Tuesday, 31 December 2013

Amin Shah and the Singapore-Batam ferry (2)

I have written before about this case, for more details I recommend the reader first to read that blog post.

There is a new development, a judgment in an appeal by JR Marine Systems Pte Ltd against Bernadette Adeline Rankine.

The crux of the matter:
The Decision, going against Amin Shah in favour of Bernadette Rankine:

And one final observation by the judge:

In the case of the Singapore-Batam ferry, reference is made to an Australian court case between JR Marine Systems Pte Ltd and Wavemaster International Pty Ltd (a shipbuilder), I found this link.

To complicate matters even further, Ms. Rankine had filed a complaint against lawyers for professional misconduct, but withdrew the complaint later on, the case can be found here.

Sunday, 29 December 2013

SGX advertizes company featured on the MAS Investor Alert list

I went to the SGX website to do some research and by chance I ran into the below advertisement at the bottom of the SGX website:

I was rather curious about which company can guarantee 3% per 3 month in the current climate of uncertainty.

The website of Infinity Treasures can be found here.

I expected a list of managers with their proven track records, lists of long term investment returns of the past, lists of concrete assets that the funds own, detailed year reports, auditors and trustees etc., but I didn't.

Instead I did find many pictures of happy smiling people, and returns offered that sound simply too good to be true:


High returns are always accompanied by high risk, but there is no mentioning about risks.

As a personal choice, I avoid these kind of investments like the plague, these investments are sold (not bought), often the hard way.

My curiosity increased further when I looked at the website of MAS (Monetary Authority Singapore) at their investor alert list:

Infinity Treasures is listed on the MAS Investor Alert List!

Going back to the SGX website, a detail popped up as my mouse went over the small blue triangle on the right:

In other words, the advertisement is ran by Google AdSense. According to Wikipedia:

"Google AdSense is a program run by Google that allows publishers in the Google Network of content sites to serve automatic text, image, video, or interactive media advertisements that are targeted to site content and audience. These advertisements are administered, sorted, and maintained by Google, and they can generate revenue on either a per-click or per-impression basis."

Does the SGX really need the money of AdSense that they allow on their website targeted advertisements selected by Google (not by SGX), which might include advertisements for websites that are on the Investor Alert List of the MAS?

Frequent visitors of my blog know that I am very much against privatizing stock exchanges (including Bursa and SGX). Stock exchanges should not be about maximizing profits for their shareholders, and thus should never have been listed in the first place.

Wednesday, 25 December 2013

No XMas present for Hibiscus shareholders

Hibiscus Petroleum announced yesterday its findings regarding the first oil well:
  • Mud losses in two carbonate sections of the well prevented Masirah Oil Limited from reaching its planned target depth.
  • Data analysis indicated presence of non-commercial hydrocarbons.
In other words: bad news for Hibiscus shareholders.

I have written in the past in cautious terms about SPACs and Hibiscus, I think many investors who rushed to buy its shares went over their head in expectations. The oil & gas industry is a hit and miss industry, with much more "misses" than "hits". Fortunes have been made, but also been lost, many well known entrepreneurs have tried it and failed.

The above drilling result does not mean the end for Hibiscus, but it does put things in perspective. Expectations were high, very high, probably too high, also partly fuelled by the company itself:

"The prospect MNN #1, which is about 1,000 metres in depth, was selected for drilling after in-depth technical evaluation and verification using the proprietary Rex Virtual Drilling technology, in addition to confirmations provided via conventional methodologies."

And before the company wrote this about their Rex technology:
  • "significantly increases the chances of success in drilling for oil and gas"
  • "repeatedly and accurately predicted the presence or absence of oil without physically drilling a well"
  • "in eight 'blind' tests .... the technology was successful in all cases". 

"MalaysiaFinance" wrote about the possibility of insider trading, which does indeed look worrisome, hopefully the authorities will investigate in depth.

I would like to draw the attention of the readers to the rather peculiar timing of the events, announcing the results during the holidays, when most likely authorities and fund managers etc. are on holiday.

We saw the same happening to Protasco's Puzzling Purchase which was announced during the Christmas break. It is one of the strangest corporate proposals in Malaysia in the last ten years that somehow or the other was done just before the year end. Despite expectations raised by the company that the deal would be wrapped up in a short time, now, one whole year later, minority shareholders are still left in the dark.

Returning to Hibiscus, the company has booked operational losses so far in its history, which in itself is not such a surprise, given its short existence and the long lead time to earn real revenue.

It was able to book a paper profit due to the following corporate exercise:

Hibiscus Petroleum Bhd said a corporate investor, Palladium Fund Management Inc has acquired a 15% stake in its joint venture company Hirex Petroleum Sdn Bhd via a US$10 million (RM31.5 million) investment.
"The subscription is expected to provide Hirex with sufficient working capital to fund its other operational costs for the next two years,'' it said in a filing with Bursa Malaysia yesterday.
Palladium's entry is expected to result in an increase in the proforma earnings of Hibiscus for the financial year ending March 31, 2014 by RM12.6 million, or 4.2 sen a share.
"The increase earnings is mainly derived from the one-off gain arising from the dilution in Hibiscus' equity interest in Hirex from 48.24% to 41%,'' Hibiscus said.

The strange thing is that searches on "Triax Ventures Corp" and "Palladium Fund Management" do not reveal any information at all about these companies. Which is rather speculiar for a company engaged in fund management in the age of the internet.

Sunday, 15 December 2013

SPACs: two very different views

Frequent readers of this blog probably know that I am very sceptical towards SPACs, in general and more specifically in the Malaysian low enforcement environment. Articles can be found here, here and here.

However, I do acknowledge that the SC has tightened the initial rules regarding SPACs and also rejected quite a few SPAC applicants (even with some VIPs involved), so that is definitely good news.

Two articles about SPACs this week, two very different opinions.

To start with Errol Oh wrote "Time to end the SPAC-ulation?" in The Star.

A good, well balanced article I think. I especially like the last two paragraphs:

"There are a lot of ifs and buts about SPACs. That’s not necessarily reason enough to reject them, but if people ignore the uncertainties and are quick to believe just any story about an imminent QA, we may be better off without SPACs.

Executive editor Errol Oh was once intrigued by the idea of SPACs being listed in Malaysia. He may have overestimated the maturity and sophistication of investors here."

Completely different is the article in The Edge Malaysia "SPAC, a new promising investment platform" from Gan Kim Khoon, who we encountered before in this blog article.

Gan's article leans very much towards SPACs in a rather unabashed, positive way. To write in detail what I don't like about it would take too much space, so I will just stick to the main points:

"In introducing new instruments, the intent is to bring variety and vibrancy into financial market activities, while safeguarding investors’ interests and promoting confidence. In that respect, the Special Purpose Acquisition Company (SPAC) instrument introduced by Securities Commission Malaysia (SC) in 2009 is no different from any other financial instruments introduced by SC in the past."

That is quite a statement, as far as I remember Malaysia never listed companies with no track record, no assets, no business.

Another issue is, why should a market actually be vibrant? The companies that have brought the most value to minority shareholders are often the most boring companies.

"SPACs are a well established instrument designed to help entrepreneurial, skilled management teams to start new businesses and can represent high-return investment instruments for public investors at the earliest stage of value creation."

Well established, in which country exactly? I have read mostly negative stories about SPACs so far in a global context.

"High-return" often is accompanied by "high-risk", should people who invest in counters listed on Bursa invest in high-risk companies? The current batch of listed companies which IPO-ed with a business is already risky enough, I think.

"Clearly, the SPAC model can and does work."

I would first like to read some thorough research on that before I would agree with that statement.

"Imagine being offered the opportunity to buy into Facebook when Mark Zuckerberg was still in his Harvard dormitory (or Bill Gates or Steve Jobs, for that matter)."

Wow, talking about making statements with 20/20 hindsight. Just pick some of the most successful companies ever and then assume the managers of SPACs can identify them correctly in an early stage and act upon that with confidence by investing in them. Which SPAC actually did invest in these three companies? My guess is none. And what about the hundreds of failures for each success case, which is quite typical for these tech start-ups?

"SPACs may be assetless at the time of listing, but they do have a business plan that is as detailed and robust as that of any IPO."

It seems that Gan and I have a rather different opinion about what a business plan is. For me it describes past, present and future (including forecasts etc.). Regarding past and present, one sentence will do for SPACs since there is nothing except for a few people in a management team. Regarding the future, at the moment of an IPO the assets that the SPAC is going to acquire are unknown, therefore there is no possibility to give any forecast whatsoever.

"It stated that the average return of SPACs that completed a business combination between September 2003 and March 2006 was nearly 40%."

The period over which the profit is reported (only 2.5 years) is much too short to make any reliable assumption whatsoever. Also, readers should note that 2003 until 2006 was during the "happy go lucky" Greenspan/Bernanke time. I would like to see the returns from March 2006 until September 2008, the hart of the global financial crisis. I am sure that numbers will be very different, and will start with a minus sign. We need to see at least ten (preferably twenty) years for measuring returns, with at least one recession included.

The whole article "Special Purpose Acquisition Companies: SPAC and SPAN, or Blank Check Redux?" can be found here. The article is based on US companies in their environment, which is quite different from the Malaysian situation.

How SPACs in Malaysia will perform in the long term (in real operational earnings or in profitable asset disposals), I guess we have to wait and see. For the time being, I remain (very) sceptical.

Saturday, 14 December 2013

Questions regarding aborted Berjaya Toto listing in Singapore

YC Cheok asked me to post a link to the article on his blog, I am happy to comply with his request:

"An Open Letter to MSWG - Lack of transparency in abortion of proposed listing of STM trust by Berjaya Sports Toto Berhad"
Dear MSWG person in charge,

I was wondering, what minority stock holder can do, to address the below matter?

By referring to page 2, and page 10 Berjaya Sports Toto Berhad Q2 2013 quarterly report

For the quarter
As compared to the previous year corresponding quarter ended 31 October 2012, the Group recorded a decrease in revenue and pre-tax profit of 4.6% and 20.8% respectively. The higher percentage decrease in pre-tax profit was mainly due to the corporate exercise expenses incurred pursuant to the proposed listing of STM Trust (which was aborted) in the current quarter under review. The drop in the Group's pre-tax profit would be 8.9% should the corporate exercise expenses be excluded.
To find out how much is spent for corporate exercise expenses

* All figures are in '000

127,827 (Q2 2013)
161,451 (Q2 2012) (-20.8%)

If corporate exercise expenses be excluded.

147,082 (Q2 2013)
161,451 (Q2 2012) (-8.9%)
corporate exercise expenses = 19,255 (In '000)
Even without spending RM19,255,000, we can definitely find out Singapore Stock Market is not suitable for dual listing in early stage.

So, why we need to spend RM19,255,000 to learn this simple lesson? Isn't there is something fishy behind?

I feel the entire transaction is lack of transparency? May I know, what action minority shareholders can take, to get the above question answered? 
Thanks. Cheok

I would like to add the following. The reason given by Berjaya Sports Toto is the following:

"On 2 December 2013, the Company announced that the Board decided not to proceed with the proposed listing after considering the challenging market conditions and the poor performances of the listed yield stocks such as real estate investment trusts ("REIT") and other business trusts in Singapore."

That is rather strange, REIT's have been trading at a discount for a long time.

Regarding business trusts in Singapore, I wrote about that before, most notably:

We should not worry about lagging behind because we can learn from the Singapore experience,” a banker says, pointing to the fact that most business trusts in Singapore have so far been performing badly, trading below the initial public offering prices, and causing some investors to suffer losses.

In other words, nothing new under the sun. So why exactly did they want to list in the first place, at such a high cost to the company, as explained by Cheok.

Friday, 13 December 2013

Insider trading: regulatory settlements

The Securities Commission published on its website some regulatory settlements.

About the first issue (The Malaysian Insider issuing an apology) we wrote already before.

The second and third issue deal with insider trading in shares of Worldwide and Orisoft Technology.

I have three comments about the settlements:

[1] Again the enforcement reflects a settlement "without admission or denial of liability". I find that very weak, why do the authorities (SC and BM) almost always settle alleged insider trading cases with a settlement? It leaves an unsatisfactory taste. I wrote before about this same issue.

[2] Another issue is regarding this statement: "In accordance with the provisions of section 90A(7)) of the SIA, the amount recovered from Lew @ Leow Muy Lai will be used first to reimburse the SC for all costs of investigations and proceedings. Any remaining amount, if available, will be used to compensate the sellers who sold their Worldwide shares before the information became generally available."

Interestingly, in Hong Kong there is a settlement for insider trading, the amount involved is HKD 23.9 million, the verdict can be found here. David Webb comments on the settlement:

"This is the first restoration order for insider dealing. We question the fairness of the allocation though. 297 sellers whose orders just happened to be matched with his, during an 11-week period in which he bought 26.7m shares, will get about $0.90 per share - even though some of them may have been net buyers during the period. The whole market was unaware of the good news, and anyone who sold shares during that period, when volume was 1844m shares, but not to Mr Du, gets nothing. That turns the payout into a lottery with about a 1 in 69 chance of success."

As usual I have to agree with David Webb. One essential element of trading is that you don't know with whom you are trading. Therefore it is rather strange to treat some people who sold shares differently from other people who sold shares of the same company on the same day, both groups of people not knowing what was going on.

[3] The trading on Bursa happened in 2006, 2007 and 2008, in other words between five and seven years ago. Why do these cases take so long time, especially when they only lead to "without admission or denial of liability"? I really think enforcement should be much faster, "justice delayed is justice denied".

I have to admit, the Hong Kong case also happened in 2007, six years ago. But there court cases (both civil and criminal) were conducted, those take a lot of time and effort. In addition to that, I like to draw the readers attention not only to the high fine in Hong Kong, but also to the fact that a jail sentence of seven years was meted out, something that has never happened in Malaysia in cases of insider trading. According to the article mentioned here, not a single person so far has been successfully convicted of insider trading in Malaysia:

"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."

And that is a bad statistic of which Malaysia should not be proud at all.

Apple and Barrick Gold

I wrote before about Apple, especially here. I have decided to take profit on the counter (which I bought around USD 450 per share), not because I think the share is expensive, but to hold some more cash. The share price has performed quite well, but is still below its all time high of about USD 700:

For those who are interested in entrepreneurial stories, they might want to consider the movie "Jobs".

Not the best movie ever produced, but quite decent, and it does show how the most valuable company started from its humble beginnings. Will we ever see such a success story in SE Asia? I definitely hope so.

Barrick Gold has not exactly been my most successful share so far, the reason being that gold has performed quite badly this year. Marc Faber mentions in his December newsletter that precious metals and their miners (including Barrick Gold) are some of the rare value plays at the moment.

For me, investing in Barrick is a long-term investment based on the believe that eventually there will be higher inflation due to the actions of the central bankers worldwide. As Marc Faber has indicated, the US dollar has depreciated 95% of its value in about 80 years time (meaning average goods are 20 times more expensive). The US dollar will again depreciate by 95%, but this time it will happen much faster.

From Seeking Alpha, some articles regarding Barrick (the reader might have to sign up for the full articles, which is free of charge):

Barrick Gold: Have We Seen The Bottom?
Barrick Gold - A Contrarian Play Based On Improved Capital Allocation
Has Barrick Gold Deceived Investors?

For those readers who might be shocked about the last link, I would not say this is completely normal practice, but it does happen regularly in the Western markets. All companies do like to polish up their current position and future possibilities, and sometimes they might go to far. Professional investors who buy shares based on information from the company might feel that they have been misled on certain assumptions. Specialized lawyers might want to take up these cases, sometimes for a part of the reward. This type of action is very rare in Asia, I guess the optimal situation would be somewhere in the middle.

Thursday, 12 December 2013

SE Asia: low employee engagement

I was rather shocked when I read the following article:

"S'pore staff 'not engaged' at work

Three in four workers here feel unmotivated and are "sleepwalking" through their work day, according to a survey conducted by Gallup.

And what is more startling in the survey findings is that one in seven are so unhappy that they are "more or less out to damage their company" through acts like malingering or even stealing.

"Close to two million people (in Singapore) are just showing up at work every day, doing what they need to do, but not feeling emotionally invested in their companies," said Gallup's Singapore and South-east Asia manager Leong Chee Tung, who presented the findings at a talk yesterday.

In contrast, only fewer than one in 10 workers here are "engaged" at work, that is, they feel passionate about their company and are committed to their work."

Having been in the region for 20 years, I did expect to hear bad news regarding engagement at work. But I didn't expect things to be this bad.

I can't find the exact number for Malaysia, but I guess they will be roughly similar, according to the research by Gallup:

Employee engagement is a two way street, employers not giving any responsibility to employees, employees not taking the responsibility when it is offered.

The region tries to increase productivity by several means, for instance increasing new technology. But if employee engagement is increased, surely this will have a big effect on productivity as well.

Wednesday, 11 December 2013

iCapital: discount to NAV

On BFM an interesting talk about iCapital, the only closed end fund on Bursa Malaysia:


I agree with what was said on the radio program. I am a long time investor in iCapital and the discount to its NAV is indeed pretty frustrating.

The solution (as also mentioned in the program) is quite simple and is used by a closed-end fund (in which I invested) in my home country The Netherlands:
  • when the stock trades below 95% of its NAV then the closed-end fund will buyback its own shares until the discount has narrowed;
  • when the stock trades above 105% of its NAV then the closed-end fund will issue new shares at market price, again narrowing the discount.
In practice, this worked very well, the share traded very close to its NAV.

The only other closed-end fund that was ever listed in Malaysia (Amanah Millenia Fund, before known as Amanah Smallcap Fund) was delisted and liquidated in 2007, also due to the persistent discount to its NAV. On a side note, the current Menteri Besar of Selangor, Tan Sri Abdul Khalid Ibrahim, was the Chairman.

I am not sure if it is allowed under Bursa's rules for closed-end funds to buy back its own shares and/or to issue new shares. If it isn't allowed then they could consider changing the rules, it might revive this fund type, which does have its own merits versus for instance open ended funds like unit trusts.

Monday, 9 December 2013

Metronic Global: finally the Investigative Accountant Report released

Finally Metronic Global's summary of the Investigative Accountant Report by Ferrier Hodgson MH Sdn Bhd is released today. The report is regarding the long outstanding related party trade receivable of RM 47 million. A large sum of money for this struggling company.

The report was expected to be completed by June 2013, there is no mentioning of the reason for the large delay.

More information about these issues can be found here.

The players:
  • MGB: Metronic Global Berhad
  • MESB: Metronic Engineering Sdn Bhd, a fully owned subsidiary of the above
  • ORPR: Outstanding Related Party Receivables of RM 47 million
  • MHPSB: MH Projects Sdn Bhd, the company that owed this amount and who had two directors that were also directors of MGB (hence the related party transaction)
  • EY, Ernst & Young, the auditor of MGB who until 2008 approved the accounts, in 2009 disclosed an "emphasis of matter", in 2010 qualified the accounts and in 2011 resigned as auditors
  • IA: Investigative Accountant, Ferrier Hodgson MH Sdn Bhd
  • CPC: Certificate of Practical Completion
  • JKR: Jabatan Kerja Raya, issuer of the CPC for the Alor Setar Hospital

Some important paragraphs from the report:

6. It is noted that:

a) Despite MHPSB having received almost all the payments from JKR, it had only remitted approximately RM18.69 million to MESB during the Financial Years 2008 to 2010 with the balance of RM46.53 million remaining outstanding to date.
b) Notwithstanding Ernst & Young (“EY”)’s advice to the management to review the recoverability of the Outstanding Related Party Receivables (“ORPR”) on 28 February 2008, it appears that certain directors who have knowledge of the status of the progress claims and payments between JKR and MHPSB, have failed to disclose the said information to the Board, Audit Committee and EY for their assessment on the requirement of provision of doubtful on the ORPR.

The "certain directors" are not mentioned, but I assume they might be the ones mentioned here:

7. Based on the findings, it appears that the material and significant information on the payment status between MHPSB and JKR has not been conveyed to the audit committee and the full Board as well as EY to assess the recoverability of the ORPR and to enable timely efforts to be made to recover the ORPR. It also appears that the Board, at the material time, has not acted upon the audit committee’s suggestions for immediate action to be taken to recover the ORPR save for the Board’s instructions to obtain the Letter of Undertaking (“LOU”) and Deed of Assignment (“DOA”) which was subsequently disputed by MHPSB.

8. IA also note that the subsequent dispute by MHPSB and the representation by JKR on the outstanding amount due and payments to MHPSB have raised doubts on the veracity of the LOU and DOA provided by MHPSB in favour of MESB which have been adopted by the Board, audit committee and the external auditor to facilitate the assessment of the recoverability and the justification for the provision of doubtful debt on the ORPR.
9. IA advises that MESB seek legal advice on whether certain statutory offences may have been
committed and/or whether the relevant directors may have failed to act/discharge their duties
as follows and if so, the potential legal action(s) to pursue against them including for the recovery of payments made or for loss resulting from such failure, if any:

a) The common law and statutory duty of directors to act with reasonable care, skill and diligence pursuant to Section 132(1A) of the Companies Act 1965;

b) Section 132(1) of the Companies Act 1965 to act for a proper purpose and in good faith in the best interest of the Company in the discharge of the duties of his office; and

c) Sections 367 and 369 of the Capital Markets and Services Act 2007 on the offences by bodies of persons and by employees and agents which includes directors who knowingly authorises or permits the making or furnishing of any false or misleading statement to Bursa Securities.

The company has not yet announced if it wants to seek legal advice, and is going to pursue the above matter vigorously. Apart from that, the authorities should also consider to take action.

Sunday, 8 December 2013

MUI's 428 million puzzle

The Edge Malaysia published an article "MUI's RM428m puzzle" about the debt of Malayan United Industries Bhd (MUI). Interesting about this case is:

  • The amount is huge: RM 428 million (incl. accrued interest), for instance compared to the marketcap of MUI of about RM 600 million;
  • The bulk of it is owed for more than ten years, quite stunning;
  • Little progress has been made to recover the amount, only in 2011 the matter was taken to court;
  • The amount is owed by the charitable Hope Foundation and its subsidiaries; according to MUI the deal is not a related-party transaction, which is puzzling because the Hope Foundation seems to be linked to MUI's controlling shareholder Tan Sri Khoo Kay Peng.

The last announcement about the debt:

I have written about the group before, most notably:

PMI, serious Corporate Governance Issues
PMI: more questions than answers

The link to the Hope Foundation is also mentioned, for instance in the last link:

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

In the mean time, the CFO of MUI, PM Holdings and MUI Properties resigned "to pursue other career opportunities".

Too many questions, and so far it appears that the authorities have not yet taken any action. The minority shareholders of the MUI group and the public at large deserve some much needed transparency in the above issues.

Saturday, 7 December 2013

Ranhill Energy: is the fine really adequate? (2)

I wrote before about Ranhill Energy and the fines and reprimands that were handed out by the Securities Commission. Fast and good action, although I questioned the size of the fines, which appears to be extremely small compared to the size of the deal that was on the table.

According to this article in The Star "Ranhill Energy to retry IPO":

"Tan Sri Hamdan Mohamad is re-submitting the listing application of Ranhill Energy and Resources Bhd to the authorities in a second attempt at floating his water and power assets, sources said.

The move comes just after four months of Ranhill Energy’s initial public offering (IPO) being withdrawn, after it emerged that there had been a disclosure breach related to the suspension of the licences of its affiliate company, Perunding Ranhill Worley Sdn Bhd (PRW), by Petroliam Nasional Bhd for an indefinite period.

Subsequently, the Securities Commission (SC) imposed a fine of RM200,000 on the company, while Hamdan, who is Ranhill Energy’s substantial shareholder, was reprimanded and fined RM300,000 for the failure to disclose the licensing issue.

To recap, Ranhill Energy was supposed to list on Bursa Malaysia on July 31, with about 70% of its RM753mil IPO proceeds to be utilised for the repayment of borrowings. The SC instructed Ranhill Energy to postpone its IPO indefinitely on July 25 in view of the non-disclosure issue. On July 26, Ranhill Energy announced that it had terminated its IPO.

According to Ranhill Energy’s prospectus, it had debts of RM1.93bil and a gearing of 1.61 times as at the end of December 2012.

Investment bankers said that for the listing to be approved this time, Ranhill Energy would have to convince the authorities that the chief executive officer and its directors would not repeat the kind of mistakes they had made with regard to the disclosure of that contract.

They added that it could be an uphill task to garner sufficient investor interest in the company’s listing, considering the recent episode."

First of all, this is one of the articles citing unnamed "sources", we need to wait first for official conformation, to often these "rumours" turn out to be not true at all.

Secondly, it mentions "Ranhill Energy would have to convince the authorities that the chief executive officer and its directors would not repeat the kind of mistakes they had made with regard to the disclosure of that contract".

I think another, more important, matter on hand is that they have to convince the SC if it would be appropriate to apply for a listing so soon again. I actually strongly doubt that, I think it simply undermines the credibility of the market if a company can reapply for an IPO so soon after it made serious mistakes in disclosure. If that would be allowed, then the punishment as meted out by the SC definitely looks insufficient and doesn't act as a deterrent at all.

There is also another matter at hand, according to this article in The Star:
  • Perunding Ranhill Worley Sdn Bhd (PRW), a company controlled by Hamdan.
  • Ranhill Energy relies on PRW for contracts secured from Petronas and that this contract represented a material contribution to Ranhill group’s revenue.
In other words, Hamdan controls PRW, whichs secures contracts from PETRONAS, and (part of) these contracts are then passed through (after marking it up, I assume) to Ranhill Energy.

That means there is a large conflict of interest for Hamdan in dealing with PRW and Ranhill Energy. It would have been much better if PRW and Ranhill Energy would merge, to remove this conflict of interest situation.

A similar, unsatisfactory, situation happened in Metronic Global, which dealt with a company controlled by two directors, about which I wrote here. The additional problem there was that the receivables were "not able to receive", and that Metronic Global didn't seem to be very urgent in proceeding with that matter.

Sunday, 1 December 2013

Masterskill: shocking loss and insufficient explanation

I wrote in my last posting about Masterskill:

"And 2013 will most likely be much worse than 2012.".

It looks like, unfortunately, that statement will be very true. The company announced its third quarter results:

The revenue compared to the third quarter of the 2012 is down a shocking 56%.

The Profit Before Tax was hit by a RM 88 million "impairment loss for goodwill and PPE".

The reasons for these can be found in the following paragraph:

"13. Review of Performance 
For the third quarter ended 30 September 2013, Masterskill Education Group Berhad
(MEGB) recorded a revenue and loss before tax of approximately RM15.6 million and
RM104.4 million respectively. Revenue was 56% lower than last year’s quarter due to
lower student population as a result of graduating students and low intake numbers.

The higher loss before tax was largely due to provision for impairment loss on
goodwill and certain of the Group’s property, plant and equipment totalling RM88.2

I think investors of Masterskill deserve a much more detailed explanation than the above:

  • Students graduating: that happens every year.
  • The low intake numbers: the company should give some relevant background why numbers have come down so much.
  • The (hopefully one-off) provision, there needs to be much more detail, what exactly is written down and why.

The results of the last six years:

Year   Revenue   PAT
2008    203M     72M
2009    273M     97M
2010    316M    102M  <=== IPO
2011    250M     38M
2012    149M    -28M

2013     51M   -135M  (based on 9 months)

The worsening results of the company (both in revenue and profit), exactly after the IPO (when increased profits should be expected, due to the inflow of IPO funds) and the large write-off in the last quarter are very worrisome.

I hope that the authorities will consider starting a thorough investigation, if all the representations and warranties as submitted in the due diligence of the IPO and the financial accounts Pre-IPO were indeed correct.

On 31 Oct, 2013 the company announced that Dato' Sri Dr. Santhara Kumar A/L Ramanaidu [the founder, previously in charge and previously its largest shareholder]:

"has accomplished all the task assigned to him as a former Group Chief Executive Officer and Director and vacated the position for a woman board member to be appointed". 

Apparently a rising share price was not one of the tasks assigned to him:


Saturday, 30 November 2013

The Bitcoin Bubble

The Economist published today an article "The Bitcoin Bibble":

"Bitcoin is booming. Investors are piling into the digital currency, which is not issued by a central bank but is conjured into being by cryptographic software running on a network of volunteers’ computers. This week the price of a Bitcoin soared to above $1,000, from less than $15 in January.

Having long been favoured by libertarians, gold bugs and drug dealers, Bitcoin is attracting some surprising new fans. Germany has recognised it as a “unit of account”. Ben Bernanke, chairman of the Federal Reserve, told a Senate committee on virtual currencies that the idea “may hold long-term promise”. A small but growing band of shops and firms accept payments in Bitcoin. Some like the way it allows funds to be transferred directly between users, without middlemen. Others are attracted by the potential for anonymous transfers, or by the fact that the number of Bitcoins in circulation has a fixed upper limit—so there is no way a central bank can inflate their value away by issuing more.

But the recent price surge, driven by Chinese investors stashing money offshore, looks like a classic bubble. Hoarding means that Bitcoin is currently more of a speculative asset than a currency. And a crash is not the only risk Bitcoin users face. As the price rises, Bitcoin theft is increasing, both from individuals and from online exchanges that store the coins and convert them into other currencies. Around $1m in Bitcoins was recently stolen from BIPS, a European exchange. GBL, a Chinese Bitcoin exchange, abruptly vanished in October, taking $4.1m-worth of deposits with it."

The article ends with:

"... if you are lucky or clever enough to have owned an asset whose price has risen 60-fold in a year, it might be time to sell."

To be honest, I don't understand much of Bitcoins, to me it does resemble a classic pyramid scheme, including some rationale concepts (like the mining), which tries to give it some credibility (in itself very normal for these kind of schemes).

The price of Bitcoins fluctuates very much (sometimes 20% in a day), which makes it not very suitable being a currency.

Using Bitcoins for cross border payments would make live me easy, however, how can central banks check that the purpose of the payments was legal?

David Webb wrote an insightful article "The hole in Bitcoin", concluding:

"...here is the biggest flaw: the economics of it. For Bitcoin to succeed, it has to become a transaction currency, widely-accepted by the real world for goods and services. With a cap of 21 million Bitcoins, the accepted wisdom driving prices is that spreading the limited supply of Bitcoins over all these real-world transactions, even with fractional reserve banking, would necessitate a high valuation per Bitcoin.

Unfortunately, most of the people getting into Bitcoin, either with cash, goods and services or by buying and running mining rigs, are just hoarding the Bitcoins, either expecting the price to go up because they believe in this transactional utility, or expecting the price to go up because other people will - people like the  Winklevoss twins, who proposed setting up an ETF to hoard Bitcoins (SEC filing), rather like the SPDR Gold Trust.

The flaw then is that most Bitcoin owners are hoarding something which they expect to become a widely-used transaction currency, and if everyone holds on to their Bitcoins, then it won't become a transaction currency.


Even if we are wrong and Bitcoin becomes a widely-accepted transaction currency, the second flaw in Bitcoin is this: when the rate of coin production is reduced towards zero, the only economic incentive the nodes will have to convert electricity into blocks (and heat and noise) is the transaction fees. So far, these are very low, but if the people who control the Bitcoin specification don't increase the fees to a commercial level then the amount of machines running the algorithm will plunge for lack of reward, and it will become much less expensive to take control of the network by holding more than 50% of the hashing power. However, if fees become a significant part of transaction values, then a lot of users (not seeking illegal goods and services) will wonder why they don't just use traditional payment networks denominated in real currencies. So there's the conundrum: charge too little, and someone will put in enough capital to take over the network and turn it, in effect, into just another MasterCard, Paypal or Visa. Charge too much, and people will use other payment networks."

Marc Faber in an interview on CNBC:

a "massive speculative bubble" has encroached on everything from stocks and bonds to bitcoin and farmland. He attributed the vast bubble to "symptoms of excess liquidity."

Faber said the markets, which have reached record highs, could still rise before the bubble bursts, if stimulus programs such as the Federal Reserve's massive monthly bond purchases and super-low interest rates continue.

"Now can the market go up another 20 percent before it tumbles?" Faber said on"Squawk Box". "Yeah, it can go up even more, if you print money."

Warning investors that they could see disappointing long-term returns in equities, Faber said he thought a correction in equities was overdue when the S&P 500index crossed 1,600 points. The benchmark index surpassed 1,808 points this week.

Faber pointed to a high Shiller price-to-earnings ratio, a market indicator named after Yale University professor and Nobel Prize winner Robert Shiller, which relies on 10 years of adjusted inflation, as an indicator of the bubble. He said a high Shiller P/E ratio suggests low returns in the future.

Faber also referred to the rapid rise of bitcoin, the digital currency that crossed $1,200 early Friday, as an area affected by excess liquidity.

"Farmland is up 10 times over the last 10 years," Faber said. "And bitcoins are up now and who knows what next will go up."

Friday, 29 November 2013

It is raining court cases in Singapore penny stock saga (2)

Some more articles:

More stakeholders take court action

Lawsuits may provide answers on $8b meltdown  

Broker seeks to recover US$68m from 10 clients (the full  article of which I gave only 4 paragraphs yesterday)

"The Monetary Authority of Singapore and the SGX are "conducting an extensive review of the activities around these stocks".

Hopefully, they will be able to give the investing public some answers as to what exactly transpired in those frantic days.

      Thursday, 28 November 2013

      It is raining court cases in Singapore penny stock saga

      According to this article Interactive Brokers has joined in the ever growing list of court cases regarding the penny stock saga involving companies like Asiasons Capital, Blumont Group, LionGold Corp and Innopac Holdings, companies with Malaysian links:

      "Global broking giant Interactive Brokers has launched the largest legal action so far in the wake of October's penny stock collapse, taking aim at at least 10 clients as it seeks to recover about US$68 million of losses.

      BT understands that Interactive Brokers launched arbitration proceedings earlier this month against 10 individuals and entities through the American Arbitration Association.

      Pending the start of arbitration proceedings, the global broker has also obtained court orders in Singapore and Malaysia to freeze the assets of eight of those clients, including certain directors and shareholders of Asiasons Capital, Blumont Group, LionGold Corp and Innopac Holdings - four of the stocks at the centre of last month's selldowns.

      According to court documents inspected by The Business Times and confirmed by sources, Interactive Brokers on Nov 8 sought court orders to freeze the assets of Malaysian nationals Neo Kim Hock, Peter Chen Hing Woon, Tan Boon Kiat, Quah Su-Ling, Lee Chai Huat and Kuan Ah Ming; and two British Virgin Islands-registered companies, Sun Spirit Group Ltd and Neptune Capital Group Ltd."

      Earlier on it was announced that Goldman Sachs is being sued for its part in this drama, recent articles can be found here and here.

      I have blogged before about Goldman Sachs and its "ethics" (or rather lack of it), here is another (unrelated) case, as reported by The Independent:

      Adrian Bailey, chair of the Business Select Committee, which is due to question Mr Cable on Wednesday, said: “It’s totally unacceptable. I don’t see how you can act as adviser to the Government and then profit from the advice you have given them. It is a conflict of interest.”

      Tuesday, 26 November 2013

      7-Eleven IPO hits a snag? (2)

      The Star published an article "More explanation needed to justify high 7-Eleven valuations" on its website. Some snippets:

      "Disclosures surrounding the toppish valuation of Seven Convenience Bhd, the owner of 7-Eleven stores, is the reason why its planned flotation has hit a snag, banking sources said.

      According to the sources, Seven Convenience’s listing application did not sufficiently explain the justification behind the increased value of the 7-Eleven business, following its privatisation back in 2006.

      “In cases where companies have been privatised before and are then being brought back into the market (via an initial public offering or IPO), disclosure rules dictate that a very clear explanation needs to be given to justify the increased value of the asset,” said one banker, adding that a similar issue had arisen in last year’s listing of Astro Malaysia Holdings Bhd. The issuers had to provide additional disclosures to justify the much higher valuation they were looking to get from the second listing of Astro.

      Astro had been taken private in 2010, only to be re-listed, minus its overseas assets, in January 2012 at a price of RM3 per share for its retail portion, which was at a lofty price-to-earnings ratio of 24 times.

      It is understood that this disclosure was lacking in Seven Convenience’s IPO documents. Various reports on Monday stated that Tan Sri Vincent Tan’s US$700mil (RM2.17bil) IPO of Seven Convenience had either been rejected or deferred by the Securities Commission (SC).

      One source told StarBiz that the owners were looking to float the company at a massive price earnings multiple of more than 30 times historical earnings.

      However, sources added that this disclosure issue could be eventually resolved and predicted that Seven Convenience’s listing would be deferred to next March, possibly when it shows a new set of earnings that justifies its high valuation."

      As far as I know, the above is not confirmed by the Securities Commission, who normally doesn't comment on on-going cases. However, the above explanation does sound plausible.

      Regular readers of this blog might remember the IPO of Astro, especially this posting (pointing out that much relevant information was missing from the draft IPO prospectus, especially regarding the delisting exercise) and this posting (noticing a much improved IPO prospectus).

      Other (rather negative) articles about Astro can be found here. I am still bearish on Astro, I don't think TV has a bright future versus the combination of internet and mobile devices.

      Monday, 25 November 2013

      "all the IPOs this year were making money for investors", really?

      Article from the website of The Star: "At least 9 IPOs worth RM18.14bil for 2014".

      First of all a list of nine big IPO's in 2014. I have been sceptical about big IPO's, I think Bursa has been pushing this too much, it really should not be a target on itself. The target should be to bring good quality Malaysian companies to Bursa, at a reasonable price, leaving some money on the table for retail investors who might be willing to take the risk.

      On the list:
      • Two Iskandar developers, I am scared all the clever money has been made already, and the property market is way too hot and might already be cooling;
      • 1MDB (floating its energy assets), I am critical of 1MDB due to the lack of transparency;
      • Malakoff and IOI Properties, both playing the listing-delisting-relisting "game";
      • 7-Eleven, the listing possibly will not go through, according to an article in The Edge today.
      Further, the article mentions:

      "Besides these IPOs, there is likely to be another group of companies coming to the market under the guidelines for special purpose acquisition companies, or SPACs, and business trusts."

      I am highly sceptical of SPACs, and business trusts have performed badly (on average) in Singapore.

      In other words, I am not very positive about the announced plans for future IPO's in Malaysia.

      The article continues:

      "RHB Investment Bank Bhd director and regional head of equity capital markets Gan Kim Khoon recently said that investors should ride on the wave of Malaysia’s IPO market, but only after doing their homework on the new entrants.

      He noted that all the IPOs this year were making money for investors and said this trend was likely to continue next year, when speaking at a recent panel discussion on the prospects for next year’s equity market."

      All the IPO's this year making money for investors? Surely that can't be true:


      Further more statements like "investors should ride on the wave of Malaysia’s IPO market" and "this trend was likely to continue next year", I find those pretty dangerous statements given the high valuations and the bubble like conditions worldwide.

      I have never bought a share for long-term investment at IPO price, the risk is pretty high: [1] often there is a lot of hot air injected in the company and [2] the quality of the audits is not up to the standard compared to when the company is properly listed.

      I normally wait for at least two full years of audited results before I even consider investing in a listed company. Although I must have missed a few nice gains, I definitely also missed lots of misery.

      I do agree though with the following statement: "but only after doing their homework on the new entrants".

      7-Eleven IPO hits a snag?

      Article from the website of The Edge. We need to wait for confirmations:

      [1] if this rumour is indeed true
      [2] if so, what the reasoning is by the Securities Commission.

      I wrote before about this IPO.

      Sunday, 24 November 2013

      Finally Prince Frog responds (2)

      One person was so kind to send me the comments by CLSA (one of the brokers whose reports tend to have a rather high quality). I mostly agree with their opinion, some snippets (and comments by me in blue):

      Good news for Prince Frog today as the HKEx has given the company the green light to address investors and publish an important clarification document. While the company’s defence leaves open questions about its market share, we are encouraged that management of Prince Frog is taking the issue seriously.

      [of course they had to, if they had not addressed the issues, that would have been the largest red flag possible]

      We cut our target multiple to 9x 15CL PE, a 50% discount to peers given the overhang of the market share question. We cut our recommendation from BUY to O-PF and would be BUYers of the stock below HK$3.5.

      [my problem with valuing this kind of companies is that either some of the accusations of Glaucus are true (in which case any price might be too high), or all accusations are wrong (in which case the current price might be decent); the large drop in share price seems to indicate that some investors think there is at least a decent chance that (part of) the accusations of Glaucus are true]

      The lengthy clarification document provides a comprehensive defence of the company aimed primarily at discrediting the Glaucus short-seller report. While it lacks hard evidence (bank statements, sales receipts, etc.) [that was one of my problems with the report, it could have been much more concrete, another area is comparisons with other companies in the same industry] the simple fact that the exchange allowed the company to publish should be viewed as a positive. The continued implicit backing by the company’s auditor is also a key point which is inferred from the document.

      Prince Frog has provided a lengthy defence based mostly on the fact that their sales are in 3rd and 4th tier cities and it is unclear if Nielson’s data set covers the area where Prince Frog is making its sales. In specific Prince Frog notes: “the Company’s sales revenue derived from distributors located in the third and fourth-tier cities had consistently accounted for approximately 70% to 77% of the Group’s total sales in each financial year from 2008 to 2012.” The argument is that Neilson could not possibly cover these areas with a high percentage of accuracy hence the conclusion from the short seller report must be flawed.

      While we believe the logic makes sense, there are going to be continued questions and overhang on this point. There is nothing new in the clarification document that would give investors more confidence in the company’s sales figures.
      ["high percentage of accuracy", when differences between methods used are very large, then there is no need for a high percentage of accuracy, so this issue will indeed remain]

      The other major issue raised in the short-seller report is that the company’s taxes paid did not match with a list published by the local government. The company’s defence here is that there was an option to “opt in” to the government’s list of top paying enterprises. The company only opted in starting in 2012 which is why they were not on the list previously. A letter which confirms this was provided to the company and reviewed by the company’s law firm and stock exchange.

      [I agree, anyhow these tax issues in China seem to be rather murky]

      The report ends with:

      More information is always good and we hope the company will continue to disclose this information in the future.

      Saturday, 23 November 2013

      What the rich and famous do to avoid a MGO

      From David Webb's website comes the following announcement.

      "Ms Nina Kung" is no other than the colourful and controversial Nina Wang, who passed away in 2007.

      From the Wikipedia page:
      • Nicknamed "Little Sweetie" ("Siu Tim Tim" or "小甜甜" in Cantonese), she was noted for her two pigtails and her love of dressing in traditional Chinese dresses.
      • She was the richest woman in Asia and the world's 35th richest person, with a fortune of $4.2bn, according to Forbes magazine; a fortune which exceeded that of American talk show host Oprah Winfrey.
      • On 12 April 1983, the Wangs' Mercedes was hijacked. Teddy Wang was taken away and chained to a bed for eight days until Nina Wang paid a $33 million ransom. On 10 April 1990, Teddy Wang was kidnapped again. After his disappearance, Nina took the helm of Chinachem under the title of "Chairlady" and built it into a major property developer.
      • Two highly contested wills, both of her late husband and herself (lawyers having a field day in both cases), in both cases the issue of forgery emerged.
      Coming back to the SFC announcement:

      Why did the richest woman in Asia do this, why did she not simply announce the acquisition of the shares and make a General Offer? We will never know, since she past away, but I assume simply greed. It does show to what extend some of the rich and famous go to avoid making a MGO. Another reason for the authorities to be extra vigilant, and use all available systems.

      Thursday, 21 November 2013

      Finally Prince Frog responds

      Five weeks ago Glaucus Research launched its attack on Prince Frog. Trading in the shares of the latter company was halted and Prince Frog prepared an answer to the allegations. Only now the official reply was published. The time it took to respond is worrisome long, normal would be a reply within one week.

      The reaction of the market was not good:

      Although quite a bit of answers are given (in total 24 pages), doubts remain. I think Prince Frog could have been more specific in several cases.

      Some reactions:

      Wall Street Journal

      I expect Glaucus to respond soon.

      Tuesday, 19 November 2013

      MAS: disappointing again

      I have written several times about MAS, unfortunately not in a very positive way, and I am afraid this posting will not bring much change into that.

      A few days ago, the mood was positive:

      The Star: "MAS heading for profit, record passenger numbers"

      The Edge: "Hot Stock MAS rises 3% on possible 3Q profit"

      But it was not to be, the quarterly results were announced today:

      One small positive note, as reported:

      But that is rather ironic, if we put it into context:

      Any company that just received RM 3,074,800,000.00 in cash from its shareholders should show a decent cash position, or not?

      May be the only consolation for MAS' shareholders is that AirAsia X also lost money:

      Thursday, 14 November 2013

      Value fund managers go on strike

      Partly due to the QE (Quantitive Easing = money printing) programs of the FED (and other central banks) strange things are happening. Lots of rich valuations, for instance:

      "Can you put a price on friendship? You can if it’s in a painting by Francis Bacon, whose three-part portrait of fellow artist Lucien Freud has set a record for the most expensive artwork ever sold. "Three Studies of Lucien Freud,” a 1969 triptych by the Irish-born Bacon, sold for $142.4 million in a Christie’s auction Tuesday night in New York." according to this article.

      "A 59.60-carat pink diamond sold for $83 million, a record for any gemstone at auction. The oval-cut stone’s price exceeded the previous record by 82 percent at an auction last night in Geneva held by Sotheby’s, which called the gem one of the earth’s greatest natural treasures. Those prices include the buyer’s premium." according to this article.

      "Today the Wall Street Journal reported that Snapchat turned down a $3 billion or more all cash acquisition offer from Facebook. The news has taken many by surprise, as Snapchat has no revenue, and is an exceptionally young company." according to this article.

      Snapchat is a mobile apps where users can send photo's or pictures that disappear in a few seconds. Needless to say, the apps is quite popular with youngsters, but USD 3 Billion (please notice the "B") is also quite a bit of money, especially if the company has not yet shown any revenue nor profit (only losses).

      Property prices in Singapore, Hong Kong, Melbourne, Sidney, Beijing, Shanghai etc, are also sky-high, hardly affordable for young people with average incomes. Also in Malaysia, the property market is pretty hot.

      We notice the same in the share market, smallcaps are being played, warrants, all kind of speculative companies (especially in the mining and energy industry).

      Greenspan and Bernanke can be truly proud of their "experiment", bubbles start to form in many places.

      If there is one thing I learned from 20 years investing in the share market: if valuations are pricey, don't try to find the last value stock, better raise some cash.

      The following article is from Bloomberg, stressing this same point:

      Value Fund Managers Go on a Buyer's Strike

      Wally Weitz beat 90 percent of his rivals in the past five years by buying stocks he deemed cheap. Now he says bargains are so scarce that he’s letting his cash pile up. “It’s more fun to be finding great new ideas,” says Weitz, whose $1.1 billion Weitz Value Fund (WVALX) had 29 percent of its assets in cash and Treasury bills as of Sept. 30. “But we take what the market gives us, and right now it is not giving us anything.”

      Weitz, whose cash allocation is about the highest it’s been in his three-decade career, joins peers Donald Yacktman and Steven Romick in calling bargains elusive as stocks trade at record highs. The three are willing to sacrifice top performance for the safety of cash as stocks rally for the fourth year in the past five. The mutual fund managers’ comments echo those of private equity executives Leon Black and Wesley Edens, who say steep prices make this a seller’s market.

      As the Standard & Poor’s 500-stock index has risen 23 percent in 2013, the average amount of cash in funds that invest in U.S. stocks increased to 5 percent as of Aug. 31, from 3.7 percent the previous year, according to data from research firm Morningstar (MORN). Some fund investors frown upon equity managers who sit on large piles of cash, saying they prefer stockpickers to stay fully invested. “We hire them to run stocks, not time the market,” says Richard Charlton, chairman of Boston-based NEPC, which advises institutional investors.

      Value managers, who look for stocks that are cheap compared with a company’s earnings prospects, cash flow, or assets, have sat on their hands before, including during the runup in 2007 and 2008 to the financial crisis, says Russel Kinnel, director of mutual fund research at Morningstar. Most of the cash-heavy managers say their decisions are based on individual stock prices, not any attempt to call a market top. Holding cash during market rallies can depress returns. Yacktman trailed 60 percent of rivals this year through Nov. 1 and 82 percent in 2012 at his $11.4 billion Yacktman Focused Fund (YAFFX), according to data compiled by Bloomberg. The fund, whose cash level rose to 21 percent as of Sept. 30, from 1.4 percent at the end of 2008, bested 92 percent of rivals in the past five years. “We are having a more difficult time finding bargains,” Yacktman wrote in an e-mail.

      Romick, managing partner of First Pacific Advisors, took a similar stance in his second-quarter letter to shareholders of the $14.1 billion FPA Crescent Fund. “We find it difficult to invest in an environment that seems manipulated to engineer higher asset prices regardless of business fundamentals,” he wrote. His fund, which outperformed 68 percent of rivals over the past three years, had 40 percent of its assets in cash and short-term securities as of Sept. 30, according to FPA’s website. It beat 97 percent of its peers in the 2008 bear market. The fund had more than one-third of its assets in cash equivalents as of March 31 that year, filings show.

      In bear markets, value managers find it easy to put their money to work. Weitz’s Value Fund had 7.8 percent in cash at the end of 2008, regulatory filings show. “It was a wonderful time,” he says. “There was so much to buy.”