Saturday, 28 July 2012

Jail for UK insider trading

Great job by the UK watchdog, the Financial Services Authority (FSA), jail sentences (up to three and a half year) and fines for 6 people after a very extensive investigation:
  • The four-and-a-half-month trial cost the UK’s Financial Services Authority (FSA) £5 million — the longest and most complex prosecution to date in its “credible deterrence” drive against market abuses
  • The case marked a strategic push into so-called digital forensics, whereby experts use the latest technology to sift through emails, telephone records and computers
  • The judge praised the watchdog’s meticulous and exhaustive investigation
  • It culminated in raids and arrests in July 2008, when a search of Paresh Shah’s home uncovered a wealth of evidence
  • The day-traders used information from the “drop box” to place spreadbets on 500 different stocks.
  • The ring used 130 trading accounts, usually in third-party names, making it hard initially to identify the culprits
  • The FSA sifted through 250,000 emails and 375,000 lines of telephone data, and checked 15,000 news stories to show that the traders could not have obtained the information from the press
Will Malaysia's investigation into the KL Heavyweight insider trading case be on par?

Interesting comment: "Last month the FSA said that a fifth of company announcements in Britain were still preceded by unexplained share price movement, indicating possible insider trading."

How would this compare to Malaysia? I hope Bursa Malaysia would come with similar statistics, but I am afraid that the percentage of possible insider trading will be much higher, possibly more than fifty percent.

Friday, 27 July 2012

Bursa considering increasing the retail portion of IPO's

According to this article by Cindy Yeap in The Edge Malaysia, Bursa Malaysia might consider increasing the protion to the public. That is good news, although I am surprised that the minimum for large cap stocks was initially set at an absurdly low two percent.

MSWG CEO Rita Benoy Bushon didn't mince her words, she described retail investors as being “systematically discriminated by companies undergoing IPOs” — highlighting a long-standing protest by retail investors on the token sum of IPO shares allocated for public ballot.

"only 2% of the enlarged share base of Malaysia’s two hottest IPOs this year — IHH Healthcare Bhd and Felda Global Ventures Holdings Bhd — was allocated for retail public ballot in Malaysia."

The full text:

Bursa Malaysia Bhd may consider looking at ways to increase the proportion of IPO shares allocated to retail investors, said its top executive, acknowledging feedback from third parties, including the Minority Shareholder Watchdog Group (MSWG)

“There are some valid reasons [from retail investors]. The board will need to discuss the matter and we have not sat down to do so… I cannot say Bursa will definitely make changes [but] it is something worthy for us to consider,” Bursa Malaysia CEO Datuk Tajuddin Atan told The Edge Financial Daily.

In a note dated July 19, MSWG CEO Rita Benoy Bushon described retail investors as being “systematically discriminated by companies undergoing IPOs” — highlighting a long-standing protest by retail investors on the token sum   of IPO shares allocated for public ballot.

The Singapore Exchange (SGX) had said it “will look to increase the proportion of IPO tranches allocated to retail investors, particularly for listings which draw high retail subscription”.

Tajuddin: The board will need to discuss the matter and we have not sat down to do so.

Existing regulations give investment bankers a free hand to allocate and place out the bulk of IPO shares to institutional investors and well-heeled private clients.

For instance, only 2% of the enlarged share base of Malaysia’s two hottest IPOs this year — IHH Healthcare Bhd and Felda Global Ventures Holdings Bhd — was allocated for retail public ballot in Malaysia.

The 2% is the minimum threshold that companies with an enlarged paid-up capital of more than RM200 million must offer to the general public for IPOs in Malaysia, according to the Securities Commission (SC) Malaysia’s guidelines for equity offerings. The threshold is 5% for companies whose enlarged paid-up capital is less than RM200 million.

The minimum threshold is to “uphold public interest and to promote wealth sharing by providing an opportunity for the general public to participate in a new IPO scheme”, the SC said. Singapore currently does not have a rule governing retail participation levels in IPOs, a SGX spokesperson said.

“If there’s any rule change, we will consult the public as is our usual practice,” she added. Singapore retail investors will have to wait and see just how much better off they will be with the SGX’s stance, given that nothing has been finalised yet.

To be sure, the matter at hand is more complex than it seems.  On the one hand, the small number of shares allocated for public ballot has nudged some investors to apply for more IPO shares to boost chances of allocation — a practice seen to have contributed to high “oversubscription” rates  in the public portion. The rates, however, may not necessary reflect the actual demand for the stock.

Yet, market watchers say companies and bankers cannot be blamed for ensuring the success of the IPOs by bringing on board cornerstone investors that will provide some stability, especially amid weak market conditions.

They added that what exacerbated the issue was the tendency of companies to bring on board a string of investment bankers to handle IPOs in recent years, all with different portfolio of clients to please.

For Bursa’s part, there is the desire to give retail investors wider access to IPOs. But any change of rules or recommendation will take into consideration the interests of all stakeholders as Bursa moves to becoming a more   attractive and competitive marketplace for investors and issuers in the region.

Thursday, 26 July 2012

Fake degrees at listed companies?

David Webb has written many articles about directors of Hong Kong listed companies with fake degrees.

I expected the situation in Malaysia to be the same, if not worse.

My eye fell on ‘Tan Sris’ involved in buying fake degrees, say cops, an article in MalaysiaKini. Some excerpts:

Eminent members of society, some of whom hold ‘Tan Sri’ titles, have been implicated in buying fake degrees from a syndicate recently brought down by the Selangor police commercial crimes investigation department (CCID).

“Many of those involved are those with status in society,” Selangor Chief Police Officer Tun Hisan Tun Hamzah said.

Tun Hisan said those who bought the degrees “know very well” that they were purchasing fake degrees and if they used those documents to get jobs or for whatever purpose, it involved the “element of fraud”.

As to whether those who purchased the fake degrees would also be charged, the Selangor CPO said police were considering that possibility.

Some of the universities the syndicate used for the fake degrees included University of Rockhampton (USA), Harvey International University (USA), Cannington Brook University (UK) and Glastonbury University (UK).

Some of the universities “only exist in cyberspace”, while others are real institutions but with no Malaysian operations or links at all.

Tun Hisan urged parents whose children had degrees from the Jakri Education Group, or employers with staff who had the same credentials, to verify their qualifications.

I did a few Google searches with the above mentioned universities, and did indeed get quite a few hits of directors of listed Malaysian companies.

Will Bursa Malaysia or any of the listed companies take action?

Rogers, Hendry and Edwards fight it out

Jim Rogers, Hugh Hendry and Albert Edwards are three people I have a lot of respect for. So if the three disagree about a subject, that means we are in interesting but conflicting times. In this case Rogers claims there is no hard landing for China, contrary to Hendry and Edwards. I tend to side with Hendry and Edwards, based on anecdotic evidence from China, Singapore's GDP shrinking and Western economies doing badly.

Article from investmentweek:

Rogers: Why Hendry and Edwards are wrong on China
23 Jul 2012, Katie Holliday

Jim Rogers has dismissed fears of a hard landing in China, saying slowing growth is simply proof the authorities are managing the economy as they intended.

Rogers’ bullish views on China’s long-term economic prospects place him at odds with well-known China bears Hugh Hendry of Eclectica and SocGen’s Albert Edwards.

“Hugh has been dead wrong about China for three years now and China has not collapsed as he predicted, loudly, verbally and widely,” said Rogers.

“Albert has been bearish on everything for a long time. So if you are telling me he is bearish on China and bullish on everything else that would be different. But no, he is bearish on everything, including you, me and Mother Teresa.”

Hendry, who runs the CF Eclectica Absolute Macro fund, has refuted claims China will act as the main driver for global economic growth and is extremely bearish on Asia as a whole, while SocGen’s Edwards expects China to suffer an extreme hard landing which will prompt stocks to collapse.

China’s benchmark index hit its lowest level in three and a half years last week, and the region’s slowing growth continues to fuel investor concern. The Shanghai Composite index closed at 2,147 on Monday – its lowest level since March 2009 and 40% down on August 2009 highs of 3,471.

In March, Rogers told Investment Week he was banking on a sharp sell-off of Chinese shares as an opportunity to buy back in, and last week’s price falls have caught his attention.

“The lower they go, the more interested I become,” he said. A full blown share price collapse could be triggered by any kind of shock event, according to Rogers, from a bankruptcy in Spain, Italy or the UK, to rocketing inflation or a natural disaster.

Wednesday, 25 July 2012

Malaysia's IPO bonanza may be deceptive

Below an article by Wayne Arnold from Reuters, warning that a few big IPO's do not mean that the Malaysian economy is doing particularly well, especially in these difficult (global) times.

To me, the big IPO's (Felda and IHH) make a rather artificial impression. Also, listing a company is called "going public", but that sounds the wrong term if the public gets only a tiny percentage of the shares allocated. Bursa Malaysia should force companies that want to list to allocate a decent minimum percentage (say 10%) to the public. If the public can't participate, then what is the use of listing, better keep the company privately owned, and trade the shares between the big players.

IHH is listed today (both in Malaysia and Singapore) at a rather high PE ratio, "priced to perfection".

With this week's market debut of IHH, Malaysia surprisingly holds claim to the world's two biggest initial public offerings after Facebook.

And more are coming, including a broadcaster and the world's biggest condom maker.
But idiosyncrasies of the Kuala Lumpur market, an export-reliant economy and pre-election politicking should give investors pause.

Anemic markets have issuers nixing deals elsewhere.

But Malaysia's government steamed ahead on listing hospital operator IHH and palm oil producer Felda as part of an ongoing privatization drive.

Felda's US$3.2 billion (S$4.0 billion) deal cut the government's stake to 40 per cent.

And IHH's US$2 billion IPO trimmed the government's stake from 62 per cent to less than half.
The timing is auspicious. Prime Minister Najib Razak must call elections by next summer.

His ruling coalition is battling to reverse a slide in popularity that in 2008 cost it its two-thirds majority in parliament for the first time in 20 years and in April culminated in violent protests.

Selling down its stake in IHH should provide a US$385 million injection into Malaysia's sovereign wealth fund.

And the government made sure to cut Felda's farmers, a key source of electoral support, into that deal, giving them the right to buy shares at a discount on top of a roughly US$5,000 handout equivalent to a year's pay.

Moving big, government-backed issues is deceptively easy in Malaysia.

Underwriters can count on pent-up demand from a handful of local, powerful pension funds to soak up their allotment, while the prospect of a floor under prices draws in foreign institutions.

Big listings like Felda's also make it a shoo-in for inclusion in local benchmark indexes and thus a must-have for equity funds.

Next up will be Malaysia's partially state-owned, dominant pay TV provider Astro, which hopes to raise US$1.5 billion in an IPO by September. That's encouraging some other private companies to jump in, like Karex, the world's largest maker of condoms, which is aiming to go public next year.

But Malaysia's economy may not prove as impermeable as Karex's prophylactics.

Prices for palm oil and other commodities are weakening, as are exports to China and Europe and Malaysia's reliance on borrowing from European banks leaves it more exposed to Europe's crisis than other big exporters like Australia or Taiwan.

Investors should take care in distinguishing between a few well-timed election-year listings and a genuine Malaysian boom.

Sunday, 22 July 2012

KL 'heavyweight' charged with insider trading (2)

Article in The Sunday Times (Singapore) "KL charges top lawyer with insider trading".

"Sreesanthan is only the second person to be charged with insider trading by the Securities Commission.

In 1996, the commission had pressed criminal charges against Kim Hin Industry managing director Chua Seng Huat for allegedly using confidential information to sell company shares and gain profits for its holding company.

But the Kuching Sessions Court later acquitted him in the grounds that the prosecution had failed to prove beyond reasonable doubt that he had the relevant information at the time."

I find this rather shocking news, even in the one year existence of this blog I wrote about several cases of possible insider trading. Many more can be found in other blogs like Where Is Ze Moola. The number of cases where a juicy announcement is preceded by a significant rise in both price and volume is huge.

And before this recent case the SC only charged one person so far, 16 years ago, and even in that case the person was acquitted.

More information in this article in The Star.

The investigation has taken some time and expenses,” said Rosmawar (SC prosecutor DPP), adding it was a serious offence.

"Some time", that sounds like a huge understatement, the first alleged offence happened six years ago!

Some more specifics:

"Under the first three charges, Sreesanthan is alleged to have acquired 75,000 units of Sime Darby Berhad shares while in possession of insider information on the proposed acquisition of several real estate and plantation companies by Synergy Drive Sdn Bhd between Oct 9 and Nov 12, 2006.

For the next two charges, he is accused of insider information involving 250,000 units of Maxis Communication Bhd shares on the proposed conditional take-over by Binariang GSM Sdn Bhd to acquire all the voting shares in Maxis and Maxis' proposed privatisation between April 25 and 27, 2007.

Under the sixth and seventh charges, he is accused of buying 200,000 units of UEM World Berhad and 100,000 units of VADS Berhad shares while in possession of insider information on Feb 13 and Sept 18, 2008, respectively."

Another article in The Star.

Saturday, 21 July 2012

KL 'heavyweight' charged with insider trading

Article from the Singapore Business Times:

"One of Kuala Lumpur's most prominent corporate lawyers, Sreesanthan Eliathamby, was charged yesterday on seven counts of insider trading, according to a report in the online version of The Star newspaper.

The news sent ripples through Kuala Lumpur's legal fraternity as Sreesanthan, 51, is not only a highly respected merger and acquisition (M&As) specialist but a major corporate figure.

The lawyer, a senior partner of Kadir, Andri, Aidham & Partners, sits on the boards of several listed firms, including Maybank, Sime Darby, Guinness-Anchor and Scomi Group. He was also the legal adviser in several of billionaire T Ananda Krishnan's most visible deals, including the RM40 billion (S$16 billion at current rate) privatisation of telco Maxis in 2007".

The official announcement from the Securities Commission (SC) can be found here.

Everybody is innocent until proven guilty. But the fact that the SC goes after a heavyweight must be applauded. And especially insider trading is perceived to be rampant in Malaysia, so it is quite timely that action has been taken in that area.

The details of the charges are quite specific:

"The charges involved three counts of insider trading in the shares of Sime Darby Berhad in 2006, ahead of the acquisition by Synergy Drive of companies within the Sime Darby, Guthrie and Golden Hope groups. The two counts of insider trading in the shares of Maxis Communications Bhd, which were preferred under the Securities Industry Act 1983, were alleged to have taken place during the privatisation of Maxis in 2007.

Two other charges were preferred for insider trading under section 188(2) of the Capital Markets and Services Act 2007 involving the shares of UEM World Bhd and VADS Bhd in 2008. Dato' Sreesanthan's trades in UEM World were said to have been made with his knowledge of the corporate restructuring of the UEM group, while his trades in VADS allegedly involved his knowledge relating to VADS's proposed privatisation."

The last sentence of the press release is a bit puzzling though: "The SC has been proactively pursuing market misconduct cases ....".

To go after cases that happened six years ago is not really proactive, according to my dictionary.

Proactive: "Acting in advance to deal with an expected difficulty; anticipatory".

Although insider trading is often not easy to prove, six years is a really long time, these cases should be wrapped up more quickly in my opinion: "follow the moneytrail!"

Sunday, 15 July 2012

Don't shoot the messenger

Article in The Edge Malaysia, July 9, 2012:

Don't shoot the messenger:

Of late, a disturbing trend has been to shoot the messenger. Just last week, there were two cases of whistle-blowers being intimidated.

The first was the inspection by the Companies Commission of Malaysia of human rights group Suara Rakyat Malaysia - the first in the non-governmental organisation's 23-year existence. The human rights watchdog has called on the authorities to focus instead on its allegations of abuse in the multibillion-ringgit Scorpene submarine deal.

The second case, which happened earlier in the week, involved opposition politician Rafiz Ramli being investigated by police over classified documents related to the Ampang LRT extension project. Rafizi had wanted to know if the job was awarded to the best qualified consortium.

Last month, it was reported that whistle-blowers in the National Feedlot Corp scandal were either hauled up by the Malaysian Anti-Corruption Commission or questioned under the Banking and Financial Institutions Act. A bank employee also alleged he was under intense pressure at his workplace and subsequently resigned.

This pattern of putting whistle-blowers through the wringer instead of focusing on the crux of the issues raised only makes one suspicious. Why wasn't there a concerted effort to investigate the issues raised by these individuals and NGO's?

The action taken against the whistle-blowers was clearly not warranted and did not earn the authorities any brownie points. The real effort should go into getting to the bottom of the allegations.

I 100% agree with the above. Shooting the messenger has been a popular pastime in certain circles in Malaysia. The leadership should step up to show that the new initiatives regarding protecting whistle-blowers are not in vain. Highly relevant for corporate governance, since bad practices are often noticed by the employees, who should be encouraged by protection.

Saturday, 14 July 2012

Singapore GDP shrinks 1.1% in Q2

Article in The Business Times (Singapore) indicating that the economy of Singapore contracted. I rate the quality of the numbers and estimates of Singapore (both for economic growth and inflation) rather high, much higher than those of Malaysia (especially the Malaysian inflation number looks much too low).

With Malaysia being also a rather open economy, and with bad news from Europe, US and China (see for instance this Bloomberg link), this bodes not well for the near term.

GDP shrinks 1.1% in Q2: advance estimates

Singapore faces risk of technical recession in the third quarter: economists

ByEmilyn Yap

Quarter on quarter, Singapore's economic contraction in Q2 was largely due to a 6 per cent sequential drop in the manufacturing sector. A decline in biomedical manufacturing output more than offset gains in the transport engineering cluster, MTI said.

The Republic's economy performed worse than expected in both the second and first quarters, igniting talk of a looming technical recession in the third quarter.

Advance estimates from the Ministry of Trade and Industry (MTI) yesterday showed GDP shrinking 1.1 per cent in Q2 from the previous quarter on a seasonally adjusted annualised basis, as manufacturing faltered. This was a sharp reversal from Q1's 9.4 per cent expansion, which MTI lowered from the previously announced 10 per cent.

Several economists have trimmed their full-year growth forecasts, and some have raised the odds of a looser monetary policy in October.

"The negative Q2 GDP print underscores the downside risks to the growth outlook, and could spur more worries of a technical recession," said Nomura economist Euben Paracuelles.

Thursday, 12 July 2012

When Cash isn't Cash

The one thing an investor wants to rely on in the balance sheet is the amount of cash. According to this article in The Business Times (Singapore) "Next-Gen's locked-in cash: plot thickens" this SGX listed company might have a problem in that area

"The plot thickens at mainboard-listed Next-Generation Satellite Communications, a week after news of a major discrepancy in funds that it had deposited with a Hong Kong finance company.

Next-Gen - a company on the Singapore Exchange watch-list and formerly known as Ban Joo & Company - reported on Thursday last week that out of the $26.8 million that the group had placed with the unnamed Hong Kong finance company, only $21,000 could be withdrawn. It has also said that it was unsuitable to name the finance firm at this stage.

Yesterday, it said that it found out from the finance firm that Hady Hartanto, a controlling shareholder and former director of Nex-Gen, has borrowed money from the finance company, a licensed moneylender.

Next-Gen said that available information shows Mr Hartanto holds a directorship and a 19 per cent shareholding interest in the holding company that owns the entire issued share capital of the moneylender."

Auditors should really make sure that this kind of situations are disclosed in a proper way. We have to wait for more news regarding this case, hopefully all will be revealed soon, including the name of the Hong Kong finance company.

Wednesday, 11 July 2012

Jail for insider trading

Enforcement news from Hong Kong:

"Jail sentence and fine against insider dealer restored after final appeal".

Interesting is the last paragraph:

"The Hon Mr Justice Ribeiro of the CFA agreed with the Court of First Instance that, save for exceptional circumstances, the appropriate sentence for insider dealing should be immediate imprisonment coupled with a fine which, at the very least, removes a defendant’s unjust profits".

I haven't noticed a single jail sentence in Malaysia, while insider trading appears to happen frequently. A few fines without admission of guilt is all that the enforcement has to show for.

Bursa Malaysia should hugely step up its efforts on insider trading, without fear or favour, to restore confidence with retail investors, and aim for jail sentences as serious deterrent.

Saturday, 7 July 2012

Dialog: one of the big succes stories in Bursa

Nice story Enduring Passions in the Singapore Business Times about founder Ngau Boon Keat, about his childhood, the hardships, his mother in China, the growth of his company Dialog, etc.

"To be fair, the co-founder of Dialog Group has also enriched his shareholders. One lot, or a thousand shares, of the Malaysian-listed oil and gas company, priced at RM2,750 when bought in 1996 during its initial public offering, has since multiplied to 88,000 shares after share splits and bonus issues. Over the past 16 years, total gross returns have amounted to an impressive 7,763 per cent or a compounded annual growth rate of 34 per cent."

I can't check the data, but I assume it is correct. That would make Dialog one of the biggest success stories on the Bursa Malaysia.

Tuesday, 3 July 2012

Is Qihoo 360 a fraud?

Anonymus Analytics is at it again. This time they accuse Qihoo 360 of being a fraud, fastly overstating their webtraffic. The report can be found here.

Some other background stories about this can be found here from TechInAsia and here from Bloomberg.

The stock trades on the NYSE (ticker name QIHU) and dropped 7.5% on the news.

Previous blogs about Anonymous Analytics: Chaoda and HuaBao.

Sunday, 1 July 2012

What is the business of an exchange?

Outspoken billionaire Marc Cuban is an US investor and participating in one of my favourite TV series "Shark Tank", where founders pitch their ideas to a panel of judges who put their money where their mouth is. Parts of episodes are easily available on YouTube. Cuban can come across as rather arrogant, but he also did quite a few very fair deals in the TV show.

Marc Cuban spoke out against High Frequency Traders (HFT) in a recent interview in The Wall Street Journal. Some snippets from this article:

Concerns about the impact of rapid-fire trading on the markets has ramped up of late, especially after technical glitches at Nasdaq fouled up Facebook’s trading debut. Last Wednesday, market honchos such as NYSE Euronext Chief Executive Duncan Niederauer were grilled by lawmakers in a hearing about the current state of the market. One clear message from the hearing was that a proliferation of computer trading and opaque markets has hurt investor confidence.

Mark Cuban:

"That got me looking further into issue of high-frequency traders. They are the ultimate hackers. They’re running software programs that have one goal, and that’s to exploit the trading systems as early and often as possible. As someone who wrote software for eight years and who keeps up very closely with the technology world, that scared the hell out of me. The only certainty in the software world is that there is no such thing as bug-free software. When software programs are trying to outsmart other software programs and hack the world’s trading platforms, that is a recipe for disaster."

"Public companies need to figure out what business the exchanges are in. Is the market supposed to be a platform for companies to raise money for growth and to create liquidity and opportunity for shareholders as it has been in the past? Or is the stock market a laissez-faire platform that evolves however it evolves? The missing link in all the discussions is: What is the purpose of the stock market?"

Cuban did write about this last issue in the past on his own blog:

"However we need to do it, we need to get the smart money on Wall Street back to thinking about ways to use their capital to help start and grow companies. That is what will create jobs. That is where we will find the next big thing that will accelerate the world economy.  It won’t come from traders trying to hack the financial system for a few pennies per trade.

Wall Street as a whole needs to be in the business of creating capital for companies and selling shares to investors who believe they are shareholders.  The Government needs to create incentives for this business and extract compensation from the traders/hackers for the systemic failure level of risk they introduce."

The number of listed companies in the US did shrink markedly in the last decade. Is it possible that all the financial engineering (derivatives, hedge funds, HFT, etc) has not added any value at all, in the contrary?

This is all very relevant also for Bursa Malaysia. Who do exchanges actually serve, who do they want to attract? Traders only interested in making short term profits, or genuine investors? And what kind of companies will they attract?