Article "Betting on IPOs not always a sure profit" in the Business Times by Francis Fernandez in the category "Weekend Notes". Some comments by me in blue.
CAVEAT emptor, the Latin phrase for "let the buyer beware", must be ringing in hard on those of us who had believed that subscribing to initial public offer (IPO) shares is like getting a free lunch.
Who could blame them, considering that Malaysia's mega IPOs have given investors handsome returns, that is until Astro Malaysia Holdings Bhd's IPO.
There was no free lunch this time around. The stock tumbled. Some investors lost money and market players have been crying ever since, baying for heads to roll.
"Tumbled", the stock is 4.7% down since its listing. Not really shocking, athough it might go down further due to negative sentiment.
For those who lost money on Astro shares, it is time for a reality check. The stock tumbled; it did not crash. There is also no such thing that every IPO must end up making money.
Just look at the Facebook Inc IPO, the biggest this year, which saw the company priced at around a price-to-earnings ratio of 85 times, despite a decline in both earnings and revenue in the first quarter of 2012.
Comparing Facebook listed on the Nasdaq with Astro listed on Bursa, is that not comparing apples with oranges? It is hard to find two cases that are more different.
The stock fell like the nine pins in a bowling alley and hasn't recovered ever since. Those who invested in Facebook at the IPO stage lost big money.
Just like how Mark Zuckerberg, Facebook's founder and chief executive was hounded after the IPO started trading downwards, Astro major shareholders are also beginning to get some stick.
The Internet has been buzzing this week with comments made by Investor Central's Mark Laudi about the Astro IPO.
Laudi posed a few questions, questions that should have been asked by critical journalists in Malaysia.
For those of us who are unfamiliar with Laudi, he is an award-winning broadcaster who used to report live from the floor of the Singapore Exchange on CNBC Asia.
Is Laudi's thought on the Astro IPO valid or are the inputs given by the likes of OSK Securities, Affin Securities, JP Apex Securities and ECM Libra on Astro's valuation more solid?
The four companies mentioned are brokers, I have never taken an opinion by any broker serious, often they have vested interest. In the US they are very strict with announcing conflict of interest (should be clear to all who have watched Bloomberg or CNBC), in Malaysia unfortunately not.
Those research firms had valued the Astro shares at more than RM3 each.
Investors and non-investors alike can choose to debate on it but at the end of the day, it is the responsibility of those who had bought the Astro shares to read the prospectus in detail before parting with their money.
I agree, but the writer should have mentioned here that the IPO prospectus contained 687 pages! Who has time to read that in detail, as the writer suggests? The authorities have gone overboard in what has to be declared, making it very hard (especially for laymen) to find the essential information, which is sometimes not even in the prospectus (hence the need for critical, objective, investigative journalists).
For those who did not do just that, there is no point crying over spilled milk.
Saturday, 27 October 2012
Friday, 26 October 2012
Critical remarks regarding Astro
Investor Central posted on its website a video of Mark Laudi, making some very critical comments regarding Astro and its IPO relisting. Some text of it can be found on the website of The Malaysian Insider.
The questions asked and the issues raised by Laudi seem to be reasonable, why can't Malaysian journalists do the same, why are they so tame? The Malaysian public at large is not helped by that attitude, in the contrary.
Some good news for Astro is that a Singapore court upheld the arbitration award over Indonesia's Lippo Group, the details (including full judgement) can be found here.
Wednesday, 24 October 2012
KFC: disposal and capital repayment
KFC has published the circular regarding the disposal of its business and the subsequent capital repayment, which effectively implies a General Offer of RM 4.00 per share and RM 1.00 per warrant.
I received the following comment in another posting:
"What are your views on the KFC Holdings (Malaysia) BHD situation? This deal has been dragged out for almost a year, in which time Malaysian peers’ share prices have rallied between 70% to 80%, dividends at KFC have been halted, and in Affin Investment Bank’s Independent advice they use comparable multiples based on last prices from 13th December 2011, highly illogical and against conventional market practice. Surely minority shareholders are getting a raw deal here and would be better off voting the deal down? I am surprised that this has not received much attention in Malaysia, this is another example of poor corporate governance."
I have sympathy for the above, although I find the independent advice in it self not bad (I have seen much worse). Affin did use many comparison methods and quite detailed so, they put a decent effort in writing their independent report in my opinion.
I do agree though that many times (not only in the independent advice but anywhere in the prospectus) comparisons have been made with the situation in 2011, when in reality an updated comparison for 2012 also could or should be given. There is almost a full calendar year difference.
Also, the company has indeed stopped paying dividends, the last dividend was only 3 sen on Oct 7, 2011. This in itself deserves a discussion regarding the reasons for this.
My opinion is that given the cash generating nature of the business and the established brand name, the offer price per share appears somewhat undervalued. However, KFC was never a company with the best CG practices in Malaysia, given that I find the offer price about fair.
And lastly, the offer per share is RM 4.00 and the offer per warrant is RM 1.00. Assuming that the price per share is fair, then the price per warrant is highly unfair. The exercise price is RM 3, and the ex-date is on September 14, 2015, almost 3 full years away. In other words, warrant holders do not receive any money at all for the time value of the warrant.
I have noticed this before (warrant holders being hugely disadvantaged), for instance here, and find it worrisome. Are warrant holders sufficiently warned that they could expect a lousy deal in case the company is privatised?
I received the following comment in another posting:
"What are your views on the KFC Holdings (Malaysia) BHD situation? This deal has been dragged out for almost a year, in which time Malaysian peers’ share prices have rallied between 70% to 80%, dividends at KFC have been halted, and in Affin Investment Bank’s Independent advice they use comparable multiples based on last prices from 13th December 2011, highly illogical and against conventional market practice. Surely minority shareholders are getting a raw deal here and would be better off voting the deal down? I am surprised that this has not received much attention in Malaysia, this is another example of poor corporate governance."
I have sympathy for the above, although I find the independent advice in it self not bad (I have seen much worse). Affin did use many comparison methods and quite detailed so, they put a decent effort in writing their independent report in my opinion.
I do agree though that many times (not only in the independent advice but anywhere in the prospectus) comparisons have been made with the situation in 2011, when in reality an updated comparison for 2012 also could or should be given. There is almost a full calendar year difference.
Also, the company has indeed stopped paying dividends, the last dividend was only 3 sen on Oct 7, 2011. This in itself deserves a discussion regarding the reasons for this.
My opinion is that given the cash generating nature of the business and the established brand name, the offer price per share appears somewhat undervalued. However, KFC was never a company with the best CG practices in Malaysia, given that I find the offer price about fair.
And lastly, the offer per share is RM 4.00 and the offer per warrant is RM 1.00. Assuming that the price per share is fair, then the price per warrant is highly unfair. The exercise price is RM 3, and the ex-date is on September 14, 2015, almost 3 full years away. In other words, warrant holders do not receive any money at all for the time value of the warrant.
I have noticed this before (warrant holders being hugely disadvantaged), for instance here, and find it worrisome. Are warrant holders sufficiently warned that they could expect a lousy deal in case the company is privatised?
Monday, 22 October 2012
David Webb in The Business Times
Two large articles (one of which on the front-page) in The Business Times (Singapore) about David Webb, the shareholder activist from Hong Kong. The first article can be read here.
Let's not pretend any more that independent directors (IDs) are independent, says Hong Kong shareholder activist David Webb.
He suggests abolishing the requirement for IDs and letting them be called independent only after being elected by minority shareholders.
IDs need to make up at least one-third of boards in Singapore and Hong Kong to provide an objective voice to ensure management acts in shareholders' interests.
But Mr Webb, repeating a common criticism, says IDs are often picked because of their close relationship with controlling shareholders or board chairmen.
Shareholders are given "a sense of false comfort" as a result, says Mr Webb, 47, a retired investment banker who made his name in the past 14 years giving scathing, sharp and sometimes prescient commentary on the Hong Kong stock market through his website, "webb-site.com".
"Good companies will still put good people on boards, bad companies will always find three people who are willing to endorse anything," he says.
Mr Webb spoke to BT early this month when he was in town for this year's Corporate Governance Week organised by investor lobby group Sias, or the Securities Investors Association (Singapore).
Having IDs only electable by minority shareholders could improve corporate governance in both Singapore and Hong Kong, he says.
"The reality is that if candidates are voted upon by controlling shareholders, the candidates will only be those who are acceptable to the controlling shareholder. Then the whole system breaks down...
"It'll be more honest to say he's the old school friend of the chairman, family doctor, whatever, he's only there because the chairman likes him."
Under Mr Webb's system, controlling shareholders are not precluded from putting forward candidates they deem suitable, he notes - just that they have to abstain during voting.
This gives IDs a mandate to ask difficult questions without "being quietly asked to stand down", he says.
David Webb made the same point on his website before, see the third box "note to regulators". That article is about the excessive pay of the family of the "Managing Chairman" and majority shareholder of Hong Kong listed company Xpress Group Ltd, (currency in HKD):
Taking the 15 years together, the Chan family has taken pay of $492.8m, and the total profit attributable to shareholders was...well, there wasn't any. It was a total loss of $247.5m.
The second article about David Webb in The Business Times today can be found here (the whole story only for subscribers). Some parts:
He built up a formidable database on his website - which he started developing in 1998 after he retired from his investment banking job and found that the Internet had made it easy for him to publish his own views. "I've always been a bit of an activist," he says.
On his site, one can browse a list of directors and sort them by number of directorships, age, sex, and even the average returns o fall the past and present companies they have been directors of.
One can find out, for example, which company has the oldest average age of directors (Melbourne Enterprises), how many companies go beyond the minimum required number of three independent directors (less than one quarter), or who holds the largest number of independent directorships (Abraham Razack, 16 seats).
Investors can also track the number of companies incorporated each year, with the history going back to 1865. Company name changes are also recorded, and total returns for each company can be calculated and compared against each other.
The above database would be very helpful for investors in Malaysian (and Singaporean) companies. Either Bursa Malaysia or MSWG would be suitable for this task?
Let's not pretend any more that independent directors (IDs) are independent, says Hong Kong shareholder activist David Webb.
He suggests abolishing the requirement for IDs and letting them be called independent only after being elected by minority shareholders.
IDs need to make up at least one-third of boards in Singapore and Hong Kong to provide an objective voice to ensure management acts in shareholders' interests.
But Mr Webb, repeating a common criticism, says IDs are often picked because of their close relationship with controlling shareholders or board chairmen.
Shareholders are given "a sense of false comfort" as a result, says Mr Webb, 47, a retired investment banker who made his name in the past 14 years giving scathing, sharp and sometimes prescient commentary on the Hong Kong stock market through his website, "webb-site.com".
"Good companies will still put good people on boards, bad companies will always find three people who are willing to endorse anything," he says.
Mr Webb spoke to BT early this month when he was in town for this year's Corporate Governance Week organised by investor lobby group Sias, or the Securities Investors Association (Singapore).
Having IDs only electable by minority shareholders could improve corporate governance in both Singapore and Hong Kong, he says.
"The reality is that if candidates are voted upon by controlling shareholders, the candidates will only be those who are acceptable to the controlling shareholder. Then the whole system breaks down...
"It'll be more honest to say he's the old school friend of the chairman, family doctor, whatever, he's only there because the chairman likes him."
Under Mr Webb's system, controlling shareholders are not precluded from putting forward candidates they deem suitable, he notes - just that they have to abstain during voting.
This gives IDs a mandate to ask difficult questions without "being quietly asked to stand down", he says.
David Webb made the same point on his website before, see the third box "note to regulators". That article is about the excessive pay of the family of the "Managing Chairman" and majority shareholder of Hong Kong listed company Xpress Group Ltd, (currency in HKD):
Taking the 15 years together, the Chan family has taken pay of $492.8m, and the total profit attributable to shareholders was...well, there wasn't any. It was a total loss of $247.5m.
The second article about David Webb in The Business Times today can be found here (the whole story only for subscribers). Some parts:
He built up a formidable database on his website - which he started developing in 1998 after he retired from his investment banking job and found that the Internet had made it easy for him to publish his own views. "I've always been a bit of an activist," he says.
On his site, one can browse a list of directors and sort them by number of directorships, age, sex, and even the average returns o fall the past and present companies they have been directors of.
One can find out, for example, which company has the oldest average age of directors (Melbourne Enterprises), how many companies go beyond the minimum required number of three independent directors (less than one quarter), or who holds the largest number of independent directorships (Abraham Razack, 16 seats).
Investors can also track the number of companies incorporated each year, with the history going back to 1865. Company name changes are also recorded, and total returns for each company can be calculated and compared against each other.
The above database would be very helpful for investors in Malaysian (and Singaporean) companies. Either Bursa Malaysia or MSWG would be suitable for this task?
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