Withdrawal of complaints with SC & BM

Letter to the Securities Commission (SC) and Bursa Malaysia (BM):

"Dear Sir/Madam,

In light of the extremely disappointing performance of the authorities (most notably Bursa Malaysia) on my complaints regarding Bumi Armada and Maybulk/POSH, not seeing even a sliver of justice being done after stonewalling me in both cases for a full three years, with Bursa Malaysia being an interested party having approved all the documents in the first place and now having to check their own work (and thus not surprisingly approving it), I herewith withdraw all my complaints with SC/BM.

It is better to have no justice at all and it being painfully obvious, than to get a half-baked effort after 3 full years that would not even count as an slap on the wrist and some people boasting of actually having done their job. 

I also don’t have the energy or the time to be involved in a process that leads to absolute nowhere.

Regards, M.A. Wind"

I have written in the past about the disappointing handling of complaints:

http://cgmalaysia.blogspot.com/2011/07/unsatisfactory-handling-of-complaints.html

I wish I had listened to my Malaysian friends who told me long time ago already not to bother with filing of complaints as it is simply of no use at all. I learned my lesson, the hard way. It is a sad state of affairs for Malaysia, and it really pains me. I hope that one day things have improved markedly, but that day will unfortunately not be anytime soon is my guess. 

The Edge: Maybulk/POSH, EPIC, Kretam

In the Edge of September 19, 2011 a few interesting articles:

"POSH continues to be a thorn in Maybulk's side"

At a recent analyst briefing, Malaysian Bulk Carriers Bhd (Maybulk) CEO Kuok Khoon Kuan conceded that the company's 22.08% investment in associate company PACC Offshore Services Holdings Pte Ltd (POSH) was a disappointment. But while accepting the fact that POSH's performance was not as good as expected, he expressed optimism that the industry could have seen some of its worst times."

For the first time ever the management of Maybulk admits that the acquisition of POSH was a disappointment, I would call that a huge understatement. Related Party Transactions (RPT's) have a very bad name in Malaysia, but RPT's during economic crisis are even worse and this deal was no exception. An amount of more than RM 800 million cold hard cash from a Malaysian company was used to acquire a minority part of a much overvalued Singaporean company. The circular was as usual of very low quality, leaving out lots of important (and even essential) information, the valuation of the fleet was suspect (the valuer didn't support his own valuation anymore), the "independent" advice from KPMG was even worse. The Minority Shareholder Watchdog Group (MWSG) didn't want to fight this case for unknown reasons, very disappointing.

The deal went through after a heated EGM, I strongly suspect that funds like Bank Pembanguan Malaysia Berhad, EPF, PNB etc. voted in favor of the deal, as usual, since they alone could easily have blocked it.

I (a foreigner!) fought tooth and nail to stop this deal, but to no avail. I filed many well documented complaints with the Securities Commission (and implied to Bursa Malaysia who is responsible for the quality of the circulars). The case is still pending, almost three years have passed and still no action has been taken. That was one of the reasons for me to start this blog, the way genuine complaints are being stonewalled is simply unacceptable. If the intent is to actively discourage people from filing complaints, then the authorities are doing an excellent job.

I will write in detail about this deal in a few episodes. I still completely not understand how Maybulk, a company with an excellent trackrecord of highly regarded majority investor Robert Kuok, could force such a bad deal through. In an interview on September 9, 2011 Robert Kuok explicitly mentions how he always wanted to come up for the publics interest, not only his own. Were his lieutenants too eager, too sharp? Did the sugar deal with Tan Sri Syed Mokthar have to do with it? I have no idea, we probably will never know. But this deal was really, really bad and justice should be done, it is long overdue. Minority investors who held on to their Maybulk shares suffer up to this day, the share has underperformed the KLCI substantially and the dividend has been cut.


Fair compensation?
"shareholders who purchased EPIC shares after December 10, 2010, will not be entitled to the cash compensation. Is this fair, considering that the announcement that two Terengganu state entities had triggered an MGO for EPIC was only made on August 24 this year? That is a delay of more than eight months."

The above is about the cash compensation scheme where only shareholders can claim money who held the stock at December 10, 2010. It is an interesting dilemma.


PT's should be whiter than white
"Kretam's Holdings Bhd's recent acquisition of a piece of land in Sabah has rubbed some of its minority shareholders the wrong way. In the related party transaction, Kretam is acquiring, among others, Abedon Sdn Bhd, which owed the piece of land. Abedon and Kretam have a common shareholder in Datuk Lim Nyuk Sang, who is the CEO and controlled 55.63% of Kretam before the acquisition. The vendors received new Kretam shares and ICPS at an issue price of RM 2.30 each in exchange for the land valued at RM 413.2 million. The minorities contend that the exchange is lopsided as the deal imputed a much higher value for the piece of land than the value implied for Kretam's own landbank, based on RM 2.30 per share valuation.

RPT transactions are often onerous and to avoid suspicion, substantial shareholders would do well to ensure that such deals are whiter than white."


The problem with RPT's in Malaysia is that they are simply not white, they are black. The large majority that I have seen are plain bad, sometimes worse. There is a whole layer of protections for minorities (which seems to give ample protection), but in almost all cases they will all fail:

• Directors (especially Independent ones) should speak up, they don't
• The Independent Adviser should write an unbiased report, they don't
• Bursa Malaysia should insist on unbiased circular plus independent report, they don't
• PNB, EPF, LTAT, etc should vote against bad deals, they don't
• And after the deal has been done, the Securities Commission should act on complaints, they don't

This is going on for a very long time, and still nothing has changed. And in the last Corporate Governance Blueprint 2011 there is no word about how to give minority investors a fighting chance in these kind of corporate deals.

Unsatisfactory handling of complaints by SC/BM

After the damage has been done (the RPT deal went through), SC/BM will look into possible complaints. My experience is that these investigations will go nowhere, I haven’t heard of a single complaint by a Minority Investor ever being approved. Normally SC/BM will drag their feet for a long time (often a few years), stonewalling the Minority Investor, changing the manager in charge many times and then answer with a one line reply that no rule has been breached. No reason will be given, no transparency at all. Investigations have to be conducted confidentially, this is of course correct, but SC/BM is abusing this rule very much. For instance there is no reason whatsoever not to reveal publicly available information why a complaint or argument is not valid. If somebody provides detailed information which rules are broken, then the SC/BM should be able to counter these arguments without breaking the confidentiality of the research. It is extremely disappointing (to say the least) to spend a huge amount of time writing a complaint with all the information gathered, doing all the work for the SC/BM, coming up with large amounts of supporting documents and then to be treated like this. Unfortunately, I have never heard of a different experience. SC/BM has a (very) bad image and most retail investors don’t even bother anymore to file a complaint with them, is my experience.

I can see the following reasons for the highly unethical and unacceptable behaviour of SC/BM:

(a)    SC and BM might be pressured not to take action. For a long time there was suspicion regarding legal matters. Since the publication of the Lingam tape I think no person will have doubts anymore about what might be going on.

(b)    SC and BM are not actually pressured in certain cases but think they are and act accordingly. This is an argument that is often brought forward to explain curious verdicts of judges that make no sense at all. The previous Chairman of the SC was (when he retired) asked by a journalist if he had instructions from above not to take action in certain corporate cases. The Chairmen said he wasn’t. Unfortunately, during his tenure the SC didn’t solve any major case (except of course for the usual illegal future trader and ticking off some small corporate players) although he inherited a huge amount of very large cheating cases of the 1997/98 crisis. Nobody dared to say that the Emperor was wearing no Clothes.

(c)    SC and BM have already approved certain parts in the process, to agree with a complaint means admitting that they made mistakes in the past. Organisations that “police” their own actions will hardly ever take any action against their own people and the SC/BM seems to be no exception. There is really a need for an organisation totally independent from SC/BM to look into these cases.

(d)    It is the "lazy" alternative, it means the manager doesn’t have to make investigations, interviews, research etc. Since the SC/BM doesn’t give any insight in on-going investigations (in itself understandable, but it is easily abused) and the SC/BM never gives any reason for its rejection, it can never be accused of making a mistake in the reason given. No transparency at all of course, but nobody seems to care.

(e)  It has become the norm, for 20 years SC/BM have toed the line, why change?

(f)   The personnel of SC/BM is simply not (always) up to the task and are not able to counter the army of fancy, well-paid advisors the Majority Investor has hired to defend his case. If this is the case, SC/BM should be allowed to use external advisors, but that would mean admitting that SC/BM is not up to the task and that will not be easy.

In my posting about recommendations I came with the following suggestions:

• A small, fast moving, high-powered, totally independent commission to be formed, which will look at complaints (besides other issues).
• The top management of SC and BM should make it very clear to all their employees that in the cases of GO’s and RPT’s Minority Investors have clearly the benefit of the doubt, not Majority Investors.
• All complaints (except very rare, difficult cases) should be handled well within one year, with quarterly updates. A final answer will be provided containing information publicly available.
• In general, SC and BM really should genuinely start to reach out to retail investors, bloggers etc, they can provide useful insights in corporate affairs, since they are putting their money where their mouth is. There are about 1,000 listed companies, much too much for SC and BM to keep tabs on.

All comments, feedback etc is welcome and appreciated, as usual.