Wing Tai GO: Pangolin not happy (3)

The Independent Advice is out and, as expected, the verdict is: "not fair but reasonable, accept".

More regarding this matter can be found on the following websites:

• The Star
• Serious Investing
• Off-piste investing
• Pangolin Fund

One snippet from the last source:

 .... unfortunately there is a ridiculous clause in the Malaysian Stock Exchange’s rules that insists on a 25% free float. This can be used as a weapon by potential acquirers of companies against minorities, as it is being used in this case. Basically, what WTS is saying is that once they get to 75%, the company will be in breach of the listing rules, that they will do nothing to rectify this breach and that they do not intend to maintain the listed status.

In Singapore, the minimum free float is 10%, which makes sense as it is in line with the compulsory acquisition threshold. I first complained about this crazy Malaysian ruling back in 2003 when Bumi Armada was privatised. Similar wording was used then. In the past couple of weeks, I have twice emailed Malaysia’s stock exchange chairman on this matter. No reply.

In a country where the majority of businesses are family-controlled, minorities need all the protection they can get. The current listing requirements make it easy for controlling shareholders to buy up their companies on the cheap. The authorities are failing investors.

Free float requirement for listed companies

Malaysia 25%

Indonesia 7.5%

Singapore 10%

Thailand 15%

This is indeed odd, and works very much against minority investors. The threat of holding shares in a company that might be delisted is not attractive to many, and definetely not to fund managers. And even if one would hold on, there is the chance that the shares will be mandatory acquired.

Pangolin's article continues:

The independent directors have appointed little-known Mercury Securities to give us independent advice. Cynics would contend that no board has ever appointed an Independent Adviser who will give guidance they don’t want.

In my very first blog posting in 2011 I wrote:

Immediately abolish all “Independent” Reports, they are useless and are even hurting the rights if the Minority Investors.

In every General Offer (GO) where the controlling shareholders want the minority investors to accept the (low) offer the recommendation will be "not fair but reasonable, accept".

When a GO is made according to the rules where the controlling shareholders want to keep the company listed, the recommendation will be "not fair, not reasonable, don't accept".

Independent reports give an undeserved air of credibility to the whole process of delisting, but in reality it is a complete waste of time and money.

In all those years since my first recommendation, basically nothing has changed. The wording used in the independent advice is now the rather curious "not fair but reasonable, accept" instead of "fair and reasonable, accept", and the quality of the independent report is somewhat higher, but the outcome is exactly the same, and minority investors basically don't stand a chance. 

Authorities should look into this matter and take concrete steps to level the playing field for minority investors:

• The free float requirement should be reduced in line with neighbouring countries
• Independent advice in the current form is a complete waste and even hampers minority investors
• Independent directors should be appointed by the non-controlling shareholders, not by the controlling shareholders
• The authorities should check if the controlling shareholders own or control shares held by nominees (so far enforcement in this matter seems to be close to zero)
• Funds (especially Government Linked Funds which have been notoriously passive) should be engaged in shareholder activism, especially in these kind of exercises
• Companies that are delisted should not be allowed to relist again; this would take away one of the incentives for delisting, since delisting will happen at a cheap valuation and relisting at a high one

China government auditor detects fraud

Shocking (although not unexpected) article in The Malay Mail by Reuters: "China auditor uncovers 200b yuan in fake revenue at state firms", some snippets:


China’s government auditor said in its 2016 report published today that 18 of 20 central state firms it audited had inflated revenue by 200 billion yuan (RM125.4 billion) and profits by 20.3 billion yuan in recent years.

The companies audited include China National Petroleum Corporation, China Huaneng Group and Sinochem Group.

The report from the National Audit Office also said that due to inadequate risk control measures, the 20 centrally-administered firms had put overseas investments worth 38.5 billion yuan at risk.


Implications for China listed companies in Malaysia are bad, I expect things to be worse from an accounting point of view. Several of those companies are finally showing their true colours.

Will there be even a sliver of justice by the authorities coming down on the real culprits, and will the Chinese authorities lend a helping hand? I strongly doubt it.

With hindsight we are all experts. But the sad part is that many warnings were out there, already a long time ago. One of my first blog postings from 2011 (!) can be found here: China companies listed on BM.

"Where is Ze Moola" had written a lot about the same issue long before that.

Malaysian investors who poured hundreds of millions of RM in the IPOs of these companies have been hugely disadvantaged. Was this really necessary, should the authorities have listened more to the critical voices?

Sapura Energy: excessive remuneration for Directors?

From the annual report of Sapura Energy:

Those numbers seem very high, especially given the rather poor recent results of the company:

While the company lost a combined amount of RM 585,000,000 over the last two years, the directors earned a combined fee of more than RM 187,000,000 over the same period.

The share price over the last five years:

After reaching almost RM 5, the share price has declined by about 64%, nothing to shout about for the minority shareholders. And dividends have not been much better:

In other words: 37,000 shareholders received less in dividends than the Directors in remuneration. It seems the company is more interested in rewarding the Board of Directors than the shareholders.

If we look in more detail we notice the following:

Most of the remuneration for the directors is earned by a single person (I assume Sharil, the president and group CEO, although unfortunately the director is not named), and mostly based on performance.

But with the company losing more than half a billion over the last two years, the share price down a lot and the dividend cut, one wonders what the KPIs for that performance are.

The fees for the non-executive directors are also on the high side:

The major shareholders of the company:

We notice three government linked funds in the list of substantial shareholders. Will they make noise about the above remuneration? At the last AGM that did not happen, all resolutions were approved by a large majority of the shareholders.

Let's wait and see if the next AGM to be held in July will be any different.

Wing Tai GO: Pangolin not happy (2)

Article on the website of The Star:

Takeover offer for Wing Tai Malaysia seen undervalued

One snippet:


He further notes that only less than 15% shares in Wing Tai are held collectively by institutional investors, who are more likely to have the holding power.

“Even if they stand together, it will be difficult to pose any challenge to the offer,” he explains.


CIMB Research made the following comment:


We see this transaction as positive for Wing Tai, as it is earnings accretive by reducing minority leakage from WTM.


Loyal minority investors who held on to their Wing Tai shares throughout the years, through thick and thin, are now described as causing "minority leakage" to the majority shareholder.

Well, I guess that is one way to put it, definitely not mine though. Has the term ever been used when a company went for a listing, as in: "we want to IPO our subsidiary because we want to increase minority leakage"?