Wednesday, 31 July 2013

Investing in Gold

I have written several times about gold.

In The New York Times an article by Harvard professor N. Gregory Mankiw appeared:

"Budging (Just a Little) on Investing in Gold, should gold be a part of my portfolio?”

Here are the main points of the writer:

The World Gold Council estimates that all the gold ever mined amounts to 174,100 metric tons. If this supply were divided equally among the world’s population, it would work out to less than one ounce a person.

Warren E. Buffett has a good way to illustrate how little gold there is. He has calculated that if all the gold in the world were made into a cube, its edge would be only 69 feet long. So the cube would fit comfortably within a baseball infield.

Over the long run, gold’s price has outpaced overall prices as measured by the Consumer Price Index — but not by much. In another recent N.B.E.R. paper, the economists Robert J. Barro and Sanjay P. Misra reported that from 1836 to 2011, gold earned an average annual inflation-adjusted return of 1.1 percent. By contrast, they estimated long-term returns to be 1.0 percent for Treasury bills, 2.9 percent for long-term bonds and 7.4 percent for stocks.

Mr. Erb and Mr. Harvey presented a novel way of gauging gold’s return in the very long run: they compared what the Roman emperor Augustus paid his soldiers, measured in units of gold, to what we pay the military today. 
They report remarkably little change over 2,000 years. The annual cost of one Roman legionary plus one Roman centurion was 40.9 ounces of gold. The annual cost of one United States Army private plus one Army captain has recently been 38.9 ounces of gold.

Gold may offer an average return near that of Treasury bills, but its volatility is closer to that of the stock market. That has been especially true since President Richard M. Nixon removed the last vestiges of the gold standard. Mr. Barro and Mr. Misra report that since 1975, the volatility of gold’s return, as measured by standard deviation, has been about 50 percent greater than the volatility of stocks.

n important element of an investment portfolio is diversification, and here is where gold really shines — pun intended — because its price is largely uncorrelated with stocks and bonds. Despite gold’s volatility, adding a little to a standard portfolio can reduce its overall risk.

Some comments by me:
  • Its return is small: this is measured against the S&P 500 from the US which has performed very well over the long run; however, most other share markets all over the world haven't returned that much, I think only the Australian market has beaten the US over the very long run. One example is the Chinese market, although the economy has boomed tremendously over the last 10-15 years, a foreign investor would not have made much money at all (one possible reason being the low standard of Corporate Governance, capitalism is still too young in China)
  • Since abandoning of the gold standard, as could be expected (without the restriction that each USD had to be backed by gold) the US government embarked on a money printing campaign that increased in recent times since the 2008/9 global crisis; we might not yet have seen the end of this, which makes a decent case to hold gold since its supply is limited, while governments ability to print money out of nothing isn't
  • The writer recommends to hold 2% of ones assets in gold, Marc Faber recommends a clearly higher percentage, more like 5-10% (possibly in combination with other precious metals)

I think gold (and other precious metals) should be a part of a diversified portfolio which contains (global) stocks, cash, short term and long term bonds and property (or land). At the moment the future returns for long term bonds do not look well, so its allocation should be minimal.

Sunday, 28 July 2013

KL Kepong implicated in horrific allegations in Indonesian plantations

I just received my weekly magazine "Bloomberg BusinessWeek". In it a horrible story about abuse of workers in Indonesian plantations. One company specifically mentioned is KL Kepong. The story is available on the internet and can be found here. It is based on extensive research by Bloomberg that took nine months to complete. It is a long story, but I hope that the reader of my blog has time to go through it all.

Some excerpts:

..... As it’s grown, the palm oil industry has drawn scrutiny from environmental activists in Europe and the U.S. They decry the destruction of rainforests in Indonesia and Malaysia to support oil palm expansion, which threatens the natural habitats of endangered species such as pygmy elephants and Sumatran tigers. The human costs of the palm oil boom, however, have been largely overlooked. A nine-month investigation of the industry, including interviews with workers at or near 12 plantations on Borneo and Sumatra—two islands that hold 96 percent of Indonesia’s palm oil operations—revealed widespread abuses of basic human rights. Among the estimated 3.7 million workers in the industry are thousands of child laborers and workers who face dangerous and abusive conditions. Debt bondage is common, and traffickers who prey on victims face few, if any, sanctions from business or government officials.

.... Interviews with former workers as well as statements recorded by local nongovernmental organizations reveal a tragic underside of KLK’s supply chain. These workers tell of being defrauded, abused, and held captive by representatives of a labor management firm called CV Sinar Kalimantan. Their claims of fraud are substantiated by affiliates of the contractors, as well as by the labor contracts themselves, copies of which were obtained by Bloomberg BusinessWeek.

..... At PT 198, a plantation near Berau owned by top KLK shareholder Batu Kawan, workers entered a system of tightly controlled forced labor, according to Adam and other alleged victims. At least 95 workers were held at the plantation for up to two years. At night they were locked in stifling, windowless barracks. An environmental NGO, Menapak, later reported that they were fed small portions of salted fish and rice, which several said were often weevil-infested. A truck with fresh water came once a month, but that supply would last no more than a week; workers pulled most water for cooking, cleaning, and drinking from a stagnant ditch that ran alongside the barracks.

As far as I know, the story has not been reported in the Malaysian media, if that is indeed the case then that would be very disappointing, although not unexpected.

Another, more old, story about Indonesia in general can be found here:

"The Perfect Fascist City. Take a Train in Jakarta" by Andre Vltchek.

According to my sources, this story is largely correct, but here and there exaggerated. Corruption seems to be on the rise in Indonesia. It seems that the economy is doing quite well, but large chunks of the gains end in the pockets of only a few.

Tuesday, 23 July 2013

Institutional investors have to fight

David Webb wrote on his website:

"Webb-site urges independent shareholders to vote against the transactions if and when shareholder meetings are convened. We consider the transactions to be blatantly unfair and unreasonable. The transactions once again illustrate a glaring hole in the Listing Rules by which companies can pay out cash to connected persons in the form of "deposits" for acquisitions which have not yet been approved by minority shareholders."

Webb also provided a link to a public statement issued by Somercourt Investments Ltd:

"Reference is made to the announcements by Sino Prosper in relation to: (i) the proposed acquisition of the entire issued share capital of Success State Development Limited from Mr. Leung Ngai Man, the chairman and an executive director of Sino Prosper (the "Chairman") dated 30 December 2011 (the "Qing Jiao Transaction"); (ii) the proposed acquisition of the entire issued share capital of Treasure Join Limited from the Chairman dated 21 December 2012 (the "Micro Finance Transaction"); (iii) the voluntary update by Sino Prosper on 19 April 2013; and (iv) the 2013 annual report of Sino Prosper (together the "Announcements", and the Qing Jiao Transaction and Micro Finance Transaction together, the "Transactions"). Terms not defined in this announcement have the meaning given to them in the relevant Announcements.

Somercourt has followed with extreme concern the Announcements, conduct and intentions of Sino Prosper in relation to the Transactions.

Somercourt believes that the Transactions are not in the interests of Sino Prosper or the shareholders as a whole and announces that it intends to vote against the proposed Transactions as and when the shareholder meetings are held to consider the Transactions. 

Despite the Qing Jiao Transaction and the Micro Finance Transaction being announced on 30 December 2011 and 21 December 2012 (more than 18 months and 6 months ago respectively), shareholders have still not received details of the Transactions other than as contained in the Announcements.

Somercourt considers that the continuing delay in dispatching detailed circulars to shareholders, and convening shareholder meetings to consider the Transactions is materially prejudicial to the interests of shareholders.

Deposits of RMB120m and HK$200m paid to the Chairman in relation to the Transactions
Under the terms of each of the Qing Jiao Transaction and Micro Finance Transaction, significant cash deposits were paid by the Sino Prosper group to the Chairman. These cash deposits:

1. represent the entire upfront cash consideration payable on completion of each Transaction;

2. were paid on an interest free and unsecured basis; and

3. represent respectively (i) more than 21% (Note 1) and 70% of the market capitalisation of Sino Prosper for the five business days immediately preceding the date of the Transactions; (ii) more than 102% (Note 2) and 135% of the market capitalisation of Sino Prosper for the five business days immediately preceding the date of this announcement; and (iii) approximately 79% (Note 3) and 107% of Sino Prosper's cash balance as at 31 March 2013.

Despite the deposits being returnable to the Sino Prosper group should the Transactions not proceed, Somercourt considers that in view of their excessive size and interest free and unsecured nature, and in the light of the intended timetable for the Transactions, the deposits do not represent normal commercial terms and arm's length negotiations and are not fair and reasonable and in the interests of Sino Prosper and shareholders as a whole. Somercourt considers that the deposits are, in substance, financial assistance and/or interest free loans to the Chairman as a connected person that should only have been made after the approval of independent shareholders had been obtained.

Purchase price under the Transactions
Somercourt believes that the consideration to be paid by the Sino Prosper group to the Chairman (as vendor in each of the Transactions) is excessive and unjustified in each case, and that the overall terms of the Transactions as detailed in the Announcements do not reflect normal commercial terms and arm's length negotiations and are not fair and reasonable or in the interests of Sino Prosper and shareholders as a whole: ....."

Etcetera, the whole article can be read on the above link.

The above episode is interesting, for several reasons:

  1. It seems that in Hong Kong there are also enough cases with serious Corporate Governance concerns, even though its standards in general are higher than in Malaysia;
  2. Somercourt, an institutional investor, is actively fighting for its rights, the above article is copied in several places (for instance here); in Malaysia this would be extremely rare;
  3. Sine Prosper paid a large amount of cash without asking permission from the minority shareholders; the same seems to be true in Malaysia, for instance in the case of Protasco the company paid out significant cash deposits of RM 50 million as upfront payment, more than 13% of the shareholders funds as of December 31, 2011. There are other glaring similarities, for instance the Protasco funds are also not interest baring, the lack of essential information, the long time that the deal takes, etc.
The Malaysian authorities should look into the hole in the Listing Rules, and also in the specific case of Protasco.

Regarding the second issue, MSWG stated on its website the following:

"..... I wish to inform that MSWG has been entrusted by the SC, the owner of the CG Blueprint, to spearhead the formulation of a new code for institutional investors (Institutional Investors Code). A Steering Committee comprising key senior representatives from the institutional investor fraternity has been formed to develop the Code for Malaysia and the 1st Steering Committee meeting was held on 12 July 2013. I was very encouraged by the support given by the heads from the various institutional funds who had also played their stewardship roles and shown their commitment for the project. I look forward to a series of engaging and insightful deliberations to deliver the Institutional Investors Code targeted to roll out by the 1st quarter of 2014."

That sounds good, and is long overdue, institutional investors in Malaysia have been much to quiet, they are hardly ever seen fighting for the people whose money they manage. They have in the past voted many times in "mysterious" ways, approving deals proposed by the majority shareholders, deals that looked outright bad to the minority shareholders.

But, to be honest, I don't understand why this all has to take so long time, institutional investors just have to start acting for the people whose money they manage, nothing more and nothing less. I have no problem that they first (behind the scenes) try to overturn a deal that looks bad. But if they don't succeed, they have to get vocal, issue a public statement (which most likely will be reported by the local media) what is wrong with the deal and why they are going to vote against it. They should also voice their concern on AGMs and EGMs.

Sunday, 21 July 2013

SPACs, a bubble in the making?

Article in The Star by Risen Jayaseelan:

"Sizzling SPACs, Promoters and investors race to be part of this investment vehicle" 

Some excerpts:

"SPACs (special-purpose acquisition companies) are red hot at the moment.

The massive demand for shares of the soon-to-be-listed Sona Petroleum Bhd is testament to that. By some estimates, a whopping RM3bil of liquidity was chasing to get a slice of the RM550mil worth of shares being offered in that IPO. And banking sources claim that demand was more than that RM3bil figure.

Investors are no doubt drawn to the 327% total returns that an IPO investor in Hibiscus Petroleum Bhd (the first listed SPAC) is sitting on.

SPACS will also go down in history for the mind boggling ‘value creation’ it could potentially give senior management types in Malaysia. Just using the example of the promoters of Hibiscus and CLIQ and considering their initial cost of 1 sen per share, they are sitting on returns of 245 times and 124 times respectively. In other words, every one sen they put in is now worth RM2.45 (for Hibiscus’ promoters) and RM1.24 (for CLIQ’s promoters).

No wonder then that there is no dearth of parties wanting to float their SPACS. Market talk has it that Datuk Tan Ang Meng, the former Fraser & Neave Holdings Bhd CEO, is mulling a SPAC focused on the food and beverage sector, using his experience and contacts in the industry. Then there’s Shahul Hamid Mohd Ismail, a director in the Daya Group of companies, who is in the midst of planning an oil and gas SPAC.

In the past, there were other SPACs that were toyed about but have yet to come to fruition. One of them include property player Datuk Terry Tham, the MD of Eastern & Oriental Bhd, to put together a SPAC to invest in overseas properties in locations such as London.

There had also been plans by some parties to set up a plantation-focused SPAC."

To me, this all sounds rather scary. I have written about SPACs before, in a not very positive way. I have written that they appear to be very good (actually: too good) for their promoters/managers: hardly any risk (they even receive very decent salary in the millions), but lots of possible return. When I read that investors have a return of 327% (not bad, I agree) and promoters of 24,500% (75 times as high as the normal investors) then one can indeed wonder if things are fair.

Also, the promoters of the first SPAC received warrants with an exercise price of RM 0.10 while the normal investors had to do with warrants with an exercise price of RM 0.50, a huge difference and not exactly fair. It seems that the Securities Commission has indeed looked into this matter.

Regarding the above high returns: apparently there are some investors at this moment prepared to pay these high prices for previously listed SPACs. However, what the fundamental value is at this very moment, nobody knows, it is much too early to tell. SPACs will have operational losses over the first few years since it takes a lot of time to get the actual exploration going. Cost overruns and delays are also very common in these kind of industries (oil & gas and mining). If the financial results in the long term will support the current share prices through good profits (and possibly dividends), that is very hard to tell. As one person commented in my blog, SPACs look like junior mining companies, whose results are very volatile and risky.

If I read about the hot market for SPACs, then it reminds me of the (in)famous South Sea Bubble:

I highly recommend the reader "Memoirs of Extraordinary Popular Delusions and the Madness of Crowds" by Charles MacKay:

"....In the mean time, innumerable joint-stock companies started up everywhere. They soon received the name of Bubbles, the most appropriate that imagination could devise. The populace are often most happy in the nicknames they employ. None could be more apt than that of Bubbles. Some of them lasted for a week, or a fortnight, and were no more heard of, while others could not even live out that short span of existence. Every evening produced new schemes, and every morning new projects."

"....Some of these schemes were plausible enough, and, had they been undertaken at a time when the public mind was unexcited, might have been pursued with advantage to all concerned. But they were established merely with the view of raising the shares in the market."

"But the most absurd and preposterous of all, and which shewed, more completely than any other, the utter madness of the people, was one started by an unknown adventurer, entitled "A company for carrying on an undertaking of great advantage, but nobody to know what it is." Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project."

The similarity with SPACs is striking, to say the least.

It is true that the assets to be acquired by SPACs have to be approved, but then again, how often are proposals from majority shareholders voted down by minority shareholders? It hardly ever happens in Malaysia.

The iTulip website on the same subject:

"The prospectus promised unheard-of rewards.  At nine o'clock in the morning, when the subscription books opened, crowds of people from all walks of life practically beat down the door in an effort to subscribe.  Within five hours a thousand investors handed over their money for shares in the company.  Not being greedy himself, the promoter promptly closed up shop and set off for the Continent.  He was never heard from again."

I am confident that the Securities Commission is doing a decent job, and that the above (promoters running away with the IPO money) will not happen in Malaysia, at least that is what I hope.

But I still don't like SPACs, they simply go against my (investment) grain. The initial risk of companies should lay with their founders and the angel investors. In a later stage other investors (like Venture Capital funds) are asked to do follow up investing. When the company goes public (this could easily be 10-20 years down the road) it should have a proven business model, possibly having established a brand name, a clear revenue model and customers for their products/services. People who invest during the IPO can study the track record of the company versus their direct competitors.

In the case of SPACs, there is nothing, except some promoters/managers with a track record in the industry, they might not even have worked together before as a team.

That is for me not a sufficient enough base for investing in a public listed company, the risk at that moment in time is simply much too high.

I hope I am wrong, but to me it looks very much like the start of a bubble (partly driven by yield hungry investors, given the low interest environment), and bubbles always burst, even though it can take years for that to happen. But when the bubble bursts, it is never a happy end, except possibly for some insiders who sold on time. Buyer beware!

Saturday, 20 July 2013

Bursa punishes remisier for manipulating Metech's shares

Bursa Malaysia published on its website:

"Bursa Malaysia Securities Berhad (Bursa Malaysia Securities) has publicly reprimanded, fined and ordered to strike off Ng Kok Kiong (NKK) for engaging in manipulative dealing activities in the securities of Metech Group Berhad (METECH).

NKK, who was at the material time of the breach, a Commissioned Dealer’s Representative of Public Investment Bank Berhad at its Kuala Lumpur branch office, had contravened and/or triggered the provisions of Rules 401.1(3), 404.3(1)(a) & (c) and 1302.1(1)(a) and (g) of the Pre-Revamped Rules of Bursa Securities (prior to the Revamped Rules of Bursa Securities which came into effect  on 2 May 2013).

.... NKK had engaged in manipulative trading activities over a period of several months (Relevant Period) in 15 clients’ accounts including his parents’ accounts."

Although I am positive regarding any enforcement action on Bursa Malaysia, the above announcement does pose some questions:
  • The manipulation took place over several months, but when? It must have been quite some time ago, since the company is delisted end of 2011 as a Practice Note 17 company. Surely investors in Metech, who might have been victim of the manipulation, deserve to know when NKK performed his trades.
  • Does Bursa Malaysia have adequate software to filter out this kind of manipulative trades? I would assume they have (it is not exactly rocket science), but why did it then take so long to trace the manipulation and to subsequently punish the remisier?
  • What was NKK's motive, was it personal gain (if so, how much did he gain) or was he acting for someone else, a syndicate or one of the major shareholders (if so, for who was he acting)?
  • A public reprimand is not much of an deterrent, a fine might be, but how much was the fine, why was this not disclosed?  If the remisier did profit personally, how did this profit compare to the fine?
  • "Strike off", is this for life?
Metech Group (code 9024), a Penang based company, used to be an associate of IJM, they held at one moment about 20% of the shares. Not much can be found on Bursa Malaysia's (otherwise excellent) announcement website regarding Metech:

Nor under it's old name, Sin Kean Boon

BM is not in the habit of removing older announcements, so I guess this is a bug in the software displaying the companies, not intentional.

However, the company's website is still live: and even its investor relations part, up to the moment it was delisted.

In the last 6 months over which it reported, it turned over only RM 7.9 million, for a loss of RM 2.9 million. Before its delisting it had disposed of its main subsidiary company, Metech Kenzai Sdn Bhd, hence the PN 17 status.

I can't find a graph of its share price, but I don't think minority shareholders have been very pleased with its performance.

Monday, 15 July 2013

Once in a Lifetime Opportunity to Buy Barrick Gold?

John Dowdee wrote an article "Once in a Lifetime Opportunity to Buy Barrick Gold!" at the website of The Motley Fool, some excerpts:

The all-in costs for the three largest gold mines are projected from their annual reports as:

  • Barrick Gold (NYSE: ABX): $950 to $1025 per ounce
  • Newmont Mining (NYSE: NEM): $1100 to $1200 per ounce
  • Goldcorp (NYSE: GG): $1000 to $1100 per ounce

Gold is searching for a bottom

These all-in costs are important because this week gold dipped below the $1200 per ounce level for the first time since 2009, which is getting very close to the all-in costs. If the price of bullion does not recover, then some of the higher priced mines will become unprofitable and will be taken offline. This will sharply reduce supply and should cause the price of bullion to rebound. So my Foolish belief is that the price of gold bullion is finally bottoming and, if true, this is excellent news for the mining stocks.

Since last October, the price of gold bullion has cratered over 25%. In the same timeframe, both GG and NEM have declined 36% but ABX has crashed by almost 60%! Why did one of the world’s largest gold miners, with the cheapest all-in costs, collapse so much more than the other, more expensive mining companies? The answer is two words: Pascua-Lama.

The reason behind Barrick’s fall

Pascua-Lama is a gold mine in the Andes Mountains on the border of Chile and Argentina. It sits at over 14,000 feet above sea level on top an estimated 17 million ounces of gold and 635 million ounces of silver, with about 75% of the deposits on the Chilean side. When completed this will be one of the world’s cheapest sources of gold but the construction is about 2 years behind schedule (now projecting a 2016 completion) and is substantially over cost (now projected to be $8.5 billion rather than the original estimate of $3 billion).

However, the most pressing issue is that construction has been stopped by the Chilean government due to some environmental issues (the site is near 3 glaciers). It is not clear when these issues will be resolved but this is an important project for Chile as well as Barrick so I expect that an accommodation will be reached later this year. When this stoppage was announced in April, Barrick fell hard from around $30 per share to under $20 in a few days and has yet to recovery (current price is less than $16 per share).

Compelling metrics

In virtually every value metric, Barrick shines when compared with its peers. Barrick’s forward Price-to-Earnings (P/E) ratio is extremely low at 4.9 and is significantly lower than Newmont (9.3) and Goldcorp (12.4). In terms of price-to-book, Barrick comes in at a compelling 0.7 compared with 1.1 for Newmont and 0.9 for Goldcorp. Perhaps one of the best metrics is the dividend yield. Barrick is now paying over 5% which is higher than Newmont and much higher the Goldcorp. So Barrick will pay you to wait for improvement in the Pascua-Lama situation.

Based on the above analysis, I believe the recent decline of Barrick was overdone. Pascua-Lama is important to Barrick’s future, but it is not a make-or-break proposition. Even without Pascua-Lama, Barrick owns over 26 mines that produced over 7 million ounces of gold last year. Barrick also has over 120 million ounces of gold and about a billion ounces of silver in reserves.

Foolish bottom line

When the Pascua-Lama issue is resolved, Barrick should rocket ahead, but until then, the company is one of Wall Street’s most unloved stocks! Thus, based on the old Wall Street adage, it may be time for Foolish investors to back up the truck and load up with this gold stock. If you can handle the volatility, then I believe that long-term investments in Barrick will be well rewarded.

I wrote before about gold miners. I quite like mining companies at the current price, and have started to accumulate a few, including Barrick Gold. However, investors should be ready to stomach potential losses, sentiment is terrible at the moment and the stocks of mining companies can easily fall further. If that happens I will buy some more, I don't think a whole industry can be wiped out. Normally, if shares of companies in a beaten down industry do recover, it will be the blue chips who are leading the charge.

A more negative story, to balance things out, from the same The Motley Fool: "Can Gold Miners Drop Even Further?"

Sarfaraz Khan writes:

"Analysts have also pointed out that some of the leading gold miners are going to write down the value of their assets in the coming quarters. While some believe that the sector has hit rock bottom, I think that it can go down even further."

Note: this is not a recommendation to buy or sell shares. Readers should do their own homework and decide themselves.

Sunday, 14 July 2013

IOI Prospectus, 1623 pages!

I wrote before about the delisting in 2008 and possible relisting of IOI Properties (IOIP), here and here.

It looks like the relisting of IOIP will indeed go through, the prospectus exposure can be found on the website of the Securities Commission.

I wrote before about making IPO documents readable, lamenting documents that contain around 600 pages.

I guess that the principal advisers of the IOIP listing don't agree with me, since the prospectus has a whopping 1,623 pages. Honestly, which prospective investor is going to read that?

With so many pages available, I do expect at least a very thorough discussion about the rather controversial delisting, and a proper comparison with the current valuation, something along the following lines:
  • IOIP was delisted in 2008 at a valuation of ...., its Net Asset Value was ...., its Revalued Net Asset Value was .... and its (normalized) net earnings were ....
  • Since then the amount of dividend that has been paid to the shareholders of IOIP was ....
  • The amount raised by rights issues (if any) was .....
  • The amount raised by loans was ....
  • IOIP will be relisted at a valuation of ...., its Net Asset Value is ....., its Revalued Net Asset Value is .... and its (normalized) net earnings were .....
(With "normalized" I mean excluding one-off items)

The above will give a rough but simple estimate how the current valuation (at a moment when property prices have boomed and are appearing to be toppish, at least to me) compares to the one in 2008 (in the midst of the global recession, when property prices were falling).

Unfortunately, I could not find this essential information, nor anything comparable, although some snippets of information can be found.

In paragraph 4.1.2:

The first paragraph is extremely general, so general that it is basically worthless. If BM and/or SC let companies get away with such general descriptions, then it would save time and money to just leave away this kind of non-information.

The second paragraph implies that operations could not be expanded if the company had stayed listed. That is rather strange, IOI Corporation was firmly in charge of IOIP, so why exactly is the above true?

The third paragraph seems to indicate that, since 2008, earnings have increased by about 43% and its Net Assets by about 129%. Not bad, but very far away from numbers being mentioned in the order of an increase in valuation of 800%, like in the report mentioned by "Ze Moola": current valuation of about RM 9 Billion, versus a valuation of RM 1.3 Billion in 2008.

The company was at its delisting valued at a steep discount to its Net Asset Value, rather controversial, to say the least. We will have to wait for the exact price for which the shares will be relisted, but most likely it will be relisted at a steep premium to its current Net Asset Value.

Previous IOIP shareholders who sold out in 2008 will not be happy with the turn of events.

Should regulators attend analyst briefings?

R Sivanthy from the Business Times (Singapore) wrote the article "Regulators should attend analyst briefings" on July 12, 2013.

"Analyst briefings are interesting affairs from the regulatory standpoint because there's plenty of scope for material information to be selectively disclosed, information that could then be used by recipients to gain an unfair advantage over others in the market.

However, most regulators take the view that unless it can be proven that company secrets are routinely revealed to the select few who are invited to attend, no specific regulations are needed to police such events. Though this has not been explicitly stated, it might be presumed that the thinking is that the costs outweigh the benefits.

Over in Australia, the Australian Securities and Investments Commission (ASIC), which is the non-profit maximising primary market regulator, disagrees. Last week its commissioner Cathie Armour announced that ASIC will selectively sit in on analyst briefings to observe what actually goes on at these events and to see for itself whether its disclosure rules are being followed.

This comes in the wake of a recent scandal involving an Australian Stock Exchange-listed firm named Newcrest Mining, which allegedly held selective meetings between analysts and its management in the days leading up to a massive profit downgrade.

These allegations emerged after analysts at six investment banks issued downward revisions to their 2014 estimates a few days before the company issued a statement lowering its 2014 guidance.

"This is about raising the standards the gatekeepers (company managers and investor relations teams) operate by," said Ms Armour. "Part of the exercise is to test whether we are comfortable with current practice."

It is the second time since 2008 that ASIC is probing the way company management interacts with the investment community. The first instance only involved the regulator listening in on phone conference calls. This time though, regulators will physically be present at briefings that typically come after results have been announced.

The ASIC move has plenty going for it. In a disclosure-based regime, the onus is on companies to ensure all relevant information is made known to everyone at the same time, and that no party or parties should have access to privileged data that could enable an unfair profit to be made. So, having a regulator present when corporates meet with their investors or the broking community must surely mean that everyone will be on their toes and all stops would be pulled out to ensure the rules are followed.

Of course, cynics might argue that there is still ample opportunity for inside information to be passed on outside of formal meetings - a simple phone call or SMS, for example, would suffice. This is true but at least the ASIC move is a useful deterrent, a better-than-nothing step in the difficult fight to ensure a level playing field.

If ever the Singapore Exchange (SGX) were to consider adopting the Australian example, it should go further and extend its surveillance not just to post-results briefings and informal broker/manage- ment meetings but also roadshows and other promotional presentations conducted by broking firms to cultivate interest in particular companies.

It is safe to assume that stockbrokers which organise roadshows invariably hold stakes in the companies they promote. After all, none of them would host roadshows out of kindness, and so there is infinite scope for inside information to be quietly passed on at these events.

The exchange should therefore scrutinise how these gatherings are organised and advertised, and perhaps draw up guidelines for brokers and listed companies since experience has shown that, sometimes, even knowing in advance the names of participating firms is material information that can be used for unfair profit."

For more information about the Newcrest Mining case, for instance the following article from Financial Review:

"Newcrest downgrades ‘incredibly suspicious’: Wilson"

I like to add that I regularly visit websites of many large, international blue chip companies, and that it is completely normal for them to publish conference calls and analyst presentations on their website, to even the playing field between fund managers and retail investors.

Here is for instance the Investor Relations website from Microsoft, disclosing the webcast and transcripts of Conference Calls and BreakOut sessions. Next to that we can find the last annual report, the graph of the share price, the detailed voting at the last AGM, upcoming events, investor services, etc., all conveniently displayed.

Definitely too much work for small listed companies at Bursa Malaysia, but surely the largest say twenty listed companies can comply to this kind of standard?

Saturday, 13 July 2013

Goldis: victory for minority shareholders

It seems that shareholder activism is gaining ground in Malaysia.

Goldis announced in May 2013 a plan to transfer its 30.6% stake in IGB to Steady Paramount Sdn Bhd. Goldis shareholders had the following choice:
  • To hold shares in Steady Paramount, but holding shares in an unlisted company is not very attractive to most investors
  • To sell for cash,  RM 1.72 per IGB share, but this price is at a large discount to the NTA of IGB
In other words a choice between two undesirable options, a real dilemma for Goldis minority shareholders.

But, surprisingly, at least for me, Goldis changed its mind, according to this BM announcement:

"Reference is made to the announcement dated 8 May 2013 in relation to the Proposed Distribution. The Board of Goldis (“Board”) wishes to announce that they had, after due deliberation, decided not to table the Proposed Distribution for shareholders’ approval. The Board had arrived at this decision after taking into consideration the negative feedback from shareholders of Goldis on the Proposed Distribution."

I have to salute the Board of Goldis to take the feedback from shareholders into consideration, and change their mind. Rather rare, especially in Malaysia.

KiniBiz reported:

an analyst with a local bank backed research house opined “minorities clearly reacted negatively to this proposal initially because it was forcing their hand, they have managed to stand their ground and get the proposal scraped.”

MSWG in their weekly newsletter from July 12, 2013 commented:

And lastly Ze Moola wrote this about the proposal.

I am pretty positive about this development, I really hope minority shareholders of all Malaysian listed companies take note and fight for their rights in other corporate proposals.

Wednesday, 10 July 2013

Bina Puri admitted its intention to secure contracts by paying bribes (3)

I wrote about Bina Puri's possible intentions to pay bribes here and here.

Finally the story has been reported by the Malaysian press, in this case by KiniBiz, the article can be found here (full story for subscribers).

Two excerpts:

"......Bina Puri Group executive director Matthew Tee has denied that Bina Puri entered into the agreement with ANC with the intention to bribe."

"When asked why there was no denial to the allegations in court, Tee responded that it was the judge’s findings and that Bina Puri is at peace with their intention to take ANC on for technical advisory and not to bribe."

I tend to disagree with the above. I invite the reader to take note of the very detailed judgment, especially paragraphs 105 until 111, all points brought forward by the defendant (Bina Puri).

Just one of many examples given by the judge:

In an otherwise unrelated posting from KiniBiz: "PEMANDU to push for more radical reforms to fight corruption", an excerpt:

Director of Anti-Corruption NKRA of Pemandu, Ravindran Devagunam said Pemandu acknowledged the results of the 2013 Global Corruption Barometer (GCB) released by Transparency International and take this on as a further impetus to push for more reform.

“The survey clearly shows that what we have done is not enough. We need to intensify efforts and continue to push for improvements across the social, political and business arenas,” he said in a statement here today.

The GCB survey was conducted in more than 100 countries and found that more than half surveyed globally believed corruption had worsened over the past two years.

What is very much missing is enforcement against the "big fish". The agencies have to show credible results against the well-connected, only then will the perception improve. At least, that is my opinion.

Monday, 1 July 2013

(Gold) Miners, a contrarian play?

Most people will know that gold has come down quite a bit lately, about 30% from its top.

But they might not know that the gold miners have come down much more in value.

Below is the chart of Barrick Gold, its share is down 70% since its top of $55 in 2011:

Well known gold funds like the ones from Van Eck and Blackrock have also faired badly, they are about 50% down over the last 2 years.

Is the sell off overdone? The price of gold has come down, which will surely have an effect on the profits. Also, many miners have bought assets in the last years, some of these assets have to be written down in value, giving one-off negative surprises.

However, I think that in the long run there will be inflationary pressures, and that the price of gold (and other precious metals) will rise again. For the blue-chip miners, this sell off might not be all bad news, competitors with insufficient cash might be put out of business.

I have started to pick up some of the miners, both the gold miners and the more general ones (like BHP). Although their share prices might easily fall further, in the long run I expect them to do ok.

Business Insider has an interesting info graphic on their website, explaining the cost of gold mining and why there are not many gold miners in Asia: there are not many mines (some are in Russia), and the cost is relatively high.

Protasco: extensions and extra conditions

Protasco announced the following information regarding the proposed acquisition of 76% of PT ASI (about which I wrote several times):

(a) to extend the period to complete the Due Diligence (“Due Diligence Period”) to 31 July 2013;

(b) to extend the period for the parties to obtain all Conditions Precedent (“Condition Period”) to 30 September 2013;

(c) to include an additional condition precedent whereby the Vendor shall use its best endeavours, at its own costs, to obtain in writing binding extension to the PMP Agreement made between Pertamina and PT Haseba beyond its current expiry on 14 December 2014 on the best terms possible; and

(d) to insert an additional clause to clarify that the Vendor shall bear all additional costs as may be incurred by PB in completing the Due Diligence and obtaining all approvals as a consequence of PB agreeing to the Vendor’s request to extend the Due Diligence Period and Condition Period accordingly.

It looks like this deal will take a long time, not completely surprising, hence the extensions. In the mean time it has parked RM 50 million in December 2012 in Indonesia as deposit. Information has been minimal, if any, many essential details regarding the deal are still unknown. The regulators (SC and BM) have not visibly taken any action, but they might be active behind the scenes.