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 ....

More credible responses needed from S'pore firms accused of bribery abroad

Timely article from Mak Yuen Teen in the Business Times (Singapore). Some snippets:


..... allegations have been made in media reports about the possible involvement of some Singapore companies in bribery scandals overseas. The responses from these companies typically include an immediate denial of the allegations, and an assertion that the company has zero tolerance for corruption and a code of conduct prohibiting bribery and corruption.

.... every company will undoubtedly say it has a zero tolerance for corruption. I have never seen a company say it has some tolerance for corruption.

.... most companies have a code of conduct that prohibits bribery and corruption, and certainly none will have one that condones it. This does not guarantee that employees or third parties may not have violated the code.

In a recent case, overseas media reports said a leaked confidential memo from an overseas company accused of being a middleman in a massive bribery scandal commented that the Singapore company that was allegedly involved was an "ideal client" because it had lax anti-corruption controls, relative to other multinational clients.

[this is most likely a reference to Keppel, as described here]

Singapore companies that do business overseas need to take a good hard look at their compliance programmes, strategies, incentive systems and business practices and adopt a more measured approach when responding to bribery allegations. Rather than issuing a knee-jerk outright denial, chanting "zero tolerance for corruption" and "code of conduct" whenever such allegations surface, they should take allegations seriously and commit to reviewing their compliance programmes and undertaking their own investigations. Outright denial of bribery without any specific action may give the impression that the company has a head-in-the-sand attitude towards actual bribery risks out in the field. If the allegations subsequently turn out to be true, the company's initial response would be seen to be shallow and, over time, the company will lose its credibility.

Bad loans on the rise in Singapore

Interesting article from Bloomberg. Some snippets:


"Bad loans in Singapore rose to a six-year high in 2015. Rating firms last month placed energy and mining companies globally on review for downgrades, the Baltic index of shipping rates last week reached the lowest since its 1985 inception and Singapore home sales had the worst start to a year since 2009.

Energy firms dominated 112 global bond defaults last year, according to Standard & Poor’s, as the slowest Chinese growth in two decades helped drive prices for commodities from oil to iron ore and coal to multi-year lows."


There seems to be a lot of stress in the system at the moment, especially in certain industries like oil & gas, mining, shipping etc. Banks which have too much exposure in those area's might run into problems.

A rather positive picture for Malaysia, being grouped together with Singapore, in contrast to the other countries mentioned which have a much lower recoverability.

Singapore to close loopholes on investment schemes

From The New Paper: "MAS to close loopholes on gold buyback schemes, collective investments"

One snippet:


Programmes such as gold buyback schemes allow investors to buy physical gold at "discounted" prices, usually 1.5-2 per cent cheaper. Some entities even allow the customer to take the gold bar or gold coins home. The company then promises to buy the gold back at the original sale price, meaning consumers get to earn the 1.5-2 per cent return when the gold is bought back. There are some companies that even agree to pay consumers a monthly fixed interest. But unlike other investment products, the advertising (or prospectus) for such schemes are not regulated by the Monetary Authority Singapore (MAS). This is set to change with the new rules, which state that sellers will have to register their prospectuses with MAS before they can solicit for potential investors.


Some of the schemes (mentioned in the article) from the past that seem to have gone belly up are:

• Suisse International
• The Gold Guarantee
• Genneva
• Profitable Plots
• Ecohouse Developments

I have always been surprised why such a developed country like Singapore allows so many dodgy investment schemes. At least, now things seem to change for the better.

Hopefully Malaysia will follow suit soon, many investors there have also been hit by pyramid schemes and the likes.

Shareholders can query external auditors at general meetings

The issue if shareholders can ask questions to the external auditors was raised in the (rather heated, but very interesting from a corporate governance point of view) debate in Singapore regarding Noble Group.

Mak Yuen Teen wrote a clear answer to that matter in the Business Times (Singapore). Some snippets:


External auditors are appointed by shareholders, their report is addressed to shareholders, and they have a fiduciary relationship with them. It would be odd if shareholders appoint external auditors who report to them, but cannot ask questions about how they did the work.

.....  there is not much point in having external auditors present at general meetings - and companies being charged for it - just for them to issue boilerplate responses.

For example, shareholders at the Noble AGM could have asked questions about how the external auditors arrived at their audit opinion, the appropriateness of the accounting policies and assumptions used by the company, and how they audited the investments in associate companies such as Yancoal and biological assets.

As a matter of decorum, shareholders should direct their questions about the external audit or about other matters through the chairman of the meeting. The chairman should provide the opportunity for the external auditors, committee chairmen and others to answer these questions as appropriate.


To all readers who visit AGMs/EGMs and have questions regarding accounting matters, please feel free to follow the above advice. I assume the rules are the same in Malaysia.

On a side note: I hope to have time in the future to comment on Noble, which might also be worthwhile in the Malaysian context: although no company on Bursa has yet been targeted by a "shortseller", one day that surely will happen, better to be prepared for it, both for regulators and companies.

Singapore in mourning

Singapore today bade farewell to its founding father in a most impressive way.

Even the gods were crying, rain pouring down during Mr Lee's last trip through the city.

Rest in peace, Mr Lee.

Singapore regulator plans new rules to shield investors

The Monetary Authority of Singapore (MAS) yesterday proposed a set of regulations to boost investor protection, with new rules for investments linked to land banks, gold and other physical assets - following several scams that have left retail investors high and dry.

Its latest move, laid out in a consultation paper, means investment schemes linked to land-banking and other physical assets such as most precious metals, will no longer be made available to retail investors.

MAS also wants all retail investment products to be rated on their complexity and risk - a decision that David Gerald, president of the Securities Investors Association (Singapore), said would provide needed guidance for retail investors. "It's better late than never," he added.

The central bank plans to tweak its definition of collectively managed investment schemes (CIS) to include schemes that involve pooled profits and remove investors from the daily control of the investments. This will apply to land-banking, which would then be classified as a CIS.

All CIS must meet standards set out in the CIS Code, which ensures that the assets involved are liquid. Since land cannot be deemed liquid, unlike securities, it would no longer be offered to retail investors.


The above article comes from The Business Times and is really great news.

The current (highly unsatisfactory, in my opinion) situation is described by blogger Martin Lee:


Singapore’s approach is slightly different. It specifics a list of financial instruments that are regulated. This includes the usual investments like shares, unit trusts and life insurance. These regulated products can only be sold by licensed representatives who meet the prescribed requirements. Anyone who is not licensed but tries to give individual advice on them will be contravening the regulations (The irony is that you do not violate anything if you conduct a seminar to few hundred people on the same topic).

If a product falls outside this list, it is considered not regulated by MAS. The current position is that any product that does not fall under the scope of MAS is not up to them to regulate and hence they will not stop companies from selling such products. For example, land is considered a real asset so any sale is like a property purchase on a willing buyer and seller basis.


Martin Lee writes also about the proposed changes in the consultation paper.

This blog has also warned several times for unregulated schemes, some of which have collapsed or are likely to collapse in the near future.

Comments on the consultation paper can be submitted latest by September 1, 2014. I hope for a quick implementation of the new framework and subsequent enforcement of all kind of dodgy investment schemes. It is long overdue.

Malaysia (Securities Commission and Bank Negara Malaysia) also should take note, they are dealing with the same situation.

Bond fever grips Singapore's rich

Article in The Edge.

Surely this has to end badly one day, in my humble opinion. Investors in these bonds do not get properly compensated for the relatively high risk that they take. All thanks to people like Greenspan and Bernanke.


(July 11): Private banks are driving Singapore's bond market to new heights as wealthy individuals clamour for higher returns. Pacific International, a highly leveraged, unlisted shipping company, this week became the latest new issuer to benefit from this apparently insatiable appetite, when it sold a S$300m (US$240.8m) 5.90% unrated three-year bond that attracted S$3.5bn of orders from 93 different buyers. Pacific already has US$2.95bn of debt and an annual interest bill of around US$81m. Despite a weak outlook for the competitive shipping industry, private banks acting on behalf of their clients bought 93% of the deal. 

This was by no means the only bond to have drawn a crowd in recent weeks. Smaller listed companies have also pulled in big oversubscriptions. A S$75m 4.75% 3.5-year issue from construction company Tiong Seng Holdings received S$650m of orders, while property developer Singhaiyi Group pulled in S$800m for a debut S$100m 2.5-year at a 5.25% yield. Surging appetite for yield is allowing more companies to come to the capital markets, giving some in difficult sectors such as Pacific International additional flexibility compared to bank loans. While the additional demand adds to market liquidity, however, market participants worry that inflated order books may be distorting pricing and leading to a build-up of credit risk. "The private bank clients are adamant about getting their hands on the bonds because they know how hard it is to pick them up in the secondary markets," said a debt syndicate banker."The PBs (private banks) inflate their orders to ensure they get at least 10% of those orders, and that just balloons the entire book. Once you see a deal that is more than three times oversubscribed, you can be sure the rest is inflated."A giant order book typically allows a company to push for a reduced cost of funding. Pacific International, for example, squeezed the final yield on its bond by 35bp to 5.90%, a considerable saving.

Few alternatives
High-net worth individuals are turning to high-yield bonds after a choppy period for the city's stock market and government restrictions that have curbed speculative property investments. Cash rates are low, and the yield on the 10-year Singapore government bond is only 2.3%. "Yields are very low and cash returns are next to nothing," said a Singapore-based debt syndicate banker. "Investors have to re-channel funds somewhere, and they pick high-yield bonds as the returns can sometimes match up to equity dividend yields.

Minorities' right to expect full value (2)

I wrote before about the offer to acquire all shares of CapitaMalls Asia (CMA) by CapitaLand (CL) .

Some moderate good news, CL has increased its offer price from S$ 2.22 to S$ 2.35, an increase of 6%. I still find the offer rather "stingy", but this makes it somewhat better.

It is now up to the minority investors whether they will accept this final offer or not.

From todays "The Business Times" (Singapore), "Bumper Q1 for M&A in Singapore":


It has been a busy first quarter for bankers, here and in other parts of Asia, with a slew of acquisitions and privatisation deals.

Bankers say that it has been a bumper quarter, lifted mainly by privatisations in the property sector, and that they see many more deals in the pipeline.

But some are also watching if greater public dissent by minority shareholders and activists could put a damper on the mergers and acquisitions (M&A) process, including that of pricing.

CapitaLand last Friday sweetened its privatisation offer for CapitaMalls Asia (CMA), of which it already owns about 70 per cent, following concerns that CMA had been undervalued, a point hammered home in a published commentary by former senior managing director at Temasek Holdings, Michael Dee.

Shareholder activism is here to stay, say market insiders.

"There is greater activism around these transactions," Axel Granger, head of M&A for South-east Asia at Bank of America Merrill Lynch, told The Business Times. "Investment bankers will have to pay more attention to the opinion makers. It is a natural evolution. It is something we have seen in the United States, and it is moving to Asia."

But Willard McLane, head of Asean corporate and investment banking at Citi, noted that the current level of activism in this region is still relatively modest.

"I don't see much shareholder activism in Singapore in the way we see it in the US, for example. We haven't seen a lot of cases where shareholders are publicly promoting agendas or blocking deals," he said.

A related article in the same newspaper: "Shareholder activism rises in S'pore".

A discussion about CMA and the offer price can be found on the "ValueBuddies" forum.

Minorities' right to expect full value

In Malaysia low privatisation offers by the large majority shareholder are quite common. The problems are:

[1] no competing offers;
[2] independent directors should maximize returns for all shareholders;
[3] minority shareholders should stand up and fight.

It seems that in Singapore there is a very similar situation.

The first relevant article is by Michael Dee, former regional CEO for Morgan Stanley and senior managing director for Temasek Holdings, it can be found in the Valuebuddies forum.


CMA shareholders should stand their ground against 'fair offer'

CMA is a cash cow and is worth much more than that

THE CapitaLand (CL) offer for the 35 per cent of the CapitaMalls Asia (CMA) shares they do not own is yet another example of the lack of respect for minority shareholders. The post-IPO performance of CMA shares and the paltry premium over the IPO price and book value multiple should concern all CMA shareholders.

At the November 2009 CMA IPO, all of the proceeds went to CapitaLand and none were invested into CMA. Thus the IPO and current offer are just asset trades for CL with no strategic benefit for CMA shareholders. Prior to the IPO, CL shares peaked at $8.60 and during the financial crisis fell almost 80 per cent. A few months later, CMA's IPO was priced at $2.12, closed the first day at $2.30 and the multiple of book value offered was 1.55x. The current offer of $2.22 is valued at a thin 1.2x book value.

Yet, now more than four years later, CL wants to pay only a 4.7 per cent premium to the IPO price, a 3.4 per cent discount to the day one closing price and a 23 per cent discount to the IPO book value multiple. Has CMA really deteriorated that much over the last four years?

At the time of the IPO, CMA had 59 completed projects and today there are 85, a 44 per cent increase. In 2013 vs 2012, revenue, profit and the asset value per share were all up about 10 per cent and operating income increased a whopping 40 per cent. Looking back to the IPO, in 2009, profit was $388 million and for 2013 it was $600 million, an increase of 55 per cent. Total equity in 2009 was $5.5 billion and at year-end 2013, it is $7.2 billion, more than a 30 per cent increase. So operating performance since the IPO has been quite strong and hardly justifies a discounted multiple to book value and a discount to the closing price after the IPO.

CL will stress the offer price is at a premium to recent closing prices. Yet this is illusory as CMA is worth more than its market values and worth much more to CL than the offer price. CMA shares hit a high of $2.66 within days of the IPO on Dec 7, 2009. Two years after the IPO, the shares had fallen 60 per cent to a low of $1.13, while during the same period, the STI was unchanged. Within a few months of the IPO and aside from a few weeks in 2013, the shares traded below the IPO price about 90 per cent of the time. Even today, after the offer, the STI has still outperformed CMA's share price by 35 per cent since the day one close. Most of the dividends have gone to grow the business and reinvest in new projects, yet current investors are not being compensated enough for those investments and the projects currently being developed.

CMA is 65 per cent owned by CL and at least one of the independent directors also sits on CapitaLand's board. Additionally the chairman of CapitaLand and CapitaMalls Asia are the same person. Thus the majority of the Board should not be considered independent in the transaction as five of 10 board members have direct ties to CL. CL has had direct control strategically and operationally of CMA as a public company. This includes a healthy conflict of interest as noted among the 26 pages of Risk Factors of the IPO prospectus; "We cannot assure you (potential CMA investors) that the interests of our (CL) existing Reits or private real estate funds will not conflict or be subordinated to our (CL) interests in such circumstances. Furthermore, we cannot assure you (CMA Shareholders) that conflicts of interest will not arise in future . . ."

As a minority shareholder, the odds are stacked against you. When a 65 per cent shareholder has to decide whether to put minority or their own shareholders first, it is clear that CL comes first. You were warned at the IPO.

CL investors, including Temasek, should wonder why CL is not buying their own shares that are trading at only about 0.8x book value. Is it really the case that the CMA offer is so cheap that it is a better investment than buying CL shares at a 20 per cent discount to book value instead of CMA's 20 per cent premium?

Clearly the market sees the unique value in CMA, value that is not being provided to CMA shareholders. Just look at the CL share price since the CMA offer. Investors and analysts in CL have bid up the CL share price almost 10 per cent, to a level not seen for almost six months.

CL wants to attain 90 per cent so as to delist CMA. This means buying at least 25 per cent of the outstanding shares. No doubt an IFA (independent financial adviser) can be found to give a "fairness" opinion. However there is a big difference between a minimally acceptable fair offer and receiving the full value of the company. CMA investors should expect the independent directors to maximise the value they receive and not just accept a price deemed "fair". But who is negotiating on behalf of CMA shareholders to get the best price?

CL wants to buy CMA as cheaply as possible because it is a great asset. In short, CMA is a cash cow and is worth much more than they are offering now. Shareholders should be prepared to stand their ground in order to attain the full value for giving up their share of the company. CMA is very profitable and has strong dividends so even if CL walks away, the minorities are left with a good yielding asset. The China assets are increasingly valuable now that the government is focused on increasing consumption and domestic demand. CMA shareholders should be happy to hold onto their shares.

One hopes the independent directors will represent only the minority investors to the full extent of maximising the economic potential for shareholders. Since CL has now shown they are negotiating solely on their own behalf, it is up to the minority shareholders to make their decisions about whether they are getting full, fair or inadequate value. As a general matter, if minority investors won't stand up for their rights then they can expect even more poor performance from the majority managers of their assets.

The second letter is at Business Times, partly behind a paywall:

I refer to "Privatisation unhappiness: market is to blame" (BT, April 23), which says in effect that markets fluctuate so you have to take the good with the bad when it comes to takeover offer valuations. I could not disagree more stridently.

What the column fails to take into consideration is that the current rash of takeover complaints deals with a unique class of takeovers - those where a controlling or majority shareholder or consortium who is in control of the corporate entity, makes an offer for the minority shares they do not own. It is a whole different game when a shareholder or group of shareholders are in control of the value of the offer.

Consider this: Temasek used to own 15 per cent of F&N. If it made a bid for the outstanding shares it did not own, would a bidding war have erupted with the velocity we saw last year? Will we see a bidding war for CapitaMalls and Olam, etc? Most certainly not. However, Temasek sold its shares in July 2010 and thus a bidding process was able to unfold whereby all F&N shareholders received the full market value possible, but only because there was competition for the asset.

Now contrast that with today's deals. What bidder is going to emerge for the minority shares with the controlling shareholder(s)? The Temasek consortium controls 52 per cent of Olam and CapitaLand controls 65 per cent of CapitaMalls Asia (CMA). No other bidder is going to step up to drive an undervalued company to its maximum shareholder value. As the article points out, there is no chance the controlling shareholders are going to make a bid at full value - why should they?

The third article is the response from the SIAS on this matter.

Penny Stock Saga: were the share prices manipulated? (4)

The Singapore authorities were rather slow out of the blocks, but the pace of proceedings has quickly caught on. I have confidence they will get to the bottom of this saga, although it might take time.

Article in the Straits Times (Singapore) by Grace Leong and another article on "ValueBuddies".


"The probe into last October's penny stock rout on the Singapore Exchange (SGX) has now widened to include the chief executive of Innopac Holdings as well as units of Magnus Energy.

The Commercial Affairs Department (CAD) has asked Mr Wong Chin-Yong, CEO and executive director of Innopac Holdings, to assist with investigations in relation to offences under the Securities and Futures Act.

Meanwhile, Magnus Energy Group also announced that two subsidiaries and a former subsidiary had received notices from CAD to provide all information and data belonging to the company's executive director Koh Teng Kiat and chief financial officer Luke Ho Khee Yong."

"The CAD also asked ISR Capital, majority-owned by private equity firm Asiasons, to assist with the probe. It made the same request for data belonging to ISR chief executive Quah Su Yin.

Similar CAD requests were made to Innopac chief executive Wong Chin-Yong; ITE Electric chief executive Ho Cheng Leong; its chief operating officer, Mr Ang Cheng Gian; and Mr Goh Hin Calm, a non-executive and independent director.

Innopac and ITE Electric said the four men will remain in their posts as the investigation proceeds.

Magnus Energy announced on Wednesday that two subsidiaries and a former subsidiary had received CAD notices to supply information and data belonging to executive director Koh Teng Kiat and chief financial officer Luke Ho Khee Yong."


"What goes round comes round... no matter how long it takes..." and with that we can only agree.

Penny Stock Saga: were the share prices manipulated? (3)

Two recent developments in the "Penny Stock Saga":

Article from the Straits Times (Singapore)

Court orders CEO to pay up $1.8m debt owed to bank

THE chief executive of an investment holding company who is locked in multi-million dollar lawsuits, has been ordered by the High Court to pay up a $1.83 million debt owed to a bank.

Ms Quah Su-ling, executive director of Ipco International for more than a decade, failed in her appeal to rescind the summary judgment against her sought by the Bank of East Asia for monies owed from a share margin facility. Ms Quah had also appealed to put the proceedings on hold.
.....
Ms Quah's woes began last year with the plunge in the share prices of three listed companies: Asiasons Capital, LionGold Corp and Blumont Group.

She had invested up to $120 million in their shares.

She claimed Goldman Sachs gave her 1 1/2 hours last October to repay $61 million, which is the margin call on her trades in the companies.


Announcement by Blumont:

"The board of directors (the “Board”) of Blumont Group Ltd. (博诺有限公司) (the “Company”) wishes to announce that G1 Investments Pte Ltd (“G1 Investments”), a wholly-owned subsidiary of the Company, has received a notice dated 2 April 2014 from the Commercial Affairs Department of the Singapore Police Force (“CAD”) requiring G1 Investments’ assistance with the CAD’s investigations into an offence under the Securities and Futures Act (Chapter 289) (the “SFA”). The CAD has requested for access to, amongst others, all corporate electronic data from 1 January 2011 to-date, information technology equipment and data storage devices (if any) belonging to Mr. Neo Kim Hock, the Executive Chairman of the Board, and Mr. James Hong Gee Ho, Executive Director of the Company.

Further, the Company has been informed that Mr. Hong has been requested to assist the CAD in its
investigations into a possible infringement under the SFA..."


Looks like the net is tightening.

Eratat: another S-chip bites the dust (2)

I blogged before about Eratat, one of the so called S-chips listed on the SGX.

The company made a new announcement, some snippets:


Mr Lin had produced online bank statements, the latest of which showed that the Company’s principal operating subsidiary Fujian Haimingwei Shoes Co., Ltd (“HMW”) had unencumbered cash balance of approximately RMB646 million (“HMW Cash Balance”) as at 24 January 2014 in its bank account maintained with the Agricultural Bank of China (“ABC Bank”), Jinjiang Chendai Branch (“24 January Statement”).

.... The above appeared to be consistent with an earlier document given by ABC Bank (“ABC Confirmation”), which showed that there was approximately RMB577 million of unencumbered cash balance in HMW bank account at ABC Bank as at 31 December 2013. 

.... the Company’s interim CEO, Mr Ho Ker Chern, the Audit Committee Chairman, Mr Lim Yeow Hua and the independent auditors (collectively, the “Working Parties”) made an impromptu visit to ABC Bank, Jinjiang Chendai Branch. They managed to meet the ABC Bank staff who handled the ABC Confirmation previously and she reaffirmed that the ABC Confirmation was verified by the bank branch. At the same visit, the Working Parties also met up with the branch manager of ABC Bank, Jinjiang Chendai Branch, Mr Zhang Liwei (张立伟) (“Manager Zhang”) and showed him the ABC Confirmation. Manager Zhang also affirmed that the ABC Confirmation was verified by ABC Bank and informed the Working Parties that HMW has been a good customer and did not have any bank loans with the bank.


So far so good, all seems to be fine, what could ever be wrong?

And then the bomb went off:


On 14 February 2014, the Company received a reply from ABC Bank, Jinjiang Chendai Branch (“ABC Response”). In their response, ABC Bank alleged that the 24 January Statement and the ABC Confirmation were not given by ABC Bank but were provided by the “finance company of HMW”. They also enclosed a confirmation signed by Mr Lin (in his capacity as the legal representative of HMW) on 8 February 2014 stating the same (“Lin Confirmation”). In the ABC Response, the bank also clarified that the cash and loan balances stated in the aforesaid documents were inconsistent with the bank’s records but did not elaborate further.

The Board was taken aback by the ABC Response as the 24 January Statement was taken from ABC Bank’s website and the ABC Confirmation was given by the bank’s employee at the bank’s premises previously. Moreover, the Working Parties had also met up with Manager Zhang as aforesaid and he had reaffirmed the documents then. 

And that sums up the problems with investing in Chinese companies, listed in Singapore (or Malaysia for that matter): even the bank balance can't be trusted.

My guess is, there is a huge difference in the bank balance, and (needless to say) the difference is not in a positive way.

On top of that, I don't like the response of the bank, they should mention how much the bank balance is, according to their books. They know from the correspondence that there are some major problems regarding HMW, and they should fully cooperate. By not elaborating they have not cooperated, I have some serious doubts with whom their loyalty lies.


"Given the discrepancies relating to the bank cash balances, the Audit Committee intends to conduct a special audit into the financial affairs of the Group, which could include, inter alia, ascertaining the bank cash balances, verifying the accounts receivables and payables and confirming the property, plant and assets of the Group.

However, given that the above would require the cooperation of the PRC management, there is no assurance that the special auditors (when appointed) would be able to conduct the special audit."


In other words, we might never even know how bad the situation is, or what exactly has happened. Pretty shocking.

And some more bad news:


"Due to the disruption to the Company’s management, the Group’s operations in China remain suspended and the staff did not return to work since the end of the Chinese New Year holiday period."


Investors who own shares in Eratat should be prepared for the worst. The share is suspended.

SGX Circuit breakers won't help small investors

A rather critical letter by Michael Dee in The Straits Times (Singapore) about the recently introduced "circuit breakers" and the Penny Stock Saga:


The Singapore Exchange's (SGX) new "circuit breakers" come 25 years too late, do not cover shares priced below 50 cents, and delay trading by only five minutes - it is 15 minutes on the New York Stock Exchange ("SGX circuit breakers to kick in next month"; last Thursday).

Other than insiders, who could possibly respond in the five-minute "cooling off" period? Yet again, the smaller investor is disadvantaged compared to remisiers, highly sophisticated players and high-frequency traders.

The circuit breakers would have had no impact on the recent penny stock fiasco beyond delaying the inevitable by a few minutes - and buying time for the big players and insiders.

Prior to their collapse, Blumont Group's price-earnings ratio was up to 500 and price-to-book value ratio was 60; Asiasons Capital's price-earnings ratio was more than 580; and LionGold Corp was virtually unprofitable, yet had a market value of up to $1.42 billion.

There were no discernible results to support these valuations, and no reaction from the SGX and Monetary Authority of Singapore (MAS) until it was too late.

Investors need, expect and deserve protection from unwarranted and manipulated price movements - both up and down. This comes from much greater transparency and regulatory rigour than what we are currently seeing from the regulators.

Investors would be better served by the SGX and MAS releasing a full report on what happened and why it happened. Only then would the scope of the issues be understood and solutions holistically designed to prevent unwarranted run-ups in share prices that attract unsuspecting buyers in "pump and dump" schemes.

Penny stocks trading as low as one-tenth of a cent are ripe for manipulation.

Thus, shares with prices below 50 cents and valuations below $50 million have no business being listed on the mainboard. A listing provides a misleading and inappropriate stature to companies that have neither earned nor deserve it.

The SGX needs an alternative exchange for these second-tier listings, with different rules to manage investor protection.

In fact, the SGX would do well to set investor protection as its No. 1 priority over commercial interests.

Penny Stock Saga: were the share prices manipulated? (2)

More news regarding this interesting case, which is very important for Singapore (SGD 8 Billion in paper value lost from the highs), but also has a heavy Malaysian component to it (many persons involved are Malaysians).

The parties being sued by Interactive Brokers are (according to this website):

Malaysian nationals:

• Neo Kim Hock
• Peter Chen Hing Woon
• Tan Boon Kiat
• Quah Su-Ling
• Lee Chai Huat
• Kuan Ah Ming

British Virgin Islands-registered companies:

• Sun Spirit Group Ltd
• Neptune Capital Group Ltd.

Singaporean listed companies involved:

• Asiasons Capital
• Blumont Group
• LionGold Corp
• Innopac Holdings 

From an article in Business Times (Singapore) written today by Grace Leong, more news regarding the answer by Quah Su-Ling and the rebuttal by Interactive Brokers (emphasis mine):


IPCO International chief executive Quah Su-Ling, who is among eight clients sued in High Court over $79 million in losses sustained by Interactive Brokers (IB) in the wake of the penny stock crash, has alleged the US online brokerage was involved in a "commission-generating scheme".

According to court documents inspected by The Business Times, Ms Quah, who is seeking to unfreeze nearly $15 million in assets belonging to her and her company Sun Spirit Group, said she does not recall signing the broker's account-opening documents or completing any forms.

The large-volume trades in the shares of Asiasons Capital, Blumont Group and LionGold Corp from her account and that of Sun Spirit's happened because Ken Tai, owner of Algo Capital and her financial advisor, had exceeded his authority over the accounts, she said.

She was rebutting allegations that she may have been involved in an "intricate pump-and-dump scheme to artificially generate trading volume" in the stock trio and to drive up their share prices before they crashed and wiped out over $8 billion in value.

In arbitration proceedings against her, the British Virgin Islands-incorporated Sun Spirit and eight other individuals and entities to recover $79 million in unpaid margin loans, Interactive Brokers flagged "suspicious trading activities through the defendants' accounts" made by Algo Capital. A hearing in relation to the freezing order was held last Friday.BT understands that judgment was reserved.

The broker alleged: "The unusual trading pattern employed by (Algo), which involved buying and selling the same stock in the same account on the same day at the same price, or closing out a large amount of shares in the morning, then repurchasing those shares in smaller lots throughout the day at set intervals, ... (gave) the market the appearance that the stocks were more heavily traded than they were.

"For instance, Algo often traded substantial portions of the volume of total daily trades in LionGold shares and even exceeded 80 per cent of the total trading volume on certain days. Similarly, for Asiasons shares, Algo's trading volume was as much as 67 per cent on some days."

But Ms Quah, in her affidavit, said Mr Tai had purportedly told her that it was the broker that had "placed pressure on him to maintain his high-volume trading".

"Despite the fact that Ken Tai had been trading large volumes of shares in the companies for an entire year (from August 2012 to October 2013), Interactive Brokers did not see fit to flag or exercise its rights to suspend or freeze Sun Spirit's or my accounts in light of what they now allege as 'suspicious activity'."

Between October 2012 and last Oct 4, the broker allegedly made commissions amounting to $776,152 on trades done in her account, and $177,981 on Sun Spirit's account, she said.

She also claimed the broker may have violated the Securities and Futures Act by offering margin-trading services to Singapore residents in respect of SGX-listed stocks without the requisite licence from the Monetary Authority of Singapore (MAS), and was in breach of its own internal policy.

But Interactive Brokers, represented by Senior Counsel Harpreet Singh of Cavenagh Law, said Ms Quah has not produced any credible evidence to support her claims.

Nor has she explained why Mr Tai would "gratuitously implicate" himself by admitting he was in a commission-generating scheme to defraud the defendants, it said in court documents.

IB said it is "completely unaffiliated with the advisers and/or customers who trade on its platform and in no way manages or supervises customer trading or offers any input in the trading".

"It is highly improbable that a sophisticated and experienced businesswoman and investor would be so trusting of Mr Tai. ... The more plausible explanation is the defendants, all of whom were interrelated and had connections with (LionGold, Asiasons and Blumont), were fully aware of Mr Tai's actions."

In challenging Ms Quah's claims as to why she did not disclose her relationship with the other defendants, the broker said she must be "intimately aware that most brokerages would impose higher-margin requirements on customers who disclose they are insiders of a stock they are trading, or that they hold a large position in that stock, either individually or acting in concert with others."

"If there was anyone trying to circumvent the need to obtain a licence from the MAS, it would be Ms Quah and Ipco, who had incorporated Sun Spirit on the other side of the world, and then used it for investment in the (three companies') shares through its account with Interactive Brokers."

On why Ms Quah and Sun Spirit could have been involved in such unusual trading activities and yet suffered huge losses, the broker said: "They may have expected their scheme to continue to be successful, or believe that they could have sold off their positions for large gains before the share prices collapsed, but had simply waited too long."

Penny Stock Saga: were the share prices manipulated?

The first cracks seem to have appeared in the (in)famous "Penny Stock Saga", where the crash of Asiasons Capital, Blumont Group and LionGold Corp wiped out SGD 8 Billion in a just a matter of a few days.

In an article "Offshore broker's role in penny stock saga, Court papers filed by US firm shed disturbing light on stock trio debacle" by Goh Eng Yeow in The Straits Times (Singapore), it is noted:


Concerns centre on the outcome of the investigation being conducted by the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) over the odd trading activity surrounding the stock trio - Asiasons Capital, Blumont Group and LionGold Corp - before they crashed, wiping out over $8 billion in value in days.

There have been all sorts of rumours and allegations circulating in the market on how the three counters achieved spectacular price surges last year and their subsequent crash.

None of these rumours has been substantiated, but a court document filed here by United States online brokerage Interactive Brokers sheds some light.

Interactive has asked a court to freeze the assets of eight of its clients - six individuals and two companies - that lost almost $80 million in total from the stock debacle.

That court document makes for depressing reading. The allegation it contains seems to suggest how easy it is to subvert the local stock market using an offshore brokerage account.

It begs the question as to whether offshore brokers have put sufficient checks in place to stop a stock manipulator from using their trading platforms to manipulate prices in Singapore's market.

How does an offshore broker check if the accounts that are opened with it are genuine or not? And on what criteria does it extend loans on the shares pledged to it as collateral for share trading?

Would the malfeasance which Interactive purportedly uncovered ever come to light, if its erstwhile clients had not failed to make good on the massive losses which they had sustained in punting the stock trio?

Interactive describes itself as an online broker catering to well-heeled individuals and institutions. It says it does not employ any human "brokers" or "advisers". All trading is done online by customers or by independent financial advisers appointed by them.

In hindsight, this would appear to make it far easier for a person to open a trading account with Interactive Brokers than with any of the nine traditional brokerages here serving retail investors. This is because the SGX requires the client to turn up in person at the brokerage.

Interactive said it was only after the parties failed to make good their losses when the stock trio collapsed that it investigated further and found that there was something amiss.

To adhere to Singapore's regulations, its policy has been to prevent customers, whose legal residence is in Singapore, from trading Singapore-listed stocks.

But it claimed that these parties "deliberately misled Interactive and/or engaged in multiple non-disclosures when applying to open their respective... accounts".

The six individuals had listed themselves as Malaysians and given Malaysian residential and mailing addresses, while the two companies were listed as British Virgin Island-registered entities.

But further checks after the stock trio's crash suggested that "they are likely to be resident in Singapore and/or have a sufficient connection with Singapore".

Interactive noted the eight parties had appointed the same financial adviser, Algo Capital Group, which operates out of a Bishan address to trade on their behalf. They had also borrowed large sums to buy substantial stakes in Blumont, Asiasons and LionGold.

But what must surely take the cake is Interactive's belated acknowledgement that "many of the trades appear to serve no economic purpose and appear now to have been undertaken in a manner possibly to manipulate the share prices of the companies concerned".

Interactive noted that Algo often accounted for "substantial portions of the volume of total daily trades in LionGold shares, and even exceeded 80 per cent of the total trading volume on certain days".

The same trading pattern exists in Asiasons, where Algo's trading volume "was as much as 67 per cent on some days".

"(Algo) often sold a large block of shares at a given price in one or more of the (parties') accounts, then quickly re-purchased approximately the same number of shares at the same price, putting the accounts back where they started, but giving the market the appearance that the stocks were more heavily traded than they really were," it alleged.

Now, if any remisier is so brazen as to indulge in similar trading behaviour, he will surely be hauled up by the SGX's market surveillance team for questioning.

The question is that since Interactive is based offshore serving foreign customers, whose responsibility is it to ensure that it is up to scratch in keeping similar market misbehaviour at bay?

Of course, it is difficult to tell how much truth there is in Interactive's claims since its objective is to recover as much of its losses as possible.

But unless the MAS and SGX conclude their probe speedily, the uncertainties will continue to cast a pall over the market and make retail investors even more cynical about penny stocks. It is in the best interests of all to make haste on the investigation.

SE Asia: low employee engagement

I was rather shocked when I read the following article:


"S'pore staff 'not engaged' at work

Three in four workers here feel unmotivated and are "sleepwalking" through their work day, according to a survey conducted by Gallup.

And what is more startling in the survey findings is that one in seven are so unhappy that they are "more or less out to damage their company" through acts like malingering or even stealing.

"Close to two million people (in Singapore) are just showing up at work every day, doing what they need to do, but not feeling emotionally invested in their companies," said Gallup's Singapore and South-east Asia manager Leong Chee Tung, who presented the findings at a talk yesterday.

In contrast, only fewer than one in 10 workers here are "engaged" at work, that is, they feel passionate about their company and are committed to their work."


Having been in the region for 20 years, I did expect to hear bad news regarding engagement at work. But I didn't expect things to be this bad.

I can't find the exact number for Malaysia, but I guess they will be roughly similar, according to the research by Gallup:

Employee engagement is a two way street, employers not giving any responsibility to employees, employees not taking the responsibility when it is offered.

The region tries to increase productivity by several means, for instance increasing new technology. But if employee engagement is increased, surely this will have a big effect on productivity as well.

It is raining court cases in Singapore penny stock saga (2)

Some more articles:

More stakeholders take court action

Lawsuits may provide answers on $8b meltdown  

Broker seeks to recover US$68m from 10 clients (the full  article of which I gave only 4 paragraphs yesterday)


"The Monetary Authority of Singapore and the SGX are "conducting an extensive review of the activities around these stocks".

Hopefully, they will be able to give the investing public some answers as to what exactly transpired in those frantic days.

It is raining court cases in Singapore penny stock saga

According to this article Interactive Brokers has joined in the ever growing list of court cases regarding the penny stock saga involving companies like Asiasons Capital, Blumont Group, LionGold Corp and Innopac Holdings, companies with Malaysian links:


"Global broking giant Interactive Brokers has launched the largest legal action so far in the wake of October's penny stock collapse, taking aim at at least 10 clients as it seeks to recover about US$68 million of losses.

BT understands that Interactive Brokers launched arbitration proceedings earlier this month against 10 individuals and entities through the American Arbitration Association.

Pending the start of arbitration proceedings, the global broker has also obtained court orders in Singapore and Malaysia to freeze the assets of eight of those clients, including certain directors and shareholders of Asiasons Capital, Blumont Group, LionGold Corp and Innopac Holdings - four of the stocks at the centre of last month's selldowns.

According to court documents inspected by The Business Times and confirmed by sources, Interactive Brokers on Nov 8 sought court orders to freeze the assets of Malaysian nationals Neo Kim Hock, Peter Chen Hing Woon, Tan Boon Kiat, Quah Su-Ling, Lee Chai Huat and Kuan Ah Ming; and two British Virgin Islands-registered companies, Sun Spirit Group Ltd and Neptune Capital Group Ltd."


Earlier on it was announced that Goldman Sachs is being sued for its part in this drama, recent articles can be found here and here.

I have blogged before about Goldman Sachs and its "ethics" (or rather lack of it), here is another (unrelated) case, as reported by The Independent:


Adrian Bailey, chair of the Business Select Committee, which is due to question Mr Cable on Wednesday, said: “It’s totally unacceptable. I don’t see how you can act as adviser to the Government and then profit from the advice you have given them. It is a conflict of interest.”

PE, M&A, IB in Singapore

"Banks with strong Balance Sheets tend to dominate deals – you see HSBC and DBS (a local bank) bidding on a lot of deals, as well as Standard Chartered, Citi, and so on.

There are very, very few mega-deals here because most companies are not that big.

If you do see a mega-deal, almost every single bank will be involved – on some larger M&A deals, you’ll see GS, CS, JPM, DB, Citi, DBS, and more, all listed as advisers.

Most companies worth over $300 million USD here are family-owned or state-owned, and most families do not want to divest their companies – so M&A activity above that level is limited (and there are even fewer $1 billion+ USD deals in a given year).

As a result, many bulge bracket banks aim for deals that are “below the bar” and you’ll see the likes of GS competing with HSBC for middle-market deals, which would be unheard of in the US.

Most deals here involve natural resources or shipping, and different countries specialize in different products.

Palm oil is huge in Malaysia, while Indonesia is more about coal. Other countries may specialize in rubber, sugar, and other commodities.

Singapore is a hub for cross-border deals, partially because of the security and stability offered by the government, and partially because of its location.

The most common deal types here are debt and equity issuances. Many bonds are issued here because we’re so “stable”; with ECM, you see a lot of secondary offerings and rights issues.

If you work at a boutique firm here, as I did, there will be even less modeling than at a boutique in the US or UK.

It’s a very sales-oriented job with a ton of pitch books, and boutiques are at a major disadvantage since the bulge brackets tend to be strongest in the debt and equity deals that are the most common here.

Q: So is it safe to say that most companies do deals in Singapore because of the safety and stability over all else?

A: Yes – the rest of Southeast Asia is perceived as “risky,” since you never know when the government will collapse, seize all property, or otherwise do something crazy, but Singapore is all about law and order.

Companies that list here do so because they want stable stock prices; the main downside is that there’s far less liquidity than in Hong Kong, so some choose to list there instead.

In line with this, there’s relatively little in the way of junk bonds, high-yield debt, and so on. That has been changing recently and some companies are now targeting Singapore for issuances that are too small for USD investors, but the volume is still low compared to other countries.

Q: You mentioned before how there are lots of cross-border deals there – does that explain why you don’t see the same language requirements you do in Hong Kong?

A: Sort of, but not really – it’s a little misleading to think that you will be working on tons of cross-border deals if you work here.

Each country here speaks a different language (Indonesian Bahasa vs. Malaysian Bahasa vs. Thai vs. Vietnamese vs. Tagalog…) and most bankers will focus on 1-2 countries because no one can possibly use 5-10 different languages at a professional level.

There isn’t a strict language requirement, but you still do gain a big advantage by knowing the local language – some companies’ filings and documents will be in the local language as well.

Q: Thanks for explaining that. What about on the private equity / venture capital / hedge fund side?

You mentioned that those industries are all relatively new in Singapore.

A: Yeah, I doubt there are even 50 “real” buy-side firms here (NOTE: Our lists show around ~100 firms, but some of those may not be traditional PE funds / HFs).

Various reasons explain this:

For hedge funds, the market here is too “stable” and doesn’t offer the liquidity and volatility that many funds need to make money – so you’ll see more of them in Hong Kong.

With that said, there are still some top-performing hedge funds here, including a well-known Singaporean quant fund… since you don’t have to trade the local market necessarily.

Most of the companies here are too small for the mega-funds to be interested, though that’s starting to change.

Some PE firms have focused on only a specific sector, so they wouldn’t necessarily want to bring in a team of generalists.

On the other hand, Singapore is a great country in terms of light taxes and regulations, and tons of wealthy individuals are moving here – so I think you’ll see more fund activity in the future.

Southeast Asia has a good growth story, but it’s not as good as the China or India growth story; there are also more cultural and language barriers since you’re dealing with multiple different high-growth countries instead of just one.

Q: So do you think it’s easier for foreigners to find work in Singapore compared to other Asian countries?

A: Well, it’s definitely easier to get a job here than in China – as your numerous interviewees in China have pointed out in the past.

There isn’t a strict language requirement and it’s much more multicultural, so they’re not going to turn you away for “not being Chinese enough.”

With that said, it’s still tough to come here and simply network your way into a job. You’d have a better chance by going through headhunters or transferring internally.

Most firms here still prefer local candidates, especially those from the top 3 universities, but people who studied abroad at top schools and then come back here find work as well.

Similar to the system in Mexico, many firms will put you through an extended “probation period” where they see how you perform as an intern for a long time before giving you a real full-time offer.

So you have to be prepared for that if you’re coming here as a fresh graduate with no work experience."


The above from an article in BusinessInsider, the full article can be found here.