Masterskill: why the hurry to buy into noodles, dim sum and dessert?

I wrote recently about Masterskill, "Who is Gary How".

The ink was not yet dry, or more developments followed.

First of all three directors resigned and three new directors were appointed, one of them Gary How, another his wife.

In itself rather strange, since Gary How still doesn't own any shares in Masterskill, he only owns a call option, but there is no surety that the call option (or the put option of the majority shareholder) will be exercised. Or even if he is able to exercise it, if he has the means to do that.

Some details of the background of the new directors are revealed, but mysteries remain. Searches on the investment company of Mr. Gary How (Citi-Champ International Limited) do not reveal much additional information.

The share price did react rather strong to the news though:

For some parties involved (Masterskill Holdings Limited, Sami Ali A. Sindi and Richard Todd Scanlon), this seemed to be the ideal moment to offload some shares, more than 44 million shares in total:

Disposed 24/03/2014   8,600,000  
Disposed 24/03/2014   2,000,000  
Disposed 26/03/2014   1,000,000  
Disposed 26/03/2014     250,000  
Disposed 27/03/2014  16,995,077  
Disposed 27/03/2014   1,724,923  
Disposed 28/03/2014  12,800,000  
Disposed 28/03/2014   1,400,000

But that is not all, today another announcement came, to buy 118 million shares in Hong Kong listed company Gayety Holdings limited (8179) for about RM 20 million cash.

Regarding the future plans of this company:

For those people who dare to ask what noodles, dim sum and dessert have to do with education for nurses, I am afraid I don't have the answer to that.

The company is featured in David Webb's site because of high concentration warnings in the past, in plain English: almost all the shares were in the hands of a few parties, it was thus very easy for these shareholders to control the share price. If that is still the case, I am not sure.

For reasons that are further not explained, the parties involved seem to be very much in a hurry:

I have written the following about Masterskill in the past:

"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."

Given the rather peculiar recent events, I think a thorough investigation by the authorities is even more warranted.

Bernas: are all minority shareholders really treated fair and equal?

Bernas (Padiberas National Berhad) has been in the news lately. The first attempt by companies linked to Syed Mokhtar AlBukhari to takeover and thus delist the company failed, but a second attempt succeeded (at least regarding the latter part). Rather surprisingly, since the offer was exactly the same.

Regarding the offer price, it seems to be rather low for such a cash cow, an opinion that MSWG agrees with, according to this article in The Ant Daily:


According to the Minority Shareholder Watchdog Group (MSWG), a prudent estimate of Bernas’ intrinsic value is RM3.2 bil or RM6.13 per share. At a conservative 8.5-11.5% discount with at least a 2% perpetual growth rate, the indicative value of Bernas is estimated at between RM4.18 and RM6.13.


Then why did some of the minority shareholders change their mind and accept the low offer? Is it possible that some received a better offer than others?

Comments made by Agriculture and Agro-Based Industries Minister Ismail Sabri Yaakob clearly seem to indicate that. In an article "Bernas delisting ‘good’ for farmers, fishermen" at KiniBiz website, the Minister allegedly said (emphasis mine):


.... Bernas has agreed to his request to pay Nafas and Nekmat RM2 million each annually even though they are no longer shareholders and are not entitled to a dividend.

“(This is so) that Nafas and Nekmat will still have consistent financial (support) … So it’s a good deal for them. They are well taken care of,” he said.

Ismail Sabri said he had received a “personal undertaking” from Syed Mokhtar that Nafas and Nekmat will be offered 5% each of the shares, should the company be re-listed in the future.


Similar articles can be found here and here reinforcing that the Minister really said this.

That is all very nice for Nafas and Nekmat, I have zero problems with them being treated generously and receiving more than the low one-off payment of RM 3.70 per share.

But there are many other minority shareholders of Bernas, and according to the rules, they should be treated the same, they should receive the same offer. Thus they also deserve a yearly payment and an offer a percentage of shares when Bernas is relisted again.

The Capital Markets and Services Act, paragraph 217, clearly states this:

Lee Won Chen of Shearn Delamore & Co writes it in a very clear manner:

So why have the other minority shareholder not received a similar offer?

Nafas and Nekmat have in the mean time accepted the offer, according to the same article:


The National Farmers Organisation (Nafas) and National Fishermen’s Association (Nekmat) had respectively held 3.7 and 3.2 percent of Bernas shares previously.

However, Bernas, now owned by companies related to tycoon Syed Mokhtar AlBukhari, has since bought the shares.

Because of this the public shareholding has fallen below 10% and the shares of Bernas have been suspended since March 21, 2014.


This of course will put even more pressure on the remaining shareholders, holding shares in an unlisted company is not a very attractive proposition for many.

In an interesting twist, Bursa Malaysia asked the company to clarify an article in The Edge Malaysia dated February 10, 2014, and Bernas answered:


In response to your query, after due enquiry with our Directors and major shareholders, the Board of Directors of Padiberas Nasional Berhad (“Company”), wishes to inform that as at today, the Company is not aware of any written arrangement on the following:

(i) any corporate restructuring that includes an impending relisting plan; and
(ii) where the National Farmers Association (“Nafas”) and the National Fishermen’s Association (“Nekmat”) will eventually hold a 5% stake each in the newly listed entity.


The statements of the Minister on one side and Bernas on the other side seem to contradict each other. The behaviour of Nafas and Nekmat (accepting the same offer offer that they refused earlier) seems to put more weight on the statement of the Minister.

Bursa Malaysia and the Securities Commission should urgently investigate this matter and show that they really practice what they preach:

"to promote and maintain fair, efficient, secure and transparent securities and futures markets and to facilitate the overall development of an innovative and competitive capital market."


On a side note, regular readers of this blog will know that I don't like these "listing-delisting-relisting games" at all, they are "played" mostly by the tycoons, at the expense of the minority investors, who hardly stand a chance. I have yet to read a good and proper reason why a company needs to be delisted and relisted, arguments given are often vague along the lines of "the need to restructure the company". The authorities really should do something about this abuse of the rules and the continued disadvantaging of minority investors.

Michael Lewis: "Flash Boys"

Michael Lewis, one of my favourite writers, has written a new book, "Flash Boys".

Some excerpts from the article "The Hero Of Michael Lewis’ New Book Is A Mysterious Stock Exchange That Goldman Sachs Loves", published on Business Insider:


Michael Lewis and his publisher have done an excellent job keeping the details of his new book, ‘Flash Boys: A Wall Street Revolt’, completely under wraps, but some details are leaking out.

The book is about high frequency trading, and a firm called IEX that has created a separate exchange where everyone — fast or super fast — is safe to trade.

Critics say that firms that trade at high speeds can harm other actors in the market, and even cheat them out profitable trades.

"We view IEX’s core mission as simplifying an overly complex market structure trough a transparent rule set, minimal number of order types, and most significantly, a speed buffer that intentionally slows down trading in their market, relative to other venues"

“The U.S. stock market now trades inside black boxes, in heavily guarded in New Jersey and Chicago,” he writes in the prologue. “What goes on inside those black boxes is hard to say.”

IEX was born at the Royal Bank of Canada in large part thanks to Brad Katsuyama, the man who ran the bank’s U.S. trading desk. Katsuyama has been outspoken about the problems with HFT before, and it was he who lead the defection from the firm.

The goal, Lewis writes, was to “restore fairness in the U.S. stock market.” Katsuyama had watched his clients get nickeled and dimes while trading for them.

“I started to realize that, day in and day out, I was getting screwed,” Katsuyama told the New York Times last year.


Other reviews of the book can be found here and here.

The above is highly relevant for Bursa Malaysia, which has introduced a trading engine powered by NASDAQ OMX. It would be good if Bursa Malaysia would take a public stand in the matter of High Frequency Trading: are they going for the short term (increased trading by HFT players at the expense of the other traders and investors), or are they aiming at the long term (a fair market for all, where clients do not get nickeled and dimed).

The SGX, unfortunately, seems to have made their choice already, according to this article "Singapore Exchange Seeks High-Frequency Traders".

I have been very critical about High Frequency Trading before, and don't intend to change that stand, unless proven otherwise.

High volume trading does not equate creating shareholders value or enhancing the economy of a country, it is simply creating profits for a very small number of market players and the exchange, at the expense of all other participants.

Berkshire Hathaway is an example of a company that created tremendous value for its shareholders:

Its average daily trading volume is however only 437 shares. I don't think any of it's shareholders mind.

And the exchanges responded ....

In reference to the last two postings, it is good to notice that both exchanges (Bursa and SGX) have responded in a timely fashion.

SGX is rectifying its web-page issues

MAS takes a serious view of market misconduct


"Since 2008, criminal prosecutions have successfully led to convictions in 33 market misconduct cases. In the same period, MAS [Monetary Authority Singapore] has successfully obtained civil penalty judgments in 4 cases before the Singapore Courts, as well as entered into 14 civil penalty settlements. Importantly, all these settlement agreements include an admission of liability by the offender."


That sounds indeed not bad, and I like especially the last part, on Bursa too many parties are allowed to "escape" without admission of liability in cases of possible insider trading.

However, "since 2008" is quite a long time, six plus years, how many cases were investigated in total, and in how many cases complaints were filed of possible misconduct? That would give an indication of the success rate of the enforcement.

Also, how many cases ended in a jail sentence (the only punishment that really counts, in my humble opinion)?


Bursa to go on public engagement sessions

"Bursa Malaysia Bhd plans to embark on a series of public engagement sessions with retail investors to further address certain issues that were raised at its AGM."

That sounds good and proactive.

I still can remember years ago that I complained to Bursa about the RM 40 minimum brokerage fee. Quite a few counters that I was interested in had rather low trading volumes, and a large spread between the highest buyer and lowest seller price. I usually put in a buy order of a decent size at the middle between those two prices, but sometimes was rudely surprised finding out that only 100 shares were bought (once at a price around RM 0.50), and that the brokerage in percentage of the order was much too high for comfort.

I also gave two pretty simple solutions:

• either raise the minimum board lot size for shares trading at lower prices (in Hong Kong for instance penny stocks go in lots of 10,000 shares)
• or lower the minimum brokerage for these small orders.

Bursa answered that I should just buy at the sellers price and sell at the buyers price, if I had a problem with the brokerage fee.

Needless to say, this advice equates to a one way ticket to the poor house and I was pretty disappointed about the answer, also about the tone of it.

I also approached MSWG who came with a better solution: if say half an hour before the closing a small amount of a trade is done, then one could try to buy at a somewhat higher price, since the brokerage will count for both orders.

In itself good advice, but not always practical, for instance, I don't always have time to monitor my trades.

The situation is the more surprising, since low (or no) volume is a real problem on Bursa, even today, despite the fact that the market has had a very nice run-up since 2009 and many people must have made money, at least on paper.

On a day like today, 146 out of 992 main board counters (15%!) are not traded at all (and many other counters only for small amounts). The percentage of untraded counters for the ACE market is higher, at 20%, and for structured warrants it is a whopping 76%.

Hopefully Bursa Malaysia will look seriously into this problem of the high minimum brokerage, and come with a proper solution.

Heated questioning at Bursa's AGM

Article on The Edge website:

Bursa AGM: Shareholders question Bursa’s efficiency at long heated meeting

Some snippets:

Bursa Malaysia Bhd’s annual general meeting (AGM) today was longer than expected, with shareholders incessantly raising questions on the operational efficiency of the stock exchange and voicing dissatisfaction on various issues. The meeting, punctuated by some heated questionings, began at 10 am and ended at 1.20 pm today. During the three-hour long AGM, Bursa Chairman and Non-Executive Director Tun Mohamed Dzaiddin bin Haji Abdullah was said to have cut short some issues raised by shareholders, which prompted some infuriated shareholders to storm out. “How can the chairman deny us the opportunity to raise important issues?” a shareholder complained, while talking to theedgemalaysia.com.


The Board of Directors has to answer questions of the shareholders during an AGM, the only time they can ask questions.

From the above it looks like the journalist of The Edge Malaysia was not allowed in the AGM, why not? I think it should be a completely common practice to allow journalists in, a healthy dose of transparency should do no harm, I would think.

One way to solve this problem is that an organisation like MSWG buys small amounts of shares in all listed companies under several different subsidiaries, and let some journalists (beside their own representative(s) of course) be a proxy for those subsidiaries.


The management of the stock exchange – including CEO Datuk Tajuddin Atan – declined to talk to reporters after the annual general meeting (AGM). But a shareholder told theedgemalaysia.com that many shareholders had raised pointed questions and made sharp comments at the AGM. One was that ‘Bursa is not quick enough in response to unusual market activity (UMA)’. “For instance, we see some shares surging all of a sudden without any apparent reason. Is there insider trading involved?” the shareholder said. “We also want to know what Bursa will do and how to curb such activity,” the shareholder added, noting Bursa’s response was that it would investigate any ‘unhealthy activity’. Another shareholder piped in: “The trading practices are not fair to investors. We want it to be simpler and fairer for all investors.” Shareholders were also unhappy over ‘high brokerage fee’ to buy, sell and transfer shares. The minimum brokerage fee to buy or sell shares is RM40, while to transfer shares it cost RM10. “It is painful for retail investors like us when we trade in small volume,” a shareholder said.


I agree that RM 40 minimum brokerage fee is very high when the amount of shares traded is small. The minimum brokerage should be much lower, otherwise the whole idea behind having trading lots of only 100 shares does not make sense.

The above questions do again put the spotlight on Bursa being a monopoly, an exchange, a regulator and a listed company. Too many hats, if one would ask me.

SGX: twice "attacked" in the press

Today the SGX was twice "attacked" in the Business Times (Singapore):

SGX site is now counter-intuitive

Some snippets:

... The most baffling, unannounced change concerns real estate investment trusts (Reits) and business trusts. Previously, someone who wanted to search for the announcements made by, say, Cache Logistics Trust, could go directly to the "company disclosure" section and search immediately for the name of the company. Now, one can only access the information after identifying and searching for the name of the company managing the Reit or trust, which can sometimes be very different.

...... Moreover, the new layout is a design disaster.

The main focus of the page no longer seems to be on the company announcements themselves, but on two large columns devoted to company names and security names. The titles of the actual announcements themselves - which can be significant corporate events like contract wins, debt listings, mergers and acquisitions and financial results - are squished into one tiny column on the right.

..... Mr Webb, by the way, has a great webpage with a formidable database on directors and companies, which he built through the years with just one other person. SGX, with all its resources, can do better here.


In my opinion, Bursa Malaysia has an excellent website regarding the company announcements and thus appears to be doing much better than the SGX. A few things could be improved though:

• When a company changes its name (which does quite often happen), one can only find the old information under the new name. For instance, information regarding "Woo Hing Brothers" is to be found under "Kamdar Group", the 12th page and further.
• Enforcement actions are stored (or rather, hidden) under "Media". There should be an easier way to find all enforcement related news sorted by date or company, combined with those of the Securities Commission.
• I love long term charts, it would be good if Bursa can give the price charts over more than 5 years.
• A database of companies and directors, similar as done by David Webb.

But other than this, an excellent announcements website, that can compete with the best.


The second article regarding SGX is from Mak Yuen Teen:

SGX should be more proactive against potential insider trading

Last week was not a good week for the regulatory side of SGX. On the one hand, it was criticised for not querying Olam, while on the other, it was told that it was too easy on the trigger for "Trade with Caution" (TWC) alerts.

There is a role for TWC alerts, particularly for issuers which have unusual trading activities and which cannot explain them when queried by SGX. From our research, about three-quarters of responses to price queries say that they could not explain the price run-up or decline. SGX should focus on these companies when issuing TWC alerts, rather than companies which have attempted to explain the unusual trading activities. This is not to say that SGX should never issue TWC alerts in other cases but it should be more circumspect in doing so. Otherwise, over time, such alerts may cease to serve any useful purpose and we may then see a new alert in the form of Trade with Extreme Caution to differentiate it from Trade with Caution.

I appreciate that SGX is enhancing its regulatory role and the increase in its surveillance activities should be applauded. However, SGX and other regulators should recognise that surveillance is only part of the system of monitoring and enforcement.

In the case of the 75 per cent of issuers which say that they have no explanation for unusual trading activities, do the regulators track whether these issuers announce significant corporate developments soon after they issue their "no explanation" responses? Do they investigate whether the prior unusual trading activities were the result of leakage of information about these developments?

Olam, which was not queried, is far from being the only stock that has experienced significant price movements before a major corporate announcement. The issue should not primarily be about whether an issuer is queried, but whether there are unusual price or volume movements before major corporate announcements which may indicate possible insider trading. Some markets, such as the US, focus on investigations and enforcement rather than queries and public disclosure around these queries.

SGX and other regulators should examine the balance between surveillance and enforcement and ensure that sufficient resources are put into investigations and enforcement. This may require the government to review the resources allocated to agencies and units which are responsible for investigating and prosecuting capital market-related offences. Surveillance and enforcement need to go hand in hand and it is well accepted that the key to a robust capital market is effective enforcement. If enforcement is improved, we may also see a decline in the need to issue queries and TWC alerts over time as unusual trading activities may become less common.


This article is unfortunately very relevant for Bursa Malaysia, both regarding possible insider trading (which I think is a real problem in the Malaysian market), and regarding the last paragraph (resources allocated to enforcement).

The Fed, Luck and Skill, History of Money

Three interesting articles with some snippets (for the full articles, please click on the links):

Jeremy Grantham: The Fed is killing the recovery

It's quite likely that the recovery has been slowed down because of the Fed's actions. Of course, we're dealing with anecdotal evidence here because there is no control. But go back to the 1980s and the U.S. had an aggregate debt level of about 1.3 times GDP. Then we had a massive spike over the next two decades to about 3.3 times debt. And GDP over that time period has been slowed. There isn't any room in that data for the belief that more debt creates growth.

The Bernanke put -- the market belief that if anything goes bad the Fed will come to the rescue -- has had a profound impact on people and how they act.

Yes, I agree that the Fed can manipulate stock prices. That's perhaps the only thing they can do. But why would you want to get an advantage from the wealth effect when you know you are going to have to give it all back when the Fed reverses course. At the same time, the Fed encourages steady increasing leverage and more asset bubbles. It's clear to most investing professionals that they can benefit from an asymmetric bet here. The Fed gives them very cheap leverage on the upside, and then bails them out on the downside. And you should have more confidence of that now. The only ones who have really benefited from QE are hedge fund managers.

So are you putting your client's money into the market?

No. You asked me where the market is headed from here. But to invest our clients' money on the basis of speculation being driven by the Fed's misguided policies doesn't seem like the best thing to do with our clients' money.

We invest our clients' money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That's how we will pay for this. It's going to be very painful for investors.


Luck and Skill Untangled: The Science of Success

It turns out that investors earn dollar-weighted returns that are less than the average return of mutual funds. Over the last 20 years through 2011, for instance, the S&P 500 has returned about 8 percent annually, the average mutual fund about 6 to 7 percent (fees and other costs represent the difference), but the average investor has earned less than 5 percent. At first blush it seems hard to see how investors can do worse than the funds they invest in. The insight is that investors tend to buy after the market has gone up — ignoring reversion to the mean — and sell after the market has gone down — again, ignoring reversion to the mean. The practice of buying high and selling low is what drives the dollar-weighted returns to be less than the average returns. This pattern is so well documented that academics call it the “dumb money effect.”


A Brief History of Money


If the entire history of Homo sapiens was represented by a 24-hour clock, money would only have been around for the last 18 minutes. Because it connects people, it is arguably humankind's most important invention, up there with the printing press and the internet.

But, as George Goodman (a.k.a."Adam Smith") points out, “The trouble with paper money is that it rewards the minority that can manipulate money and makes fools of the generation that has worked and saved.”  Under a fiat money system, higher inflation slowly confiscates savings. Wall Street and the financial sector have been viewed with scorn in the aftermath of the 2008 global financial crisis, but one positive development in the world of finance is that we no longer have a “minority” that can use money to their advantage—anyone can do it. For a long time, only the privileged rich could access global market opportunities, but thanks to innovations like exchange-traded funds and low-cost online trading accounts, participation in the global stock market is cheap and easy.  Because of the now low barriers to entry, all investors can protect themselves from inflation and grow their wealth.

Born after 1980, millennials are the first complete generation of Americans born into a world of dollars without an anchor. No anchor means no check on inflation, no check on money printing, and therefore no check on the value of our U.S. dollar.  With inflation eating away our purchasing power, we should invest in assets that grow at the highest real rate (after-inflation) over time. 

Over the long run stocks have outperformed bonds and bills, usually by wide margins[xi].  And while U.S. bills and bonds did provide slightly positive returns after inflation during this period, bonds and bills in other countries lost money between 1900 and 2012.  Investments in supposedly “safe” short term bills lost purchasing power in Germany, Japan, France, Italy, Belgium, Finland and Austria. In the U.S. and in countries abroad, bills and bonds have failed to help investors build wealth.

Kamdar: "It's a messy family affair"

The cover story of The Edge Malaysia of March 24, 2014:

A contractor, RM 8.7m & wrangling

in the House of Kamdar

A very confusing story about the Kamdar family, their listed company, and a certain contractor Yap Kim Hong, who claims that the shares in his account were held as a proxy.

I can't follow the story, too many parties involved, too many contradicting or vague statements.

However, there is one particular paragraph which sounded rather alarming, and Bursa Malaysia issued a query regarding that matter:


Reference is made to Bursa's query on the following statement under paragraph three (3) of page 70 in the article in The Edge Malaysia entitled "Wrangling In The House Of Kamdar" dated 24 March - 30 March 2014 :-

"The RM5.7 million was part of RM8.7 million taken out of [subsidiary] Kamdar Sdn Bhd in 2005"

The Company wishes to clarify that the Board of Directors has taken legal advice on the matter and has been and continues investigating the matter and is in the process of gathering evidence of the wrongdoing and will take any and all the necessary steps including taking steps to recover any monies withdrawn without authorization or unlawfully.


The following announcement indicated already that a family squabble was going on:


LETTER TO SHAREHOLDERS IN RELATION TO THE
CALLING FOR AN EGM TO REMOVE EACH OF THE FOLLOWING FROM THE OFFICE OF DIRECTOR:

(1) KAMAL KUMAR KISHORCHANDRA KAMDAR (NRIC NO. 700510-71-6031)
(2) RAJESH KUMAR A/L GEJINDER NATH (NRIC NO. 680516-08-5845)
(3) LIANG AH WAH @ FRANK LIANG (NRIC NO. 461221-01-5073)
(the "Specified Directors")

AND TO APPOINT EACH OF THE FOLLOWING TO BE DIRECTOR OF KAMDAR:
(1) JUGAL KISHOR SHIVLAL (NRIC NO. 590526-71-5047)
(2) MEGAT ABDUL MUNIR BIN MEGAT ABDULLAH RAFAIE (NRIC NO. 700104-08-6791)
(the "Proposed New Directors")

AND TO REMOVE ANY OTHER PERSON WHO MAY BE APPOINTED AS A DIRECTOR OF KAMDAR AT ANY TIME FROM 15 MARCH 2013 UP TO AND INCLUDING THE CONCLUSION OF THIS EGM (INCLUDING ANY ADJOURNMENT THEREOF)


For me, business itself is already difficult enough, let alone with the founding family fighting among themselves.

Masterskill: who is Gary How?

Masterskill made an announcement on March 20, 2014:


MEGB wishes to announce that the Company had in the evening of 19 March 2014 received a notification from its substantial shareholder Mr. Siva Kumar A/L M Jeyapalan (“Mr. Siva Kumar”), who is also an Executive Director of the Company that he has entered into a Call and Put Option Agreement (“the Agreement”) on 19 March 2014 with Mr. Gary How Soong Khong (“Mr. Gary How”) (NRIC No. 690511-10-6087) of RM1705, 17/F, Hip Kwan Comm Bldg, 38 Pitt Street, Yaumatei, Hong Kong.


This came one day after its share had a decent run up from RM 0.32 to 0.38 (+19%) in much higher volume. Did some people know about this announcement beforehand and act upon it?

The Star writes:

Very little is known about How, a Malaysian who is based in Hong Kong, and why he is offering to buy the shares at a steep premium to the market price.


That seems to be true, searches by Google or LinkedIn don't seem to shed any more light on this person. Rather remarkably, since he might have to come up with RM 132 million, quite a nice and tidy amount.

So who is this Gary How, and how credible is this announcement?

Also, if he does exercise his call option, does he have to make a general offer for the remaining shares? The amount of shares is just below 30%, so I would guess that it is not needed.

I have written many times about Masterskill, a company that has performed horribly since being listed:

Year   Revenue   PAT
2008    203M     72M
2009    273M     97M
2010    316M    102M  <=== IPO
2011    250M     38M
2012    149M    -28M
2013     59M   -167M 

Its revenue is down by more than 80%, it booked horrible losses in 2013 (partly one-off losses that are hardly explained), and this all despite raising money during the IPO.

Watchdog shies away from enforcement

I have often complained about (lack of) enforcement in Malaysia regarding corporate matters, but it seems that in Australia a similar problem occurs. That is, if the article written by Michael West in The Sydney Morning Herald is indeed true. Some snippets (emphasis mine):


In mid-2008 the Australian Securities and Investments Commission was warned Storm Financial group was going to blow up.

We know this because we warned them ourselves.

"Clean bill of health" was the response. Six months later, Storm and its 13,000 clients and $4 billion in funds collapsed. On the barometer of sheer human misery, this was the worst collapse the country had seen.

The regulator had been fielding complaints about Storm's founder Emmanuel Cassimatis since Cassimatis had been flogging financial product for the Commonwealth Bank in the 1990s.

It had also been warned in advance about Allco and Babcock, ABC Learning, Rubicon, City Pacific and Australian Capital Reserve. No doubt a host of others. These are merely the ones we were involved with, or knew about.

Entire industries blown to smithereens: plantation schemes such as Great Southern, debenture funds such as Westpoint and mortgage funds such as City Pacific, with almost no regulatory action and nary a prosecution. Some $30 billion in savings.

The message, and one which is by no means lost on sharp operators, is that you can swindle people with impunity and you will not be brought to justice; as long as you are big enough.

In this job, you hear the tales of life savings lost, savvy con-jobs - often actionable but rarely apprehended - and the dreadful stories of suicide and marriage breakdown. For two decades we have been listening to this stuff while trying to get ASIC to act.

In the past, we had wondered why they were loath to discuss schemes which might soon obliterate people's life savings. More than once we pleaded, "Look, we're on the same side here. We should be trying to nail these hucksters together. Can we talk?" No.

The regulator did act the other day. It set up a section on its website where it names and shames journalists: "ASIC responds to wayward reporting.''

It is fair to say that many good people work at the corporate regulator. It is also fair to say, caveat emptor, there should be a burden of vigilance on investors themselves. ASIC cannot be expected to prevent every collapse or bring every miscreant to justice.

It confronts complex matters of policy and execution.

Yet the cultural problems run deep. The big one is guts. The leadership has always been weak. They regulate by press release, they keep their heads low. They are reactive, not proactive.

And so, in the wake of the scandal inside the Commonwealth Bank's financial arm, they now face an inquiry, the Senate Inquiry into the Performance of ASIC. Last week chairman Greg Medcraft identified what he saw as the problem: "communications".

In testimony before the Senate, Medcraft blamed bad PR for ASIC's woes. He also said the penalties regime could be toughened to enforce good corporate behaviour.

But ASIC already has the powers. It is not the laws that need to change, it is their enforcement.

Olam: possible insider trading?

I have written before about Singapore listed Olam, especially about the attacks from Muddy Waters.

Things took an interesting turn when Temasek launched an offer for all of the shares of Olam, at a price of $2.23 per share, as reported by TodayOnline:


The Republic’s state investor Temasek Holdings has offered to buy all shares in Olam owned by minority shareholders in a cash deal that values the commodity trading firm at US$4.3 billion (S$5.45 billion).

The deal will be done through a Temasek unit, Breedens Investments. Breedens, along with Olam’s family share holders, members of its executive committee, and Arandda Investments, another Temasek unit, already hold around 52.5 per cent of Olam shares.
 
“Breedens wishes to increase its shareholding to support Olam’s strategy and growth plans for the long term,” it said in a statement.

The offer price of S$2.23 per share represents an 11.8 per cent premium over Olam’s last traded price.

Breedens is not planning at this point to take the company private, intending to Olam remain listed in Singapore unless it becomes in breach of the exchange’s requirement that at least 10 per cent of shares be freely floated.

Breedens is also offering to buy Olam’s outstanding convertible bonds and warrants.


However, one day later TodayOnline reported the following:


Temasek Holdings’ buyout offer yesterday came after Olam’s share price had accelerated dramatically in recent weeks against the backdrop of a flat market, leading some investors to cry foul and call on regulators to investigate possible insider trading in violation of securities laws.

Shareholder activist Mano Sabnani said in his Facebook posting: “What is upsetting is that there seems to have been a big leak of information on this takeover bid.

“The stock has been steadily rising on increasing trading volume in the past three to four weeks.”
Over the last four weeks, Olam shares have risen 41.1 per cent, compared with the 1.1 per cent gain in the benchmark Straits Times Index during the same period.

“In such a takeover, there will be many people involved in planning it and the chances of a leak are great. An early suspension in trading of the stock would have helped to achieve a level playing field,” said Mr Sabnani.

The six month graph of Olam's share price:

From BusinessInsider comes: "One Of Carson Block’s Big Shorts Is Up Big Today":


It looks like short-seller Carson Block’s just got burned on his short on Singaporean agricultural commodities trading firm Olam International.

Bloomberg News reports that Singapore’s state-owned Temasek Holdings Pte’s unit has offered to buy Olam International Ltd. for $4.2 billion. Temasek was already the largest shareholder.

The stock is on a tear. It was up more than 11.7% following the news.

Block, who runs Muddy Waters Research, revealed that he was shorting Olam back in November 2012. At the Ira Sohn Conference in London, Block questioned the Olam’s accounting practices. He believes the trading firm is booking profits from transactions before the deals are done. He also said he thinks the company will fail.

Shares of stock have climbed more than 14% since then.

Block declined to comment on Olam, Bloomberg reports.

Andrew Barber, chief strategist at Asymmetric Risk Advisors, has been following Olam for a while. Barber, who does not have a position in the stock, explained that these things can happen.

“One of the big problems with shorting a stock is that it can turn into an arm wrestling match with large holders. If they have more capital than you they can rip your face off even if you are correct in your investment thesis.”

Block is well-known for targeting Chinese companies he believes are frauds. He’s best known for his Sino-Forest takedown. Block’s Muddy Waters issued a report that claiming the company overstated its timberland holdings. This caused hedge fund billionaire John Paulson  to lose millions and eventually sell out of the stock. The company ultimately ended up filing for bankruptcy.

To comment on this, I am not sure if Block currently still is short Olam's stock, he might have bought back the shorted shares in the past.

The Best Way to Rob a Bank is to Own One

Watch and Weep:

 

 

More about William Black here.

Branson: Behind the Mask

I can't walk into a book shop without running in one of the many books written by Sir Richard Branson, with often rather catchy titles, like:

Losing My Virginity: How I Survived, Had Fun, and Made a Fortune Doing Business My Way
Like a Virgin: Secrets They Won't Teach You at Business School
Screw Business As Usual
Business Stripped Bare: Adventures of a Global Entrepreneur
Screw It, Let's Do It: 14 Lessons on Making It to the Top While Having Fun & Staying Green
Reach for the Skies: Ballooning, Birdmen, and Blasting into Space

I love to read business books, but have never read any of the above, I guess the title already put me off.

However, I might make an exception (I have not yet read it) for the following book, which is not written by Branson (or one of his ghost-writers), but by Tom Bower:

Branson: Behind the Mask

David Runciman wrote a review about the book, some snippets:


Richard Branson is the mirror image of a Russian oligarch. This is not to say that where they are bad, he is good. If even half the things in Tom Bower’s new biography are true, Branson is far from being good. He is playing the same game as his Russian counterparts, but it’s the looking-glass version. Where they do their best to avoid the glare of publicity, he thrives on it. The oligarchs who got rich by seizing the spoils of the post-Soviet economy sometimes have to pretend to be poorer than they really are, so as not to rouse public fury at the scale of their heist. Branson pretends to be much richer than he really is. He loves to flash the cash, often in the form of charitable pledges and absurd boasts about future profits. He once promised $3 billion over ten years to the Clinton Global Initiative in an off-the-cuff remark at a fundraiser. Clinton dragged him up on stage to give him a hug, many of his staff wept at his generosity and the papers reported the figure as if it bore some relation to reality, yet it was more than the earning power of all Branson’s businesses combined. Needless to say, nothing like that amount has been donated.

Where Russian oligarchs do everything in their power to keep journalists out of their lives, Branson asks them in, often literally, inviting them to his holiday homes and showing them a good time. He likes to brag about his drug use and his sexual appetites. He treats the personal space of the young women around him – constant props in his endless publicity stunts – with the sort of disregard you’d expect from a 1970s disc jockey rather than a successful 21st-century businessman. No one would mistake Richard Branson for Roman Abramovich, any more than they would mistake Joan Templeman, the second Mrs Branson, who has almost no public profile, for Dasha Zhukova, Abramovich’s current squeeze, who most recently appeared in the papers perched imperiously on a chair made to look like an inverted, near-naked black woman, an image published on Martin Luther King Day. Abramovich, with his dislike of unnecessary publicity, was not amused. In the Branson household, it’s the man himself who can be relied on to do this sort of thing. The photo on the back of Bower’s book shows Branson sitting on the steps of one of his planes wearing shorts and a T-shirt that says ‘Now Boarding’. A few steps higher up are two women in bikinis whose bottom halves are emblazoned with the slogan ‘Down Under’. Branson has a cheeky grin and a thumb pointed at each.

Still, it’s the same game. Like the Russian oligarchs, Branson has made little of his money in the white heat of market competition. He prefers to avoid competition when he can. His business strategy is to get as close as possible to the people with power and then exploit the connection for all it’s worth. As Bower reports, Branson’s record in launching new products and breaking into competitive markets is pretty lamentable. The Virgin brand has been attached to a wide range of things – from cosmetics to cola to Formula One racing cars to retail outlets to reality TV shows to alternative fuels – that have either failed to sell or failed to work or both. Many of these products were complete turkeys. Branson’s racing car barely got off the grid (his designers had come up with a vehicle whose fuel tank was too small to run at full speed for an entire race; his team finished its two seasons in Formula One bottom of the constructors’ table). His TV show, designed to compete in the US with Donald Trump’s The Apprentice, bombed because no one wanted to watch a smug, tongue-tied Brit pretending to be a serious entrepreneur. The programme was called The Rebel Billionaire: Branson’s Quest for the Best and the idea was to put contestants through a series of stunts to test their mettle. These included getting them to dance naked on stage and to walk on a tightrope strung between two hot-air balloons. All very Branson – it’s the kind of thing he does all the time – but viewers found it hard to see what any of this had to do with the real business of business. Trump relished the show – it made him look like a genius.

For Branson, business is a stunt. He has made his fortune out of the regulated parts of the economy, which he has milked to extract government subsidies, tax breaks, licensing agreements and protected income streams. Transport works for Branson – trains as well as planes – because it rewards the person who gets the routes. How do you get the routes? By persuading government officials and industry regulators to give them to you. Virgin Atlantic sells itself as a sexy new way of flying, but it’s all about the guaranteed profits that come from having the lucrative transatlantic slots at Heathrow. Branson’s modus operandi is to identify and target industries that he claims are being run as monopolies. He presents himself as the man who introduces competition by shaking the industry up with his innovations. For years he mocked British Airways as a protection racket. But once he has a foothold, he does everything in his power to exploit the closed shop he has inherited, suing his rivals, pushing up the barriers to entry, sucking up to politicians, cosying up to his former enemies.


The full article can be read from the above link.

Branson has been featured before in this blog: "AirAsia X: IPO poses many questions".

"It must also be noted that Virgin Group (Richard Branson) invested in AirAsia X in 2007, but did not participate in the subsequent rights issue in 2010, according to The Edge. Also, he sold his 10% of the company allegedly for more than USD 21M, valuing the whole company at more than RM 650m."

With AirAsia X posting rather bad results (corrected for one-off items and deferred tax assets it has yet to show a profit in any single year) and the share price diving, Branson, despite all the above criticism, might have been right on this one by selling out, although it is still (much) too early to tell.

Landmark case against Mayban Trustee and Kaf Discounts (3)

I wrote two weeks ago about this case. The press has also (belatedly, lawyers asked to comment needed to take their time, as usual) commented about this landmark case:

• The Star: "Court decision rattles bond market"
• KiniBiz: "Fed Court verdict a game changer for bond market"
• KiniBiz: "Tougher now for small corps to raise bonds"

(the last two articles behind a paywall).

There are a lot of valid points in those articles, and I guess the consequences of the ruling will be studied for some time, and possibly some rules will be changed.

The issue is:

"KAF’s duty as the lead arranger for the Pesaka Astana bonds, was to also verify the information that was given by Pesaka Astana against the original documents."

The High Court decided this and the Court of Appeal affirmed the decision, the Federal Court however disagreed:

Citing English case law, the Federal Court said the burden of verifying the content of the info memo was on the potential investors rather than KAF.

But also:

One of the key reasonings cited by the Federal Court was that bond holders were “sophisticated investors with vast experience in the capital market. They are no ordinary investors”.

That means that the ruling by the Federal Court might be different when the documents are targeted at retail investors.

I would prefer more clarity in this matter, I think that if a lead arranger lends its name to an issue of securities, it has to do a certain amount of due diligence (within all reason), and (for instance) checking if arrangements regarding ring fencing (the issue in the Pesaka Astana case) have been properly implemented should be one of those.

Jack Ma, Alibaba and the "Crocodile in the Yangtze"

I am a great admirer of Jack Ma and Alibaba, and their entrepreneurial story. Here is an interesting article about Jack Ma: "Billionaire Jack Ma teaches you how to be successful in life and business"

I absolutely love the movie "Crocodile in the Yangtze", which is a bit of a cult movie in the start-up scene.

The movie is made by Porter Erisman, one of the early employees of Alibaba. More information about the movie can be found here. 
Classic is the scene when Jack speaks to his first group of employees and let's someone film it, knowing it is an important moment in time. The hallmark of someone who is very assured of his future success.

I also like the strategy that Jack takes to win the battle against eBay by launching TaoBao, more about this can be found here.

The movie can be found on YouTube, the title is in Chinese, but the movie is in English (the quality is unfortunately not that great):

The link has been removed, in the comments a new link can be found. However, that link might also disappear after some time, in that case the reader has to do some own searches.

 

Jobstreet: excellent entrepeneurship

"Jobstreet's buyout by Seek Ltd was a deal welcomed by all -- and most notably, by shareholders of the Australian company. Following news of the deal, which will see Seek owning 75 percent of the merged JobsDB/JobStreet entity, shares in Seek surged by almost 18 per cent, clearly buoyed by the mushrooming potential of its ownership of two market-leading Asian online businesses.

The Seek buyout is, for Jobstreet, a culmination of many years of prudent growth and costs management. Its founding team deserves their success and this serves as a timely reminder that Malaysia is capable of building a world-class business when it is managed properly."

The above words are from MSWG's weekly newsletter of February 28, 2014. Very nice words with which we can only agree.

In this time of large IPO's, rights issues, private placements, delisting and relisting exercises, it is refreshing to see a entrepreneur growing his company the "old fashioned" way, through shear hard work and determination.

I have never personally met Mark Chang (the founder and CEO of Jobstreet), but I know people who did, and they all seem to agree on him: clever, hard working and very humble.

The deal appears to be squeaky-clean. With LinkedIn being a very real threat, the deal looks (very) sweet for the current shareholders of JobStreet (which must include many of the staff, having received shares through the ESOS scheme).

This deal is also good for the Malaysian tech-scene, which can use some success cases.

For an evaluation of the remaining company (after the buyout of its main business) I refer to Serious Investing's article.