Investment panels need contrarian thinkers

Article from The Edge Markets, some snippets:


The Ministry of Finance has tabled an amendment to the Retirement Fund Act 2007 that will see the removal of Bank Negara Malaysia (BNM)'s sole representative from the Investment Panel set up under the law.

A new section was also added to penalise any person who sits in any meeting of the fund’s Board, Investment Panel or any of its committees who discloses any information which is not published.


Malaysia is the country with the highest Power Distance Index in the world.

One of the many implications of that is that from time to time things seem to go well, and then "something" will blow up in a massive way. Toeing the line, not wanting to rock the boat are common treats in a country with a high PDI score. Because of that, scandals seem to be larger than in other countries, where they tend to bust more early.

To counter this, a few methods can be recommended:

• Lots of transparency, in the form of regular, detailed reporting
• Encouraging whistle-blowers to come forward and dealing with the information gathered in an appropriate way
• Encouraging contrarian minded people to participate in meetings to counter group thinking

BNM is the institution that I have the highest in Malaysia, they seem to be able to hold the line and stay (relatively) independent.

Because of this they could be an ideal partner in investment panels, to give their take on decisions.

The new amendment seems to counter this. The worry is that instead people are chosen who seem to be credible on paper, but who will simply toe the line.

Penalizing persons who disclose information might be a another step in the wrong direction, this time regarding transparency and whistle-blowers.

I am a big fan of the book "Antifragile" from Nassim Taleb, which deals with:

"an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision-making in a world we don’t understand".

That looks highly relevant to the decision making process in Malaysia.

CMS and Corporate Governance (2)

I wrote before:


"I would recommend shareholders (major or small) of CMS to forward their questions regarding this deal to Bursa Malaysia, who can then (possibly including own questions they might have) issue an official query to CMS. 

Those queries have to be answered within one working day, not until the sale and purchase is concluded. Let's see if CMS still will not make any further comment."


Bursa did indeed query CMS and CMS needed not one, not two, but three announcements to answer the queries (here, here and here).

The answer on the eighth question:


On behalf of the Board of Directors of CMSB, Kenanga Investment Bank Berhad wishes to provide clarification on the following statement in the press release:

"While CMSB understands that our major stakeholders will have many questions about this acquisition, we have no further comment to make until the sale and purchase is concluded, at which time we will make a further statement."

The above statement is meant to inform CMSB stakeholders that CMSB will make further necessary announcements once CMSB has completed the due diligence exercise and firmed up CMSB’s plans for Sacofa.


I would like to add: "except when the query comes from Bursa, then CMSB will respond in one working day".

Kinibiz also wrote about the above issue, but also from another dimension: that the deal might be good for CMS shareholders, and thus bad for the state government of Sarawak, the seller of the shares. Not only should CMS be more transparent, but also "It is imperative that the state government clear the air on whether Sacofa is being sold on the cheap or not before the deal is done.".

To Cliq or not to Cliq? (3)

Focus Malaysia (FM) wrote an article "Oil price slump not all sweet for SPACs".

FM revealed that Hong Kong listed Willie International Holdings Ltd (273) has tried to acquire the same assets in Kazakhstan about six years ago. Two relevant announcements can be found here and here.

Unfortunately no reason was given why Willie terminated the deal, other than that the deposit was returned, which often means that the potential buyer (Willie) was not at fault.

[On a side note, Willie International is mentioned by David Webb as being in the "Chung Nam" network, not a complement by any means.]

The above episode does indicate that for a long time already the owners of Phystech are on the lookout for a buyer. There might be some cause for concern there, why was no one interested and why do they so "desperately" want to sell their assets if they are so profitable?

A rather interesting comment is made by Ziyad, MD/CEO of Cliq:


"We know that it will fall within the fair market value, but I'm not saying 100% it will. We have intelligently analysed that the acquisition value is going to be within the fair market value unless oil prices fall to US$ 20".


That is a bold statement, so even if the price of oil falls to US$ 21 per barrel, the deal will go through as the acquisition price will be within the fair market value range? I think at the moment there is a lot of stress already in the oil & gas industry, I can't even imagine what would happen when the price falls significantly further. Players that are (highly) leveraged or have high extraction costs will face severe problems or even bankruptcy.

On another matter, the article in FM continues:


"A local analyst tells FocusM the success of the SPACs' listing is due mainly to the good governance, rules and regulations by the Securities Commission (SC)."


While I do admit that the SC has done a good job in safeguarding investors interests, that doesn't mean to me that SPACs suddenly make sense, from a business point of view.

Also, the analyst mentions "success", I wonder which "success" the analyst is pointing at. There is no SPAC yet that has produced any operational profit whatsoever (although I admit it is still early days), while all of them have incurred expenses so far.

The fact that several SPACs have been able to list is not a measure of success, at least to me.

CMS and Corporate Governance

CMS announced a proposed acquisition of 50% of the shares of Sacofa for RM 187 Million.

An interesting comment was made by the managing director:


“While CMSB understands that our major stakeholders will have many questions about this acquisition, we have no further comment to make until the sale and purchase is concluded, at which time we will make a further statement.’’


That is a rather remarkable statement, from a corporate governance point of view. Even if investors have genuine questions regarding this deal, they will not be answered for the time being?

I would recommend shareholders (major or small) of CMS to forward their questions regarding this deal to Bursa Malaysia, who can then (possibly including own questions they might have) issue an official query to CMS. 

Those queries have to be answered within one working day, not until the sale and purchase is concluded. Let's see if CMS still will not make any further comment.