"all the IPOs this year were making money for investors", really? (2)

According to an article in The Edge (December 22, 2014) named "A dreary year for listings" 14 companies IPO-ed in 2014 on Bursa.

Excluding Only World Group (which just listed) the results are:

• 3 are in positive area
• 2 have the same price as the IPO
• 8 have gone down, some considerably

That is not exactly a good score. Bearish sentiment on Bursa and in particular in the Oil & Gas industry have played an important role.

Icon Offshore was the worst performer, I wrote some cautious words about the company before.

Last year I wrote about an article in The Star, where the following quote was made:


"RHB Investment Bank Bhd director and regional head of equity capital markets Gan Kim Khoon recently said that investors should ride on the wave of Malaysia’s IPO market, but only after doing their homework on the new entrants.

He noted that all the IPOs this year were making money for investors and said this trend was likely to continue next year, when speaking at a recent panel discussion on the prospects for next year’s equity market."


That all IPO's made money in 2013 was simply not true.

And some of those listed companies did rather bad in 2014, for instance China Automobile Parts, AirAsia X, Sona Petroleum, Caring Pharmacy Group and UMW Oil & Gas.

But the advice to "ride the wave of Malaysia's IPO market" in 2014 also seems dubious, with hindsight, as the above results show.

Five years of booming share market have led to too much financial engineering, too much hot air being injected in soon to be listed companies, too much focus on the Oil & Gas industry.

Not surprisingly, things have come down to more realistic levels.


Wishing all readers Happy Holidays.

Hong Kong SFC takes action against short seller Citron

From the Financial Times, some snippets:


Citron Research has become the first shortseller to face action from Hong Kong’s watchdog, which alleges the California-based group knowingly made “false and misleading” claims about Evergrande, the Chinese developer.

Hong Kong’s Securities and Futures Commission on Monday started market misconduct tribunal proceedings against Andrew Left, the head of Citron, for claims made in June 2012 that Evergrande was insolvent and had consistently presented false information.

Shortsellers aim to profit from price falls by borrowing shares they do not own in the expectation that they will be able to buy them back more cheaply. Mr Left made HK$1.7m ($219,251) in profit from selling short 4.1m Evergrande shares before he made his claims, the SFC said.

Mr Left declined to comment.

The Hong Kong action comes as shortsellers fall under increasing scrutiny from Asia’s regulators, who have variously probed the veracity of their claims and their methods. This year, Taiwanese regulators pursued Glaucus Research, another California-based shortseller, while India’s watchdog temporarily banned a small Hong Kong hedge fund for what it said was insider trading.

In June 2012 Evergrande plunged as much as 20 per cent on the day Citron released a 57-page report on the group, which is one of China’s largest developers and a household name for its ownership of the Guangzhou Evergrande Football Club.

Evergrande, which is listed in Hong Kong, had a market capitalisation of about $8.6bn when Citron’s report was published online. It closed the day worth $7.6bn.

Citron is one of the better known of a group of China-focused short-sellers that emerged about five years ago and whose biggest scalp came in 2011 with the collapse of Sino-Forest, a $4bn forestry group, after Muddy Waters, another shortseller, questioned its veracity.

But shortsellers have enjoyed patchier success in recent years as companies have fought back and regulators stepped up their scrutiny. Evergrande was one of the first to issue a robust defence, blasting Citron’s claims and using the sort of colourful language employed by the shorts themselves.

David Webb commented on his website:


"This should be interesting. The SFC will need to show that Andrew Left either knew that his allegations were false or was reckless or negligent as to whether they were, in which case Section 277 of the SFO bites."

Delloyd's hidden gems to be revalued? (3)

I wrote before about Delloyd, here and here.

I hoped that the assets of Delloyd, especially the Sungai Rambai Estate and the estates in Indonesia would be revalued. That has indeed happened.

I also wrote:

"The independent adviser for this corporate exercise is Affin Investment Bank.  I would love to see them write something along the lines: "we estimate that the RNAV per share is around RM 15, therefore we find the proposed price not fair and not reasonable". Will they write that? Although independent advice has been improved significantly, I don't think that will happen."

Indeed, that has not happened.

Affin came up with a SOPV (Sum Of Parts Valuation) of RM 7.60. Since the offer price of RM 5.15 is a 32% discount to that valuation, the offer is deemed to be "not fair".

However, Affine still thinks the offer is "reasonable", hence their verdict: "not fair but reasonable, accept the offer". The rather ambiguous judgement that is quite common these days for independent advisers reporting on deals related to Bursa listed companies.

The most important part of the report is probably this:

Are both assets indeed worth only about RM 320M? I have read much higher valuations than that.

The problem that I have in general with many of the privatisation exercises on Bursa is:

• Why are so many offers "not fair", is it not the duty of the Board of Directors to try to get an offer that is "fair" to all shareholders?
• Why is there almost never a competing offer? In this case, Delloyd could have tried to sell its estates individually, to check if there is an interest in them, and if so, at what price. If the price is indeed good, then it could propose to sell the asset and distribute the proceeds to all shareholders. Has the Board of Directors actively tried to find buyers for its assets?

Masterskill: another deal aborted

I have written many times about Masterskill, I am afraid not often in a positive way.

The company recently aborted its proposed sale of its properties. Below information is from MSWG's newsletter, December 18, 2014:


According to the announcement released by MEGB on 16 December 2014, the independent valuer namely Cheston International (KL) Sdn Bhd, had ascribed an indicative market value of RM110.4 million for Masterskill (M) Sdn Bhd’s operating property assets in Cheras, Kota Kinabalu, Kuching and Pasir Gudang (“Properties 1”), which is significantly higher than the initial indicative sale consideration of RM75 million offered by Mr. Siva Kumar A/L M. Jeyapalan.

Following the above, the parties were unable to mutually agree on a revised sale consideration for the Properties 1. As such, the Board of MEGB had resolved to abort the proposed disposals and proposed ESOS and will consider other alternatives to implement its asset light strategy and raise funds for the company. The Board will make the relevant announcements in due course.

MSWG’S COMMENTS:
Again another corporate exercise of restructuring to revive the business of MEGB fell off eventually with a significantly higher indicative market value by the independent valuer. Shareholders are growing impatient and disappointed to go through multiple corporate proposals and more so they were also astounded by significant fluctuations in the market value of their shares upon the abortion of multiple proposals. The negotiation price of RM75 million, representing a deep discount of 32% to the indicative market valuation would raise the question on how it was possible that the Company could initially have considered such a low indicative sale consideration of RM75 million which was so much below the indicative market valuation although the offer was subjected to independent valuation and shareholders’ approval.


It is even weirder if we go back to the 3rd quarter result of 2013, the company posted a loss of RM 104 Million, and the (rather short) reason it gave was (emphasis mine):


The higher loss before tax was largely due to provision for impairment loss on goodwill and certain of the Group’s property, plant and equipment totaling RM88.2 million.


In other words, it had just written down its property by a large amount. And Siva Kumar offered to buy the property assets at this low valuation, "willing buyer, willing seller". The independent valuer, Cheston International, seems to think the deal is not that great for the other shareholders.