Saturday, 27 October 2012

Astro IPO: "let the buyer beware"

Article "Betting on IPOs not always a sure profit" in the Business Times by Francis Fernandez in the category "Weekend Notes". Some comments by me in blue.

CAVEAT emptor, the Latin phrase for "let the buyer beware", must be ringing in hard on those of us who had believed that subscribing to initial public offer (IPO) shares is like getting a free lunch.

Who could blame them, considering that Malaysia's mega IPOs have given investors handsome returns, that is until Astro Malaysia Holdings Bhd's IPO.

There was no free lunch this time around. The stock tumbled. Some investors lost money and market players have been crying ever since, baying for heads to roll.

"Tumbled", the stock is 4.7% down since its listing. Not really shocking, athough it might go down further due to negative sentiment.

For those who lost money on Astro shares, it is time for a reality check. The stock tumbled; it did not crash. There is also no such thing that every IPO must end up making money.

Just look at the Facebook Inc IPO, the biggest this year, which saw the company priced at around a price-to-earnings ratio of 85 times, despite a decline in both earnings and revenue in the first quarter of 2012.

Comparing Facebook listed on the Nasdaq with Astro listed on Bursa, is that not comparing apples with oranges? It is hard to find two cases that are more different.

The stock fell like the nine pins in a bowling alley and hasn't recovered ever since. Those who invested in Facebook at the IPO stage lost big money.

Just like how Mark Zuckerberg, Facebook's founder and chief executive was hounded after the IPO started trading downwards, Astro major shareholders are also beginning to get some stick.

The Internet has been buzzing this week with comments made by Investor Central's Mark Laudi about the Astro IPO.

Laudi posed a few questions, questions that should have been asked by critical journalists in Malaysia.

For those of us who are unfamiliar with Laudi, he is an award-winning broadcaster who used to report live from the floor of the Singapore Exchange on CNBC Asia.

Is Laudi's thought on the Astro IPO valid or are the inputs given by the likes of OSK Securities, Affin Securities, JP Apex Securities and ECM Libra on Astro's valuation more solid?

The four companies mentioned are brokers, I have never taken an opinion by any broker serious, often they have vested interest. In the US they are very strict with announcing conflict of interest (should be clear to all who have watched Bloomberg or CNBC), in Malaysia unfortunately not.

Those research firms had valued the Astro shares at more than RM3 each.

Investors and non-investors alike can choose to debate on it but at the end of the day, it is the responsibility of those who had bought the Astro shares to read the prospectus in detail before parting with their money.

I agree, but the writer should have mentioned here that the IPO prospectus contained 687 pages! Who has time to read that in detail, as the writer suggests? The authorities have gone overboard in what has to be declared, making it very hard (especially for laymen) to find the essential information, which is sometimes not even in the prospectus (hence the need for critical, objective, investigative journalists).

For those who did not do just that, there is no point crying over spilled milk.

Friday, 26 October 2012

Critical remarks regarding Astro

Investor Central posted on its website a video of Mark Laudi, making some very critical comments regarding Astro and its IPO relisting. Some text of it can be found on the website of The Malaysian Insider.

The questions asked and the issues raised by Laudi seem to be reasonable, why can't Malaysian journalists do the same, why are they so tame? The Malaysian public at large is not helped by that attitude, in the contrary.

Some good news for Astro is that a Singapore court upheld the arbitration award over Indonesia's Lippo Group, the details (including full judgement) can be found here.

Wednesday, 24 October 2012

KFC: disposal and capital repayment

KFC has published the circular regarding the disposal of its business and the subsequent capital repayment, which effectively implies a General Offer of RM 4.00 per share and RM 1.00 per warrant.

I received the following comment in another posting:

"What are your views on the KFC Holdings (Malaysia) BHD situation? This deal has been dragged out for almost a year, in which time Malaysian peers’ share prices have rallied between 70% to 80%, dividends at KFC have been halted, and in Affin Investment Bank’s Independent advice they use comparable multiples based on last prices from 13th December 2011, highly illogical and against conventional market practice. Surely minority shareholders are getting a raw deal here and would be better off voting the deal down? I am surprised that this has not received much attention in Malaysia, this is another example of poor corporate governance."

I have sympathy for the above, although I find the independent advice in it self not bad (I have seen much worse). Affin did use many comparison methods and quite detailed so, they put a decent effort in writing their independent report in my opinion.

I do agree though that many times (not only in the independent advice but anywhere in the prospectus) comparisons have been made with the situation in 2011, when in reality an updated comparison for 2012 also could or should be given. There is almost a full calendar year difference.

Also, the company has indeed stopped paying dividends, the last dividend was only 3 sen on Oct 7, 2011. This in itself deserves a discussion regarding the reasons for this.

My opinion is that given the cash generating nature of the business and the established brand name, the offer price per share appears somewhat undervalued. However, KFC was never a company with the best CG practices in Malaysia, given that I find the offer price about fair.

And lastly, the offer per share is RM 4.00 and the offer per warrant is RM 1.00. Assuming that the price per share is fair, then the price per warrant is highly unfair. The exercise price is RM 3, and the ex-date is on September 14, 2015, almost 3 full years away. In other words, warrant holders do not receive any money at all for the time value of the warrant.

I have noticed this before (warrant holders being hugely disadvantaged), for instance here, and find it worrisome. Are warrant holders sufficiently warned that they could expect a lousy deal in case the company is privatised?

Monday, 22 October 2012

David Webb in The Business Times

Two large articles (one of which on the front-page) in The Business Times (Singapore) about David Webb, the shareholder activist from Hong Kong. The first article can be read here.

Let's not pretend any more that independent directors (IDs) are independent, says Hong Kong shareholder activist David Webb.

He suggests abolishing the requirement for IDs and letting them be called independent only after being elected by minority shareholders.

IDs need to make up at least one-third of boards in Singapore and Hong Kong to provide an objective voice to ensure management acts in shareholders' interests.

But Mr Webb, repeating a common criticism, says IDs are often picked because of their close relationship with controlling shareholders or board chairmen.

Shareholders are given "a sense of false comfort" as a result, says Mr Webb, 47, a retired investment banker who made his name in the past 14 years giving scathing, sharp and sometimes prescient commentary on the Hong Kong stock market through his website, "".

"Good companies will still put good people on boards, bad companies will always find three people who are willing to endorse anything," he says.

Mr Webb spoke to BT early this month when he was in town for this year's Corporate Governance Week organised by investor lobby group Sias, or the Securities Investors Association (Singapore).

Having IDs only electable by minority shareholders could improve corporate governance in both Singapore and Hong Kong, he says.

"The reality is that if candidates are voted upon by controlling shareholders, the candidates will only be those who are acceptable to the controlling shareholder. Then the whole system breaks down...

"It'll be more honest to say he's the old school friend of the chairman, family doctor, whatever, he's only there because the chairman likes him."

Under Mr Webb's system, controlling shareholders are not precluded from putting forward candidates they deem suitable, he notes - just that they have to abstain during voting.

This gives IDs a mandate to ask difficult questions without "being quietly asked to stand down", he says.

David Webb made the same point on his website before, see the third box "note to regulators". That article is about the excessive pay of the family of the "Managing Chairman" and majority shareholder of Hong Kong listed company Xpress Group Ltd, (currency in HKD):

Taking the 15 years together, the Chan family has taken pay of $492.8m, and the total profit attributable to shareholders was...well, there wasn't any. It was a total loss of $247.5m.

The second article about David Webb in The Business Times today can be found here (the whole story only for subscribers). Some parts:

He built up a formidable database on his website - which he started developing in 1998 after he retired from his investment banking job and found that the Internet had made it easy for him to publish his own views. "I've always been a bit of an activist," he says.

On his site, one can browse a list of directors and sort them by number of directorships, age, sex, and even the average returns o fall the past and present companies they have been directors of.

One can find out, for example, which company has the oldest average age of directors (Melbourne Enterprises), how many companies go beyond the minimum required number of three independent directors (less than one quarter), or who holds the largest number of independent directorships (Abraham Razack, 16 seats).

Investors can also track the number of companies incorporated each year, with the history going back to 1865. Company name changes are also recorded, and total returns for each company can be calculated and compared against each other.

The above database would be very helpful for investors in Malaysian (and Singaporean) companies. Either Bursa Malaysia or MSWG would be suitable for this task?

Sunday, 21 October 2012

Malaysia’s perennial problem: enforcement

In the CG Watch 2012 report, Malaysia scored only 7 points out of a maximum of 18 on enforcement, in other words a (very) disappointing 39%, only 1% higher than in 2010.

A sufficient score is about 60%, in the current tempo (1% improvement each two years) it would take Malaysia four decennia to reach this level. That is not in line with their ambition to be a developed nation in 2020.

The Securities Commission issued a rather positive press statement, without any criticism whatsoever. This while the CG Watch 2012 report showed:
·         That the SC and BM have only a “marginal” reputation for enforcement
·         They “marginally” treat companies and individuals equally
·         They have “no” track record regarding insider trading or market manipulation


·         Having “largely” sufficient resources (funding and manpower)
·         Having “somewhat” efficient powers to investigate and sanction

The Malaysian financial regulators have been overpromising and underperforming for much too long time on the issue of enforcement. A reversal is very much needed and long overdue.

They might want to ask their tiny Southern neighbour for advice. Singapore scored 11.50 out of 18, or 64%, it scored better in every single category or at least the same as Malaysia.
Not all the news was bad for Malaysia, the good news was mostly linked to improvements in "CG Culture" and the activities by the MSWG. These subjects will be covered in a future posting.

Further not so good news regarding institutional investors, questions 11 to 13.

And MACC? Read the last question and compare the scores for Malaysia and Singapore. Hopefully nobody is surprised about that....

Explanation of the scores:

Y = Yes        (+ 1 point);
L = Largely    (+ 0.75 point);
S = Somewhat   (+ 0.5 point);
M = Marginally (+ 0.25 point);
N = No         (0 point)

1. Do financial regulators in your country have a reputation for vigorously and consistently enforcing their own CG rules and regulations?
Malaysia “marginally” (0.25)
Singapore “yes” (1.00)

2. Have their efforts improved tangibly in recent years?
Malaysia “marginally” (0.25)
Singapore “largely” (0.75)

3. Are securities regulators seen to treat all companies and individuals equally?
Malaysia “marginally” (0.25)
Singapore “somewhat (0.50)

4. Are the regulatory authorities sufficiently resourced - in terms of funding and skilled staff—to do their job properly?
Malaysia “largely” (0.75)
Singapore “largely (0.75)

5. Does the main statutory regulator (ie, the securities commission) have effective powers of investigation and sanction?
Malaysia “somewhat” (0.50)
Singapore “yes” (1.00)

6. Has it been investing significantly more financial and human resources in investigation and enforcement in recent years? (eg, against cases of market misconduct such as insider trading, share-price manipulation, self-dealing)
Malaysia “somewhat” (0.50)
Singapore “somewhat” (0.50)

7. Has it had a successful track record prosecuting cases of insider trading and other market manipulation in recent years?
Malaysia “no” (0.00)
Singapore “largely” (0.75)

8. Does the stock exchange have effective powers to sanction breaches of its listing rules?
Malaysia “somewhat” (0.50)
Singapore “somewhat” (0.50)

9. Has it been investing significantly more financial and human resources in investigation and enforcement in recent years?
Malaysia “somewhat” (0.50)
Singapore “somewhat” (0.50)

10. Do the regulators (ie, the securities commission and the stock exchange) disclose detailed and credible data on their enforcement track records?
Malaysia “largely” (0.75)
Singapore “largely” (0.75)

11. Do institutional investors (domestic and foreign) exercise their voting rights?
Malaysia “somewhat” (0.50)
Singapore “largely” (0.75)

12. Are institutional investors actively voting against resolutions with which they disagree?
Malaysia “marginally” (0.25)
Singapore “somewhat (0.50)

13. Do institutional investors (domestic and foreign) often attend annual general meetings?
Malaysia “marginally” (0.25)
Singapore “marginally” (0.25)
14. Do minority shareholders (institutional or retail) often nominate independent directors?

Malaysia “no” (0.00)
Singapore “marginally” (0.25)
15. Do retail shareholders see the annual general meeting as an opportunity to engage with companies and ask substantive questions?

Malaysia “yes” (1.00)
Singapore “yes” (1.00)

16. Are minority shareholder activists willing to launch lawsuits against companies and/or their directors?
Malaysia “no” (0.00)
Singapore “no” (0.00)

17. Are minority shareholders adequately protected during takeovers, privatisations, and voluntary delistings?
Malaysia “largely” (0.75)
Singapore “largely” (0.75)

18. Is there an independent commission against corruption (or its equivalent) that is seen to be effective in tackling public- and private-sector corruption?
Malaysia “no” (0.00)
Singapore “yes” (1.00)

Saturday, 20 October 2012

End of an era for print editions

Fast changes in media companies due to the internet and mobile technology. The print edition of Newsweek will be halted, according to this article:

  There was a time when the newsweeklies set the agenda for the nation's conversation - when Time and Newsweek would digest the events of the week and US readers would wait by their mailboxes to see what was on the covers.   

Those days have passed, and come the end of the year, the print edition of Newsweek will pass, too. Cause of death: The march of time.   

"The tempo of the news and the Web have completely overtaken the news magazines," said Stephen G. Smith, editor of the Washington Examiner and the holder of an unprecedented newsweekly triple crown - nation editor at Time, editor of US News and World Report, and executive editor of Newsweek from 1986 to 1991.   

Where once readers were content to sit back and wait for tempered accounts of domestic and foreign events, they now can find much of what they need almost instantaneously on their smartphones and tablet computers. Where once advertisers had limited places to spend their dollars to reach national audiences, they now have seemingly unlimited alternatives.   

So on Thursday, when Newsweek's current owners announced they intended to halt print publication and expand the magazine's Web presence, there was little surprise. But there was a good deal of nostalgia for what Smith called "the shared conversation that the nation used to have", when the networks, the newsweeklies and a few national newspapers reigned. 

And according to this article, Guardian is considering the same:

Guardian 'seriously discussing' end to print edition

The publisher of the Guardian and Observer newspapers is close to axing the print editions of the newspapers, despite the hopes of its editor-in-chief Alan Rusbridger to keep them running for several years.

Senior figures at Guardian News & Media are seriously discussing the move to an entirely online operation, it has been claimed, leaving Mr Rusbridger increasingly isolated.

The longstanding Guardian chief wants to develop the Guardian’s digital-only US operation before pulling the plug on the print edition, in the hope that it will provide a useful blueprint for the online business in Britain.

However, trustees of the Scott Trust, GNM’s ultimate owner, fear it does not have enough cash on its books to sustain the newspapers for that long, according to More About Advertising, the website run by former Marketing Week editor Stephen Foster.

The Guardian publisher has spent the last few years battling to stem losses of £44m a year. However, it has been slow to make savings and any money that it has clawed back has been spent on expanding its US and online operations.

The investments helped to fuel a 16pc increase in digital revenues to £45.7m last year, but this was not enough to balance GNM’s operating losses which widened from £31.1m.

Friday, 19 October 2012

China's GDP is "man-made," unreliable

What many observers have been saying all the time seems to be confirmed in this article: Chinese GDP numbers are unreliable. China is not the only country with statistics that are "massaged", there are for instance enough people who shed doubt on the US inflations numbers and unemployment statistics (both being understated).

 (Reuters) - China's GDP figures are "man-made" and therefore unreliable, the man who is expected to be the country's next head of government said in 2007, according to U.S. diplomatic cables released by WikiLeaks.

Li Keqiang, head of the Communist Party in northeastern Liaoning province at the time, was unusually candid in his assessment of local economic data at a dinner with then-U.S. Ambassador to China Clark Randt, according to a confidential memo sent after the meeting and published on the WikiLeaks website.
The U.S. cable reported that Li, who is now a vice premier, focused on just three data points to evaluate Liaoning's economy: electricity consumption, rail cargo volume and bank lending.

"By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are 'for reference only,' he said smiling," the cable added.
Li is widely expected to succeed Wen Jiabao as premier in early 2013, a position that will put him in charge of policy making in the world's second-biggest economy.

A news official in the Chinese foreign ministry declined to comment on the specific cable and referred to comments last week in which a ministry spokesman called on the United States to resolve issues related to the leaks.

A spokesman for the U.S. Embassy to China was not immediately available.
Chinese economic numbers, especially at the provincial level and lower, have long been viewed with suspicion by analysts.

"That China's GDP is not reliable, especially for local GDP, that is nothing new," said an economist with a foreign bank who requested anonymity because of the sensitivity of discussing top national leaders.
"Some of the volume data, such as power and rail freight and even (bank) credit, are interesting because there is less incentive to massage them at the local level. But they reveal only part of the truth, not the entire truth," he said.

"This would be a useful measure for steel and cement production. I'm not sure how well it would measure retail sales."

Li would naturally have been most interested in heavy industry in his stewardship of Liaoning's economy. The province is one of China's top producers of steel, petrochemicals and machinery.

STATS Skeptic

Li has also gone on the record before to ask for more from the government's statisticians.
During a 2009 visit to the National Bureau of Statistics, Li asked whether China calculated GDP on a monthly basis.

Li pressed on when he was told that data was gathered quarterly and that monthly calculations were difficult.
"Do Western nations make monthly calculations?" he asked, according the NBS website.
The U.S. embassy memo, sent on March 15, 2007, described Li as engaging and well informed. It said that he was trying to create a "harmonious society" by providing new housing to the poor and creating jobs for every household.

Li noted public dissatisfaction with education, health care and housing but said that official corruption was the biggest source of anger, the cable said.

He was reported as saying that the most effective way to combat corruption was to create transparent rules and to ensure adequate supervision, while also educating officials.

"Part of this education involves prison tours that force bureaucrats to visit incarcerated officials convicted of graft in order to witness first-hand the consequences of malfeasance," the cable said.
(Reporting by Simon Rabinovitch; Editing by Daniel Magnowski)

Thursday, 18 October 2012

Some ways to improve the government

Very good article from Tommy Thomas in The Edge of October 15, 2012, in the "Notes to the cabinet" series.

MALAYSIA is at a crossroads 55 years after Merdeka. Remedial measures must be taken on a wide range of areas in order to improve the well-being and welfare of the people, which, after all, is the pre-dominant purpose of every government. I would like to highlight two key areas of national life, which require the government's attention.

The issues the government has to tackle on the economic front are numerous and varied. Some can be addressed immediately, some over the course of a five-year term and some over an even longer time horizon.

The government must avoid the precedent set in the previous and present administrations where the prime minister also serves as the Minister of Finance. Of all the cabinet posts, managing a nation's Treasury is the most demanding and time-consuming. Even in a small company, a managing director seldom serves as the CFO. Public-listed companies also split the positions. Accordingly, the cabinet should appoint someone who enjoys its trust and confidence and who is conversant in financial matters as its Minister of Finance.

(i) Fiscal measures — collection of revenue

The present system of income tax collection is terribly inefficient. It defies belief that out of a labour force of more than 10 million, only about 1.3 million pay any form of income tax. Further, apparently only about 30,000 individuals pay tax at the highest rate of 26%. Common sense will indicate that most businessmen, (whether running companies, small and medium-scale enterprises or even small stores) earn sufficient income to pay at the highest bracket, which is just RM100,000. So do most professionals, politicians, civil servants and academia across the nation. Surely there are at least one million Malaysians earning an income which would which would place them in the highest tax bracket! If one drives around greater Kuala Lumpur, one would notice hundreds of thousands of homes with luxury cars. All these persons should be paying tax at the highest rate.

Similarly, there is inefficiency in the collection of corporate tax. Of the one million companies incorporated in Malaysia, about 500,000 actually carry out businesses. They should all be paying significant sums of corporate tax. The well-known phenomenon of keeping many sets of financial books and records to avoid paying the true amount of tax must be attacked by more efficient and honest investigation. If the collection of income and corporate tax and customs and excise duties enhances by a substantial level, there would be no need for the Goods and Service Tax, which would operate harshly and inequitably on the poor because it is a tax on consumption, as opposed to a tax on income.

Finally, reliance on Petronas, which apparently is the source of about 45% of all government revenue, must be reduced.

(ii) Reducing deficit

The 15 successive years in deficit from 1997 must cease within a reasonable period. The government should quickly announce a timetable by which we should return to surplus, say, over a period of five to seven years. Whether our true debt as at December 2011 is RM456 billion, representing 52% of GDP, or RM573 billion (if contingent liabilities are also included in its calculation), which would represent 67% of GDP, it is too high for comfort. A substantial proportion of the annual deficit has been used to finance the salaries, bonuses and pensions of the bloated civil service; a classic case of consumption rather than investment. We must stop the habit of living beyond our means!

(iii) Diminishing state intervention The government should not be entering into what would clearly be private sector areas, for instance, undertaking huge building construction projects like mega-projects mentioned in Budget 2011 — the RM26 billion KL International Finance District and the RM5 billion 100-storey Warisan Merdeka Tower. We already have both a property bubble and an overcapacity of buildings in Kuala Lumpur, Penang and Johor.

Subsidies paid by Petronas to rich companies for gas supplies, which totalled RM11.6 billion in 2011, must cease. A major review of lopsided contracts and concessions to favoured businessmen in the energy, transport and other sectors must also be undertaken. Open, transparent tender systems must be used for the awarding of all contracts.

(iv) Reducing dependence on foreign labour

Apparently there are about four million immigrants (both legal and illegal) in our labour force. Apart from causing socio-political problems, they keep wages low, to the detriment of Malaysian workers. Accordingly, there should be an announcement that over a reasonable period of time, say, five to seven years, reliance on foreign labour would drastically reduce. At the same time, trade unions must be encouraged, salaries for Malaysian workers must increase substantially over time and productively must be bettered. Greater collaboration with labour must be encouraged.

Democratic space

One cannot enjoy full economic freedom without full political liberty. In order for the nation to be a fully functioning democracy, the administration must govern with a "light touch" by opening up space for the people. Access to the media must increase by leaps and bounds. The national radio and television systems are funded by taxpayers' money: they are national assets that should not be the monopoly of the ruling party.

The international model for this is the BBC. Thus, liberate the broadcast services from government control by appointing persons who are truly independent to manage them, free from governmental interference. Opposition parties, civil societies and others must be given equal access.

Likewise, the newspapers. Political parties should cease controlling newspapers, both at the shareholder and management levels. If the government does not wish the newspaper industry to be a sunset industry because of the Internet revolution, remove all the fetters holding it back.

Organisations that take up causes critical of the government must not be intimidated by the mighty power of the State. Persons who challenge the government's actions or omissions must also not be harassed.

Diversity of views and real tolerance must be the catchwords of the administration. Free speech and expression mean listening to statements that are critical and condemnatory of the government, for free speech is not just adulatory!

Tuesday, 16 October 2012

Dear Samin ....

I am resigning from the board of Bumi PLC with immediate effect. It is my opinion, based on discussions with you and on your actions, that you are not trying to protect the interests of minority shareholders. Rather, I believe that you are complicit in their oppression. And, I regret to say, it also my opinion that investors cannot have confidence in the ability of the PLC Board to do the right thing.

As you know, the Board announced last month that it had learned of “allegations concerning, among other matters, potential financial and other irregularities”, and commissioned an urgent investigation. Given the scale of the alleged irregularities, as well as other facts not yet in the public domain, it would be a disgrace to proceed with, or even to entertain, the proposal made by the Bakries last Wednesday, October 10. Based on news reports and other sources, it appears that you shall be reimbursed for your investment at a price of £10.91 a share, whilst other investors see an estimated return of just £4.30 a share. This is a clear breach of the spirit and, I believe, the letter of the takeover code.

You appear determined to drive through the Bakries’ proposal. I believe that this proposal is so obviously not in the interests of minority shareholders that I find it impossible to stay on as a Director. I am afraid that I have lost confidence in the ability of the PLC Board to stand up for investors. In November last year, six months after the April 2011 closing of the Acquisition, I realised that there were some serious irregularities at Bumi Resources – most of all the reluctance of Bumi Resources to recall $500 million advanced to Recapital and Rosan Roeslani, when Bumi Resources was highly leveraged and needed a source of funds to de-lever. Unfortunately, I now suspect that the Bakries and Roeslani have been acting in concert from the beginning. I am not surprised, therefore, that Mr Roeslani remains silent now, and happy for the Bakries to proceed with this derisory offer. But I am astonished that the PLC board has failed to take any action against Mr Roeslani thus far.

It is a matter of great regret for me that I was a party, with our advisers, to bringing the Bakries to London. As someone who loves Indonesia, it is also a matter of profound unhappiness that you and they have done such damage to Indonesia’s reputation internationally. The vast majority of Indonesian business people are shocked by the appalling impression Bumi PLC has given to potential foreign investors in Indonesia. They recognise that Indonesia needs massive FDI (Foreign Direct Investment) in order to sustain its economic growth. The Bumi PLC story is a small but high-profile impediment to ensuring that growth, especially when resource nationalism is repeatedly used to abuse minority shareholder rights. I am determined to fight for my fellow investors and can do that better from outside the tent.

For convenience, I attach a copy of the letter which I sent to Indra Bakrie and the PLC Board on November 13 last year. As I said then: “losses once made do not permanently ‘fly away’. They almost always come home to roost”.

Yours sincerely,

Nat Rothschild

More about this letter to Samin Tan, Chairman of Bumi PLC, on the website of  FT and The MalaysianInsider.

Has Rothschild always been completely consistent? Not exactly, to put it mildly, according to this article from 2011.

Although I am not happy about the status of Corporate Governance in Malaysia (it is improving, but especially enforcement is still much too weak for my liking), it is way above the level in Indonesia. Singapore scores 69 in the CG Watch 2012, Thailand 58, Malaysia 55 and Indonesia 37 (even below the Philippines at 41).

Investors who rush into Indonesia for the promised pot of gold might be in for a surprise.

Sunday, 7 October 2012

Just 2% of Astro's shares to the Malaysian public at large

Another excellent column from P. Gunasegaram in The Star, some snippets:

Astro’s initial public offer yet again demonstrates how retail investors are discriminated against

Initial public offerings or IPOs these days are a misnomer of sorts. Why? Because the proportion of shares offered to the public are a tiny proportion of the total number of shares offered to gain a listing.

That's a shame at least in Malaysia where there is substantial retail demand for these IPOs, especially those which are considered to be investment grade and offer good probabilities for recurrent income and dividends on top of price appreciation.

But ironically, retail investors basically the Malaysian public are systematically and deliberately shut off from these IPOs and instead foreign and local institutions, and even some individuals are blatantly favoured in the allocation of those shares.

Out of the 269 million shares for the Malaysian public, only 104 million, just 2% of the paid-up capital or just under 7% of the offer shares was allocated to the Malaysian public at large, hardly an initial public offering.

And here's the interesting part, the public issue for the 104 million shares was oversubscribed more than six times. That means the Malaysian public was prepared to subscribe for 624 million shares, even when they knew the chances of getting an Astro share was small.

Should they not be given a far better chance of getting Astro shares?

Perhaps what is most galling about the entire thing is that there is a system by which fair allocation can be made to retail investors. The solution is quite simple.

Just wait for all the responses, both institutional and retail, for the offering and then allocate it fairly according to a publicly disclosed formula instead of setting the proportion for retail at a ridiculously low level way in advance.

I hope that one day, when the dust is settled, research is done how things panned out, how long those "cornerstone" investors actually held on to those shares, how much profit they made, etc.

Thursday, 4 October 2012

SC's bid to disqualify judge rejected

According to this article on the website of The Edge Malaysia, the Securities Commission lost its bid to disqualify High Court Judge Abang Iskandar Abang Hashim to recuse himself from hearing a suit challenging Sime Darby's controversial purchase of a 30% interest in E&O. Hopefully the suit by minority shareholder Michael Chow Keat Thye will continue soon.

This is not the first time that Sime Darby has run into problems regarding a share purchase. Blast from the Past, from the website from the Securities Commission: Sime Darby and its Board of Directors being reprimanded in 1998 regarding the purchase of shares of Sime Bank. Was the reprimand a strong enough punishment, and why were the Directors involved not individually named? Some snippets:

The Securities Commission (SC) today reprimands Sime Darby Berhad (Sime Darby) and its Board of Directors responsible for the take-over of Sime Bank Berhad (Sime Bank)

In the case of Sime Darby and its Board of Directors responsible for the take-over of Sime Bank, the SC had decided to issue them a public reprimand for their indifferent attitude in handling the take-over transaction of Sime Bank resulting in the breach of Rule 34.1 (a) of the Code after taking into consideration their subsequent attempts to fulfill their obligation, which unfortunately could not be discharged as a consequence of the drastic change in the financial position of Sime Bank which resulted in their having to divest their entire shareholdings in Sime Bank.

Chronology of events in Sime Darby's case

On 11 November 1995, Sime Darby entered into a conditional agreement with Datuk Keramat Holdings Berhad (DKH) and UMBC Holdings Sdn Bhd, a wholly-owned subsidiary of DKH, to acquire 201,168,890 Sime Bank shares, representing 60.35% equity interest in Sime Bank, for a cash consideration of RM1,300,000,000 or approximately RM6.46 per share. Following this acquisition, Sime Darby was obliged to extend a MGO on the remaining 132,164,322 shares in Sime Bank under Rule 34.1(a) of the Code.

The SC had on 16 February 1996 given its confirmation to Sime Darby that they had to undertake the MGO for the remaining shares in Sime Bank. The acquisition of Sime Bank by Sime Darby Group was completed on 22 April 1996, whereby the acquisition was made through, Sime Darby's wholly-owned subsidiary, Sime Darby Financial Services Holdings Sdn Bhd (SDFS). Sime Darby did not carry out the MGO due to the limitation on its interest in Sime Bank permitted by Bank Negara Malaysia (BNM) then.

Subsequently, on 12 March 1997, Sime Bank completed a rights issue of 166,666,606 Sime Bank shares at an issue price of RM6.50 per share on the basis of one new Sime Bank share for every two existing Sime Bank shares.

The SC had reminded Amanah Merchant Bank Berhad (Amanah), Sime Darby's adviser, of Sime Darby's outstanding obligation and the need to resolve the matter as soon as possible. Subsequently, Amanah, on behalf of SDFS, informed SC that SDFS had on 17 October 1997 obtained BNM approval and proposed to extend an unconditional mandatory general offer for the remaining shares in Sime Bank not already owned by SDFS. Between October 1997 and January 1998, several applications were made by Amanah, on behalf of Sime Darby, for revisions in the terms and conditions of the MGO.

Change in ownership

Towards the end of February 1998, Sime Darby indicated that it might not be possible for them to pursue the MGO as a change of ownership in Sime Bank was imminent. On 10 March 1998, Rashid Hussain Berhad (RHB), Sime Darby and KUB Malaysia Berhad (KUB) released a joint statement in respect of the signing of a conditional sale and purchase agreement for the acquisition by RHB Group of Sime Bank for the purpose of a merger with RHB Bank Berhad (RHB Bank). Sime Darby through its wholly owned subsidiary, SDFS, decided to dispose of its entire 60.35% equity interest  comprising 301,753,335 shares of RM1.00 in Sime Bank while KUB would dispose of 150,043,120 shares representing 30.03% equity interest in Sime Bank to RHB Bank Berhad (RHB Bank) for a total purchase consideration of RM770 million or approximately RM1.70 per share.

With the new development involving the changes in ownership in Sime Bank, the SC had, on 31 March 1998, written to Amanah to inform them of Sime Darby's outstanding obligation on the MGO and required them to revert on their plan to address the obligation. On 13 April 1998, Amanah replied and informed the SC that BNM via its letter dated 9 April 1998 had withdrawn its earlier approval given via a letter dated 17 October 1997 for SDFS to undertake a MGO and that Sime Darby was in no position to undertake the general offer.

SC issues show cause letter

The SC views seriously the failure of Sime Darby to carry out the MGO and had on the 12 May 1998 issued a show-cause letter to the Board of Directors of Sime Darby seeking explanations on why appropriate action should not be taken against them for failure to undertake a general offer for the remaining voting rights in Sime Bank. Sime Darby explained that the market downturn and the financial problems at Sime Bank and Sime Securities Sdn Bhd had prevented them from discharging their MGO obligation.

Wednesday, 3 October 2012

OCBC wins appeal against Frontken's former CEO

Singapore Law Watch has the details of a court case where a unit of OCBC won its appeal against the former CEO of Frontken, Wong Hua Choon. The full judgement can be found at the bottom of the article.

Lawyers said the appeals court's 36-page judgment helped to clarify the law on the circumstances that show when an oral deal is binding as a contract.

But Malaysian invstors might also be interested in the deal itself between OCBC, Frontken and its then CEO:

In the case, OCBC Capital Investment Asia (OCIA) had entered into a risk-sharing deal to help Bursa Malaysia-listed Frontken Corp with 27.6 million shares acquired in 2007. It had invested some RM15 million in Frontken's shares.

Frontken, which maintains equipment in the semiconductor and other industries, is a RM130 million (S$52 million) enterprise with a presence in several countries in the region.

Its president and chief executive Wong Hua Choon personally agreed to underwrite any downside fluctuation risk to the shares for six months after they were listed.

Under this risk participation agreement, he would pay the difference if the share value fell below the floor price of 47 sen per unit, should OCIA opt to sell within the six-month period.

The 2008 global financial crisis sent the share price plunging, and when OCIA wanted to sell its Frontken shares on the open market, Mr Wong stood to pay a potential RM7 million to make up the difference.

Talks followed and Mr Wong agreed to buy 3.7 million shares at 54 sen per share, and for him to enter a new risk guarantee period for the remaining OCIA shares from July 2010 with no expiry date as long as OCIA held the shares.

The parties orally agreed at a Singapore meeting in June 2009 on the terms and to follow up with the formal documents on this supplementary agreement.

But as Mr Wong did not sign the formal papers by an August 2009 expiry date, he took issue with whether he was bound by any deal.

The deal itself looks quite risky, although the global economy appeared to be doing well in 2007, cracks started to appear.

Another question is if these kind of deals should be revealed to investors, it appears to be material information. In a crisis situation it could easily lead to forced selling of a large amount of shares.

This is the 5-year graph of Frontken's share, not a pretty picture:

Tuesday, 2 October 2012

CAD probes troubled gold trader Genneva

More news from the raid on Genneva's office in Singapore:

Genneva Pte Ltd, the gold trading company that has been the subject of a literal run by its customers, is under investigation by the Commercial Affairs Department (CAD) for alleged "financial improprieties".

Its Orchard Tower offices were raided by CAD yesterday. The office is closed and its website is frozen. A number of employees were taken in for questioning. The police has confirmed that investigations are ongoing.

Matthew Kurian of Regent Law, who is retained by Genneva as its legal counsel, said that the firm is conducting its own internal investigation and has appointed forensic accountants. "The company intends to honour all its obligations. They are coming up with a plan."

A letter by Lim Kieng Justin, who has just taken over as Genneva general manager, said that the discovery of financial improprieties "some time back" has led to a delay in the payment of discounts, commissions and fulfilment of buy-back guarantees. The letter, dated Sept 28, was posted on the Web.

Mr Lim is a director of an apparently related company, Genneva World Pte Ltd, which was registered for business in March this year. He is not a director of Genneva.

Mr Lim wrote that the directors have lodged the necessary police reports and put in place new management staff. ". . . the directors are in the midst of negotiations with an external party who is prepared to assist the company and see it through this financial crisis. The objective of the directors is to ensure that all obligations to the company's customers and consultants are met."

He also wrote that the company would organise dialogue sessions with customers and agents in 7-10 working days. He urged customers and agents to remain calm and "help us work out (an) amicable solution for everyone".

Genneva is understood to have received several letters of demand from aggrieved customers who have entrusted gold to the firm or are owed the fulfilment of Genneva's buyback undertaking.

BT reported last week that at least two customers have filed suits in the Subordinate Court for Genneva to fulfil the terms of its buyback. At least one has secured an interlocutory judgement pending an assessment of costs. Prior to the judgement, Genneva did not respond nor contest the suit. Mr Kurian said that Genneva was looking into making an application to the courts for the judgement to be set aside and to file a defence.

Goh Kok Yeow of De Souza Lim & Goh, who represents the plaintiff Lee Bee Ghok in the case, said: "We will not agree and will vigorously oppose the application because they have no legal reason to do so."

Genneva operates under a police licence that allows it to deal in second-hand gold. Its model is to sell gold to customers at a hefty premium to the market. As at August, it listed a price of $96 per gram on its website. The indicative retail gold price at UOB yesterday was about $70.15 per gram or $70,149 per kilobar.

Genneva customers buy gold at a 1.5 or 2 per cent so-called discount off its list price. Genneva undertakes to buy back the gold in one or three months, at the list price, and customers pocket the 1.5 or 2 per cent discount. Assuming a monthly rollover, they stand to earn as much as 24 per cent year. Lately, some customers have been offered a discount of as much as 2.5 per cent.

The last few weeks have seen Genneva grapple with its worst case market scenario - that of a rush among customers for the exit. In that time, it has imposed a limit on the daily buyback of gold that it can do - reportedly five kilobars a day. Agents are also reportedly owed commissions for more than six months.

Three Genneva directors - Marcus Yee Yuen Seng, Ng Poh Weng and Chin Wai Leong, who are also directors of Genneva Sdn Bhd - are being sued by Bank Negara in Malaysia for alleged illegal deposit taking and alleged offences under anti-money laundering laws. The case is ongoing.

Genneva is in the Monetary Authority of Singapore's Investor Alert list, which tells investors to be on guard against unlicensed entities. Other gold companies such as The Gold Guarantee and Asia Pacific Bullion are also on the list.

Written by Genevieve Cua from Business Times, website.

Monday, 1 October 2012

Sir John Templeton: 16 Rules for Investment Succes

Interesting set of rules from legendary investor John Templeton:

1. Invest for maximum total real return
2. Invest — Don’t trade or speculate
3. Remain flexible and open minded about types of investment
4. Buy Low
5. When buying stocks, search for bargains among quality stocks.
6. Buy value, not market trends or the economic outlook
7. Diversify. In stocks and bonds, as in much else, there is safety in numbers
8. Do your homework or hire wise experts to help you
9. Aggressively monitor your investments
10. Don’t Panic
11. Learn from your mistakes
12. Begin with a Prayer
13. Outperforming the market is a difficult task
14. An investor who has all the answers doesn’t even understand all the questions
15. There’s no free lunch
16. Do not be fearful or negative too often
For an explanation of the 16 rules, please visit this website.