Announcement on Bursa Malaysia website:
The Company regrets to announce that a fire had occurred at the Company’s production plant located at No. 2899, Jin Jiang West Road, Hanjing District, Putian, Fujian Province, The People’s Republic of China (“PRC”).
The fire started at about 1.30 a.m. on 4 April 2014 (PRC’s time). No injuries had been reported. The fire department is still conducting investigation to ascertain the cause of the fire.
A site examination revealed that a section of the Plant No. 4 measuring approximately 10,000 square metres, out of the total floor area of 15,000 square metres was gutted by the fire. The affected area involves the production floor, materials, finished and semi-finished products kept within the production floor as well as the administration office. There is substantial damage of goods, machinery and equipment that needs to be ascertained.
The production capacity is seriously affected. On a conservative estimate, the loss of production capacity is estimated more than 12,000 in tonnage. Hence, this will cause some disruption to certain operations of the Group for at least the next two or three months.
The Company is taking urgent steps to start rehabilitation of the affected building and other measures to try to recover the installed capacity of the plant.
The Company, with its insurer is working to ascertain the extent of the damage. An assessment on the financial impact caused by the fire is being carried out and the Company will make further announcement of the financial impact to the Group.
Luckily it sounds like there are no casualties.
But one important question seems to be: if the fire happened on April 4, 2014, why did the company only make an announcement on April 8, 2014?
Hopefully the administration is still in order, the administration office is mentioned as being damaged. In Singapore there was a China listed company where suddenly the whole administration went up in fire.
I wrote about China Stationary before.
Tuesday, 8 April 2014
Sunday, 6 April 2014
Maybulk: IPO of POSH (1)
Finally, after 5.5 years waiting, POSH will go for an IPO at the SGX.
I have written many times about the Related Party Transaction whereby Maybulk bought 21% of POSH in 2008, especially:
Maybulk/POSH: What happened to the Cash?
Clarkson, the valuer who didn’t believe his own valuation
Maybulk/POSH: KPMG's "independent" advice
Maybulk: before and after POSH
To recap, Maybulk bought in December 2008 34M shares in POSH at a valuation of USD 6.50 per share, for a total of USD 221M, or RM 778M. POSH was valued pre-deal at USD 780M.
My take on this deal is that the valuation of POSH was much too high, the exact reasoning behind that can be found in the above links, but in a nutshell:
But the deal itself was not the only worrisome element, also the low quality of the prospectus.
Fast forward four years, November 2012 Maybulk invested even more money in POSH by subscribing to a rights issue of RCPS (Redeemable Convertible Preference Shares) at USD 4.00 per share.
Fast forward to April 2014. Maybulk finally announced that POSH will go for an IPO on the SGX, estimated to be at the end of this month.
Three announcements were made to Bursa Malaysia.
The IPO of POSH was supposed to happen within five years after Maybulk's acquisition, a rather long time frame. Why could that not be achieved? No reason whatsoever was given.
In 2008, Maybulk received a put option, if POSH was not able to go for an IPO within five years then Maybulk could exercise its put option and would receive USD 8.125 back per share, 25% more than they paid for in 2008.
This option is not exactly peanuts, the amount of money involved is USD 276M or RM 914M (Maybulk would still own the POSH shares converted from the RCPS).
I had hoped that the minority shareholders of Maybulk would be allowed to vote on this important issue, after being given a clear picture of the two alternatives, exercising the option or keeping the POSH shares. That was not to be the case:
It was just the three Independent Directors who "deliberated" over an issue close to RM one Billion hard cash? Is this actually correct from a legal point of view, do independent directors yield so much power that they can solely propose how to settle issues of such magnitude? I think it should have been decided in an EGM, after all shareholders have received proper information, enabling them to make an informed decision.
It is not even mentioned when the decision not to exercise the option was taken or why the shareholders of Maybulk were not immediately informed.
More importantly, no reason whatsoever is given for the decision, not even a single line, why?
From a Corporate Governance point of view, I find this completely unbelievable.
Also, it is not clear why the decision has been taken. At this moment it is still not yet sure at what price POSH will go for an IPO. At a high price (say USD 10 per share, clearly higher than the USD 8.125 Maybulk would receive if it exercised the option) it might indeed be wise not to exercise the option.
But at a low price (say USD 6.50 per share), why not exercise the put option and hand the money back to the shareholders of Maybulk in the form of a dividend? They can then decide for themselves where to invest the money in, they could even chose to buy POSH shares in the open market if they wish to do so.
The three Independent Directors who made the decision have been a very long time with Maybulk, one director almost 18 years, the other two more than 10 years. That is longer than the recommended maximum term of 9 years. According to the Guidelines of EPF, "their independency could be impaired by their long term participation". The EPF will vote against renewal of independent directors who are with a company for longer than nine years.
If these directors are important for Maybulk then they should be converted to non-independent directors, giving new independent directors a chance to have a fresh look at the issues at hand.
One independent director (Dato' Capt Ahmad Sufian) was actually a non-independent director of Maybulk before and is now also a director of the PPB Group, the third largest shareholder of Maybulk and also linked to the Kuok Group.
Another independent director of Maybulk (Tay Beng Chai) is MD of a law firm (Tay & Partners) that has Maybulk and Wilmar as clients, the Kuok Group even appears to be a significant client. Tay is also a Kuok Foundation scholar.
The question is, will this all have an influence on their independence? And, should the information regarding Tay be disclosed to the shareholders of Maybulk?
Maybulk is asked to pour even more money into POSH, after the first purchase in 2008 and the subsequent rights issue of RCPS. The money invested is already close to RM 1 Billion, clearly more than half of Maybulks shareholders equity which stands at roughly RM 1.7 Billion.
The reason given is that Maybulk will be able to equity account the profit of POSH.
There is nothing magically about equity accounting, it is not that if a company A owns 20.01% of company B that is actually receives 20.01% of the profit, and nothing if it owns only 19.99%. In both cases company A receives only the dividend that company B pays, pro rata to the shareholding. It is a bookkeeping manner with no impact to the actual cash flow.
Berkshire Hathaway has created enormous value for its shareholders by investing in listed companies, almost always below the 20% required for equity accounting. Buffet invented the "look-through earnings" to give a better picture of the earnings generated in a year. I can not recall any shareholder of Berkshire Hathaway ever insisting on Buffett to buy minimum holdings of 20% in listed companies so that the reported earnings look better.
[to be continued]
I have written many times about the Related Party Transaction whereby Maybulk bought 21% of POSH in 2008, especially:
Maybulk/POSH: What happened to the Cash?
Clarkson, the valuer who didn’t believe his own valuation
Maybulk/POSH: KPMG's "independent" advice
Maybulk: before and after POSH
To recap, Maybulk bought in December 2008 34M shares in POSH at a valuation of USD 6.50 per share, for a total of USD 221M, or RM 778M. POSH was valued pre-deal at USD 780M.
My take on this deal is that the valuation of POSH was much too high, the exact reasoning behind that can be found in the above links, but in a nutshell:
- POSH's Net Tangible Assets were minus USD 107M (in other words it had more debt than hard assets);
- POSH's Net Assets were USD 188M (including goodwill);
- POSH only existed a few years, with most of its purchases done a short while ago, when the economy was still booming;
- At the moment of the RPT, the severe global recession was raging, banks cut credit lines, asset prices were falling from the sky, companies were going bankrupt.
But the deal itself was not the only worrisome element, also the low quality of the prospectus.
Fast forward four years, November 2012 Maybulk invested even more money in POSH by subscribing to a rights issue of RCPS (Redeemable Convertible Preference Shares) at USD 4.00 per share.
Fast forward to April 2014. Maybulk finally announced that POSH will go for an IPO on the SGX, estimated to be at the end of this month.
Three announcements were made to Bursa Malaysia.
The IPO of POSH was supposed to happen within five years after Maybulk's acquisition, a rather long time frame. Why could that not be achieved? No reason whatsoever was given.
In 2008, Maybulk received a put option, if POSH was not able to go for an IPO within five years then Maybulk could exercise its put option and would receive USD 8.125 back per share, 25% more than they paid for in 2008.
This option is not exactly peanuts, the amount of money involved is USD 276M or RM 914M (Maybulk would still own the POSH shares converted from the RCPS).
I had hoped that the minority shareholders of Maybulk would be allowed to vote on this important issue, after being given a clear picture of the two alternatives, exercising the option or keeping the POSH shares. That was not to be the case:
It was just the three Independent Directors who "deliberated" over an issue close to RM one Billion hard cash? Is this actually correct from a legal point of view, do independent directors yield so much power that they can solely propose how to settle issues of such magnitude? I think it should have been decided in an EGM, after all shareholders have received proper information, enabling them to make an informed decision.
It is not even mentioned when the decision not to exercise the option was taken or why the shareholders of Maybulk were not immediately informed.
More importantly, no reason whatsoever is given for the decision, not even a single line, why?
From a Corporate Governance point of view, I find this completely unbelievable.
Also, it is not clear why the decision has been taken. At this moment it is still not yet sure at what price POSH will go for an IPO. At a high price (say USD 10 per share, clearly higher than the USD 8.125 Maybulk would receive if it exercised the option) it might indeed be wise not to exercise the option.
But at a low price (say USD 6.50 per share), why not exercise the put option and hand the money back to the shareholders of Maybulk in the form of a dividend? They can then decide for themselves where to invest the money in, they could even chose to buy POSH shares in the open market if they wish to do so.
The three Independent Directors who made the decision have been a very long time with Maybulk, one director almost 18 years, the other two more than 10 years. That is longer than the recommended maximum term of 9 years. According to the Guidelines of EPF, "their independency could be impaired by their long term participation". The EPF will vote against renewal of independent directors who are with a company for longer than nine years.
If these directors are important for Maybulk then they should be converted to non-independent directors, giving new independent directors a chance to have a fresh look at the issues at hand.
One independent director (Dato' Capt Ahmad Sufian) was actually a non-independent director of Maybulk before and is now also a director of the PPB Group, the third largest shareholder of Maybulk and also linked to the Kuok Group.
Another independent director of Maybulk (Tay Beng Chai) is MD of a law firm (Tay & Partners) that has Maybulk and Wilmar as clients, the Kuok Group even appears to be a significant client. Tay is also a Kuok Foundation scholar.
The question is, will this all have an influence on their independence? And, should the information regarding Tay be disclosed to the shareholders of Maybulk?
Maybulk is asked to pour even more money into POSH, after the first purchase in 2008 and the subsequent rights issue of RCPS. The money invested is already close to RM 1 Billion, clearly more than half of Maybulks shareholders equity which stands at roughly RM 1.7 Billion.
The reason given is that Maybulk will be able to equity account the profit of POSH.
There is nothing magically about equity accounting, it is not that if a company A owns 20.01% of company B that is actually receives 20.01% of the profit, and nothing if it owns only 19.99%. In both cases company A receives only the dividend that company B pays, pro rata to the shareholding. It is a bookkeeping manner with no impact to the actual cash flow.
Berkshire Hathaway has created enormous value for its shareholders by investing in listed companies, almost always below the 20% required for equity accounting. Buffet invented the "look-through earnings" to give a better picture of the earnings generated in a year. I can not recall any shareholder of Berkshire Hathaway ever insisting on Buffett to buy minimum holdings of 20% in listed companies so that the reported earnings look better.
[to be continued]
Friday, 4 April 2014
Ideas, hints, tips etc for this Blog
Ideas, hints and tips are very welcome to me.
I get a fair share of information for this blog, most of them (very) helpful. I can't always act on them (my time is rather limited), but I will definitely try to do so.
There are two ways to reach me:
[1] The old way: leave a comment, if needed anonymously. I will publish the comment, unless I think the comment was meant in private (if that is indicated in the comment then of course I will always respect that).
[2] The new way: leave your email address and a message (name is optional) in the Contact Form Widget. These messages are never published on the blog and will go directly in my email inbox.
Unfortunately, the widget can't handle attachments, but you can send them after receiving my reply.
I have been pretty much overwhelmed by the interest for this blog, about 17,000 monthly unique page views is much more than I ever expected.
Corporate Governance is not exactly everyone's taste, especially in Malaysia (most investors just want "hot tips"), although things seem to improve.
I get a fair share of information for this blog, most of them (very) helpful. I can't always act on them (my time is rather limited), but I will definitely try to do so.
There are two ways to reach me:
[1] The old way: leave a comment, if needed anonymously. I will publish the comment, unless I think the comment was meant in private (if that is indicated in the comment then of course I will always respect that).
[2] The new way: leave your email address and a message (name is optional) in the Contact Form Widget. These messages are never published on the blog and will go directly in my email inbox.
Unfortunately, the widget can't handle attachments, but you can send them after receiving my reply.
I have been pretty much overwhelmed by the interest for this blog, about 17,000 monthly unique page views is much more than I ever expected.
Corporate Governance is not exactly everyone's taste, especially in Malaysia (most investors just want "hot tips"), although things seem to improve.
Penny Stock Saga: were the share prices manipulated? (4)
The Singapore authorities were rather slow out of the blocks, but the pace of proceedings has quickly caught on. I have confidence they will get to the bottom of this saga, although it might take time.
Article in the Straits Times (Singapore) by Grace Leong and another article on "ValueBuddies".
"The probe into last October's penny stock rout on the Singapore Exchange (SGX) has now widened to include the chief executive of Innopac Holdings as well as units of Magnus Energy.
The Commercial Affairs Department (CAD) has asked Mr Wong Chin-Yong, CEO and executive director of Innopac Holdings, to assist with investigations in relation to offences under the Securities and Futures Act.
Meanwhile, Magnus Energy Group also announced that two subsidiaries and a former subsidiary had received notices from CAD to provide all information and data belonging to the company's executive director Koh Teng Kiat and chief financial officer Luke Ho Khee Yong."
"The CAD also asked ISR Capital, majority-owned by private equity firm Asiasons, to assist with the probe. It made the same request for data belonging to ISR chief executive Quah Su Yin.
Similar CAD requests were made to Innopac chief executive Wong Chin-Yong; ITE Electric chief executive Ho Cheng Leong; its chief operating officer, Mr Ang Cheng Gian; and Mr Goh Hin Calm, a non-executive and independent director.
Innopac and ITE Electric said the four men will remain in their posts as the investigation proceeds.
Magnus Energy announced on Wednesday that two subsidiaries and a former subsidiary had received CAD notices to supply information and data belonging to executive director Koh Teng Kiat and chief financial officer Luke Ho Khee Yong."
"What goes round comes round... no matter how long it takes..." and with that we can only agree.
Article in the Straits Times (Singapore) by Grace Leong and another article on "ValueBuddies".
"The probe into last October's penny stock rout on the Singapore Exchange (SGX) has now widened to include the chief executive of Innopac Holdings as well as units of Magnus Energy.
The Commercial Affairs Department (CAD) has asked Mr Wong Chin-Yong, CEO and executive director of Innopac Holdings, to assist with investigations in relation to offences under the Securities and Futures Act.
Meanwhile, Magnus Energy Group also announced that two subsidiaries and a former subsidiary had received notices from CAD to provide all information and data belonging to the company's executive director Koh Teng Kiat and chief financial officer Luke Ho Khee Yong."
"The CAD also asked ISR Capital, majority-owned by private equity firm Asiasons, to assist with the probe. It made the same request for data belonging to ISR chief executive Quah Su Yin.
Similar CAD requests were made to Innopac chief executive Wong Chin-Yong; ITE Electric chief executive Ho Cheng Leong; its chief operating officer, Mr Ang Cheng Gian; and Mr Goh Hin Calm, a non-executive and independent director.
Innopac and ITE Electric said the four men will remain in their posts as the investigation proceeds.
Magnus Energy announced on Wednesday that two subsidiaries and a former subsidiary had received CAD notices to supply information and data belonging to executive director Koh Teng Kiat and chief financial officer Luke Ho Khee Yong."
"What goes round comes round... no matter how long it takes..." and with that we can only agree.
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