Tuesday, 28 February 2012

YTL Cement, Padini, Maybulk, China Sky/SGX

YTL Cement's shares will be suspended from tomorrow onwards. YTL Group owns more than 90% of the shares, enough to delist, but not enough for a mandatory acquisition. Minority investors who held out for a better offer have had some success in the past, like in Metrojaya's case, or Tang's (in Singapore).

I just don't like the way these General Offers with "delisting threat" are done in Malaysia, minority investors have hardly any chance to fight them, fund managers have to accept the offer since they don't want to end up with shares in unlisted companies.

Padini announced its quarterly results: higher turnover, earnings and cash, but also a high inventory (RM 229 million). Interesting.

Maybulk announced its year end numbers: "the current depressed freight market if it continues will result in many bancruptcies. The Board is confident that it will weather through these turbulent times and be able to benefit from this challenging situation in the medium to long term".

Previous articles about Maybulk and its POSH acquisition can be found here.

Another very sharp letter from Mr. Yeap (former independent director of China Sky) in the Business Times (Singapore). Would The Star or The New Straits Times dare to publish such a negative letter about Bursa Malaysia?

Has S'pore Exchange shifted its stand?

I NOTE from the media that SGX has stated: 'SGX will not discuss the court proceedings or rehearse arguments in the public. We have not done so hitherto and intend to wait for the hearing in court.'
Again, I was surprised by such a statement made by SGX.

In its announcement dated Feb 22, after making reference to the hearing in the High Court on Feb 21, SGX stated that 'Mr Yeap has now made certain representations which had not previously been offered to the SGX-ST . . .'.

I have not communicated with SGX after the commencement of my judicial review hearing in the High Court, save for my communication with the counsel representing SGX during the judicial review proceedings on Feb 9, Feb 20 and Feb 21.

If SGX was not referring to the judicial review proceedings in its Feb 22 announcement, SGX may wish to enlighten the public as to the details of any form of communication between SGX and I, in addition to the judicial review proceedings.

If SGX is unable to do so, it will follow that the SGX's statement is misleading, in that contrary to the SGX's statement, SGX was the one that first referred to the judicial review proceedings and made selective and inaccurate quote of arguments exchanged during the judicial review proceedings in its Feb 22 announcement.

It is interesting to note that SGX has shifted its stand after I have stated that I have no objection in SGX releasing the full and accurate transcript of the hearing to the public.
No doubt all concerned will be able to judge whether the SGX's statement was misleading and to draw the correct inference from SGX's shift of its previous stand.

Yeap Wai Kong
Former China Sky
independent director

Monday, 27 February 2012

Ex-China Sky director suing SGX to overturn reprimand

The fight between China Sky Chemical Fibre Co. Ltd. and the SGX (Singapore Exchange) gets more and more interesting.

From the Business Times (Singapore) by Lynette Khoo, published Feb 27, 2012:

A former China Sky independent director (ID) has dismissed an apparent Singapore Exchange (SGX) offer to settle his grievance out of court, calling it an affront to common sense.

Yeap Wai Kong, who has applied to the courts to overturn a public reprimand issued against him by SGX, said yesterday that he 'shall continue to seek redress against the Singapore Exchange'.

The High Court will hear his judicial review application for a quashing order on SGX's public reprimand against him on March 26.

Mr Yeap issued a press release yesterday in response to SGX's offer to review its reprimand if he can provide new information to show why he should not have been reprimanded.

This statement from SGX on Feb 22 essentially provides an avenue for Mr Yeap to address his issue with SGX without going through the courts.

'The 22 February announcement seems to suggest that I should bear the onus of substantiating why I ought not to be publicly reprimanded after SGX has already publicly reprimanded me without giving me an opportunity to be heard. Common sense is affronted upon the utterance of such a proposition,' Mr Yeap said. 'Even a court would have to give an accused an opportunity to be heard and a fair hearing before the court is entitled to sentence the accused.'

In a previous turn of events, China Sky hit back at SGX through the website of .... SGX itself! It used the SGX announcements site to publish a lengthy expose what had happened before, even including the personal notes taken by the CEO at a meeting with SGX officials.

Although China Sky seems to outwit the SGX for the time being, the story will probably not end well for its shareholders. The independent directors and the CEO of China Sky have resigned, and the share is suspended. Investigations are on-going.

Raking Muck, Part 2

David Webb published the second part of this entertaining investigation.

I received a comment on the previous blogging from "Imenwe":

"The article is very confusing. Maybe a picture involves the beneficiary parties will be better.".

It has been noted, and Webb made this helpful scheme:

Webb constructed a very helpful database on his website with which visitors can track all the connections between companies, directors and professionals. Although the Bursa Malaysia website is good regarding announcements, annual year reports etc, these kind of connections don't show up. If Webb can provide this service free of charge with a small but very dedicated team of two persons, surely Bursa Malaysia should be able to match this?

From a presentation by Webb, given May 27, 2011:

Sunday, 26 February 2012

Warren Buffett Admits To 5 Big Mistakes

There are two big events each year for Berkshire Hathaway fans, the Annual General Meeting and the publishing of its year report with the accompanying letter of Warren Buffett. The last event happened yesterday and can be found here: here.

It is rather long (21 pages), a selection of the most important quotes can be found here.

Just a single $100 bill invested in Berkshire Hathaway in 1964 would have turned into $513,055, enough to buy a nice house in the US (especially since the recent crash in housing prices). All capital gains, since the company does not pay a dividend.

The good thing about Warren Buffett and Charlie Munger is that they openly admit their mistakes, something that is vey rare in those (and many other) circles:

The blunder: Buffett predicted in last year's letter that the U.S. housing recovery would begin within the next year and help fuel economic growth.
The explanation: Buffett doesn't mince words and says he was "dead wrong" about this one. But he says basic biology makes it unavoidable that the country will need more houses.
The quip: "People may postpone hitching up during uncertain times, but eventually hormones take over. And while 'doubling up' may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure."

The blunder: Buffett spent about $2 billion buying bonds offered by Texas utility Energy Future Holdings. But those bonds are now worth about $878 million, and he conceded Saturday that even that could be wiped out.
The explanation: Buffett comes right out and admits misjudging the company's prospects and the likelihood that natural gas prices would remain depressed.
The quip: "However things turn out, I totally miscalculated the gain/loss probabilities when I purchased the bonds. In tennis parlance, this was a major unforced error by your chairman."

The blunder: Some of the companies Berkshire Hathaway has bought don't add much to the company's bottom line. Buffett didn't single out the laggards in Berkshire's manufacturing, service and retail unit, but he acknowledged that a few produce poor returns.
The explanation: Buffett says he misjudged some of these businesses before Berkshire bought them partly because he didn't always listen to curmudgeonly Vice Chairman Charlie Munger.
The quip: "I try to look out 10 or 20 years when making an acquisition, but sometimes my eyesight has been poor. Charlie's has been better; he voted 'no' more than 'present' on several of my errant purchases."

The blunder: In 2008, Buffett more than quadrupled Berkshire's stake in ConocoPhillips when oil and gas prices were near their peak. It cost the company several billion dollars.
The explanation: Buffett said he didn't anticipate the dramatic fall in energy prices that happened later in 2008.
The quip: "During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt."

The blunder: Buffett has said that buying Berkshire Hathaway itself may have been his worst investment decision. It was a struggling New England textile mill when Buffett bought into it in the 1960s. He kept the mill running for 20 years before shutting it down.
The explanation: Buffett didn't recognize immediately that the textile business was doomed to continue losing money.

The quip: "The dumbest thing I could have done was to pursue 'opportunities' to improve and expand the existing textile operation — so for years that's exactly what I did," he said last year. "And then, in a final burst of brilliance, I went out and bought another textile company. Aaaaaaargh! Eventually I came to my senses, heading first into insurance and then into other industries."

From: http://www.businessinsider.com/warren-buffett-admits-to-5-big-mistakes-2012-2

Bursa takes action against remisier

According to an announcement of Bursa Malaysia a remisier (Dealer Representative) named Chong Lee Fatt has been found guilty of unauthorised and false trading activities in the shares of YGL Convergence Bhd and H-Displays (MSC) Bhd.

I am all in favor of enforcement, so kudos to Bursa.

Also, the charges are spelled out in detail, which is good for transparency.

What is missing however is when these illegal activities took place, there is no timeline in the announcement.

Some details of what had happened:
  1. Chong had failed to authenticate the application to open an account for a client (the said client) in the manner as required under the rules and falsely declared authentication of the account opening forms. In this regard, the account opening forms were not executed by the said client in person before him but instead, the forms were submitted by a third party.
  2. Chong had allowed the said client’s account to be operated by a third party who had unlawfully undertaken numerous trades in the account. These unauthorised trades gave rise to losses in the account which was disputed by the said client. In this regard, the losses suffered were subsequently set off against Chong’s commission and security deposit lodged with the Participating Organisation (PO). In undertaking these unauthorised dealing activities, Chong was noted to have acted upon the instruction given by the third party who was not a person allowed and authorised, in writing, to trade on behalf of the said client.
  3. Chong’s dealing in the securities of YGL and HDISPLAY in the said client’s account constituted false trading activities/unethical trading as there were rollover activities in the said client’s account. This gave rise to a false or misleading appearance of active trading or the market for the securities concerned.
The punishment:
  • reprimand
  • fine of RM 100,000
  • 12 months suspension as registered person

In my opinion, persons who touch the accounts of clients and/or are caught in false and unethical trading should be barred for life from the securities industry. Set a clear example, and make sure every remisier knows about it.

The other issue is that there is mentioning of a "third party", surely this person should also be punished.

The companies were listed on the ACE market:
  • HiDisplays a company involved in LCD panels suffered a large loss of RM 42 million in 2009. Trading was suspended on July 26th 2011.
  • YGL Convergence is a tiny company with some accumulated losses of 3.2 million according to its 2010 year report.

Saturday, 25 February 2012

10 Investment lessons from Jeremy Grantham

GMO published its 4th quarter 2011 report, in it 10 pearls of wisdom from Jeremy Grantham about investing.

1. Believe in history. In investing Santayana is right: history repeats and repeats, and forget it at your peril. All bubbles break, all investment frenzies pass away. You absolutely must ignore the vested interests of the industry and the inevitable cheerleaders who will assure you that this time it’s a new high plateau or a permanently higher level of productivity, even if that view comes from the Federal Reserve itself. No. Make that, especially if it comes from there. The market is gloriously inefficient and wanders far from fair price but eventually, after breaking your heart and your patience (and, for professionals, those of their clients too), it will go back to fair value. Your task is to survive until that happens. Here’s how.

2. “Neither a lender nor a borrower be.” If you borrow to invest, it will interfere with your survivability. Unleveraged portfolios cannot be stopped out, leveraged portfolios can. Leverage reduces the investor’s critical asset: patience. (To digress, excessive borrowing has turned out to be an even bigger curse than Polonius could have known. It encourages financial aggressiveness, recklessness, and greed. It increases your returns over and over until, suddenly, it ruins you. For individuals, it allows you to have today what you really can’t afford until tomorrow. It has proven to be so seductive that individuals en masse have shown themselves incapable of resisting it, as if it were a drug. Governments also, from the Middle Ages onwards and especially now, it seems, have proven themselves equally incapable of resistance. Any sane society must recognize the lure of debt and pass laws accordingly. Interest payments must absolutely not be tax deductible or preferred in any way. Governments must apparently be treated like Polonius’s children and given limits. By law, cumulative government debt should be given a sensible limit of, say, 50% of GDP, with current transgressions given 10 or 20 years to be corrected.) But, back to investing …

3. Don’t put all of your treasure in one boat. This is about as obvious as any investment advice could be. It was learned by merchants literally thousands of years ago. Several different investments, the more the merrier, will give your portfolio resilience, the ability to withstand shocks. Clearly, the more investments you have and the more different they are, the more likely you are to survive those critical periods when your big bets move against you.

4. Be patient and focus on the long term. Wait for the good cards. If you’ve waited and waited some more until finally a very cheap market appears, this will be your margin of safety. Now all you have to do is withstand the pain as the very good investment becomes exceptional. Individual stocks usually recover, entire markets always do. If you’ve followed the previous rules, you will outlast the bad news.

5. Recognize your advantages over the professionals. By far the biggest problem for professionals in investing is dealing with career and business risk: protecting your own job as an agent. The second curse of professional investing is over-management caused by the need to be seen to be busy, to be earning your keep. The individual is far better-positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals.

6. Try to contain natural optimism. Optimism has probably been a positive survival characteristic. Our species is optimistic, and successful people are probably more optimistic than average. Some societies are also more optimistic than others: the U.S. and Australia are my two picks. I’m sure (but I’m glad I don’t have to prove it) that it has a lot to do with their economic success. The U.S. in particular encourages risk-taking: failed entrepreneurs are valued, not shunned. While 800 internet start-ups in the U.S. rather than Germany’s more modest 80 are likely to lose a lot more money, a few of those 800 turn out to be today’s Amazons and Facebooks. You don’t have to be better; the laws of averages will look after it for you. But optimism comes with a downside, especially for investors: optimists don’t like to hear bad news. Tell a European you think there’s a housing bubble and you’ll have a reasonable discussion. Tell an Australian and you’ll have World War III. Been there, done that! And in a real stock bubble like that of 2000, bearish news in the U.S. will be greeted like news of the bubonic plague; bearish professionals will be fired just to avoid the dissonance of hearing the bear case, and this is an example where the better the case is made, the more unpleasantness it will elicit. Here again it is easier for an individual to stay cool than it is for a professional who is surrounded by hot news all day long (and sometimes irate clients too). Not easy, but easier.

7. But on rare occasions, try hard to be brave. You can make bigger bets than professionals can when extreme opportunities present themselves because, for them, the biggest risk that comes from temporary setbacks – extreme loss of clients and business – does not exist for you. So, if the numbers tell you it’s a real outlier of a mispriced market, grit your teeth and go for it.

8. Resist the crowd: cherish numbers only. We can agree that in real life as opposed to theoretical life, this is the hardest advice to take: the enthusiasm of a crowd is hard to resist. Watching neighbors get rich at the end of a bubble while you sit it out patiently is pure torture. The best way to resist is to do your own simple measurements of value, or find a reliable source (and check their calculations from time to time). Then hero-worship the numbers and try to ignore everything else. Ignore especially short-term news: the ebb and flow of economic and political news is irrelevant. Stock values are based on their entire future value of dividends and earnings going out many decades into the future. Shorter-term economic dips have no appreciable long-term effect on individual companies, let alone the broad asset classes that you should concentrate on. Leave those complexities to the professionals, who will on average lose money trying to decipher them.
Remember too that for those great opportunities to avoid pain or make money – the only investment opportunities that really matter – the numbers are almost shockingly obvious: compared to a long-term average of 15 times earnings, the 1929 market peaked at 21 times, but the 2000 S&P 500 tech bubble peaked at 35 times! Conversely, the low in 1982 was under 8 times. This is not about complicated math!

9. In the end it’s quite simple. Really. Let me give you some encouraging data. GMO predicts asset class returns in a simple and apparently robust way: we assume profit margins and price earnings ratios will move back to long-term average in 7 years from whatever level they are today. We have done this since 1994 and have completed 40 quarterly forecasts. (We started with 10-year forecasts and moved to 7 years more recently.) Well, we have won all 40 in that every one of them has been usefully above random and some have been, well, surprisingly accurate. These estimates are not about nuances or PhDs. They are about ignoring the crowd, working out simple ratios, and being patient. (But, if you are a professional, they would also be about colossal business risk.) For now, look at the latest of our 10-year forecasts that ended last December 31 (Exhibit 1). And take heart. These forecasts were done with a robust but simple methodology. The problem is that though they may be simple to produce, they are hard for professionals to implement. Some of you individual investors, however, may find it much easier.

10. “This above all: to thine own self be true.” Most of us tennis players have benefited from playing against non-realists: those who play to some romanticized vision of that glorious September day 20 years earlier, when every backhand drive hit the corner and every drop shot worked, rather than to their currently sadly atrophied skills and diminished physical capabilities. And thank Heavens for them. But doing this in investing is brutally expensive. To be at all effective investing as an individual, it is utterly imperative that you know your limitations as well as your strengths and weaknesses. If you can be patient and ignore the crowd, you will likely win. But to imagine you can, and to then adopt a flawed approach that allows you to be seduced or intimidated by the crowd into jumping in late or getting out early is to guarantee a pure disaster. You must know your pain and patience thresholds accurately and not play over your head. If you cannot resist temptation, you absolutely MUST NOT manage your own money. There are no Investors Anonymous meetings to attend. There are, though, two perfectly reasonable alternatives: either hire a manager who has those skills – remembering that it’s even harder for professionals to stay aloof from the crowd – or pick a sensible, globally diversified index of stocks and bonds, put your money in, and try never to look at it again until you retire. Even then, look only to see how much money you can prudently take out. On the other hand, if you have patience, a decent pain threshold, an ability to withstand herd mentality, perhaps one credit of college level math, and a reputation for common sense, then go for it. In my opinion, you hold enough cards and will beat most professionals (which is sadly, but realistically, a relatively modest hurdle) and may even do very well indeed.

Polonius, a character in Hamlet, a verbose, self-important advisor to the King, was clearly intended to be a real loser, but curiously in the end Shakespeare couldn’t resist making most of his ponderous advice actually useful and memorable. His famous speech to his son Laertes who is embarking on a dangerous
sea voyage to France (from Denmark) is reproduced as an Appendix. (Hamlet makes genocidal if rather unintentional war on the Polonius family, accounting for Laertes, his sister Ophelia, and poor Polonius himself: a clean sweep.)

The full letter can be downloaded here pfd-file:


On a separate note: I am aware that I copy lots of information from well known US investors. I would love to do the same from another part of the world, especcially Asian or even Malaysian/Singaporean. But the reality is that investing has always been very US centric. Not too long ago the marketcap of all US stocks was larger than the marketcap of the stocks of all other countries combines. Most studies, books etc are simply from the US. However, if any reader of this blog knows some good articles from non-US writers, please let me know and I am more than happy to publish them.

Friday, 24 February 2012

SGX & BM must just hit offenders hard

Excellent article from the Business Times (Singapore) about S-chips which are listed on the Singapore Exchange (SGX) and Corporate Governance in general. Replace SGX by BM (Bursa Malaysia), and the story would be exactly the same.

Valuations for S-chips on the SGX (and BM) are very low, so why would a high-quality Chinese company choose to list on the SGX (BM)? It just doesn't make sense. In other words, they will only be able to attract lower quality Chinese companies.

Also, about the conflicting role SGX being market watchdog and profit-making company, exactly the dilemma for BM (reason why they never should have been listed in the first place). 

Market manipulation and insider trading, another subject very relevant for BM, who hardly takes any action at all against these perpetrators.

And then the conclusion: "Hardline measures like these are surely worth considering. Augmenting SGX's (BM's) market-based regulation with strict penalties, prompt investigation and greater transparency in disclosing the findings of investigations may result in better quality listings - and eventually, higher valuations.".

I can't agree more on that.

IN HER excellent commentary, 'Why S-chip fraud cases keep cropping up' (BT, Feb 17), NUS finance professor Qian Meijun identified the local market's low valuation as one reason for the scandals relating to China stocks that investors have had to endure over the past five years.
In other words, companies which had poor fundamentals, questionable accounting and/or lousy governance were happy to list here because the ramifications of being exposed were seen as being negligible.

Such an attitude does not only apply to S-chips, but also to several other questionable companies with less-than-desirable governance.

Many of these firms - some controlled by Singaporean shareholders - are incorporated in tax havens such as Bermuda or the British Virgin Islands and over the years have made announcements of outrageously large contracts that, once the share price has shot up and the relevant parties have bailed out, hardly ever materialise.

Problem is, it looks like there are no checks to see if the original disclosures were bona fide and action taken if they were not.

This has led to the impression of a lax regulatory regime where manipulation is easy. Such a misperception must be addressed.

When share prices shoot up or plunge inexplicably, for instance, querying companies is of limited use because 99.9 per cent of the time the reply is negative and nothing more is heard.

Granted, scrutinising all the trades for dozens of odd price rises or falls is very laborious but in order to send the correct message, why not just pick one or two and focus all energies on those?

Syndicates or 'operators', as they are popularly known in local broking circles, always have to accumulate stock ahead of their ramping activities or before big announcements.

Deterrent message
Going through trades of just one or two large odd price-movers with a fine tooth comb before, during and after the movement and then coming down hard on any improper practices uncovered would go a long way in sending the necessary deterrent message to the market and would surely help prevent more scandals from emerging.

Stiffer penalties and prompt action are a must. In Australia, the punishment for illegal market activities was raised significantly in 2009, when the role of primary market regulator was transferred from the Australian Stock Exchange to ASIC (the Australian Securities and Investments Commission). Insider trading, for example, can now result in 10 years in jail compared to five previously.

In addition, ASIC this week released a formal document pledging to be more public in warning investors of emerging risks in financial markets as well as detailing the specifics of an investigation if it was in the public interest.

Hardline measures like these are surely worth considering. Augmenting SGX's market-based regulation with strict penalties, prompt investigation and greater transparency in disclosing the findings of investigations may result in better quality listings - and eventually, higher valuations.

'A high-quality firm that meets the listing standards of more than one market will naturally choose the one that appreciates its shares more,' wrote Prof Qian.

'Low valuation leads to low quality and the low quality confirms the low valuation. It is a vicious cycle.'
She also pointed out that the Singapore Exchange's conflicting roles as market watchdog and profit-maximising company may have contributed to the problem, since the exchange could in theory have admitted companies that were hastily packaged to meet listing standards on paper but had little real substance behind them.

What can be done to break out of the negative cycle? SGX's conflict of interest is a controversial subject that has been exhaustively debated over the 12 years that the exchange has been a listed entity.

Checks and balances
The official position is that there are sufficient checks and balances in place to ensure SGX's objectivity and so there is no need to revamp the present model which relies on market/disclosure-based discipline.

Since the existing regulatory model is here to stay, what might be done within the boundaries of that model to enhance public interest and boost valuations?
A useful starting point might be to acknowledge that even if the exchange had unwittingly allowed sub-standard investment-grade firms to list here, the prime motivation in the first place for those companies to go public and foist their shares upon an unsuspecting and admittedly gullible Singapore public was that they believed that when they were found out, they would probably be able to get away with it.

Published February 24, 2012

Bursa should ban the use of DCF valuations

Catcha Media Bhd is proposing to buy over 50% of Auto Discounts Sdn Bhd (ADSB) for RM 5,000,000, valuing the whole company at RM 10,000,000. Auto Discounts operates a website carlist.my with on-line car classifieds.

The circular can be found here:


The financials of ADSB are as follows:

The numbers do not look exactly attractive, cumulative revenue over the first 3 years of operating were not even RM 100K. Due to the history of loss making the shareholders' funds are minus RM 1.7 million.

Moore Stephens AC Advisory Sdn Bhd is brought in to value this company. They use two methods:

[1] Revenue Multiple (RM) and
[2] Discounted Cash Flow (DCF).

Their findings:

[1] RM: Moore Stephens uses a multiple of 6.0, but this is a very high multiple, much more normal are revenue multiples of between 1 and 2. Also, since RM 5.85 million represents 50% of ADSB, they value the whole company at RM 11.7 million. Given the multiple of 6.0 they expect a revenue of RM 1.95 million for this year, which seems very high given the first half year revenue of only RM 0.29 million.

[2] DCF: Moore Stephens calculates the value of ADSB to be RM 12 million. This is a very high valuation and unfortunately, as always in Malaysia, the whole basis of this valuation (the projections regarding revenue, expenses, profits, etc) are not revealed, so the readers can't check anything at all. Although the whole report contains 79 pages and the DCF data can be packed in a single page, this information (probably the most important part of the whole report) is always left out.

Apart from that, DCF valuations are only reliable if the underlying business (or asset) has a very stable income and revenue stream, like a toll bridge or a bond or sometimes a blue chip with a history of 40 year stable growing profits and dividends. A young internet startup with a history of losses and a very uncertain growth path is therefore the least suitable to be used for this kind of valuation: a small change in growth rate will give hugely different outcomes.

Bursa Malaysia really should ban the usage of DCF models in circulars, readers have no way of evaluating the quality of these (often sky-high) valuations since all important details are left out.

Disclosure: I own indirectly a company that owns a website which is a competitor to carlist.my. I have a Masters degree in Maths, have used mathematical models for 30 years and have put my money where my mouth was (by actively investing using the models, not just coming up with theoretical values). I have used DCF valuations before, but have stopped using them due to the highly uncertainty of the outcome, and the limited possibilities to use them.

Thursday, 23 February 2012

Edgeworth blames recession, credit crunch for troubles

(updated version)

The first blogging about Edgeworth Properties received a lot of hits, therefore the second article from Singapore, I haven't read any news from Malaysia yet. I sincerely hope not too many Malaysians and Singaporeans are caught in this. Things are not looking well at all, according to below article.

Also mentioned are the sales commission and marketing expenses, 34%. How is it possible to promise returns up to 100% of the investment amount after such commissions?

These kind if investments are not bought but sold, the hard way.


There is an article in The Star, in the Property Scene:


A very interesting link about the legal proceedings:


The last pages (the appendices) contain letters/emails mostly from angry customers. Also an email from Grace Leong, she is really chasing this case, I love her attitude. Since I have left Malaysia after 16 years, I am quite surprised about the Singaporean journalists, they are doing a good job especially in these kind of Corporate Governance issues. A very big difference compared to Malaysia.

From The Business Times (Singapore):


EDGEWORTH Properties Inc - whose land-banking scheme had drawn thousands of investors in Singapore - has laid the blame for its liquidity crisis on the recession that had hit both the property and financing markets hard. And unexpectedly high cost overruns only made matters worse, the Canadian company declared in court papers to back its bid to restructure its operations while keeping creditors at bay.

There are 'no funds to satisfy, in whole or in part' the buy-back obligations to these investors, said Edgeworth chairman Donald Hurst.

Edgeworth chairman Donald Hurst, in an affidavit filed with the Ontario Superior Court of Justice in Toronto last fall, said that the company had C$69 million (S$87 million) in secured debt, C$31 million in unsecured debt, and potentially owes C$144 million to nearly 4,000 investors in Asia and 100 more in Canada.

According to Mr Hurst, the C$144 million represents the company's obligations to buy back the Asian investors' undivided property interests (UDI) or beneficial ownership in 12 parcels of land in Alberta at a premium when it comes due over the following five years. It also includes the company's obligations to buy back UDI in one other parcel from the Canadian investors.

But with insufficient liquidity to service its debt and its current assets worth less than its cumulative obligations, Edgeworth is insolvent, Mr Hurst said.

There are 'no funds to satisfy, in whole or in part' the buy-back obligations to these investors, he said. In fact, the monies raised by the UDI programmes were 'insufficient on their own to complete the development of the properties'.

In seeking restructuring protection, Mr Hurst said that the Asian UDI investors, among others, are 'most at risk' if there is no 'orderly value maximisation process' to deal with their claims and property interests.

The nearly 4,000 investors, which sources said include over 2,000 in Singapore, had invested some C$70 million between 2007 and 2011 but received land titles to only three of the 12 properties. The investors had alleged that Edgeworth, after taking their money, used some of the properties as collateral for loans that it received from mortgage firms. Sources say that Singapore investors accounted for more than half of the C$70 million investment.

Land-banking firms typically buy rural land with the intent to rezone it into commercial or residential use, or both.

In Edgeworth's case, the company planned to use investment monies raised through the UDI programmes to fund the costs of rezoning and subdividing the properties as well as the payout of mortgages. The company, Mr Hurst said, would then sell or develop the property and use the income generated to buy back the UDI units from the investors.

'Unfortunately, due to the recent recession and its impact on the real estate and financing markets, financing became extremely expensive or otherwise, unavailable. As a result, Edgeworth was unable to raise sufficient financing for its numerous projects.'

Thus, the rezoning and subdivision of the properties have not been completed and only three UDI programmes have had their mortgages paid off and their titles transferred to the Asian investors.
To date, none of the 20 parcels owned and managed by Edgeworth in Alberta have been fully developed, Mr Hurst said.

'The lack of adequate financing coupled with significant overhead and operating costs left the Edgeworth Group in a state of constant financial struggle, forced to use all of its resources just to service debt and pay operating expenses.

'The monthly interest costs on the mortgages on the properties are roughly C$800,000, and prior to downsizing initiatives . . . maintaining offices and staff throughout Canada and Asia was costing Edgeworth roughly C$1 million per month.'

He also cited other 'unforeseen factors' including 'mandated changes to the investment market . . . and shareholder-related issues'. 'These collective difficulties have depleted Edgeworth of its cash reserves, leaving Edgeworth in a liquidity crisis, and unable to satisfy its current and future obligations.'

According to Mr Hurst, Edgeworth raised C$64 million from the Asian and Canadian investors under the UDI programmes. After paying sales agents' commissions and the marketing expenses of its sales offices in Singapore, Malaysia and the Philippines, which amounted to C$22 million, the remaining C$42 million was transferred to Canada. Of this amount, Edgeworth refunded C$5.3 million to several UDI investors for various reasons, he said.

Of the remaining C$36.7 million, C$29.5 million went to property acquisition, C$3.7 million was used to pay down mortgages, C$2.8 million was used to cover 'additional Asian remuneration and selling expenses' and the remaining C$700,000 covered head office administrative expenses.

Published February 22, 2012

Walter Schloss, ‘Superinvestor’ Who Earned Praise From Buffett, Dies at 95

Legendary US value investor Walter Schloss died on February 19, 2012, at the age of 95.

Walter Schloss, right, stands for a photo with his son Edwin.
Source: Heilbrunn Center for Graham and Dodd Investing, Columbia Business School via Bloomberg

Warren Buffett wrote about him: "Walter never made a dime off of his investors unless they themselves made significant money. He charged no fixed fee at all and merely shared in their profits. His fiduciary sense was every bit the equal of his investment skills."

His investment style was based on sheer hard work: "The Schloss theory of investing, passed from father to son, involved minimal contact with analysts and company management and maximum scrutiny of financial statements, with particular attention to footnotes."



Wednesday, 22 February 2012

CAD on trail of Edgeworth Properties?

Article from The Business Times (Singapore) about landbanking company Edgeworth Properties. I am always very hesitant about these schemes, why would other countries (most often Canada) let Malaysians & Singaporeans run away with beautiful yields on their investments? Surely there are enough investors in Canada (or the US) who can invest and check out the land themselves? Also, the sales commissions on these kind of product are unbelievable high, from the $65 million in sales about one third went to sales commissions.

Buyer beware, when it sounds too good to be true, it often is ....

"Investors in a bind after Canadian land-banking firm's court protection move"

(SINGAPORE) Just a year-and-a-half after the Commercial Affairs Department (CAD) started probing Profitable Plots for allegedly not paying investors, BT understands that it is on the trail of another land-banking firm - Canada-based Edgeworth Properties Inc.
Published February 21, 2012

Singapore investors are apparently part of a group of 4,000 Asian investors who had invested some C$70 million in 12 parcels ... but received land titles to only three of them.

The Canadian company has obtained court protection to restructure its operations which includes closing its Asian offices - putting more than 2,000 investors in Singapore in a bind over their land investments in the province of Alberta.

Apparently, they are part of a group of 4,000 Asian investors from countries including Malaysia, the Philippines, Indonesia and Thailand who had invested some C$70 million (S$88 million) in 12 parcels in Alberta between 2007 and 2011 but received land titles to only three of the properties.

Sources say that Singapore investors accounted for more than half of the C$70 million investment.

A Singapore investor told BT that many investors had signed sales and purchase agreements with Edgeworth and paid for the properties in cash. But instead of transferring titles to them, Edgeworth, after receiving their money, allegedly mortgaged some of the properties to mortgage firms such as Romspen Investment Canada, the investor said.

Edgeworth also allegedly used several properties as collateral for loans that it had received from other mortgage companies, such as Firm Capital Corp, Hurlburt Farms Ltd, Liberty Mortgage Services Ltd and Sterling Bridge Mortgage Corp, she said.

Sources said that Consilium Law Corp, previously acting on behalf of the Asian investors, filed complaints with both the CAD and the Royal Canadian Mounted Police last September.

When asked, a CAD spokeswoman would only say: 'It is inappropriate to comment on police investigations, if any.'

Edgeworth Properties Singapore Pte Ltd, along with sister offices in Malaysia and the Philippines, closed after their parent sought and obtained protection in November under the Companies' Creditors Arrangement Act in Canada. The CCAA allows a business to restructure instead of immediately going into bankruptcy and allows creditors to recover part of what is owed to them.

The Ontario Superior Court of Justice in Toronto in November also issued an order placing 16 of the company's properties into receivership. Last month, the court issued an order extending the stay of proceedings until today, which prevents any claims from being pursued against the company to give it time to come to a resolution on its assets.

But Firm Capital, which holds the first registered mortgage on one of the properties, Creekside Estates, has succeeded in getting stay provisions removed on that property and is now seeking authorisation to sell it, court documents show.

Stikeman Elliott LLP, a Canadian law firm presently representing the Asian investors, said in court documents that it 'does not appear likely' that the Asian investors of Creekside Estates will receive any proceeds from that sale.

Complicating matters, Romspen Investment, another Edgeworth creditor, is also applying to the court to lift the stay of proceedings on several other properties. These include seven parcels that the Asian investors had paid for but did not get titles to, and which were instead mortgaged to Romspen, the Singapore investor said.

Grant Thornton Ltd, the court-appointed monitor of the Edgeworth Group, last Friday asked for the court to extend the stay of proceedings to May 31.

Michael Creber, Grant Thornton senior vice-president, argued in court papers that if Romspen's request was approved without additional protections, that could frustrate 'prospective transactions . . . currently being negotiated, which appear to be sufficient to repay the majority, if not all, of the amounts' due to the mortgage companies.

It could also result in other stakeholders, including the Asian investors, 'losing the ability to voice their concerns in a single forum', he said.

But should Romspen's request be granted, it should be amended to 'address the concerns of subordinate stakeholders', he added.

In particular, he asked that all interested parties, including the Asian investors, should be entitled to assert any claims that they may have to the Romspen-mortgaged properties and their sale proceeds.
Grant Thornton also supported Edgeworth's request for court approval to increase fee allowances to lawyers representing the various stakeholders including the Asian investors to C$200,000 from C$75,000.

In a Feb 13 letter to Kenneth L Campbell, Judge of the Ontario Superior Court of Justice, the Asian investors said: 'The current reality presents a grim picture to us recovering anything from the . . . parcels without issued title, but we will not go down without a fight.'

Land-banking firms such as Edgeworth typically buy rural land with the intent to rezone it into commercial or residential use, or both. These firms, in turn, invite investors to buy parcels of land.

In Edgeworth's case, the Asian investors said that they were allegedly promised net returns of 60, 80 or 100 per cent on so-called undivided property interests in Canada, depending on when the raw land obtains development approvals and when they exit their investments. This is expected to take five years or less.

'Edgeworth told me in March 2011 they wanted to buy back the land and will pay out 80 per cent returns on June 30, 2011. But in April, they claimed that they were in financial difficulty and couldn't make the payouts,' the Singapore investor said.

Many Asian investors, in their sales and purchase agreements with Edgeworth, also had to agree to not file a caveat or claim against the property, she said.

A lawyer said that that should have been a red flag to the investors. 'If you don't file a caveat against the land, then no one knows you have a claim on it.'

In the case of Profitable Plots, some 1,500 Singaporeans and 4,000 foreigners are believed to have invested in the land investment firm, which was raided by the CAD in August 2010 after some investors alleged that it owed them money. To date, the complaints involve investments of more than $30 million.

Raking muck, Part 1

David Webb is a Hong Kong based Corporate Governance advocate, with exactly the right background. He has worked in the financial world as an investment banker, and knows the world inside-out. His work is always of outstanding quality (I don't think he was ever proven wrong on any issue) and a shining example for regulators how to research complex situations with accounting, legal and other issues involved.

Part 1 of a new series, long but highly recommended:


Tuesday, 21 February 2012

Masterskill hit by oversupply of new nurses

Masterskill listed on Bursa Malaysia almost two years ago, it has not been a happy ride for those that picked up the shares at the IPO:

One remarkable fact from the IPO brochure was not so much the RM 5.5 million in listing expenses, but the fees paid by the selling shareholders, which amounted to a staggering RM 33.5 million. 

The renumeration of the CEO over 2010 was RM 8.5 million, which is (in my opinion) clearly too high for a company of this size, with such a short trackrecord as a listed company.

Below article is from the Business Times (Singapore), February 21, 2012:

"Analysts cut forecast on expectations of weaker enrolment"


RIDING on a high at its initial public offering (IPO) in 2010 when it went on the market with a 15-20 premium over its peers, Masterskill Education Group - the country's biggest nursing school - has found the ground shifting under its feet owing to an oversupply of new nurses.

Equity analysts, such as Hwang-DBS Vickers, who cover the Bursa Malaysia listed company have trimmed their earnings forecast on expectations of weaker enrolment, following a recent news report that slightly more than half of private nursing diploma graduates in 2010 could not land a job four months after graduating.

This is also in big part because of a mismatch in needs, Health Minister Liow Tiong Lai said recently, since most private nursing colleges only offer general training even though the private sector requires specialised nurses.

However, the writing was arguably already on the wall around the time of Masterskill's listing. Officiating at its prospectus launch, Higher Education Minister Mohamed Khaled Nordin announced a moratorium on new private nursing institutions to prevent an oversupply of nurses given the mushrooming of such colleges.

The proliferation of such colleges had ostensibly been allowed in an effort to improve the nurse to population ratio to international standards of 1:200 from 1:490 currently.

Of 106 institutions, some 60-odd are reportedly private providers, 11 are public institutions, while the health ministry runs the rest.

Some 37,000 students are said to be enrolled in nursing diploma courses with the private providers. About 12,000 students graduate annually, but only 1,500 are absorbed by the private sector.

Masterskill specialises in nursing and allied sciences programmes, and has an estimated student population of 14,000, with about a third currently enrolled in its nursing courses. Perceived as a leader in nurse training with an estimated 16 per cent market share of student enrolment, the training institution contends that its students have far greater success with employment.

But the negative publicity has hurt, especially because it is less diversified compared with its peers Help International and SEGI International.

Demand for its courses last year had already been eroded by other factors including a higher minimum entry requirement for nursing programmes, as well as the reduction in the maximum amount loaned by a government fund for students enrolling in such courses.

Hwang has trimmed its projected net profit for the fiscal year ended Dec 11 by about 7 per cent to RM42 million (S$17.4 million), and forecast earnings for FY12 and 13 at RM28.5 million and RM32.5 million respectively. For FY10, Masterskill had posted a profit of RM102 million.

Its share price has been on the decline since its listing in May 2010 at RM3.80 per share, and is currently trading at about RM1.16.

Controlled by businessman Edmund Santhara, Masterskill now plans to diversify into offering other courses including business, law and hospitality.

6 Trillion of fake Bonds seized

According to Bloomberg, "Italian anti-mafia prosecutors said they seized a record $6 trillion of allegedly fake U.S. Treasury bonds, an amount that’s almost half of the U.S.’s public debt."

From here the story just gets weirder: "The bonds were found hidden in makeshift compartments of three safety deposit boxes in Zurich, the prosecutors from the southern city of Potenza said in an e-mailed statement. The Italian authorities arrested eight people in connection with the probe, dubbed “Operation Vulcanica,” the prosecutors said. The U.S. embassy in Rome has examined the securities dated 1934, which had a nominal value of $1 billion apiece, they said in the statement. Officials for the embassy didn’t have an immediate comment." ...

And weirder: "The individuals involved were planning to buy plutonium from Nigerian sources, according to phone conversations monitored by the police." ...

And really, really weird: "The fraud posed “severe threats” to international financial stability, the prosecutors said in the statement."

Ok great, however one thing we don't get is just how can $6 trillion in glaringly fake bombs [sic] be a "threat to international financial stability."


This is how one Trillion looks like:

Malaysia is well under way to have a national debt half that size in RM, with each note being a RM 100 note. The size of that debt has been downplayed by several people in high positions. I am much less optimistic, given the fact that the debt has continued to grow, even in good economic times.

More pictures:


Monday, 20 February 2012

8 Rules of Investing

Eight Rules of Investing by David Merkel: good, common sense rules that can help investors create a low-turnover portfolio of good quality, value companies. The only rule I would like to change is Rule 7, I think investing in 30-40 companies is too much for most people and an investor might lose focus, I think investing in 10 companies for the purpose of diversification should be fine. What I miss is the empasis on management (people) and their track record (Corporate Governance) in related companies.

David Merkel:

My objective in guiding investors is to teach them how to tilt the odds of success in their favor. As a value investor that rotates sectors, I have eight methods that each tilt the odds a little in my favor. Individually, each tilt is worth a little. As a group, they have been very powerful for my past results. Unaudited, these methods have allowed me to beat the market since the strategy started in September of 2000.
  1. Industries are under-analyzed, relative to the market on the whole, and relative to individual companies. Spend time trying to find good companies with strong balance sheets in industries with lousy pricing power, and cheap companies in good industries, where the trends are not fully discounted.
  2. Purchase equities that are cheap relative to other names in the industry. Depending on the industry, this can mean low P/E, low P/B, low P/S, low P/CFO, low P/FCF, or low EV/EBITDA.
  3. Stick with higher quality companies for a given industry.
  4. Purchase companies appropriately sized to serve their market niches.
  5. Analyze financial statements to avoid companies that misuse generally accepted accounting principles and overstate earnings.
  6. Analyze the use of cash flow by management, to avoid companies that invest or buy back their stock when it dilutes value, and purchase those that enhance value through intelligent buybacks and investment.
  7. Rebalance the portfolio whenever a stock gets more than 20% away from its target weight. Run a largely equal-weighted portfolio because it is genuinely difficult to tell what idea is the best. Keep about 30-40 names for diversification purposes.
  8. Make changes to the portfolio 3-4 times per year. Evaluate the replacement candidates as a group against the current portfolio. New additions must be better than the median idea currently in the portfolio. Companies leaving the portfolio must be below the median idea currently in the portfolio.
Each of these rules enforces a discipline on the overall portfolio that most professionals and individual investors do not possess. It takes the emotion out of investing, and forces us to think like risk-sensitive, profit-seeking businessmen. I agree with Buffett when he said, “I am a better businessman because I am an investor, and I am a better investor because I am a businessman.” The two disciplines mutually reinforce each other, leading to better results.\

More information: on the website from Barry Ritholtz:


Sunday, 19 February 2012

PMI: more questions than answers

PMI published its offer document for the take-over offer. To recap, the joint offerors, companies controlled by Khoo Kay Peng, offer RM 0.045 per PMI share, which must be one of the lowest offers ever recorded on Bursa Malaysia.

More information can be found here: http://cgmalaysia.blogspot.com/search/label/PMI

The offer document does not answer issues raised, and even adds some more. These kind of documents are supposed to deal with important issues, but in Malaysia they are very good in avoiding them.

[1] The main issue is that the offerors bought their shares from (primarily) the Hope Foundation, and that this price is used for the price offered to the minority investors. But the Hope Foundation seems to be connected to the offeror, there are many indications to be found on the internet, for instance in an article in "Malaysian Business", the previous name was even "MUI Foundation" and the shares it traded in where all connected to the offeror. But if this is indeed the case (and it seems to be very likely), then that means there is a huge conflict of interest, it would be in the interest of the joint offerors to make an offer as low as possible to the Hope Foundation, instead of an arms length offer. It would also explain why a large shareholder (Hope Foundation) would sell its shares for about the lowest price ever. Although this issue seems to be obvious, and the authorities are aware of it, it is never raised in the offer document, not even once. There is simply no mentioning at all of the Hope Foundation.

Here is a link from the website of Raja Petra, also about the Hope Foundation (I haven't been able to check the accuracy of the rather wild allegations though):


[2] Investors who sold their PMI shares on August 24th or 25th for RM 0.040 will get half a cent extra per share, since the offer was already unconditional on August 24th. A pretty straight forward ruling, the announcement regarding the offer on August 26th was simply two days too late. The Securities Commission made this ruling on October 7th (good and fast action, I have to admit), PMI objected on October 10th (rather strange, it looks very clear that rules have been breached) and the SC overruled the objection. All correct, but why did the SC suddenly need 3.5 months to reach this conclusion, when their first ruling took less than two weeks? Because of this the whole process is hugely delayed. The impact will be very small, most trades on those two days were anyhow done at RM 0.045, investors have to reclaim their money if they made any on RM 0.040 and some will even have forgotten that they sold their shares those days. The total impact will be a few Thousand Ringgit at most. The delay by the SC is puzzling.

[3] The independent advisor will be Hwang-DBS. This company did another independent advice for the same offeror, more details can be found here:


In my opinion, both that Related Party Transaction between PMCorp and MUI and the independent report were the worst in Malaysia in the last 10 years, and that says a lot. Hwang-DBS is never punished in any way, shape or form (the authorities are aware about the horrific details of this deal but apparently are unwilling to take any action, for reasons only they know best). But to allow this same company to do another independent advice for the same major shareholder is pretty unbelievable.

[4] There is no mentioning at all in the document of the last Rights Issue by PMI and the projections done there. Interestingly, in that brochure PMI was projected to have losses in 2009, 2010 and 2011 (which is what happened), but to deliver profits from 2012 onwards. Why would shareholders accept a low offer just when profits are projected to kick in? At the very least there should be an update on these projections.

[5] There is no detailed discussion about the assets of PMI, mainly a building, a piece of land and shares in MUI: is there a way to unlock value, can or will they be revalued, etc.

[6] What is interesting (and this is almost completely ignored in the report) is that PMI is trading above the offer price, the last closing price is RM 0.06, 33% above the offer price. Since February 8, 2012 all transactions have been higher than the offered price.

It must be noted that quite a few breaches of rules by PMI have occurred (together with many Corporate Governance issues), but that so far nobody received even as much as a reprimand.

Everything Must Go! The Great European Fire Sale

This could turn very big and nasty. The debt problems in Europe are huge. Finally, 3 to 4 years after the global economic crisis, some sense of urgency has set in and governments are deleveraging after having lived way beyond their means. The amount of government bonds that have to be rolled over before the end of the year are staggering, I have seen estimates of over two Trillion Euro: 2,000,000,000,000.00.


All over Europe, nations have been looking for a quick, innovative way out of the debt trap. Unfortunately, they've all had the same idea. Tom Bawden explains, while Charlie Cooper anatomises the great European fire sale

What do Rome's 2020 Olympic bid, Portugal's Shrove Tuesday carnival, Greece's sunlight, Ireland's National Stud, Spain's national lottery and Britain's national air traffic control service have in common? Answer: they are all being either sold or cancelled by European governments desperate to whip their public finances back into shape after a decade of living beyond their means.

Such measures would once have suggested incomprehensible panic. Now everyone's at it. It would have been more surprising if Mario Monti hadn't called off an Olympic bid that could have swallowed up €9.5bn (£8bn) that his near-bankrupt nation didn't have.

But it's not just radical belt-tightening that we're seeing. A remarkable number of nations are also doing the equivalent of selling the family silver, in a Europe-wide fire sale of state assets with no obvious precedent.

Greece is probably the Continent's biggest auctioneer, with an estimated €50bn of assets up for sale (see far right). But others have had the same idea. Ireland, for example, is considering the sale of billions of euros of assets, from Dublin's historic port to the Irish National Stud horsebreeding operation.

Spain is looking to raise cash by offloading, among other things, two major airports and a large chunk of its most famous lottery ("El Gordo", or "The Fat One").

Britain is hoping to convert the Government's 49 per cent stake in National Air Traffic Services into ready cash, along with the BBC's "doughnut" Television Centre, in West London, and the iconic Admiralty Arch. The latter, on the edge of Trafalgar Square, is expected to fetch £75m and be turned into a hotel. The Ministry of Defence and the Foreign Office are also planning spectacular disposals of assets to plug holes in their finances. (And that's without mentioning the sales that have already taken place, such as that of the high-speed rail link from London St Pancras station to the Channel Tunnel, which went to a pair of Canadian pension funds for £2.1bn in November 2010.)

These desperate remedies might seem ambitious at the best of times – but this isn't the best of times. Most nations in Europe urgently need need to get their finances in order, and most have had the same idea of raising some quick cash through fire sales. And if everyone puts things up for sale at the same time, it is bound to depress prices.

That may explain why there's such a gap between the headline figures that get reported when mooted sales are announced and the sums that are actually raised. Greece, for example, has so far raised a mere €180m of its declared target of €50bn.

Yet there should, ultimately, be no shortage of buyers. China is looking to invest its riches in every nook and cranny of the world, while governments in the Middle East still seek to spend their oil wealth.

It is hard to know whether to feel cheered or depressed by this prospect. On the one hand, anything that can speed our escape from debt is to be welcomed. On the other, family silver, once sold, remains sold. As our economy is increasingly sidelined by China and India, there is a strong danger that things will never get back to the way they were.

Tom Bawden

Friday, 17 February 2012

Judiciary not independent, how about Bursa regulators?

Interesting article about former Chief Justice Tun Mohd Dzaiddin Abdullah:


The courts have become subservient to politicians in the executive arm of government today because of Tun Dr Mahathir Mohamad, former Chief Justice Tun Mohd Dzaiddin Abdullah said today. 

He stressed: “This alters in my view in a very fundamental manner the basic structure of the Federal Constitution, from the concept of the independence of the judiciary to dependence of the judiciary on the executive for its judicial powers.”

The response came soon:


Tun Dr Mahathir Mohamad has called a former chief justice’s claim that the courts are subservient to politicians due to constitutional amendments made during his tenure a lie.

“That’s slander, but I won’t sue them. That whole gang, they make unfounded accusations,” the former prime minister said

The Lingam video clip plays an important part in the discussion if the Malaysian courts are independent:


"On 17 January 2008 Mahathir was brought before a Royal Commission that look the manipulation of top judicial appointments during his administration, a scandal that has cast doubts about the independence of Malaysia's judiciary. He was made to testify before a government inquiry into a secretly recorded video clip that showed a man believed to be a prominent lawyer, V. K. Lingam, boasting that he could get key judicial appointments made with Mahathir's help. Throughout the inquiry Mahathir feign ignorance and forgot key timelines."

"A new revelation appeared showing PKR President Anwar Ibrahim releasing a third video clip purportedly showing Lingam talking about having dinner with and buying an expensive gift for former Chief Justice Tun Mohamed Dzaiddin Abdullah. Anwar said he was disappointed the Royal Commission which focused solely on the fixing of judges and did not allow evidence that court decisions had also been fixed."

But how about independence of other institutions, like the Securities Commission and Bursa Malaysia? Enforcement actions by these institutions can be found here:



There is simply no enforcement against Government Linked Companies (GLC), established "blue chips", or corporate high-flyers.

The Institute of International Finance wrote a well-researched report in 2007:

"Corporate Governance in Malaysia, an Investor Perspective".


[please click on "Malaysia]

Although positive remarks can be found regarding improvements, there are also some harsh observations:

Despite its operational independence, the SC is perceived as being influenced by the MoF by a cross-section of market participants and is considered to be a weak regulator. Nevertheless, it is considered a much stronger regulator than the Companies Commission, which is responsible for regulating all companies incorporated under the Companies Act of 1965. The SC has enforcement powers against those who breach the securities laws. However, companies and individuals who do not comply with the Companies Act can only be prosecuted by the Companies Commission, which has a weak surveillance and enforcement division. The SC, which has a stronger surveillance and enforcement function, provides the Companies Commission with information it may discover regarding financial wrongdoing or non-compliance during the course of SC investigations but there is limited coordination in bringing such companies to trial. However, on its own, the SC has taken action against companies that fail to ensure its consolidated financial statements are in accordance with approved accounting standards, corporate  disclosures contain material omissions and submission of false information.

The following suggestions were made:
  • Establish a timetable to merge the Companies Commission and Securities Commission
  • Make the new entity a fully independent capital market regulator to increase the effectiveness of the regulatory structure
  • Encourage investigative financial journalism and freedom of press
  • Introduce international best practices currently not included in the Malaysian Code on Corporate Governance such as cumulative voting, disclosure of off-balance-sheet transactions, and risk monitoring methods    
This report is written five years ago, but nothing has really changed regarding the above suggestions, except for some items in the Corporate Governance Blueprint 2011. 

Wednesday, 15 February 2012

Felix Zulauf's market prognosis

Legendary Swiss investor Felix Zulauf believes that the current rally in risk assets is likely to last until at least the end of March, but that global sharemarkets will again succumb to downward pressure in the second half of the year.
In a wide-ranging interview with Business Spectator, Zulauf, who is president of Zulauf Asset Management and who has been a member of Barron’s Roundtable for more than 20 years, paints a gloomy picture of debt-laden industrialised countries, where central banks have no choice but to print money in an attempt to stave off dire deflationary pressures.
He also predicts that dwindling demand from the West will force China to redouble its efforts to boost domestic consumption, but that this will reduce China’s rate of economic growth.

Rest of the article: