Tony's Top Ten Tips

I have often been critical about AirAsia (and even more so regarding AirAsia X) in this blog, especially regarding the aggressive accounting and the convoluted corporate structure.

But I did like the entrepreneurial spirit and "can do" attitude of Tony Fernandez and his staff.

Tony was invited to speak at an event organised by Digital News Asia and didn't disappoint with his speech "What’s Next: Tony’s Top 10 Tips for Entrepreneurs".

I think they are great tips, so I will copy them here from the above link:


1) You don’t need to know everything
 
I came from the music business. I knew nothing about planes. To all the entrepreneurs out there, you don’t need to know everything about what you want to do. It’s all about the idea, it’s about passion, it’s about implementing it.
 
2) Just do it!
 
Don’t let anyone tell you that you can’t do it. You’ve got one life, so you can’t press the rewind button and say ‘I wished I had done that.’

So I recommend to all of you out there, just do it. Live your life to the utmost, be positive. If you fail, at least you have tried.
 
I have failed miserably at Formula One, but I have no regrets because I got to stand with the greats from Ferrari, McLaren, and others.
 
3) Passion is a key problem-solver
 
Dreams do come true. Don’t worry about failure. You have one life, make the most out of it. Nine times out of 10, if you have the passion, you will find a way to work through it.
 
4) Invest in marketing
 
If you have the greatest idea in the world, please, please, please put some money on marketing. This is because if you don’t put money on marketing, nobody is going to hear about your great idea.
 
There are so many great ideas that never took off because of a lack of marketing.
 
Marketing is not about the dollars, it is also about public relations (PR). In AirAsia, we had no money. So I ran around with a red cap on and said controversial things so that the press would always take a picture of me. That was our marketing in AirAsia’s early days.
 
We have been through so many issues, and marketing played a key role in overcoming them.
 
Remember SARS (severe acute respiratory syndrome)? At that time, nobody wanted to fly; we all thought we are going to die.
 
Everyone cut their advertising, but I told my guys not to cut because this was the best time to build our brand. In fact, we tripled our advertising and everyone looked at me and said, “Are you on drugs?” I said, no, it is the best time because no one else is advertising.
 
When the first Bali bomb attack happened, everyone cancelled their flights. I said to the guys, we cannot let the Bali route die. We must continue to fly.
 
So we came up with ‘Love Bali’ campaign, giving away 10,000 free seats, and it worked. All 10,000 seats were snapped up in like under one minute. And all those who got those seats told all their friends about it on social media. Your best advertisement is your customers.
 
5) Leverage social media
 
When Malaysians get a good deal, they will tell the whole world about it. So the 10,000 people who went and had a good time in Bali, told 10,000 people that they had a good time. That was the early gestation of AirAsia’s social media.
 
We realised the power of social media very early on, so when Facebook and Twitter came up, we latched onto them. We were early adopters. We now have 32 million people on our various social media platforms, and 7% of our business comes directly from social media.
 
The Bali campaign taught us that our best advertisements are our customers.
 
6) Don’t be scared of complaints
 
Complaints are actually free market research. Someone took the effort to write to you to tell you where things went wrong and how they should be improved. These are things that companies pay a lot of money for consultants to tell them that same thing.
 
So we treat every email preciously.
 
7) Focus on one image when it comes to branding
 
During the early days, there was the word ‘AirAsia’ and a logo of a bird in our branding.
 
If you look at the top brands in the world, there’s only one image that comes to your mind. When I say “Shell,” you think of the Shell logo. When I say “Coca-Cola,” you think of the word ‘Coke’ in italics, and when I say “Nike,” you think of the swoosh.
 
So, back to our earlier AirAsia brand, we said drop the bird – we felt it was facing the wrong way anyway – and we used ‘AirAsia’ as our logo. Just one image. Why spend double the money to promote two images?
 
We also dropped the blue and the green colours. I tried very hard not to go with red, because everyone thinks that I want to be Richard Branson [the Virgin Group founder and Fernandes’ former boss] ... but it was the best colour, so we picked red.
 
So yes, the colour does make a big difference!
 
8) Go on the ground
 
What I used to do – although I don’t do this anymore – was that once a month, I would carry bags, I would be a cabin crew [member], and also at the check-in counter.
 
 I did this for two reasons: The first is that you can’t be an effective CEO (chief executive officer) unless you go on the ground to experience the real situation.
 
Here’s a true story. The baggage handling team told me that they needed belt loaders. I told them, “No, we can’t buy that as it’s too expensive.”

So one day when I was tasked to carry bags, they put me on one of the Indonesia flights. People who fly with us generally bring their house with them, but people who fly to Indonesia bring their neighbour’s house as well!
 
So there was a lot of bags. I broke my back in the process, and I told my team that they were right and I was wrong, and let’s buy the belt loaders.
 
If I didn’t do that [go on the ground] and just sat comfortably in the office, I would have made a wrong decision, damaged a lot of bags, and probably started a union.
 
The second reason [for going on the ground] is that I wanted to look for talent. I wasn’t looking for the talents from Oxford or Cambridge, I was looking for the Grade 3 SPM [O Levels equivalent] kind of guys who needed a second chance.
 
9) Never underestimate the potential of your staff
 
I broke all the rules in terms of hiring people. To me, as long as you have a dream, you can do anything.
 
There was an ex-cabin crew member – she came up to me one day and told me that her dream was to become a pilot. I told her to go for it.
 
Then she called me up one day and asked if she could take part in the Miss Thailand [beauty pageant], and I told her okay, as long as I get to use her photographs in our marketing materials.
 
She won the [Miss Universe Thailand] pageant and recently became a captain – so we are the only airline in the world with a Miss Thailand flying with us.
 
The moral of the story is that we have such a flat structure that she was able to tell me what her dreams were, and we were able to make a raw diamond into a diamond.
 
Another one of my boys, a baggage handler in Kuching, told me he wanted to become a pilot. I told him to go for it. He passed all the exams ... he had the top marks in the flying academy. Today, he is a captain.
 
We have many of such stories at AirAsia.
 
Your biggest assets, besides your ideas, are your people – because at the end of the day, it is the people who will deliver your ideas.
 
10) Data is king
 
We have a huge amount of data that we don’t know what to do with it, but everyone else wants our data ... so we figured it must be something very valuable and there must be an opportunity there.
 
We are investing in a few ventures. We plan to launch our own version of TripAdvisor, a travel dongle, a new YouTube-type of channel and more – data will be playing an essential role in these ventures. Data will be king.


Where is Ze Moola (the excellent, but inactive blog) often complained about the articles written about AirAsia. I guess Tony spilled the beans how those articles were conceived:

"Marketing is not about the dollars, it is also about public relations (PR). In AirAsia, we had no money. So I ran around with a red cap on and said controversial things so that the press would always take a picture of me. That was our marketing in AirAsia’s early days."

Journalists probably should have taken some distance there, but might have fallen too easily for the juicy story.

China Ouhua: red wine and red flags (4)

China Ouhua announced their audited accounts, qualified by the auditors (as was the case in the previous year), with some really bad news for the shareholders:

When Ouhua IPO-ed, they were supposed to be a fast-growing, highly profitable player in the wine industry in China.

Now it informs its shareholders that it abandoned its vineyards due to bad weather, insect pest and (worst of all) poor management? The vineyards are their main business to produce their own wine, it cant possibly get much worse than this, can it?

Despite the wine business going horribly wrong for Ouhua, they still deposited RMB 119M cash to purchase land, "conveniently" without having any independent valuation done. The transaction should have been concluded a long time ago, but is still "pending".

I am afraid that either this transaction will go through, and the land is useless given the abandoned vineyards, or the transaction will not go through, and the deposit will not be returned.

Michael Lewis wrote in "Crash Boys":


"Financial regulators, like editorial writers, are at best the markets’ last line of defense; they are less inclined to join any battle than they are to wander in afterward and shoot the wounded."


Malaysian regulators have done some enforcement that (I think) falls in this last category ("wander in afterward and shoot the wounded"), for instance:

SAAG: " ..... Notwithstanding that SAAG had been de-listed ...."
Carotech: "..... Notwithstanding that CAROTEC was de-listed ....."
MAE Models: "..... Notwithstanding that MAEMODE was de-listed ....."
EcoFuture: ".... Notwithstanding that EFUTURE had been de-listed ....."
Baswell: ".... Notwithstanding that BASWELL had been de-listed ....."
Axis: "..... Notwithstanding that AXIS had been de-listed ....."
NAMFATT: "..... Notwithstanding that NAMFATT has been de-listed ....."
Global Carriers: "..... Notwithstanding that GLOBALC was de-listed ....."
Kenmark: "..... notwithstanding that KENMARK had been de-listed ...."
Intelligent Edge Technologies: "..... Notwithstanding that IE was de-listed ....."


I hope that the regulators in the case of Ouhua will not wait for the company to be delisted, and take appropriate action now, it is long overdue in my opinion.

They should order an in-depth investigation, not only at the current situation and the recent developments, but also at the whole IPO process, the warranties and representations that were provided, all the parties involved (the promoter, the bankers, the advisors, the pre-IPO shareholders) and the roles they played. They should also interview the many directors that have resigned, and the previous auditor.

Maemode: are a 100k fine and reprimands enough?

Bursa announced that it:


.... has publicly reprimanded MALAYSIAN AE MODELS HOLDINGS BERHAD (In Liquidation) (MAEMODE) and 6 of its directors for breaching the Bursa Malaysia Securities Main Market Listing Requirements (Main LR). In addition, the Managing Director, Datuk Dr Lim Kee Sinn was fined RM100,000.

MAEMODE was publicly reprimanded for breaching paragraphs 9.03(1) and 9.04(l) of the Main LR read together with paragraphs 2.1(c) and/or (d) of Practice Note 1 (PN1) for failing to make an immediate announcement of the default in payment of the Syndicated Working Capital Facilities of up to RM400 million from RHB Bank Berhad (RHB) and Malayan Banking Berhad to MAEMODE and its subsidiaries, AE Automotion (M) Sdn. Bhd. and Matromatic Handling Systems (M) Sdn. Bhd. (the Syndicated Facility).

Notwithstanding that MAEMODE was de-listed on 2 July 2014, the breach had been committed while MAEMODE was listed on the Official List of Bursa Malaysia Securities.


And further:


MAEMODE had defaulted in payment of the Syndicated Facility which was secured under a debenture as early as / prior to RHB’s  letter dated 16 April 2013 which had, amongst others, highlighted the arrears/ overdue position of the Syndicated Facility to MAEMODE.

Subsequently, vide letter dated 4 June 2013, RHB had informed MAEMODE that the financiers had declared the occurrence of an event of default and demanded MAEMODE to pay the total outstanding sum of RM96,082,818.51 due as at 31 May 2013 which represented 39.3% of the Group’s net assets at the material time.

However, MAEMODE only announced the default in payment of the Syndicated Facility on 20 June 2013.


Are the above fine and reprimands sufficient punishment? Is this really a credible deterrent for future violations?

I have blogged several times about Maemode, the worrisome deterioration of its financial situation between 2007 and 2013, the sudden collapse (predicted and explained in detail by blogger "Ze Moola"), the lack of subsequent transparency (the last quarterly report was for the period until May 2013, no other quarterly report followed, nor an audited year report or annual report over the years 2013 and 2014), etc.

XOX: from bad to worse .....

I wrote before about XOX's corporate exercise to "massage" away its high accumulated losses. I will now give some more detail about this company, and its short but not so glorious past.

XOX is featured on Ze Moola's blog, which is often not a good sign, and this time it is no different.

In the last blog post we can see most of the directors smiling (except the person on the left) at the IPO ceremony at Bursa:

Not sure if the people who bought shares at the IPO price were also smiling, the board was distinctively red coloured, as can be seen on the right, not a single green number in sight.

The share plunged 35% on its first trading day, it must have been one of the worst performers of Bursa ever.

"Malaysian Shares" wrote two articles about the IPO, here and here.

Unfortunately for its shareholders, the share price has never recovered, in the contrary, it is now trading for RM 0.07, its lowest price ever:

XOX was a loss making company before its IPO, it is quite a surprise for me that it was allowed to be listed on Bursa. What probably helped was a rather optimistic (with hindsight) profit forecast that it issued in its IPO prospectus.

XOX was not able to hit the revenue and profit forecasts, it wasn't even close:

The above numbers are for the year up to 31 December 2011, while the company was listed on June 10, 2011 and knew already the numbers up to then. In other words, it only needed to forecast another seven months or so. And still it was able to overestimate its revenue by a factor 4, and instead of a forecasted PAT of RM 20 Million it booked a loss of RM 20 Million. Forecasting is probably not XOX's forte.

Over 2012 the company lost another RM 3.1 Million, over 2013 it lost RM 0.7 Million and over the first half of 2014 it lost another RM 1.2 Million. Not exactly shining numbers, and (partially) explaining the share graph.

To add insult to injury, on July 18, 2014 the company was reprimanded by Bursa for failing to take into account the necessary adjustments.

Which brings us to the present, and the multiple proposals that the company announced.

Apart from the earlier mentioned restructuring exercise, there are three other elements:

[1] A rights issue: this is considered to be a proper exercise to raise money, where all shareholders have the opportunity to participate (or to sell their rights if they don't want to do that).

[2] A huge large restricted issue. This is the kind of exercise that I don't like, since normal shareholders do not have the opportunity to participate.

[3] Establishment of a SIS (Share Issue Scheme) of up to 30% of the issued and paid-up capital for eligible directors and employees of XOX. My guess is that these directors and employees are substantially the same as before, in other words they were the same persons responsible for the disappointing results of the last three years, causing the share price to fall by 90%. Should they really be rewarded at this moment of time, at the expense of the minority investors? Would it not be better if the company first turns around, starts to book some decent profits causing its share price at least to equal its IPO price before the company even considers a Share Issue Scheme?

The total dilution can be seen in the following maximum scenario:

Current shareholders will have 166 Million shares after the share consolidation, and are entitled to the rights issue of shares and warrants, which will increase their shareholding (upon exercising of the warrants) to 498 million shares.

Holders of the proposed restricted issue will receive 190 million shares plus their rights issue and warrants, this might balloon to a total of 570 million shares.

Directors and employees might receive an additional 320 million shares.

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?


Note to the authorities: I am of the opinion that corporate exercises like the above should simply be outlawed. Restricted issues should be capped at a maximum of 10% (preferably even 5%) of the outstanding shares. The same should apply to SIS, ESOS and the like, please cap them at 10% (preferably at 5%).

Please take also note of David Webb's "Project Vampire".

Kenneth Vun in the limelight again

Excellent article in The Star by Errol Oh: "Civil or criminal?".


Former corporate wunderkind Kenneth Vun is once again the subject of a court case filed by the Securities Commission (SC). On Tuesday, the regulator said it had taken enforcement action against him and six others at the Kuala Lumpur High Court for the manipulation of DVM Technology Bhd shares.

The SC has alleged that the seven actively transacted in DVM shares among themselves over a week in March 2006, causing the share price to rise from 11 sen on March 14 to a high of 32 sen on March 20.

The aim of this enforcement action, according to the SC, is to seek a disgorgement of all profits earned by the defendants as a result of the manipulation. The money is meant to be used to compensate affected investors. The SC is also claiming a civil penalty of RM1mil from each of the seven.

The commission also wants the defendants to be barred from becoming directors of listed companies and from trading on the stock exchange for five years.


We welcome enforcement by the authorities. However:


"Regulatory effectiveness is ultimately judged by swift enforcement actions."


Swift? The alleged share manipulation happened March 2006, more than eight full years ago! I would not exactly call that "swift" by any standard.


What determines the course of action that the SC takes in enforcing the law? How does it decide whether to take civil action or to pursue criminal prosecution?

Sure, every case is different; there can’t be a cookie-cutter approach for going after the wrongdoers. And yes, regulators can’t afford to reveal too much about how they probe suspected misconduct and how they go about trying to bring offenders to book.

However, the SC can surely be more transparent and articulate about its enforcement efforts. For example, the 100-page Capital Market Masterplan 2, which outlines strategies to grow the capital market up to 2020, doesn’t have a lot to say about the subject.

Here’s the key part: “Regulatory effectiveness is ultimately judged by swift enforcement actions. There will be greater focus on enhancing processes to expedite investigation and prosecution of cases. Towards this end, enforcement capabilities will be strengthened through the development of specialised investigation and prosecution skill sets.

“In addition, strategies will be developed to maximise the deterrent effects of enforcement actions and to enhance public awareness on the consequences of securities fraud. Greater efforts will also be made to encourage members of the public to volunteer information and evidence of possible violations of securities laws.”

In comparison, one of the four strategic goals laid out in the draft of the US Securities and Exchange Commission’s Strategic Plan for 2014 to 2018 is “foster and enforce compliance with the federal securities laws”. The discussion on this goal occupied 10 of the 39 pages of the plan.

On its website, the Australian Securities and Investments Commission has a 12-page information sheet that explains its approach to enforcement.

It’s time that the SC does more than provide updates on its enforcement policy. People ought to have a good idea of what to expect from the regulator on the enforcement front and what guides its actions when responding to violations of the law.

> Executive editor Errol Oh acknowledges that much of the regulators’ work is unseen. However, enforcement actions are strong indicators of vigilance, effectiveness and integrity.

I can't agree more with the above, the authorities should be more clear about their enforcement strategy. This is important for the shareholders, the public-in-general, but also for whistle blowers and people who file complaints with the authorities.

Kenneth Vun is of course quite well know (although often not for the right reasons), here is the previous decision against him.

Kenneth was the founder of Mesdaq listed FTEC Resources, which changed its name to Tecasia Group and then to Mangotone Group. The name changes didn't help much, the company went suddenly under in 2009, after reporting a RM 100 million loss. Kenneth had already sold his shares and resigned as a director. Large receivables, large inventories, decreasing cash, decreasing revenue, insiders selling, directors resigning, and the company "suddenly" going bust and being delisted. My guess is that the shareholders were looking at a total loss.

I am afraid that we have seen too many of these cases.

Mangotone Group and its six directors were reprimanded and fined by Bursa "for failing to make an immediate announcement of the following defaults in payments of credit facilities".

Was that enough enforcement? I doubt it. I am of the opinion that when companies that appear to be healthy, but do have some clear red flags, suddenly go under, the authorities should order an investigative audit into what really happened.

Vun is also mentioned being one of the major shareholders in Harvest Court, although he denies that.

Related articles by Where is Ze Moola can be found here and here.

Maemode: accurate predictions by Ze Moola, but why did nobody notice? (4)

I wrote before about Maemode (Malaysian AE Models Holdings Berhad), here, here and here.

I am afraid that my fears regarding Maemode being delisted appear to be come true, according to this announcement:


the securities of the Company will be de-listed on 2 July 2014 unless an appeal against the de-listing is submitted to Bursa Securities on or before 27 June 2014 ("the Appeal Timeframe")


The shares have been suspended for a long time, so it doesn't look like a big deal. But the issue that I have with this is that Maemode's minority shareholders and interested observers might never know what exactly has happened.

The following are the financial results between 2002 and 2012, the company appeared to be nicely profitable, and although margins were not that great, Maemode looked like a pretty decent company. Its accounts were audited and approved by Ernst & Young, one of the top accounting companies.

 

(all amounts in million RM)

However, when one digs deeper (and blogger "Where is Ze Moola" did exactly that), a troubling trend appears:

The build up of debt is very troublesome. And why have the receivables grown much faster than the sales? From about 45% in 2002/04 to 77% in 2010/12. If the receivables are "able to receive" in a timely matter, then the loans can be repaid, but what if that is not the case?

In an interesting twist, well-known businessman Tey Por Yee became a large shareholder. With hindsight, that might not have been the best timed investment, to put it mildly.

The 2013 results were not so good until the third quarter (a small loss), and financial troubles started to appear when a subsidiary defaulted on a loan.

But the real shocker came when the fourth quarter results were announced:

In one foul swoop, the company went from a large accumulated profit to an accumulated loss of 69 million.

The explanation offered was (in my opinion) completely insufficient:

The company would not issue its 2013 audited accounts, its year report, nor any other quarterly reports anymore. In other words, we are completely left in the dark what actually has happened.

Unfortunately, the authorities (BM & SC) also did not order an investigative audit, something that I think was very much needed.

The "commentary of prospect" in the last quarterly report looked rather "comical" (writing about the Malaysian and Chinese economy when the company is going under):

Will we ever know what really happened with Maemode and will the authorities take appropriate action?

I sincerely hope so,  time will tell.

Good warning on perils in the oil and gas industry

Article in The Star: "Beware of risks in investing in sizzling oil and gas".

"... making money from the O&G business isn’t easy. Our market has seen its fair share of O&G companies that had stumbled in the past.

As examples, consider the stories of Ramunia Holdings Bhd, KNM Group Bhd Malaysia Marine, Heavy Engineering Holdings Bhd (MMHE) and the Scomi group. These stocks were at one point the darling of investors.

But at some point, they struggled to execute their businesses well. O&G fabricator Ramunia had slipped into PN17 status in June 2010. To quote from a Maybank research report dated April 2010: “Ramunia is in bad shape operationally and financially. It faces declining order book, earnings and shareholders funds due to poor project execution and negative cash flows.”

KNM Group Bhd was another high-flying oil and gas player. But it too did stumble, suffering a quarterly loss in 2009 and a full year loss at group level in 2011. Among the reasons for its losses was its high fixed cost and debt levels. It’s aggressive overseas expansion also saw it having to provide for foreseeable losses in Brazil, Canada and Indonesia.

The Scomi group had encountered similar problems with its overseas assets while giant fabricator MMHE had suffered from higher-than-expected expenses incurred from some of its projects and from the share of losses from jointly controlled entities’ performance.

One problem is that the O&G business, like many other sectors, is cyclical. You may invest during peak times but then get saddled with high fixed costs and low utilisation rates when the cycle hits a downturn.

Getting the right expertise to executive projects profitably is another challenge."


Ze Moola has written many articles about three of the above mentioned companies:

- Ramunia
- KNM
- Scomi

London Biscuits: something seems wrong

KiniBiz raised the red flag over London Biscuits latest audited accounts:

"Confectionary maker London Biscuits Bhd (LBB)’s latest annual audited accounts recorded yet another year of significant property, plant and equipment (PPE) acquisition cost, raising questions over its PPE expenditure which now averages RM63.64 million in the last five years.
 .....
 Additionally, the company has seen a net loss from PPE disposals for the past five years, recording a loss of RM1.76 million in 2013. Since it was listed in 2002, LBB has only seen a net gain from PPE disposals once in 2008, recording RM501,284."


I think that indeed the amount in PPE is worrisome. I have made a simple comparison between 2003 and 2013, all amounts in millions RM:

                   2003        2013
Revenue              53         290
PAT                   9          15
Depreciation          6          16
Dividend              2           1


PPE                  80         517
Shareholders Funds   71         299
Cash                 10          27
Debt                 36         263

Some observations:

• Revenue is 5.5 times larger in 2013, but PAT has hardly grown
• Dividend is even cut, to almost nothing
• PPE has grown astonishing, 6.5 times larger
• Shareholders Funds of RM 299 million looks impressive, but only RM 120 million is retained profit, money has been raised with the IPO, with Private Placements, Rights Issue, ESOS, etc.
• The growth in debt minus cash is highly worrisome
• Although the company claims to be profitable, cash flow seems to be consistently negative

Two questions:

• How is it possible that a company that claims to be profitable and hardly pays any dividend needs such a large debt?
• How is it possible that the company needs RM 517 million PPE, to generate a revenue of only RM 290 million?

My guess is that this could all be caused by systematically understating of the depreciation on the PPE. My reasons for this:

• In 2003 depreciation was 7.5% of PPE, but in 2013 only 3.1%.
• In 2003 revenue was 66% of PPE, in 2013 only 56% (I would have expected the reverse pattern due to economy of scale, more efficient machines, etc.)
• Almost all PPE disposals are done at a loss.

Too low depreciation would explain [1] overstated profits and [2] overstated value of the PPE

Ze Moolah has paid attention to London Biscuits, here pointing at the ever growing debt and here pointing at the ever growing PPE.  He wrote the first warnings more than three years ago. Unfortunately (for investors in London Biscuits), it looks like he is right again.

Please also check the following link, a interesting posting by "kcchongnz".

Silver Bird: the White Knight and the "forgotten" clause

I have blogged a lot about Silver Bird in the past, some issues:

Silver linings in the Silver Bird cloud?
Taking away the silver linings that The Star saw in the timely (but otherwise horrific) announcements, and the fact that authorities (again) had not paid any heed to the many red flags, as observed by blogger "Where is Ze Moola".

Silverbird: I declare that the statements may be incorrect
About the poor director who had to make a declaration about the correctness of the financial statements, knowing they most likely were completely wrong (it later turned out they were indeed rubbish).

Silver Bird hammered by 300 million write-offs
Huge losses for a relatively small company.

Silver Bird
Shocking findings by the forensic audit, most likely indicating huge fraud by senior management.

Why is Aussie VC fund much too late with its announcements?
An Australian VC fund (CVC Limited) who announced its deposal of shares in Silver Bird almost one year too late.

However, in July finally some good news, a white knight in shining armour was helping poor Silver Bird out!

Of course, there is a price for everything, in this case a rather steep price:

• The RPS (Redeemable Preference Shares) would convert into 160 Million Silver Bird shares, equivalent to 40% of the enlarged share base
• Additional 320 million warrants would be issued
• 10% of the share of profits if SBGB achieves a pre-tax profit of RM 5 million

But lo and behold, there is more. Only on October 1, 2013 the following announcement was made:


"... in the event that the exchange of the RPS with restructured SBGB shares together with free detachable warrants on the basis of RM1.00 of outstanding RPS (plus dividend) for ten (10) SBGB shares of RM0.10 each ( or such equivalent ratio if there is a change in the par value of ordinary shares of SBGB after the regularisation plan ) with twenty (20) free detachable warrants, is not approved by shareholders of the Company or the Scheme Creditors, the investors of the RPS, namely Suncsi Holdings Sdn Bhd and Covenant Equity Consulting Sdn Bhd  (“Investors”) shall have the option to require SBGB to purchase all the RPS at the cash price of RM2.50 per RPS, within sixty (60 days after the Investors deliver such notice of exercise to the Company....."


That makes things rather different, since the RPS were bought at RM 1.00, meaning the white knight would walk away with 150% profit, a cool RM 24 million, on top of their initial investment of RM 16 million.

It also puts the future decision by the shareholders of Silver Bird in a very different light, do they actually have a choice, how can they possibly fork out the RM 24 million in case they would not approve the restructuring scheme?

According to The Edge of October 7, 2013: "The condition was inadvertently omitted from the original announcement".

How many experts (auditors/accountants/lawyers etc.) had knowledge of this agreement, both from the side of Silver Bird, its major shareholders, the white knight, the regulators, etc.?

This is really a huge blunder, how could anybody "forget" to include this in the initial announcement to Bursa?

With all the above conditions in place, the white knight turned out to be not so white after all. Which is unfortunately often the case in restructuring schemes.

More bad news, the auditor of Silver Bird announced its intention to resign. Auditors resigning is another well known and large red flag, as if there were already not enough of them .....

Sona Petroleum, speculation about a possible acquisition?

I received many interesting comments recently.

Regarding value investing: I hope to come back to this subject with more material, especially comparing similar companies with different debt levels and the effect on certain metrics.


Article in The Star:

"Malaysia's Sona Petroleum eyes 3 oil fields in Indonesia, China"

I received an interesting tip regarding the above in the comments.

[On a side note: please continue to do so, if you don't want the tip to be published, write so and I will of course respect that].

The tip referred to the above article in The Star and the note to clients of UOB-KayHian.

With Moola's blog being (unfortunately) very quiet lately, I give the first part, with my emphasis on all the speculations, which Moola so detests:


"Special-purpose acquisition company (SPAC) Sona Petroleum Bhd is close to making its qualified acquisition (QA), and the target company is Singapore-listed RH Petrogas Ltd, an oil and gas (O&G) company controlled by Sarawak tycoon Tan Sri Tiong Hiew King (inset). Tiong is chairman of RH Petrogas.

A source explained that Sona Petroleum could be both buying a stake in RH Petrogas via a placement of shares, as well as acquiring some of its assets, which are offshore O&G blocks.

While details are scant at the moment, insiders said that Sona Petroleum was looking to take up a 10% placement of shares in RH Petrogas, as the latter was looking to raise US$60mil (RM190mil) for capital expenditure.

Shares of RH Petrogas have been on a steady uptrend since early this month, rising around 30% over the week to close at 64.5 Singapore cents (RM1.65) on Thursday.

Sona Petroleum’s shares and warrants were also heavily traded, with the mother share gaining 2.5 sen to 43.5 sen, while the warrants rose 1.5 sen to close the day at 27.5 sen."

This a reference to a research note by UOB-KayHian:


"In a note to clients, Singapore’s UOB Kay Hian also mentioned this possibility, stating that according to its “channel check,” Sona Petroleum could be “looking at some of the O&G assets in the Singapore Stock Exchange-listed RH Petrogas.”


Channel checks? This is the definition of a "Channel check":

"a channel check is third-party research on a company's business based on collecting information from the distribution channels of the company. It may be conducted in order to value the company, to perform due diligence in various contexts, and the like. Industries where channel checks are more often conducted include retail, technology, commodities, etc."

How to place a "channel check" in the context of a possible acquisition by Sona? I am not sure.

Also, who would know about this kind of in-depth research, and is this not inside information? There is no official announcement by Sona Petroleum yet, so is the above mere speculation? Or did anyone receive inside information before the general public? Food for thought for the regulators (SC and BM)


I don't have the report by UOB-KayHian, but it seems it can be found here at Malaysia-Finance website (except that the pictures don't load).


I am not a fan of SPAC's, as readers of my blog might be aware of.

I would like to draw the readers attention to the following comment on Malaysia-Finance's blog, with which I fully agree:


"Investing in Special Purpose Acquisition Companies involved in the oil industry is like choosing an exploration company whilst being blindfolded. A veteran oilman will attest to how difficult it is to find a truly attractive oil company to acquire when given a limited time frame to do so.

What is available will be leftovers, namely aged fields discarded and on the verge of final decline or highly risky exploration plays.

Don't be deceived by those $/bbl calculations for it will mean nothing when production declines rapidly within a few short years unless costly EOR measures kicks in."


I would not want to call my self an expert in this field, but I have been actively investing in oil and gas companies for 10 years and have followed many listed companies. Reserves (proven, probable or possible) of billions of barrels, it sounds like having enormous potential, but there are many pitfalls:

• If an oilfield really looks like a bargain, why would the seller sell it?
• Owning the reserves and exploiting them is not exactly the same
• Many exploration projects will have cost and time overruns
• Costs also often escalate in time, especially after several operational years
• The price of oil and gas is very volatile and hedging against fluctuations could be expensive (airlines always seems to be on the wrong side of the hedging, losing billions in the process)
• If a field is highly profitable, the government of the country where it is located could either seize it, or increase taxes etc.

The Securities Commission will soon issue new guidelines for SPAC's, according to this article in The Star:


"The Securities Commission (SC) will soon issue new guidance notes relating to the listing of special-purpose acquisition companies (SPACs), a move that is aimed at ensuring new submissions are of a certain high quality, sources said.

There have been some concerns about the quality of submissions. The SC feels that it needs to elaborate on the original spirit of the SPAC guidelines,” said the source.

The new guidance notes should also enable applicants and their advisors to better understand the requirements of the regulator, thus helping avoid the unsavoury result of seeing applications rejected by the authorities, he added.

“The feeling is that the market has drifted away from the original spirit of SPACs,” noted the source.

That sounds good, although my solution would be more simple: just do away with these SPAC's. If people think there is money to be made, let them do it in the old-fashioned way by starting a "normal" company and only list it when it has proven its worth.

Maemode: accurate predictions by Ze Moola, but why did nobody notice? (2)

Since my previous article about Maemode, I wanted to write some more about this puzzling case, but decided to wait for the annual audited accounts. However, it looks like I have to wait somewhat longer, Maemode announced today the following:


"The Board of Directors of the Company wishes to announce that the issuance of AFS 2013 will be delayed mainly due to all the Company’s accounts staff has left since the receivers and managers were appointed and the Company is in the process of recruiting and training the new accounting staff to update all its accounting records and books.

The Company expects to submit its AFS 2013 within six (6) months from the date of this announcement."


Delaying the accounts is always a huge red flag, and I would not be surprised to see more negative news, for instance in the form of more receivables that are not "able to receive", or assets that have to be written down.

Maemode: accurate predictions by Ze Moola, but why did nobody notice?

Article in The Star (August 3, 2013):


"Malaysian AE Models Holdings Bhd (Maemode) said its wholly owned unit Matromatic Handling Systems (M) Sdn Bhd had, on July 24, received a notice of termination from UEM-Bina Puri joint venture for its services in the baggage handling and sortation system at the main terminal building of KLIA2. Maemode had earlier won the RM62mil sub-contract job for the proposed airport. However, its financial position has deteriorated substantially over the past year. In June, Maemode fell into the PN17 category after defaulting on its RM100mil loan with two local banks. For the period ended May 31, Maemode recorded losses of RM195.13mil, bringing full-year losses to RM207.76mil. A huge part of its losses were due to a substantial increase in holding costs as a result of a delay in installation works on certain major projects such as KLIA2 and Keriangau Coal-Fired Power Plant in Indonesia, which also caused billings to be delayed."


Things have definitely gone downhill very fast with Maemode. The 5-year graph of its shareprice from Bursa's website (on June 28, 2013 the share was suspended):

With hindsight we are all experts, and if I would write now what all went wrong, surely the reader would think why I didn't write that before.

But the sad (or interesting, depending how one looks at the situation) part is, what happened was basically all very accurately forecasted a long, long time ago, by blogger "Where is Ze Moola". All his articles about Maemode can be conveniently found here.

In 2007(!) Ze Moola showed the following picture:

And wrote: "I see the classical debt built-up again."

With classical built-up he meant the typical warning signs for Malaysian listed companies (often they appear together, but not necessarily all together at once):

• Decrease of cash
• Increase of debt (especially short-term debt)
• Increase of receivables
• Increase of inventories

And with "again" he meant he has seen many Malaysian companies before with similar patterns, and it did very often end badly.

The most (in)famous one is Megan Media, which imploded under allegations of fraud, an implosion that was correctly predicted by Ze Moola. Although all was conveniently reported by Ze Moola, authorities only acted after the company went down.

Continuing with Maemode, in 2009, Ze Moola wrote:


"The margins are still thin. Net debt post increased yet again and the trade receivables are still ballooning at an extremely alarming rate!"


In 2010, Ze Moola gave the following chart and commented:

"And then receivables again. Look at the size of it. 341.319 million! Receivables are what is owed to the company and hey, if Maemode can collect this 341 million, then it wouldn't need that 341.111 million in loans yes? So why can't MaeMode collect its debts? And from the table, these receivables have most likely grown roots in MaeMode's balance sheet! It's so clear these receivables are in there for so long already! Why? Why? Why? What's wrong? And needless to say, if MaeMode cannot collect these debts, MaeMode will have to write these debts off!"


Journalists didn't seem to notice anything wrong at all, Ze Moola wrote this posting citing an article in The Edge, without any critical comment:


.... MAEMode net profit for the second quarter ended Nov 30, 2011 jumped 70% to RM3.34 million from RM1.97 million a year earlier, due mainly to higher revenue and better profit margins from logistics projects. The company said on Tuesday that its revenue for the quarter rose 44.24% to RM165.46 million from RM114.71 million in 2010. Earnings per share was 3.12 sen compared to 1.84 sen a year earlier, while net assets per share was RM2.21. For the six months ended Nov 30, MAEMode’s net profit surged RM7.76 million from RM2.82 million in 2010, on the back of revenue RM317.09 million compared to RM224.33 million a year earlier.  On its outlook, the company said it was confident on the improvements of the global economy that may enhance its future profit moving forward. “With the current order book and barring any unforeseen circumstances, the board is optimistic that the group will remain profitable for the remaining quarters of the financial year,” it said.


Ze Moola countered with the following:

"But the most worrying issue is stated on notes B9. Amount payable within next 12 months is 376.997 million!!"

November 2012 the company issued its 2012 Year report, "Expand to new horizons" in which a rather rosy picture was painted.

There would indeed be new horizons for the company, but not exactly as described in this report, not the ones investors like to see.

May 2, 2013 Ze Moola wrote "Time's almost up for Maemode".

And only one month later, on June 20, 2013, time was indeed up for Maemode. Finally, the news came out in the announcement on Bursa's website:


"The Company was served with the Notice of Appointment of Receiver and Manager stating that on 19 June 2013, a Receiver and Manager has been appointed over the charged assets and undertakings of Malaysian AE Models Holdings Berhad under the terms of the Debenture dated 19^th April 2012 executed between the Company and and Joint-Lead Arrangers i.e. RHB Bank Berhad (as facility agent) and Malayan Banking Berhad (as security agent)."


Even in its quarterly report on February 28, 2013 which was released on April 30, 2013 (less than two months before the company announced its receivership), the company claimed that it had RM 244 million shareholders equity (RM 132 million of which was "retained earnings"), based on RM 283 million Trade Receivables and RM 320 million "Due from customers".

Was that really a fair and accurate picture of the financial situation? I strongly doubt it.

And why did the authorities (SC, BM and CCM) not look into this situation? The tell tale signals, all described in detail by Ze Moola were all there. The authorities claim they are pro-active, but this case puts some strong doubts on that claim.

And where were the investigative journalists, sifting through the financial information, asking hard questions to the management?

As usual, the minority investors will suffer. Most likely they are looking at a total loss of their investment. On the other side, they should have done a simple "Google" and they would have found the blog postings from Ze Moola, so they only have themselves to blame.

Lembaga Tabung Haji (owning 10.6 million shares) and Atlantis Asian Recovery Fund (3.7 million shares) are two of the larger institutional shareholders of Maemode, according to the 2012 year report.

I hope that, belatedly, the authorities will investigate this case and check what exactly has happened, if the accounts were properly drawn up, and if the auditors (Ernst & Young, who signed off on the 2012 accounts) did do their job diligently.

IOI Prospectus, 1623 pages!

I wrote before about the delisting in 2008 and possible relisting of IOI Properties (IOIP), here and here.

It looks like the relisting of IOIP will indeed go through, the prospectus exposure can be found on the website of the Securities Commission.

I wrote before about making IPO documents readable, lamenting documents that contain around 600 pages.

I guess that the principal advisers of the IOIP listing don't agree with me, since the prospectus has a whopping 1,623 pages. Honestly, which prospective investor is going to read that?

With so many pages available, I do expect at least a very thorough discussion about the rather controversial delisting, and a proper comparison with the current valuation, something along the following lines:

• IOIP was delisted in 2008 at a valuation of ...., its Net Asset Value was ...., its Revalued Net Asset Value was .... and its (normalized) net earnings were ....
• Since then the amount of dividend that has been paid to the shareholders of IOIP was ....
• The amount raised by rights issues (if any) was .....
• The amount raised by loans was ....
• IOIP will be relisted at a valuation of ...., its Net Asset Value is ....., its Revalued Net Asset Value is .... and its (normalized) net earnings were .....

(With "normalized" I mean excluding one-off items)

The above will give a rough but simple estimate how the current valuation (at a moment when property prices have boomed and are appearing to be toppish, at least to me) compares to the one in 2008 (in the midst of the global recession, when property prices were falling).

Unfortunately, I could not find this essential information, nor anything comparable, although some snippets of information can be found.

In paragraph 4.1.2:

The first paragraph is extremely general, so general that it is basically worthless. If BM and/or SC let companies get away with such general descriptions, then it would save time and money to just leave away this kind of non-information.

The second paragraph implies that operations could not be expanded if the company had stayed listed. That is rather strange, IOI Corporation was firmly in charge of IOIP, so why exactly is the above true?

The third paragraph seems to indicate that, since 2008, earnings have increased by about 43% and its Net Assets by about 129%. Not bad, but very far away from numbers being mentioned in the order of an increase in valuation of 800%, like in the report mentioned by "Ze Moola": current valuation of about RM 9 Billion, versus a valuation of RM 1.3 Billion in 2008.

The company was at its delisting valued at a steep discount to its Net Asset Value, rather controversial, to say the least. We will have to wait for the exact price for which the shares will be relisted, but most likely it will be relisted at a steep premium to its current Net Asset Value.

Previous IOIP shareholders who sold out in 2008 will not be happy with the turn of events.

Goldis: victory for minority shareholders

It seems that shareholder activism is gaining ground in Malaysia.

Goldis announced in May 2013 a plan to transfer its 30.6% stake in IGB to Steady Paramount Sdn Bhd. Goldis shareholders had the following choice:

• To hold shares in Steady Paramount, but holding shares in an unlisted company is not very attractive to most investors
• To sell for cash,  RM 1.72 per IGB share, but this price is at a large discount to the NTA of IGB

In other words a choice between two undesirable options, a real dilemma for Goldis minority shareholders.

But, surprisingly, at least for me, Goldis changed its mind, according to this BM announcement:

"Reference is made to the announcement dated 8 May 2013 in relation to the Proposed Distribution. The Board of Goldis (“Board”) wishes to announce that they had, after due deliberation, decided not to table the Proposed Distribution for shareholders’ approval. The Board had arrived at this decision after taking into consideration the negative feedback from shareholders of Goldis on the Proposed Distribution."

I have to salute the Board of Goldis to take the feedback from shareholders into consideration, and change their mind. Rather rare, especially in Malaysia.

KiniBiz reported:

an analyst with a local bank backed research house opined “minorities clearly reacted negatively to this proposal initially because it was forcing their hand, they have managed to stand their ground and get the proposal scraped.”

MSWG in their weekly newsletter from July 12, 2013 commented:

And lastly Ze Moola wrote this about the proposal.

I am pretty positive about this development, I really hope minority shareholders of all Malaysian listed companies take note and fight for their rights in other corporate proposals.

Rogers, Malaysia, Enforcement and Volatility

According to this article in The Sun Daily, Jim Rogers made a 180 degree turn regarding investing in Malaysia:

Famed investor and co-founder of Quantum Fund, Jim Rogers (pix), took to the stage at Invest Malaysia 2013 yesterday to say that he is now back in Malaysia to invest and believes that the "positive dramatic changes" undertaken by Prime Minister Datuk Seri Najib Abdul Razak have put Malaysia on the right track.

"Malaysia is making positive dramatic changes. I am extremely optimistic about Malaysia and Asean. In fact I don't see any countries in Asean going the wrong way,'' he told a packed ballroom here yesterday.

.... Rogers had once said that he would never return to invest in Malaysia after getting burnt during the 1998 Asian financial crisis.


The problem with Malaysia is, that one can never be sure if changes are for real, or if it is all mere "sandiwara" (shadow play). Enforcement has been increased over the last 15 years, but hardly any big fish has ever been caught.

However, there might be some change lately. KiniBiz reported: "SC fines Naza brothers for Jetson affair":

The Securities Commission (SC) slapped a RM500,000 fine on SM Nasarudin SM Nasimuddin, SM Faliq SM Nasimuddin, and Ahmad Ibrahim last month, for failing to “carry out a mandatory offer for the remaining shares in Kumpulan Jetson Bhd”,

The article (full version only for subscribers) continued:

"The penalty is believed to be related to the brothers’ 2010 exit from Jetson, reportedly due to disagreements with other shareholders. The exit came a year after buying into Jetson via their private vehicle Superior Pavillion in August 2009."

"....This is not the first instance of failure to undertake a mandatory offer at Jetson, and ironically is preceded by a case involving Teh himself. In 2008, the Commission directed Teh [Managing Director and co-founder of Jetson] to disgorge his profits to a charity of his choice after failing to make a mandatory offer for the remaining shares in Jetson after acquiring control in the group."

Hopefully for the minority shareholders of Jetson it will be third time lucky.


I can't find any other link in the media to the above fine and reprimand, the link on the website from the Securities Commission can be found here.

It is very rare for Malaysia that VIP's like the Naza brothers are reprimanded and fined. So may be there is still hope for Malaysia after all, this looks like a step in the right direction.

If the fine itself (only a fraction of the company valuation) is sufficient is another matter. Punishment for blue collar cases are notoriously light.

The timing of Jim Rogers' bullish speech might however not be the best. In developed countries markets go up through the escalator and down through the lift. In emerging countries this is even much more true. "Hot money" can be reversed in an instant and both equity markets of emerging markets and their currencies will suffer. There is a lot of volatility lately which seem to indicate outflow of funds and heightened risk.

Bursa Malaysia was hit by six (quite good quality) counters that went limit-down this Friday at or near the close:

Bursa Malaysia responded that the orders were "valid and genuine", but who in his or her right mind would dump shares like this?

"Where is Ze Moola" finds it nonsensical trades and I have to agree with that. Even stranger is that 2 other counters (The Star and JCY) were traded up that day.

Monday will give a more clear picture what is going on.

Bina Puri admitted its intention to secure contracts by paying bribes (2)

It seems that the Malaysian mainstream news providers have not yet picked up on the story, but in Singapore they did.

From the Singapore Law Watch website, source Straits Times, written by K.C. Vijayan (bold emphasis is mine):

Firm fails to collect $4.6m from client

A Singapore firm's court bid to collect a $4.6 million commission from a client failed after the judge found the deal had been tainted by intentions of graft.

The High Court found that Singapore-based ANC Holdings and Kuala Lumpur-based Bina Puri Holdings had intended to pay bribes to third parties in Saudi Arabia in order to secure two construction contracts worth $93 million.

The intention to bribe, which appeared to have been factored into the commission amount to be paid to ANC, effectively nullified the contract for ANC to help Bina secure the Saudi projects in return for the commission.

The judge made it clear the court was duty-bound to take into account evidence of illegal action and declined to uphold the contract on such grounds.

Judicial Commissioner Vinodh Coomaraswamy, in his judgment grounds released yesterday, said there was no finding that bribes were actually paid to secure the projects. "I cannot and do not make any findings as to whether bribery actually took place. I am in no position to do so," he said.

However, "it is a serious thing to admit an intention to secure contracts by paying bribes. It is especially serious - legally and reputationally - for a public listed company to do so", he added.

Bina Puri Holdings is listed on the Kuala Lumpur bourse and deals in construction and property development, among other things. ANC had contracted to help its subsidiary in Saudi Arabia secure the housing projects, which Bina Puri Saudi won in January 2011. But the Saudi housing authorities cancelled the contracts three months later, after Bina Puri Saudi failed to pay performance guarantee deposits worth 5 per cent of the projects' value.

ANC then sued Bina for its 5 per cent commission on the grounds that it had effectively secured the job for the Malaysian company. ANC's lawyer P. Ashokan argued it had alerted Bina to the pro-jects in Saudi Arabia and advised Bina's Saudi subsidiary on how to price its bids, making ANC the effective cause through which Bina got the contracts.

But Bina's lawyer Chia Foon Yeow countered that the firm had known of the projects independently and the successful pricing had been worked out with a Saudi contractor without ANC's help.

Judicial Commissioner Vinodh agreed that the evidence did not favour ANC's claim of having provided material assistance. But it was the allegations of bribery that finally unpicked the case.

The claims were triggered at first by Mr Chia's examination of an ANC witness which Mr Ashokan objected to. But in his own questioning of Bina's witnesses, it emerged, among other things, that some of the commission was meant for use as bribe payments with Bina's knowledge.

ANC's witnesses claimed the payouts to persons in Saudi Arabia were for market intelligence on relevant issues such as pricing strategy.

The judge discounted the claims, noting that 60 per cent of the $4.6 million commission was to go to Saudi third parties. He noted the commission in the agreement was 2.5 times the 2 per cent sum reasonably expected for such tender projects. "And this serves to reinforce my belief that the common intention from the outset was for (ANC) to use bribery to ensure Bina Puri Saudi secured the projects."

The judge dismissed the case and ordered both parties to bear their own costs.


Bina Puri did make today an announcement to Bursa Malaysia. Not about the High Court findings in Singapore nor about the intention to bribe which it admitted, but about a huge (30%) private placement which will very much dilute its existing shareholders. And that while a previous private placement had just taken place.

Bina Puri's accounts over 2012 were not qualified, but there was an "Emphasis of Matter" regarding the amount of RM 17 million owing by an associate which has been long outstanding, which is a clear red flag.

Bina Puri is allegedly linked to Syed Mokhtar. However, the following quote is from his biography:

He also answered the issue of the shareholding structure of his companies that could not be traced to him, acknowledging “it is an old habit that has to change.”

Where is Ze Moola has written several articles about Bina Puri.

EPF/Petronas, "not fair but reasonable", MBf

[1] P Gunasegaram wrote an article on KiniBiz about EPF accepting Petronas' revised offer for MISC shares under the title: "Shame on you EPF!".

I can't agree more on the article, I strongly recommend to read the full article.

The new offer from Petronas was an improvement of less than 4%, a much too low offer. Why did the EPF so hastily accept this offer that is still way below the fair valuations and below the rights issue a few years ago?

Keeping MISC listed would ensure a healthy dose of transparency, something that Petronas itself also could do with.

It looks like a typical case of "face" where both parties can claim some credit:

• EPF claims that they are actively fighting for the shareholders (I have very strong doubts about this claim), they booked a victory since the price has increased;
• Petronas can claim that they only raised the price by a small margin, in other words the first offer was also "pretty decent".

[2] Errol Oh wrote in The Star: "Mixed feelings over mixed advice".

"A lot of people are befuddled by the on-going streak of independent advisers (IAs) describing general offers and proposed deals as “not fair but reasonable” and yet recommending that shareholders accept the offers or vote for the deals."

I do like to add that there are two improvements compared to the old situation:

• The majority of the delisting offers is deemed to be "not fair but reasonable", while in the past it was almost always "fair but reasonable". At least now the minority shareholder know they are (hugely) disadvantaged.
• The quality of the independent advices has improved recently. There are still some bad examples, but these are more rare. In the past the quality was so low, that I recommended to simply do away with the independent advices, they were a waste of money and time and even worked against minority investors.

For instance, "Where Is Ze Moola" wrote about the horrific delisting of IOI Properties at RM 2.60 in 2009 while a rights issue not too long time before was done at RM 6.25. The "independent" advice from OSK Investment Bank was "fair and reasonable" and recommended the shareholders to accept the offer. This kind of advice would typically cost around RM 500,000. I don't think it was worth the paper it was written on.

"Early this week, a wire report had stated that IOI Corp was planning an initial public offering (IPO) of its property arm in the fourth quarter of 2013, speculating the total value of the listing to be in the region of RM10bil.

This would be a huge improvement in size, considering that it was only in 2009 that IOI Corp had bought back its then-listed property arm IOI Properties Bhd for a mere RM310mil in cash and shares, valuing the unit at about RM1.3bil."

In only 4 years time the value of IOI Properties would have increased by a factor 8? Do the previous minority investors of IOI Property still believe that the offer price of RM 2.60 was indeed "fair and reasonable"?

Another really bad case was the delisting and relisting of Bumi Armada, about which I have written before.


[3] Gurmeet Kaur wrote about the offer for MBF: "Happy ending for MBf minority shareholders":

"The group of minority shareholders who had, for some time now, been holding out for a higher price in the buyout of MBf Holdings Bhd have decided to throw in the towel and accept major shareholder Tan Sri Dr Ninian Mogan Lourdenadin's latest revised offer of RM1.775 per share."

I would not exactly call that a happy ending, RM 1.775 is still way below the estimated Net Assets per share between RM 2.45 and RM 3.20. Holding unlisted shares is simply not an option for most investors, and thus they were pressured to throw in the towel. Still kudos for the minority investors, they did put up a decent fight, but the odds were hugely stacked against them.


It is about time the authorities are looking into this situation: delistings at unfair (low) prices, possibly followed by relisting at inflated prices. They should make the playing field between majority and minority investors a more even one, it is long overdue.

Stating "these corporate exercises were business decisions" will simply not do.