can be easily calculated:
- Shares given out for no consideration: the cost is the number of shares times the share price; if the company would buy back this amount of shares (to make the exercise non-dilutive), that would exactly be the cost
- Options given out: there are valuation tools like Black-Scholes to calculate the intrinsic value of them
"Only an accounting treatment?" I assure the reader that although there is indeed no cash outflow, there is a very real disadvantage for the minority shareholders, a large dilution, and that the potential cost is not "only an accounting treatment".
People who invested when SP Setia was listed would have done very well. However, that is not a reason to be cheerful about these two, highly dilutive exercises. Minority shareholders will be diluted by about 32%, and that is huge, by all standards.
Although these exercises are brought to vote, realistically minority shareholders have no chance at all to fight them. They should therefore be better protected by legally limiting the size of both private placements and incentive plans (like ESOS and share grants).
And circulars should really give a more transparent picture of the real cost involved for minority shareholders, either in money or in dilution.
Monday, 1 August 2011
Private Placements: abolish them or limit them
I read the comments of "Where Is Ze Moola":
http://whereiszemoola.blogspot.com/2011/07/just-another-feedback-on-corporate.html
I like to focus on Private Placements (PP's) with which I completely agree. The issues at hand:
http://webb-site.com/articles/vampire1.asp
http://webb-site.com/articles/vampire2.asp
http://webb-site.com/articles/vampireproven.asp
http://webb-site.com/articles/HKExAGM2011.asp
A mandate for not more than 5% of the outstanding shares, and a discount not exceeding 5% (this excludes normal rights issues and the total mandate, including non-cash issues, such as shares issued to a vendor in an acquisition, can remain up to 20%).
My recommendations:
http://whereiszemoola.blogspot.com/2011/07/just-another-feedback-on-corporate.html
I like to focus on Private Placements (PP's) with which I completely agree. The issues at hand:
- There is no transparency at all whom the parties are that buy the shares.
- The discount is actually more than it looks due to the time it takes to execute the PP. When the share price goes up after the announcement, the PP will go through (discount is now even larger), while if the share price goes down, the PP is often aborted.
- Through PP's money is injected in the company, but often I have seen the same company paying dividends of about the same amount. The net effect is zero, but twice expenses have occurred, and minority shareholders have been diluted by issuing shares at below market price.
- For larger amounts of money Rights Issues are much fairer, giving all shareholders the same opportunity to invest money.
http://webb-site.com/articles/vampire1.asp
http://webb-site.com/articles/vampire2.asp
http://webb-site.com/articles/vampireproven.asp
http://webb-site.com/articles/HKExAGM2011.asp
A mandate for not more than 5% of the outstanding shares, and a discount not exceeding 5% (this excludes normal rights issues and the total mandate, including non-cash issues, such as shares issued to a vendor in an acquisition, can remain up to 20%).
My recommendations:
- To abolish Private Placements all together.
- If however they are not, then:
- Limit Private Placements according to the Vampire guidelines of David Webb.
- Provide total transparency in who is buying the shares at what price and what are their relations to the majority shareholders and directors.
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