Thursday, 31 May 2012

PR for foreigners is boon for Malaysia

Interesting article in The Star by Jagdev Singh Sidhu:

The message of his comment was how scores of people in his predicament who have been in Malaysia for much longer have not been able to secure a lasting foundation of a permanent residence (PR) or citizenship in Malaysia.

My own experience is very similar, despite being in Malaysia for about 15 years, my wife and daughter being Malaysian, me having an university degree, having made investments and being prepared to increase that. I had still not received any answer on my PR application of ten years before (after the initial rejection, which apparently is normal although I don't find it normal).

I applied for a PR in Singapore under their investors program, was immediately approved and received a nice letter from the Minister himself. Proudly I returned home with the letter in my hand, the phone went over and our Malaysian friend told us she had good news for us, my Malaysian PR was finally approved. Too late ...... we had bought already property in Singapore and moved over two years ago.

In the Malaysian context, the one question that seems so obvious: "How is it actually possible that a government agency takes more than 10 years to process a pretty straight forward application?". Surely it should not take more than say six months. Who is monitoring that process, who is responsible?

We have heard the above story many, many times, from friends and relatives. It is very unfortunate for them, and for Malaysia. The number of expats has declined, if I remember correctly it is about half of what it used to be ten years ago. Especially in my field of technology, angel investments and incubators foreigners are so important, not only to invest money but also to mentor small start-up companies.

Singapore realized this gap, and has attracted dozens of foreigners the last two years who have opened about 20 technology incubators under different schemes that offer attractive incentives to them.

For Malaysia, the solution is so simple, just look at what the southern neighbor is doing, and learn from it.

IT was a moment during a question and answer session at Invest Malaysia that became a talking point among the participants. A foreigner stood up and told the Prime Minister that he has been in Malaysia for five years and is happy in the country.

The message of his comment was how scores of people in his predicament who have been in Malaysia for much longer have not been able to secure a lasting foundation of a permanent residence (PR) or citizenship in Malaysia.

His story, like many others, echo of their want to remain in Malaysia and contribute to the country in their own way.

Many of them are professionals. A lot of talent are employed in managerial levels but they, in their own way, have been paying taxes, bought homes and started a family in the country. A number would have started their own business creating jobs for other Malaysians.

Their wish, which is to be granted PR or a long-term residence pass as a minimum, however, have gone unfulfilled for years and is a constant source of uncertainty for them.

Foreign talent should be viewed as a fillip to the nation's economy, much like the extent we go to draw in money into the economy.

Agencies such as MIDA are set up to bring in foreign direct investment into Malaysia, brokerages and investment banks go on roadshows to draw in capital into the stock market.

Rules on allowing foreigners to buy property in the country has been relaxed and it's only natural that the next extension should be the way we go about bringing in foreign talent into the economy on the longer term.

The need to rope in talent into Malaysia has been spelt out in the talent roadmap 2020 issued by TalentCorp and in that publication. The growing economy with aspirations of being a developed nation by 2020 will need talent, both from Malaysia and abroad, to makes that ambition a reality.

Improving the education system is the longer term strategy in getting homegrown quality talent who will emerge from our schools but there is also a need to be flexible now in granting a longer stay in Malaysia for foreign talent, which will also go some way of shoring up the declining number of expatriates that has become a cause of concern.

The report notes that immigration regulation is cumbersome and inflexible in allowing global talent to practise professionally in Malaysia.

Headway, however, is being made. A number of people in prominent positions have been given PR and a those with special talent have been granted residence passes which allow them to work in Malaysia for 10 years.

It's easier for the big fish to get PR but the criteria for allowing other foreigners to plant their roots in Malaysia should be spelled out a lot more clearly.

If a person is a high wage earner and taxpayer - in short a contributor to the economy - then there should be a more transparent and almost automatic mechanism to assess their application favourably for residence pass or permanent residence.

By doing that, then people will not have to lodge a public appeal to the Prime Minister to have their wishes of a PR granted.

Wednesday, 30 May 2012

Late MCA leader accused of stealing A$20m from Aussie firm

Shocking news from the MalaysianInsider regarding Australian listed company Zheng He Global Capital Limited:

"Datuk Tan Tiong Hong, a former MCA secretary-general and Deputy Finance Minister who died last year, is alleged to have taken more than A$20 million (RM62 million) from a public-listed company in Australia to repay a personal debt, the Sydney Morning Herald reported today.
The Australian newspaper report also suggested that Putrajaya’s ties with Canberra may be tested again if Australia’s securities regulator, the Australian Securities and Investments Commission (ASIC), goes after the family of Tan to recover the money.
Tan, the founder and former executive chairman of Australian-based finance company Zheng He Global Capital, is alleged to have abused his position to organise “secret” loans totalling 136.79 million yuan (RM68 million) to 10 companies linked to fellow Zheng He director, Rong Cheng Wei, the newspaper reported.
Zheng He owns Fujian Zhong Hong, the sole wholly-owned foreign corporation that is allowed to run a credit guarantee business in China’s Fujian province until 2048.
Its operations cover Malaysia, Singapore, Hong Kong and Australia, where it was listed on the Australian Securities Exchange (ASX) in 2010. It has now been suspended.
Andrew Smith, who took over as Zheng He’s acting chairman when Tan died exactly one year ago today, has sent letters of demand to the former MCA strongman’s estate here, which still holds the controlling share in the company.
The daily said that Smith “believes the loans were designed to use the public company’s cash to repay US$18.8 million (RM56.4 million) borrowed by Tan from Wei in April 2010 to facilitate Zheng He’s public float”.
SMH said that Tan’s widow, Catherine, had used her family’s 55.3 per cent majority stake in Zheng He to press the appointment of four new directors to its existing three-member board and Smith had been forced to agree to the demand yesterday even as he provided the ASIC with details of the events within the company.
“It will be interesting to see whether they decide to continue legal action against the Tans. [An] Insider suspects investors in Zheng He can kiss that money, and probably their investments, goodbye,” the Australian daily said."

The article in the Sydney Morning Herald of April 7th, 2012.

Here is the official website of the company with the ASX announcements. The share is still suspended.

Tuesday, 29 May 2012

Zuckerberg cameo

Accidental appearance of Marc Zuckerberg and Priscilla Chan in this Chinese documentary, about 30 seconds in the clip. Shanghai has a population of about 23 million, so what are the odds of this to happen?

Silverbird, Masterskill, SEGi

Absolutely shocking announcement of the forensic accounting report by PKF Advisory regarding Silverbird, 12 key areas of financial irregularities:

- incorrect accounting entries
- masquerading of transfers
- fake sales
- invoices not available
- transactions can not be verified
- unrecorded receipts and payments
- documents being destroyed
- computer file deletion
- physical damage to the hard drive

Masterskill posted a quarterly loss of RM 2.9 million, very disappointing.

And finally some good news, Affin Investment Bank, independent adviser for the General Offer for SEGi shares, finds the offer not fair, not reasonable and advises to reject the offer. Yes, finally, the independent advisers are getting better in Malaysia. Although it was long overdue, it is good to see this positive change.

Sunday, 27 May 2012

Unauthorized upgrades cost MAS 200 million a year?

The following link from Rocky Bru's blog is pretty damaging for MAS, if the allegations are indeed true:

"Malaysia Airlines has uncovered a ring involving some senior executive who have been enriching themselves by upgrading thousands of Economic Class passengers to Business Class every year, denying the financially-strapped national carrier of much-needed revenue.

Last year alone this syndicate let go over 50,000 upgrades without getting prior approval from those authorized to do so. I am not sure how they made money from "selling" these upgrades or if they were in cahoots with travel and tour agents, but by end last year the malpractice had cost the national carrier more than RM200 million in lost income!"

My family used to travel quite frequently with MAS, we were all member of their Enrich loyalty program, but somehow or the other, we almost never received our airmiles in our accounts. Our travel agent would key in our names and membership numbers, I would check the names and numbers, at the counter they would check the names and numbers and at the gate and immigration they would again check the names. Surely so many people couldn't be wrong?

I filled in lengthy claim forms, submitted them to Enrich and would get finally the miles back months later. This happened again and again, after which I was fed up and wrote a letter to the head of Enrich. I was phoned back by a lady who apologized, and asked me the details of the last holiday so she could help me claim back the miles. However, I was not interested to go down that path again, I wanted her to tell me what exactly went wrong, so that we could prevent that from happening again. She didn't give a clear answer, I handed over the data and months later I received the miles. 

In the mean time we found out that other people had similar problems getting their miles, they were used to claim back the miles afterwards and wait a long time for them to appear on the statements.

The next trip with MAS the same happened, we received no airmiles. I wrote again a letter to the head of Enrich, and suggested there might even be fraud involved, those airmiles are worth quite a lot of money. I was phoned back by the same lady, she was 100% sure there was no fraud involved (not sure how anybody can be 100% sure), again she could not explain what actually went wrong, and again I finally received my miles much later.

This happened a few more times after which my family decided that enough was enough, we changed to Singapore Airlines, and not a single mile was ever misplaced by them.

I have been in the IT industry for about 30 years and I can't believe software systems can be that bad that a huge amount of the allocations go wrong. It should be relatively easy to trace down and correct the error. Including the testing it should not take more than a few days, a fraction of the time needed to proces all the air miles claims forms MAS must have received.

The article of Rocky Bru sets me thinking, is it possible that our unclaimed airmiles somehow or the other ended up with other people who used them to upgrade their tickets? 

Saturday, 26 May 2012

Marc Faber: 100% Chance of Global Recession

The stock market appears to be at a critical inflection point. That’s the takeaway from widely followed economist Marc Faber, author of the Boom, Gloom & Doom newsletter.

Faber’s bearish market calls have been followed closely since 1987 when he warned his clients to cash out before Black Monday.

And in a live interview on CNBC’s Fast Money Halftime Report, Faber again warned that economies of the world may be on the brink of a serious slowdown.

Faber indicated that while investors remain focused on Greece and Europe – other issues, bigger issues are looming. And they’re more threatening.

“As an observer of markets – whenever everyone focuses on one thing – like Greece and Europe – maybe they miss issues that are far more important – such as a meaningful slowdown in India and China.”

The latest reports from Beijing would support Faber's assertion.  The HSBC Flash Purchasing Managers Index, slipped to 48.7 in May from 49.3 in April. That marks the seventh straight month that the index has been below 50, a level which indicates economic activity is contracting.

Faber also cited weakness in the high-end as another key catalyst that’s very negative.
“There are more and more stocks that are breaking down – economic sensitive stocks and companies that cater to the high-end,” he said. "That suggests to me the economy is likely to weaken and the huge asset run is likely to come to an end with significant asset deflation.”

Earlier in the week Tiffany lowered forecasts citing slower sales. At that time, Fast Money trader Dan Nathan warned that results such as these were foreboding and suggested the high-end was starting to crack.

When taken in concert, Faber says all the economies of the world could take a hit from these negative developments.

“I think we could have a global recession either in Q4 or early 2013." When asked what were the odds, Faber replied, "100%."

However, in the near term Faber also sees potential for a market rally.

Faber said the bullish catalyst would be Greece exiting the EU.

“I think the market would be relieved if finally Greece exited the euro. There would be some clarity. Although it wouldn’t be good for banks and insurance (stocks) in general I think markets are oversold and with an exit – markets would rally.”

It’s worth noting that Faber is talking hypothetically; he does not think Greece exits the EU in the near future.

“What I think will happen is that Germany will show more flexibility and issue more euro bonds.”

Faber pointed to the recent decline in the euro as evidence that the currency markets share his view. “More bonds will challenge the quality of the euro. That’s why the euro has been very weak, lately."

For investors looking to navigate what could be a serious economic storm, Faber said the best thing to do is keep the portfolio in US dollars and own gold, “knowing that sentiment is negative and in the near-term it could trade down to the Dec 29 low of $1522.”

From an article on CNBC

Thursday, 24 May 2012

Investors want news on asset manager probe, fear cover-up

Update: another interesting link can be found here: SelangorTimes

Worrisome article in the MalaysianInsider regarding RBTR Asset Management. Abdul Razak said that RBTR’s custodian UBB (Malaysia) Trustee Bhd had paid the monies to British Virgin Islands company Locke Guaranty Trust (NZ) Ltd (LGT). But in 2007 the Securities Commission of New Zealand has already issued a very alarming alert on this company.

Investors should be warned about the scheme because the Commission believes claims made about it are likely to deceive, mislead or confuse investors," the Commission's Director of Primary Markets, Kathryn Rogers said. LGT advertised the plan on its website. It stated that the investment is safe and risk free. All investments have a degree of risk and the Commission believes these statements are deceptive and misleading. "The website may have given the false and misleading impression that LGT has been licensed and/or approved by the Securities Commission or the Reserve Bank," Kathryn Rogers said. "LGT is not a registered bank in New Zealand and is not subject to banking regulations." If its claim that New Zealanders are not eligible to invest is true, then the offer is not subject to the Securities Act. It does not comply with the Act. The description of the scheme is confusing because it is unclear how LGT intends to use investor's money and information about this appears inconsistent.

How could RBTR Asset Management have overseen this warning?

"Bank Rakyat had once held a 20 per cent stake in RBTR and lent its “Rakyat” name and logo to RBTR, then called Rakyat BTR Capital Partners Sdn Bhd, when RBTR had solicited funds from the public from mid-2007 till mid-2008".

Syed Jalaludin and Kamaruzaman were directors of RBTR before Bank Rakyat sold its stake in 2008.
But the investors claim they were not informed of Bank Rakyat’s withdrawal, despite the fact that most had invested with RBTR due to the company’s association with the Bank Rakyat Group.

It appears that Bank Rakyat and its directors must also bare (at least some) responsibility for what happened.

And why is the Securities Commission so terribly slow in taking action, funds were solicited in 2007 and 2008, that is four full years ago! Quickly investigate the case, interview the persons involved, follow the money trail, it all should not take that long. There is also still no news regarding SJAM, another asset manager which ran into problem.

A group of investors want the Finance Ministry and Securities Commissions (SC) to complete investigations, already delayed two years, on what they say are losses of more than RM13.5 million invested in an asset management company.

They allege that licensed asset management firm RBTR Asset Management Bhd had failed to pay them the principal sums in a Euro Deposit Investment (EDI) scheme upon maturity.
After taking over the company in October 2009, the Securities Commission (SC) and its appointed receiver, BDO Binder, informed the investors the following year that RBTR had less than RM10,000 in its bank account that once held as much as RM13.5 million.
“This is a clear cut case for the SC or Ministry of Finance to pursue an outright criminal case or criminal breach of trust against the criminal parties,” Petaling Jaya Utara MP Tony Pua told reporters at a press conference here.
“However, the investors have not received any substantive updates in the past two years, nor has any of their money been recovered.
“We are concerned that no further action was taken because the case involves Bank Rakyat chairman Tan Sri Dr Syed Jalaludin Syed Salim and Bank Rakyat managing director Datuk Kamaruzaman Che Mat,” he added.
Bank Rakyat had once held a 20 per cent stake in RBTR and lent its “Rakyat” name and logo to RBTR, then called Rakyat BTR Capital Partners Sdn Bhd, when RBTR had solicited funds from the public from mid-2007 till mid-2008.
Syed Jalaludin and Kamaruzaman were directors of RBTR before Bank Rakyat sold its stake in 2008.

But the investors claim they were not informed of Bank Rakyat’s withdrawal, despite the fact that most had invested with RBTR due to the company’s association with the Bank Rakyat Group.
“The reason my husband and I invested our hard-earned RM150,000 in the first place was because Bank Rakyat guaranteed we would receive a return,” a 64-year-old retiree told The Malaysian Insider.
“This whole fiasco has caused me so much stress, and now I can’t even pursue legal action as I barely have enough money to pay my monthly medical bills for my cancer treatment,” she added.

RBTR had told investors that the EDI was a capital-protected investment into AAA-rated
 banks in Europe with total annual returns of eight per cent payable every six months and capital to be paid upon maturity.
Although investors were assured that their funds would be deposited into two Swiss banks — Liechtensteinische Landesbank and the EFG Group — Abdul Razak said that RBTR’s custodian UBB (Malaysia) Trustee Bhd had paid the monies to British Virgin Islands company Locke Guaranty Trust (NZ) Ltd (LGT).
Pua said he would be writing a letter to the SC demanding updates on the investigation.
“It is crucial that the SC act with transparency and efficiency so that the integrity of Malaysia’s capital markets are protected,” he said.
“If the Bank Rakyat chairman can go off scot-free, investors will lose their confidence in Malaysian capital markets,” he added.

Wednesday, 23 May 2012

Facebook: 2nd quarter will fall short of expectations

The share price of Facebook does not exactly make a very good impression so far:

In one of the biggest IPOs in history, in which a huge amount of stock was sold to small investors, privileged Wall Street insiders once again got top-notch information...and individuals got the shaft.

Above is the conclusion from an article on BusinessInsider from Henry Blodget suggest that the reason for the weakness is that the 2nd quarter results will fall short of expectations, which was known only to a small group of insiders.

And now for some more bombshell news about the Facebook IPO...

Earlier, we reported that the analysts at Facebook's IPO underwriters had cut their estimates for the company in the middle of the IPO roadshow, a highly unusual and negative event.

What we didn't know was why.

Now we know.

The analysts cut their estimates because a Facebook executive who knew the business was weak told them to.

Put differently, the company basically pre-announced that its second quarter would fall short of analysts' estimates. But it only told the underwriter analysts about this.

The information about the estimate cut was then verbally conveyed to sophisticated institutional investors who were considering buying Facebook stock, but not to smaller investors.

The estimate cut appears to have influenced the investment decisions of at least some institutional investors, dampening their appetite for Facebook stock, and crucially, affecting the price at which they were willing to buy Facebook stock.

As I described earlier, at best, this "selective disclosure" of the estimate cut is grossly unfair to investors who bought Facebook stock on the IPO (or at any time since) and didn't know about it.
At worst, it's a violation of securities laws.

From a corporate governance point of view, Facebook is also not exactly a shining example, here is an excerpt from another article from BusinessInsider:

1. One-man majority rule: Zuckerberg holds 28.2 percent of the voting power ahead of the IPO, and he controls another 30.6 percent. That’s the majority he needs, although there are some restrictions, including the ability to vote for an issuance of stock that is more than 20 percent of what is outstanding already. Some of the voting rights end with the sale of the stock by its owners, the death of Zuckerberg or his giving up active management of Facebook.

2. The back-up plan: even if Zuckerberg loses or surrenders some control of his majority, Facebook continues to be heavily influenced by all owners of Class B shares. As long as these shares represent 9.1 percent of all shares outstanding, this group will control a majority of the votes. According to the S1: ‘This concentrated control will limit your ability to influence corporate matters for the foreseeable future.’

3. Board dependence: Facebook is taking the ‘controlled company’ exemption to corporate governance rules. As a controlled company, it won’t have to maintain a majority of independent directors on its board, and it won’t need to have a compensation committee or an independent nominating function. Zuckerberg’s designees have voting control, and if director Peter Thiel gives up his board seat, the board itself will decide who should fill it, increasing Zuckerberg’s control further.

4. Special situations: Facebook has taken specific measures to protect itself from acquisition. A transaction that would lead to a change in control of the company requires a majority of Class B votes (with these shareholders voting as a separate class). If Class B shareholders lose their overall majority, some ‘certain amendments to our restated certificate of incorporation or bylaws’ will call for a two-thirds majority of Class A and Class B shares. Simply put, the Class B shareholders – mostly founders and early employees – will retain majority control in certain situations with only a third of the votes. Also, when Class B shareholders lose their majority voting rights, the board will fill its own vacancies.

5. Meeting lock-down: what else happens when Class B shareholders lose their majority? Well, shareholders will only be able to ‘take action at a meeting of shareholders’, not by written consent. And only the CEO or a majority of the board can call a special meeting of shareholders – so any change would have to come with Zuckerberg’s consent.

While the corporate governance limitations at Facebook are not as seve re as those at the Carlyle Group, and the voting structure isn’t as favorable to Zuckerberg as Zynga’s, the net effect is straightforward: shareholders are surrendering themselves to Zuckerberg’s genius.

Tuesday, 22 May 2012

11 Macro Investing Insights from Barton Biggs

Article on BusinessInsiders website with insights from hedge fund manager Barton Biggs:

"Macro investing is "simple, but never easy." You need good information and quick reactions

"It’s not just about wrestling with the global environment and getting your asset allocation positioned. Good information, thoughtful analysis, quick but not impulsive reactions, and knowledge of the historic interaction between companies, sectors, countries, and asset classes under similar circumstances in the past are all important ingredients in getting the legendary “it” right that we all strive so desperately for. "

"There are no relationships or equations that always work"

"Quantitatively based solutions and asset allocation equations invariably fail as they are designed to capture what would have worked in the previous cycle whereas the next one remains a riddle wrapped in an enigma."

Read, read, read...

"The successful macro investor must be some magical mixture of an acute analyst, an investment scholar, a listener, a historian, a river boat gambler, and be a voracious reader. Reading is crucial. Charlie Munger, a great investor and a very sagacious old guy, said it best:

I have said that in my whole life, I have known no wise person, over a broad subject matter who didn’t read all the time – none, zero. Now I know all kinds of shrewd people who by staying within a narrow area do very well without reading. But investment is a broad area. So if you think you’re going to be good at it and not read all the time you have a different idea than I do."

Being able to immunize yourself from the psychological effects ot the swings of markets is just as important

"But the investment process is only half the battle. The other weighty component is struggling with yourself, and immunizing yourself from the psychological effects of the swings of markets, career risk, the pressure of benchmarks, competition, and the loneliness of the long distance runner."

"A personal investment diary is a step in the right direction"

"Such a diary has to be written in the heat of the moment, in the fire and agony of the time, not retroactively or retrospectively. Its value comes from reading your thoughts and emotions later in the context of events and seeing where you were right and wrong."

Remember there is always a possibility of a "catastrophic outcome"

Jack Bogle, a veteran of many battles, said in a speech in 2009: “We must base our asset allocation not on the probabilities of choosing the right allocation but on the consequences of choosing the wrong allocation.” He is completely and absolutely right!"

"In the long run you want to be an owner, not a lender."
"The history of the world is one of progress, and as a congenital optimist, I believe in equities. Fundamentally, in the long run you want to be an owner, not a lender. However, you always have to bear in mind that this time truly may be different as Reinhart and Rogoff so eloquently preach."

Be wary of the "human tendency" to fight the last war

"As investors, we also always have to be aware of our innate and very human tendency to be fighting the last war. We forget that Mr. Market is an ingenious sadist, and that he delights in torturing us in different ways.
…Mr. Market is a manic depressive with huge mood swings, and you should bet against him, not with him, particularly when he is raving."

Buffett says it's as though you're in business with a partner who has a bi-polar disorder

"It’s as though you are in business with a partner who has a bi-polar personality. When your partner is deeply distressed, depressed, and in a dark mood and offers to sell his share of the business at a huge discount, you should buy it. When he is ebullient and optimistic and wants to buy your share from you at an exorbitant premium, you should oblige him. As usual, Buffett makes it sound easier than it is because measuring the level of intensity of the mood swings of your bipolar partner is far from an exact science."

Don't "sacrifice higher returns for lower volatility"

"Buffett put it best when he said he would always pick an investment strategy that over five years could give him a 12% compounded annual return, but that was volatile over one that promised a stable 8% return annually."

But mostly, "Know thyself and know thy foibles" and make sure your facts are right

"At the extreme moments of fear and greed, the power of the daily price momentum and the mood and passions of “the crowd” are tremendously important psychological influences on you. It takes a strong, self confident, emotionally mature person to stand firm against disdain, mockery, and repudiation when the market itself seems to be absolutely confirming that you are both mad and wrong. Also, be obsessive in making sure your facts are right and that you haven’t missed or misunderstood something. "

Monday, 21 May 2012

A govt of national unity could bridge the divide

Great article in the Business Times (Singapore) by S Jayasankaran, recommending Malaysia to form a government of national unity. It would be even better to have many non-political linked professionals in it. Doing away with the corruption, the wastage, the "nonsense" projects, Malaysia would quickly flourish.

Abdul Razak, PM Najib's father, took the lead over three decades ago, and returned the country to normalcy; his son should follow suit
BT 20120521 SJCOL21 1294839 
Waving the flag: A Bersih rally in Johor last month. The country is riven by race and religious suspicions, made worse by politicians from both sides. Many M'sians are sick and tired of the politicking

Several weeks after the 2008 general election, this reporter met up with Professor K S Jomo, one of Malaysia's most renowned economists and, at the time, a deputy secretary-general with the United Nations.

Mr Jomo, who had been in New York during the election, worried that the divisions in the nation would become greater over time and felt that what was needed was what Abdul Razak Hussein, the country's second premier, did in the early 1970's - the creation of a government of national unity.

Such a government is an ideal and hideously difficult to implement, but as Mr Razak, 38 years ago showed, not impossible. Essentially, it means a broad-based coalition of the major political parties in the legislature of Parliament coming together for the common good.

It is also formed for very specific reasons, usually during a time of war or some national emergency and must involve the disbandment of coalitions and the creation of a singular political entity.

Sunday, 20 May 2012

Is Facebook a Bubble?

Friday, finally, after much hype, Facebook was listed on the Nasdaq. After (rather embarrassing) initial technical problems the stock ended where it started: at around $38, its IPO price. Rather disappointing for a much touted tech stock.

The IPO turned many employees in millonaires and multi-millonaires and some into billonaires or even multi-billionaires. And Singapore has one more very rich resident since 2009: co-founder Eduardo Saverin.

Dan Ariely, writer of well known books like The Upside of Irrationality and The Honest Truth About Dishonesty, writes about the fees that Morgan Stanley and the like make on the IPO. He estimates it at $ 660 million of investment bank profits. However, friendly parties who receive the IPO shares might make more money (although with hindsight not that much, since the stock traded only a few dollars above its IPO price).

At $38 the market cap of Facebook is $108 Billion, giving it a PE of about 108. Priced to perfection, not leaving any room for disappointments down the road.

With close to 1 Billion users currently, there is still some growth left. However, in a country like China Facebook is simply barred (Tencent is the leading player), so that is already 1 Billion potential users less. And a country like Japan has its own, highly successful social/gaming websites (GREE and DeNA).

Well known Professor Damodaran finds Facebook overvalued:

I think that the hype is overdone, that disappointment will set in sooner or later and that the stock has far more downside than upside. You can put me in the last group (long term sell) though I am still searching for the most efficient (and least costly) way to execute this.

Facebook, in spite of its ubiquitous presence in our lives, is just one company and not a very big one (at least in terms of revenues and earnings) yet. The market will obsess about it tomorrow but it will move on very quickly to the next worry, fear or fad.  

The New York Times made this graph, to put things in perspective versus previous tech IPO's:

There have been similar companies that faded in history, MySpace comes to mind.

On the other hand, the company is now cash rich, and can use its sky high shares for acquisitions. That is what Cisco did for a long time in the nineties, and got away with its high valuation for many years:

But in the long run the valuation came down and it could not play the acquisition game anymore. People who bought the stock around 2000 and held on to it will not be happy lot.

Thursday, 17 May 2012

A free press is essential to democracy

Excellent article in The Malaysian Insider by Dennis Ignatius.

The examples given are political, but might also have been related to business. Where can we read some thorough, critical analysis regarding the well known businessmen, blue chips or government related companies, pension funds or agencies?

Malaysia ranks only 122nd in the Press Freedom Index, really a shame.

Marina Mahathir, one of our nation’s most inspiring figures, recently wrote how her article in The Star was spiked for fear of incurring the wrath of the powers that be.

As a columnist for the same newspaper myself, I understand Marina’s angst.

Recently, I submitted an article about democracy in Myanmar. It ran on Monday, May 7. One line was, however, deleted. In referring to Prime Minister Najib Razak’s promise to support the transformation process in that country, I said, “We may not have much to teach them about democracy but we can help in other ways.”

It seemed such a small thing but even such references are now deemed too sensitive.

I thought it was really ironic that here I was writing about democracy in Myanmar, long considered a dictatorship, while being censored in a country that is assumed to be a democracy.

The last article I wrote in response to bizarre allegations in the national press that American and Zionist groups were plotting regime change in Malaysia was spiked with no explanations given.

It seems newspaper editors in Malaysia, at least the ones who don’t behave as government servants, have to constantly play by ear, shutting down criticism when the government is nervous and allowing some measure of it at other times.

Commentators, for their part, quickly learn that it is prudent to write about developments in faraway places than to touch on the issues that really matter at home. And so we wax eloquent on why Nicolas Sarkozy lost the elections or why Barack Obama supports gay marriage instead of the beaten and bloodied demonstrators on the streets of our capital. It’s the journalistic equivalent of Nero fiddling while Rome burns.

Having been brought up on the notion that some issues, particularly those relating to race and religion, are “sensitive” issues, we came to accept a measure of state censorship. There are signs, however, that things are changing. People are less willing to accept such censorship today, particularly as the so-called “sensitive” list has been expanded to include other national issues.

Furthermore, it is quite obvious that the mainstream media has become far too one-sided for the liking of most Malaysians. Perhaps that may account for the gradual decline of newspaper sales in the country.

Our prime minister recently introduced legislation amending the Printing Presses and Publications Act and other repressive laws. He promised that it would lead to greater freedom, including press freedom.

However, it appears that while Parliament may have changed the letter of the law, the spirit of control behind it has survived intact. In quiet and hidden ways, the press continues to be subjected to manipulation and harassment in an effort to drown out dissenting opinions and differing views.

A culture of self-censorship has also emerged where the press learns to anticipate the reaction of the powers that be and acts accordingly. When the press ceases to write “without fear or favour,” to use the title of the late Tan Sri Dr Tan Chee Khoon’s column in The Star, we have truly lost one of the essentials of our democracy.

History tells us that without a free press, truth dies and the lie prevails while mismanagement, corruption and the abuse of power fester in the dark with terrible consequences. As well, it creates an unhealthy environment where rumours and gossip quickly become fact.

Just these past few weeks we have seen how one of the most significant events in our country’s history has been reframed and recast as a communist-inspired coup attempt, as nothing more than mass hooliganism, as something contrary to our religious values.

What about the other side of the story or the personal narratives and firsthand accounts of hundreds of ordinary citizens who were there that day? Is there no space in our national newspapers for their story?

Journalists have a responsibility to capture such events in all its dimensions to help the public understand what took place. If they do not, they will soon find themselves irrelevant to the national conversation on these issues.

History also teaches us that to sustain itself, repression and control, by its very nature, must keep on expanding to be effective. Already we are seeing signs of censorship creep and manipulation — BBC and al Jazeera newscasts edited and an Australian senator’s remarks blatantly distorted.

And then there’re the shocking remarks by our minister of Home Affairs that it is standard operating procedure for the police to smash cameras and harass journalists who cover such public gatherings!

How long will it be before all criticism of government becomes illegal and treasonous?

It is tempting, of course, to blame the editors and journalists for not standing up to censorship but that misses the point.

I have met a number of journalists and editors, including from The Star, and I know them to be honourable men and women who have dedicated their lives to their profession. You cannot be committed to journalism, as they are, and not yearn for the freedom to write, to explore issues, to investigate a lead no matter where it goes. My sense is that they deeply resent the censorship and the constant harassment.

They are forced to make choices that they shouldn’t have to make: To yield in some areas in order to keep at least a modicum of free expression alive in other areas and to compromise or close, to give up or somehow keep hope alive.

The real focus of our indignation should instead be the system of control and manipulation that makes good men and women bow their knee to what their hearts deny, that forces them to choose between their principles and their livelihood, between what they know to be right and the wrong they are often compelled to accept.

It is no secret that our nation now faces many critical challenges; press freedom is one of them. I hope that the voices clamouring for this fundamental right will grow louder in the days ahead. The future of our democracy depends upon it.

“If a nation expects to be ignorant and free… it expects what never was and never will be. The People cannot be safe without information. When the press is free… all is safe.” ~ Thomas Jefferson

Wednesday, 16 May 2012

SEGi: minorities are most welcomed to stay along, really?

Interview in The Star with Nicholas Bloy, managing partner of Navis:

"While minority shareholders of SEG International Bhd (SEGi) will eventually determine whether the company remains listed or gets privatised, Navis Capital Investment Ltd, the party intending to privatise SEGi, isn't too concerned about the final outcome of its bid.

“The outcome of the general offer does not matter to us, as I'm sure we are going to do very well in the next five years regardless of whether the company is public listed or privately held,” said Navis managing partner Nicholas Bloy after SEGi AGM.

On April 25, Navis, together with SEGi group managing director Datuk Seri Clement Hii (who is a party acting in concert with Navis) made a mandatory general offer (MGO) to privatise SEGi at RM1.74 per share and RM1.214 per outstanding warrant.

Bloy said the MGO was a technical matter of securities law, and Navis was obliged to make the offer to the rest of the shareholders.

“We are embarking on a more extensive phase of SEGi, which would incur more costs, and we might see some losses before profits and might even have short-term compression in earnings.

“If minorities are concerned about short-term profitability, they should sell. However, if they are looking at the long term like in five years, they should stay,” he said.

Bloy said he was not an advocate for a single solution for all shareholders as it depended on their own sensitivities and personal circumstances.

“For those who want to accept the offer, we have the liquidity to pay them. However, those who want to go along the ride must keep their eyes wide open and recognise the change in the company's strategic direction and possibly the short-term financial performance of the group.

“If they are aware of these changes, they are most welcomed to stay along,” he said."

Nice and friendly words regarding this General Offer. But the harsh reality seems to be rather different. In the announcement to Bursa Malaysia the following text can be found:

"Does not intent to maintain the listing status" puts a lot of pressure on minorities.

And how can one combine "they are most welcomed to stay" with "compulsory acquire any remaining shares"?

These statements seem to contradict each other.

Again, this is a case of the "infamous" General Offer with "Delisting Threat", so often used in Malaysia, against which minorities hardly have any chance at all to fight.

MSWG had recently questioned the fairness of the offer price, with MWSG chief executive officer Rita Benoy Bushon saying the price should not be less than RM2 as there is a lot of growth potential in the education sector and in SEGi.

SEGi had also released its quarterly results, which saw a 12% higher net profit of RM21.8mil for the first quarter ended March 31 compared with the previous corresponding period.

Revenue rose to RM77.8mil from RM68.47mil previously.

Tuesday, 15 May 2012

James Montier, the Flaws of Finance

James Montier (currently asset manager at GMO) is one of the good guys who calls it as it is. He has warned many times for wrong incentives (rewarding short term profits but not punishing long term losses), blindly following financial models, etc.

His latest presentation "The Flaws of Finance" about what went wrong in the GFC (Global Financial Crisis) can be found here and a resource page about his previous papers/presentations and books can be found here.

Monday, 14 May 2012

JP Morgan Debacle: have they learned anything?

Article in The Baseline Scenario by Simon Johnson regarding the JP Morgan disasterous losses of USD 2 Billion and counting. Since it usually pours when it rains, it could easily be a lot more. Other traders, who are aware of JP Morgans positions (rumours were rife for quite some time but are now confirmed) will certainly zoom in on this event. It is a jungle out there, vultures having a field day.

Experienced Wall Street executives and traders concede, in private, that Bank of America is not well run and that Citigroup has long been a recipe for disaster.  But they always insist that attempts to re-regulate Wall Street are misguided because risk-management has become more sophisticated – everyone, in this view, has become more like Jamie Dimon, head of JP Morgan Chase, with his legendary attention to detail and concern about quantifying the downside.

In the light of JP Morgan’s stunning losses on derivatives, announced yesterday but with the full scope of total potential losses still not yet clear (and not yet determined), Jamie Dimon and his company do not look like any kind of appealing role model.  But the real losers in this turn of events are the Board of Governors of the Federal Reserve System and the New York Fed, whose approach to bank capital is now demonstrated to be deeply flawed.

JP Morgan claimed to have great risk management systems – and these are widely regarded as the best on Wall Street.  But what does the “best on Wall Street” mean when bank executives and key employees have an incentive to make and misrepresent big bets – they are compensated based on return on equity, unadjusted for risk?  Bank executives get the upside and the downside falls on everyone else – this is what it means to be “too big to fail” in modern America.

The Federal Reserve knows this, of course – it is stuffed full of smart people.  Its leadership, including Chairman Ben Bernanke, Dan Tarullo (lead governor for overseeing bank capital rules), and Bill Dudley (president of the New York Fed) are all well aware that bankers want to reduce equity levels and run a more highly leveraged business (i.e., more debt relative to equity).  To prevent this from occurring in an egregious manner, the Fed now runs regular “stress tests” to assess how much banks could lose – and therefore how much of a buffer they need in the form of shareholder equity.

In the spring, JP Morgan passed the latest Fed stress tests with flying colors.  The Fed agreed to let JP Morgan increase its dividend and buy back shares (both of which reduce the value of shareholder equity on the books of the bank).  Jamie Dimon received an official seal of approval.  (Amazingly, Mr. Dimon indicated in his conference call on Thursday that the buybacks will continue; surely the Fed will step in to prevent this until the relevant losses have been capped.)

There was no hint in the stress tests that JP Morgan could be facing these kinds of potential losses.  We still do not know the exact source of this disaster, but it appears to involve credit derivatives – and some reports point directly to credit default swaps (i.e., a form of insurance policy sold against losses in various kinds of debt.)  Presumably there are problems with illiquid securities for which prices have fallen due to recent pressures in some markets and the general “risk-off” attitude – meaning that many investors prefer to reduce leverage and avoid high-yield/high-risk assets.

But global stress levels are not particularly high at present – certainly not compared to what they will be if the euro situation continues to spiral out of control.  We are not at the end of a big global credit boom – we are still trying to recover from the last calamity.  For JP Morgan to have incurred such losses at such a relatively mild part of the credit cycle is simply stunning.

The lessons from JP Morgan’s losses are simple.  Such banks have become too large and complex for management to control what is going on.  The breakdown in internal governance is profound.  The breakdown in external corporate governance is also complete — in any other industry, when faced with large losses incurred in such a haphazard way and under his direct personal supervision, the CEO would resign.  No doubt Jamie Dimon will remain in place.

And the regulators also have no idea about what is going on.  Attempts to oversee these banks in a sophisticated and nuanced way are not working.

The SAFE Banking Act, re-introduced by Senator Sherrod Brown on Wednesday, exactly hits the nail on the head.  The discussion he instigated at the Senate Banking Committee hearing on Wednesday can only be described as prescient.  Thought leaders such as Sheila Bair, Richard Fisher, and Tom Hoenig have been right all along about “too big to fail” banks (see my piece from the on Thursday on SAFE and the growing consensus behind it).

The Financial Services Roundtable, in contrast, is spouting nonsense – they can only feel deeply embarrassed today.  Continued opposition to the Volcker Rule invites ridicule.  It is immaterial whether or not this particular set of trades by JP Morgan is classified as “proprietary”; all megabanks should be presumed incapable of managing their risks appropriately.

Sunday, 13 May 2012

PKFZ: A Nation’s Trust Betrayed

From a Corporate Governance point of view, one can not escape the case of PKFZ, with (as so often in Malaysia) conflict of interest on different levels, partly through the mixture between politics and business, a mixture that has done so much damage.

I have not yet read the book, but the book review by Ong Kian Ming at TheMalaysianInsider makes a very good impression, one passage:

"The timelines, together with the financial information highlighted, reveal how PKA was seemingly ‘duped’ not just once or twice but many times by KDSB. PKA not only paid above market rates for the PKFZ land but was also charged above market interest rates for the deferred payments. PKA was further ‘duped’ into paying for the development of the whole parcel of land in a single stage rather than the more financially prudent option of developing the project in stages. Time and time again, KDSB, the party who sold the PKFZ land to PKA, was appointed as the main contractor for an ever expanding scope of development work, without any open tenders. PKA would end up owing KDSB RM4.9 billion, which includes the land as well as development costs, almost 5 times more than the estimated RM1 billion debt level that was deemed sustainable for PKA".

It is very rare that this kind of financial investigative reporting is done in Malaysia, much too rare, and that is a big pitty. There have been many financial scandals, but rarely have journalists or other writers investigated them in any depth.

The reason for this might be found in the following observation from Ong: "I have no doubt that there is other relevant information which Lee has access to which he still has not revealed, perhaps to avoid getting sued and also because of the on-going trials of Ling and Chan".

Malaysia is unfortunately still very much obsessed with "shooting the messenger", instead of dealing with the problems through fast and efficient enforcement, without fear or favour, and changing of procedures, rules etc. to prevent these kind of cases to happen again.

Ong's conclusion: "In the meantime, I recommend all taxpayers, current and future, to read about how part of your hard earned tax dollars is being spent".

Which is the biggest financial scandal in Malaysian history, someone recently asked me. Without hesitation, I replied, Port Klang Free Zone or PKFZ. This scandal could potentially end up costing the Malaysian taxpayer RM12.5 billion according to the PWC position review report. In real terms, the financial losses associated with PKFZ may be slightly less than the BMF scandal (RM2.5b in 1983), the Maminco scandal (RM1.6b, 1980s) and Perwaja (RM10b in accumulated losses, 1990s) but none of these scandals can challenge PKFZ in terms of financial creativity and the number of high profile politicians involved.

The breadth and scope of this scandal is revealed in all its ‘glory’ in former Port Klang Authority (PKA) chairman and Subang Jaya state assemblyman Dato’ Lee Hwa Beng’s book – PKFZ: A Nation’s Trust Betrayed, written with former journalist Lee Siew Lian.

The contribution of this book can be found in four areas.

Firstly, it provides an insider’s account of what caused this seemingly well conceived project – to replicate the success of the Jebel Ali Free Zone in Dubai – to turn into the financial fiasco we now known as PKFZ. As the former PKA chairman brought in to clean up the mess, as a professional accountant and as a former politician, Lee knew where to look for the skeletons in the cupboard, so to speak. And with access to the full reports involving this case, he knows exactly what pertinent information needs to be recorded for the sake of posterity including details on key events and personalities.

Secondly, with the able help his co-author, Lee Siew Lian, Lee is able to piece together all the relevant information in a manner that is relatively easy to understand, especially given the complexity of this case. Here, the various timelines associated with the complicated land sale, firstly from the UMNO controlled Koperasi Pembagunan Pulau Lumut Bhd (KPPLB) to Kuala Dimensi Dimensi Sdn Bhd (KDSB), then controlled by Bintulu MP, Tiong King Sing, and then from KDSB to PKA, are particularly useful as are the timelines associated with the letters of support issued by former transport Ministers, Tun Ling Liong Sik and Dato’ Seri Chan Kong Choy in conjunction with the signing of the agreements and issuing of bonds at various stages to build the PKFZ infrastructure with KDSB.

The timelines, together with the financial information highlighted, reveal how PKA was seemingly ‘duped’ not just once or twice but many times by KDSB. PKA not only paid above market rates for the PKFZ land but was also charged above market interest rates for the deferred payments.

PKA was further ‘duped’ into paying for the development of the whole parcel of land in a single stage rather than the more financially prudent option of developing the project in stages. Time and time again, KDSB, the party who sold the PKFZ land to PKA, was appointed as the main contractor for an ever expanding scope of development work, without any open tenders. PKA would end up owing KDSB RM4.9 billion, which includes the land as well as development costs, almost 5 times more than the estimated RM1 billion debt level that was deemed sustainable for PKA.

Thirdly, this book is instrumental in highlighting the exact roles and degree of responsibility of the key players in this grand saga. Given that PKA came under the MCA controlled Ministry of Transportation, it was not surprising that many MCA leaders were named. I was particularly intrigued by episodes documenting Tun Ling’s insistence on buying the land from KDSB instead of the cheaper option of the Federal Government acquiring that piece of land, which was also the preferred option of the Ministry of Finance.

Other than the two former Ministers of Transportation who are being charged in court, the potential conflict of interest involving Dato’ Chor Chee Heung, the current Minister of Housing and Local Government, who was both PKA chairman as well as a non-independent director of KDSB’s sister company, Wijaya, for a period of 4 months was also highlighted.

The potential conflict of interest involving the then speaker of the Selangor state assembly, Dato’ Onn Ismail in holding the post of chairman of KPPLB while he was the speaker as well as that of Sementa assemblyman, Dato’ Rahman Pahlil, who took over as the chairman of KPPLB and was later appointed as a PKA director are also highlighted.

Not all of the names mentioned in this book played negative roles. The support which was given to Lee by former MCA president and Minister of Transportation, Dato’ Seri Ong Tee Keat, despite the pressure put on Ong by the cabinet, was emphasized at various junctures in the book. Lee also credited four DAP politicians – Lim Kit Siang, Ronnie Liu, Teng Chang Kim and Tony Pua – for the roles they played in highlighting the improprieties associated with this case at different points in time.

Perhaps more important than all the information revealed is the fact that there are still many issues left to be resolved, which is this book’s fourth contribution. For example, the contents of the Skrine Task Force report to turn around PKFZ, which was given to Prime Minister Najib, has not been publicly revealed. The Special Task Force on this scandal, headed by the Chief Secretary to the government, has had no public announcements since its formation in 2009. PKA continues to pay KDSB so that it can pay its bondholders despite the fact that there are outstanding lawsuits by PKA taken out against KDSB. There are also recent allegations that PKA has decided to drop these lawsuits against KDSB as well as its decision to withdraw a complaint made against Rashid Asari & Co to the Bar Council, over potential conflict of interest in the legal firm’s role in acting for both KDSB as well as PKA in the PKFZ land sale. The publication of this book comes at an appropriate time, given that interest in this scandal seemed to have waned as public attention has moved elsewhere. It is a timely reminder that the taxpayer is still on the hook for the mounting losses of PKA and that many of those involved in this case have yet to be charged or convicted.

If I had any criticism of this book it would be the fact that it badly needs a list of references as well as proper labelling of the various timelines and shareholding arrangements. It would make it much easier for researchers and even the casual reader to find the relevant information after the first reading of what is a forensic and creative accounting page turner.

I have no doubt that there is other relevant information which Lee has access to which he still has not revealed, perhaps to avoid getting sued and also because of the on-going trials of Ling and Chan. I would be the first in line if he is ever to publish a follow up book revealing new information on this scandal that threatens to be the biggest in Malaysian history. In the meantime, I recommend all taxpayers, current and future, to read about how part of your hard earned tax dollars is being spent.

* Ong Kian Ming holds a PhD in political science from Duke University. He is currently a lecturer and political scientist at UCSI University. He can be reached at

Saturday, 12 May 2012

Conflict of Interest in the Malaysian Media

Very good article in The Edge Malaysia from R B Bhattacharjee "Media freedom is about ethical choices too". The first part is about Bersih 3.0 about which I won't comment since this is not a political blog (although the readers should be able to guess to whom my sympathy goes). The last four paragraphs are relevant:

"Undoubtedly, in the Malaysian context, where power is concentrated to a great extent within a small group that is in control of key institutions, the risk that the norms of democratic choice may be ignored is ever present as shown by the mediocre record of government accountability to date. In such circumstances, the people will put much hope in the workings of an unfettered media as a fundamental pillar of democracy.

But as the events at Bersih 3.0 testify, the mainstream media, which is largely controlled by the political parties of the ruling coalition or its allies, suffers from a conflict of interest that renders it unable to meet the people’s democratic aspirations.

No matter, because the Internet-enabled public at least has long switched over to alternative news sources for coverage of events that do not favour the ruling elite. Of course, the people still have many other uses for the mainstream media, but not some of the most pressing issues of public interest.

In these times, which form a watershed in national affairs, some members of the media may be conflicted about balancing ethical choices, as it may not always be clear who they should serve – their paymasters, audiences or the wider society. The issue really is not about laws that restrict media freedom but whether the media can free itself from the mental strictures that keep them away from fair and accurate reporting."

A small group in control of key institutions, mediocre record of government accountability, many conflicts of interest (for instance the close ties between politics and business), disappointing and biased reporting by the mainstream media: these are all highly recognizable observations from a Corporate Governance point of view.

Friday, 11 May 2012

HK threatens to jail dodgy IPO bankers

World's IPO capital says investment bankers who lie in documents face up to 2 years in jail
BT HKIPO 24033332 
Hong Kong's securities watchdog has revived a proposal to throw investment bankers into jail for making false statements in the document of an IPO they sponsor.

In Hong Kong the new head of Hong Kong's securities watchdog has revived a proposal to throw investment bankers into jail for making false statements in the document of an IPO they sponsor.

At stake is a business that has made Hong Kong the world's largest IPO fund-raising centre for three consecutive years. Its most recent run, in 2011, involved the listing of 88 companies and the raising of a total of HK$271 billion (S$43.7 billion).

But some of these issuances might have come with sloppy due-diligence conducted by sponsors, especially those related to Chinese companies from the mainland - a group responsible for as much as 60 per cent of market capitalisation and 65 per cent of market turnover.

The reform proposal was the first salvo fired by Ashley Alder, a former lawyer who last year took over as chief executive at the Securities and Futures Commission (SFC), to rein in such practices. It threatens to pursue bankers for "untrue statements (including material omissions) in a prospectus" that could result in as long as two years in prison, in addition to a heavy fine.

Above article is from the Business Times (Singapore).

In Malaysia a very large amount of companies disappointed after the IPO. Sometimes these companies could hold out for a few decent quarters, sometimes not even, results immediately dropped from the first quarter onwards after being listed. As a rule of thumb, I therefore only invested in companies that were listed for at least two years, that seemed to be a save buffer.

Yet despite this hardly any director or broker/investment banker ever got punished in Malaysia for providing false statements. Hong Kong is giving the good example, by threatening investment bankers with jail sentences.

Thursday, 10 May 2012

Minorities are often the losers in the de-listing, re-listing game

Excellent article by Rita Benoy Bushon, CEO of the MSWG, published in The Star of May 10, 2012.

"Ze Moolah" commented on it in his blog.

I hope the authorities will take notice.

Regulatory conundrum?

THE fact that a growing number of previously publicly traded companies are now seeking to re-enter the stock exchange have compelled me to revisit an issue I have often critiqued in the past: the de-listing and re-listing of companies on Bursa Malaysia.

In recent memory, Maxis Communications Bhd (privatised in 2007) and Bumi Armada Bhd (privatised in 2003) have both rejoined the stock exchange albeit in different forms, while Astro All Asia Networks plc (privatised in 2010) could be making a comeback. Meanwhile, Malakoff Bhd is also considering a re-listing.
While it is entirely within the legal framework to do so, a regulatory conundrum is presented when some major owners de-list their companies at very low valuations only to later re-list them at richer valuations. In such cases, the beneficiaries of these exercises are the corporate advisors and major owners, who profit from each change in direction.

And the losers are the minority shareholders, especially long term ones, who are bought out when the prices offered are low.

Malakoff, when delisted in May 2006, was estimated at RM8.8bil. It has since grown, securing several power projects here and overseas. Clearly, it was de-listed at a time when it was experiencing significant growth in its operations, which minorities were henceforth not privy to.

Bumi Armada was taken private with a price earning ratio (PE) of under four times on a forward earnings basis in 2003. After nearly a decade, it was re-listed last year at a PE of about 20 times despite more dilution due to an ESOS scheme.

Again: why were minority investors forced out at the time? Why were they not allowed to share in the growth story?

These are just two examples that demonstrate the gravity of our concern.

Fundamental investors buy counters for the long term, and plan accordingly. They willingly assume the risks in doing so (especially when a company is still finding its feet early on in its life) so that they may reap the benefits when the fruits later ripen.
But how are we to promote a mature capital market that is founded on the maxim of fundamentals and long term investing and sound corporate governance principles when corporate advisors are able to propose a cheap exit point and a lucrative re-entry point for company's majority owners?

Shouldn't there be a cooling-off period imposed before a company that had been taken private and de-listed is allowed to re-list and some conditions imposed if relisting is allowed, such as the price should not exceed the valuation price when the company was delisted.

Bursa Malaysia, which has often lamented the lack of equity market participation among the young, can take a cue from this. Surveys have revealed that only 12% of investors are in the 20-29 age group, while 59% involve those 40 years and above.

Warren Buffett (net worth US$44bil) bought his first stocks at age 11 three shares in Cities Service Company, now known as CITGO and continues to invest today, at age 81. If we are indeed seeking similar approaches among our young to buy stocks for the long term, why do we allow major owners to list and de-list their companies without imposing conditions?

We have already seen how disadvantageous the compulsory delisting rules are when minimum public shareholding spread thresholds are crossed, minorities have no choice but to throw in the towel.
Surely the authorities are aware that this loophole using the threat of de-listing is being exploited to the detriment of the minorities? Clearly, this loophole must be closed.

As I have often remarked, central to our concerns are the valuations offered. Time and again, we have seen the take-over offers priced at a level which is as near as meaningless to the minority shareholder, especially after some have profited from speculative rises in the counter. Such activity penalises the minority investor, because his or her upside has every potential of being capped while the downside risk remains in its entirety.

On a related issue, SEG International Bhd (SEGi) is the target of a privatisation bid by Navis Capital Partners Ltd and Datuk Seri Clement Hii, who are the largest shareholders with a combined 60% stake.

They are offering to buy out minorities at a significant discount to the stock's fair value and trading price, with the intention of growing SEGi into a regional player.

Is this yet another case of a major owner and its partners muscling out the minorities from a profitable long term future?

Wednesday, 9 May 2012

Broker banned for life

I wrote before: 

Bursa takes action against remisier.

"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".

The remisier was only 12 months suspended.

The SFC (Securities and Futures Commission) from Hong Kong seems to agree with me:

Broker Wong Chiu Wan banned for life for misappropriation of client assets

"The Securities and Futures Commission (SFC) has banned Mr Wong Chiu Wan, a former licensed representative of KGI Asia Limited (KGI), from re-entering the industry for life (Note 1).

The disciplinary action follows an SFC investigation which found that, between April and June 2011, Wong conducted unauthorized trades in a client’s securities account at KGI and sold the client’s shares without the consent or instruction of that client.

In an attempt to conceal his dishonest acts, Wong also forged the client’s signature to falsify an instruction to amend the client’s e-mail address on KGI’s records in order to prevent the client from receiving trading statements from KGI.

KGI has compensated the affected client and restored the original stock and cash position in her account. The client’s losses, which amounted to over $178,000 including interest, had been repaid by Wong to KGI."

I completely agree, touch the clients money is immediately a red card, out for live, a no-brainer actually.

Although Hong Kong has some strange rules (they still have no quarterly results for instance), they have a pretty good enforcement. Malaysia can learn from them.

shareholder approval not required for subsidiaries

Worrisome article in The Edge Financial Daily, regarding a legal tussle regarding Ho Hup Construction Company Bhd. If this ruling by the Court of Appeal is upheld by the Federal Court, it means that subsidiaries of public listed companies can pursue large corporate transactions (including disposal of core assets) independently, without approval by the shareholders of the listed mother company. It is very normal for a listed company to organize its activities in subsidiaries, for good reasons. But this ruling means that the influence of shareholders on those subsidiaries is minimal. Which goes against the listing rules of Bursa Malaysia, and also against the principles of Corporate Governance. I am rather shocked by this ruling. Let's wait and see what will happen at the Federal Court.

Ho Hup's Net Assets per share are minus RM 0.41, it is in need of a restructure. Recently its share price has come down sharply, from above RM 0.70 to the current price of RM 0.45.