Protasco: how secure is the security?

Protasco announced today its 2nd quarter results.

Regarding the "Puzzling Purchase" no new information is given other than what was known already.

However, there is one important issue, Protasco has paid a huge cash deposit of RM 50 Million, for which it received a security (I have pointed out in the past that [a] the size of the deposit seems to be unusually large and [b] that it is rather strange that the cash itself is not held in trust).

In "A sliver of Information" I described the securities that are held in trust against the RM 50 million deposit: shares of PT Inovisi Infracom TBK, an Indonesian listed company.

The value of the securities as of April 26, 2013 was about RM 51.5 Million, a margin of safety of only 3%.

I wrote: "If that gives enough assurance to the shareholders of Protasco is up to them to decide. A small drop in value of the shares of PT Inovisi Infracom TBK or of the Indonesian Rupee and the collateral could be worth less than the RM 50 million deposit."

With the current turmoil in the emerging markets (both equities and currencies), it is timely to revisit this issue.

First of all regarding the currencies, I estimate that the Indonesian Rupiah fell about 3% versus the Malaysian Ringgit since April 2013. That takes already care of the small margin of safety.

But much more worrisome is the performance of the share of PT Inovisi Infracom TBK:

From a level of about 1,700 the share has tanked to about 1,000, a fall of more than 40%.

In other words, the security is completely not sufficient anymore to cover the RM 50 Million deposit, it probably covers about RM 30 million.

And on top of that, good luck to anybody who wants to sell a large block of Indonesian shares in the current market turmoil. Especially if the news gets out that Protasco would own a block of shares and it got stuck with them.

If the proposed deal does not go through (and because of the very high number of red flags that seems quite plausible to me) then Protasco might have a serious problem in getting back its money.

Given the lack of transparency in this deal that Protasco so far has shown it is not really a surprise it didn't report about the decreased value of the security, but I think it should have.

And I also think that the authorities (BM and/or SC)  should act in this matter, they have been much too quiet so far. At the very minimum Protasco should have been forced to provide much more details regarding the deal, enabling the minority shareholders of Protasco to make an informed decision.