The ABC of a corporate collapse

Good article by Prof Mak Yuen Teen in the Business Times (Singapore) about the collapse of ABC Learning Centres in Australia, and the similarities and differences with Olam.

"The main criticisms of Olam by Muddy Waters were about its business model, accounting, aggressive acquisitions and capital expenditure, leverage and weak operating cash flow. These are very similar to the factors which contributed to ABC's demise."

"Supposedly long-term debt can quickly become repayable in the short term or much more expensive, especially if debt covenants have been breached. Breaches of debt covenants can also have a domino effect."

"Although its profits had been increasing steadily over the last few years, there have been many cases of companies which have failed on the back of positive profits and negative operating cash flow."

"It emerged that the Groves and some of the other ABC directors had pledged their shares to borrow money. As the share price plummeted, they were forced to sell shares equivalent to 5.6 per cent of the company to satisfy margin calls. This flooded the market with shares and pummelled the share price further."

Malaysia at Crossroads

Excellent collection of critical articles in The Edge of December 24, 2012.

Some excerpts:

“…. political integrity to replace the dirty, corrupt and adversarial with idealism, activism and intellectualism based on values, knowledge, wisdom, service, transparency, accountability and good governance”

Datuk Saifuddin Abdullah, Deputy Minister of Higher Education

“In Malaysia, corruption is not a random or occasional occurrence but tends to be systemic and cuts across authoritarian and democratic regimes. Kleptocrats are usually not merely mid-level officials who extort money or receive bribes as means to make ends meet, but high-ranking officials and top-level politicians who engage in corrupt acts to do business and accumulate wealth. The question for Malaysians is, are we a country in which corruption is the dominant means of doing business and can be referred to as the fifth factor of production? To the extent that kleptocratic rule develops and expands, whatever genuine democratic forces there are will recede into the background. This is because the kind of democracy that is based on good governance and accountability to the people is antithetical to the interests of the kleptocrats. At most, a formal and limited form of democracy will survive.”

Syed Farid Alatas, head of Department of Malay Studies, NUS

“Malaysia outperformed most other developing economies because its civil service, police, judiciary, universities, schools, political parties, regulatory agencies and development institutions were often first world in quality. It may not be a popular  thing to say but it is a fact that Malaysia’s institutional edge has diminished in the past 20 years. Without institutional revitalization, Malaysia will not resolve corruption and crime. Neither will it be able to build the human capital needed to compete effectively nor will it be able to reverse the brain drain and attract the talent needed to excel.”

Manu Bhaskaran, partner and head of economic research at Centennial Group

“There are still many instruments of control that effectively stifle genuine discussion of issues that matter to the country. Do we want a society that values and protects our freedom to debate and discuss issues of importance to us? Or one that would rather have us remain quiet and disengage ourselves from the national discourse?”

Malek Ali, founder of BFM 89.9

“This mentality is reflected in our poor track record for civil and political rights, free and fair elections, transparent governance, press freedom and respect for the dignity of all persons regardless of race, gender and religion. Malaysia has yet to sign the United Nations convention on the elimination of all forms of racial discrimination and the covenants on civil, political, economic, social and cultural rights. The national economy, while important, may not be the crucial election issue. What matters if we are to get over the Third World mentality is to cross the racial and ideological divides, to root out the corruption and patronage, eradicate institutional discrimination, and depoliticise the police and judiciary.

Eric Loo, journalist

KiniBiz, new business website

KiniBiz has been announced on the Malaysiakini website. I am a fan of P. Gunasegaram, one of the rare journalists who dares to speak up, who is one of the founders. For a long time I hoped that Malaysiakini would also focus on business issues. It only makes sense, since politics and business are so often, unfortunately, intertwined in Malaysia.

KiniBiz's teaser:


"What's the real deal? In the dark? We're not surprised. Business news should go beyond the spin and the hype. We will smash through the barrier with independent, fast, and incisive business news to discerning readers.

We will break news, analyse it, dissect the complexities and comment unflinchingly. We will unravel and reveal the players behind the scenes and put things in the right context. And more. If you want to be informed and be ahead of the crowd and the market, you will want to read us - everyday and during the day. We will shed some light."

We feel there is a gap to be filled in the coverage of business news. We aim to fill that gap. It would take effort and it would be a different kind of editorial stance from what we have seen before in the coverage of Malaysian business news.

KiniBiz also aims to be a complete portal for business news which means that we will closely follow foreign business news as well, especially those which have a major impact on the average citizen and this region. We will carefully select the news, analysis and commentary here, too.

Unfortunately, it will be for subscribers only, but if the quality is good, that should not be an issue. Hoping for some truly independent, in-depth research of Malaysian business issues. Start will be somewhere in the first quarter of 2013.

Records destroyed at Chinese listed companies

Article from The Business Times (Singapore), December 19, 2012, "Cruel fates send China Paper trail up in smoke" from Kenneth Lim:

Boy, Chinese companies in the corporate governance spotlight just can't seem to catch a break.

The latest victim of unfortunate circumstances is China Paper Holdings, which said this week that a fire from a short circuit had broken out on one of its properties and, if that was not bad enough, destroyed financial records for all of 2011 and the first eight months of 2012.

For a company that has come under fire (the metaphorical kind) for ints investment plans and fund-raising decisions; is facing a difficult year ont he profits front (or at least until reconstructed accounts can state again); and whose financial controller left on Nov. 30 "to pursue personal interests", thiis mishap is inopportune.

Could the gods be any more cruel?

..... China Paper will now have to wait an estimated four to six months - nothing short of a lifetime - to get the truth out. That is how long the company estimates it will need to reconstruct its financial records. This is awfully inconvenient.

..... The fact that a number of Chinese companies that have come under scrutiny have also had the misfortune of meeting with records-destroying accidents - Sino Techfibre and China Sun Bio-chem Technology Group being two others in recent years - shows how circumstances have conspired to make life even tougher for those already under pressure. Life can be terribly unfair.

The company just issued 907,922,418 (!) new shares due to a rights issue at SGD 0.036 (!).

This is the graph of the share price of China Paper, not a pretty sight: