Sunday 31 August 2014

Millions of empty packets transported throughout China

After four years managing a private delivery company in the Chinese city of Ningbo, Chen Qian has acquired a new skill: he can tell which packets are fake even before he picks them up. Some are hollow boxes, some rattle with a piece of candy or a keychain. Recently, he says, merchants sending fake deliveries have started putting toilet paper rolls to give some heft.

Mr Chen says these account for about a quarter of the 4,000 packages his company handles every day. The phenomenon is widespread throughout China; a consequence of the country’s booming e-commerce industry and, specifically, a practice known as shuaxiaoliang, or literally – “sales brushing”. Online sellers are recruiting their friends, relatives and even professional fraudsters to make fake orders because shipping more goods would give them better placement – and therefore a better chance to garner more real sales – on websites such as Alibaba-owned Taobao.

“We’ve only started brushing recently,” said one Taobao shop owner in Hangzhou which sells hats and traditional silk scarves, who asked not to be identified. “There is no other choice for us. A lot of the other shops have been doing this for years, and we realised that no matter how well we did in sales, we could not compete with those who brushed.

A rather weird and wasteful practice, as described by the Financial Times.

Every system that allows itself to be gamed, will be gamed, if some people gain from that. Everyone would be better of if nobody would do this anymore, but how to coordinate this?

The above delivery company in Ningbo handles about 1.5 million packets of which about 400,000 are fake. But that is just one delivery company in one city, the total amount of empty packages per year must be huge, at least in the millions, probably more.

Aircel-Maxis case: are the Malaysian authorities refusing to cooperate?

The CBI has chargesheeted former telecom minister Dayanidhi Maran for abusing his position to "constrict the business environment" forcing mobile operator Aircel to sell stake to Malaysian company Maxis in lieu for two sets of 'gratification' totaling rs 742 crore.

The chargesheet also figures the Maxis' owner T Ananda Krishnan besides Maran's brother and chairman of Sun Network Kalanithi Maran among others.

According to the chargesheet, the CBI is also looking into "the aspect of irregularity in grant of FIPB approval" in the stake sale. CBI said it was investigating the FIPB approval to Global Communication Services Holdings Ltd and the role of Indian partner, Sindya Securities and Investments Ltd, in holding 26% equity of Aircel.

Maran had approached the Supreme Court on Thursday saying CBI should be restrained from filing the chargesheet as the information from Malaysia was awaited and the investigation was incomplete. But CBI officials told ET that though Malaysia has refused to offer any information about the deal, the information received by the agency from UK and Mauritius was enough to file a chargesheet.

The above from an article in The Economic Times. Other articles about this matter can be found here, here and here, they contain the following sentences:

....the chargesheet would be based on evidence collected within the country as the Malaysian authorities were refusing to cooperate.

The CBI said it had completed the investigations without receiving a reply from Malaysia as responses from the UK and Mauritius helped them establish the charges.

The agency had told the apex court that overseas probe was being delayed due to the influence of the firm's owner in Malaysia who is "powerful politically".

The agency had also sought information from the Malaysian authorities through Letters Rogatory (LRs) but it did not get satisfactory response, after which the judicial requests were sent again. The reply to second LR is pending.

The Malaysian authorities should come forward and provide details regarding the above allegations of not cooperating. This case is already 8 years old and should be expedited, especially with two listed companies (Maxis and Astro) and several Malaysian persons being involved.

Saturday 30 August 2014

Three articles

Three interesting, but not very positive articles, for the full text please click on the links.

Pump and Dump: How to Rig the Entire IPO Market with just $20 Million

How much does it cost to manipulate an entire market? Not much. And it’s getting cheaper!

It was leaked on Tuesday by “people with knowledge of that matter,” according to the Wall Street Journal, that VC firm Kleiner Perkins Caufield & Byers had decided in May to plow up to $20 million into message-app maker Snapchat, for a tiny portion of ownership. An undisclosed investor also committed some funds. The deal, which apparently hasn’t closed yet, would give Snapchat a valuation of $10 billion.

By strategically deploying less than $30 million, KPCB, and DST Global before it, have ratcheted up Snapchat’s valuation from $2 billion to $10 billion. With the stroke of a pen, in a deal negotiated behind closed doors, they have created an additional $8 billion in “wealth” that is now percolating through the minds of employees with stock options and through the books of the early investment funds.

Inflating Snapchat’s valuation by $8 billion with a few million dollars rigs the entire IPO market that depends on buzz and hype and folly to rationalize these blue-sky valuations. Unnamed people “knowledgeable in the matter” who leak these valuations to the Wall Street Journal are an integral part of the hype machine: It balloons the valuations of other startups. And it creates that “healthy” IPO market where money doesn’t matter, where revenues and profits are replaced by custom-fabricated metrics.

The Lawsuit That Could Legalize Pay-To-Play For Pension Fund Investments

Here’s a scenario to chew on:

An investment firm makes a campaign contribution to a city mayor. Later, the mayor appoints members to the city’s pension board. The pension board decides to hire the aforementioned investment firm to handle the pension fund’s investments.

Does something seem fishy about that situation?

The SEC says yes, and they have rules in place to prevent those “pay-to-play” scenarios.

But a recent lawsuit says no: investment managers should be able to donate money to whichever politicians they choose, even if those donations could present a conflict of interest down the line.

Detecting fraud a risk in China

It can be very risky to do things in China that are taken for granted in other countries.
Kun Huang, a Chinese-born Canadian citizen, is back in Vancouver after spending two years in a Chinese jail. His crime was contributing to research that led his employer to recommend short sales of Silvercorp Metals, a silver producer that is based in Canada but does its mining in China.

Mr Huang, now 37, returned to his native China in 2006 after graduating from the University of British Columbia with a degree in commerce. His parents immigrated to Vancouver in 1997, when he was 20 years old, and he became a Canadian citizen in 2002.

His job was to research Chinese companies, which were beginning to list on stock markets in the United States and Canada. He had been hired by Eos, a hedge fund run by Jon Carnes, a Canadian money manager, to “go through all the financial records in Chinese, talk to management and customers and suppliers,” he said in an interview.

At first, Eos looked for good stocks to buy, but Mr Carnes eventually gained a reputation for spotting Chinese frauds, which he publicised online under the name Alfred Little.

Mr Huang had worked on some of those reports but had no run-ins with the Chinese authorities until 2011. In June of that year, he was asked to look into Silvercorp. He said he found that some Silvercorp reports to the Chinese government showed its mines were not doing as well as they were in reports that the company issued in Canada.

He sent associates to the Ying Mine, Silvercorp’s largest operation, in Henan Province, about 500 miles southwest of Beijing. They filmed trucks leaving the mine with ore and picked up samples of the ore that fell off trucks.

In September, an Arthur Little report questioned whether Silvercorp had exaggerated the mine’s production. It said the samples it had picked up had substantially less silver in each ton of rock than the company claimed and that the volume of truck traffic was too light to account for all the ore Silvercorp said it had mined.

The company responded indignantly and demanded investigations into those who had attacked it.

Mr Huang was arrested on December 28 when he tried to fly to Hong Kong from Beijing. A police officer from Luoyang, the city closest to the mine, warned him that if he did not cooperate he could spend four or five years in jail. The officers questioning him took frequent calls – Mr Huang says he believes they were from Silvercorp officials – and then demanded such information as “the password to the Eos mail server”.

Within a few days, Mr Huang was released on bail, prohibited from leaving China. But that status ended abruptly in July 2012 after a column I [Floyd Norris] wrote for The New York Times appeared, quoting Mr Carnes as saying the Luoyang police “arrested, terrorised and forbid my researchers from communicating with me or performing any further research on Chinese companies”.

Mr Huang was rearrested, he told me, with police officers making clear that action was “directly in retaliation” for the column. He spent the next two years in the Luoyang detention centre, in a 300-square-foot cell that held as many as 34 other prisoners, according to a lawsuit Mr Huang filed this month against Silvercorp in Vancouver.

The previous articles about Silvercorp in The New York Times can be found here and here. A website by supporters of Mr Huang can be found here.

Tuesday 26 August 2014

Proven Oil Canada, Proven Oil Asia and landbanking

I wrote before about oil schemes: Proven Oil Canada and Proven Oil Asia.

In Kinibiz, Khairie Hisyam wrote two articles (both are behind pay wall):

Guaranteed returns from crude oil trading?

"Can physical crude oil trading guarantee lucrative returns? One such investment scheme has arrived on Malaysian shores and a number of investors have signed up on the promise of 12% return per annum. The big question mark, however, is whether it is too good to be true. In a two-part series, KiniBiz talks to the scheme’s insiders to find out if the lucrative returns are for real."

Is the crude oil scheme too good too be true?

"While much light had been shed on the crude oil investment scheme in the previous part of this series, a deeper concern for investors would be one name reportedly linked to the scheme — Jürgen Hanne, who was reportedly convicted of fraud. Amid the questions and controversy, however, the investment scheme is engaging the authorities in seeking to be regulated, said the scheme’s promoters."

I like to add that there seem to be some links between these oil schemes and with land banking. Jürgen Hanne (allegedly linked to Proven Oil Canada and Proven Oil Asia) was previously involved in property deals (and possibly in land banking). Monika Galba (Proven Oil Canada) worked before for Walton Europe. And Winston Yau Kwok Seng used to worked for Walton International Group and is now President & CEO of Capital Asia Group which company is marketing the Proven Oil Asia scheme.

When Winston resigned from his job he was sued by his former employer, Walton International Group. The court case was a very interesting affair, a few snippets (emphasis mine):

[1]       This case concerns a very bitter dispute between employers and two of their former key employees, one in Singapore and the other in Malaysia. According to the plaintiffs, this is a story of the defendants’ pride, revenge, greed and conspiracy. The defendants readily agreed that there was a conspiracy, but to them the conspirators were the plaintiffs themselves and some of their senior employees who sought to use them as scapegoats for the low morale of the plaintiffs’ staff and poor sales in Malaysia caused by mismanagement. The dispute spawned numerous causes of action, including solicitation of staff, unlawful interference with trade, spreading of malicious falsehoods, defamation and breach of the duty of confidence.

[2]       A secret tape recording that revealed no secrets, statutory declarations allegedly sworn before a Commissioner for Oaths who was not present, astounding admissions by the plaintiffs’ top management and unexpected withdrawals of very serious allegations made in affidavits peppered a long trial that lasted more than 13 weeks. There were 55 witnesses, 16 volumes of affidavits of evidence-in-chief (“AEICs”) and 9,772 pages of documents in the Agreed Bundles. The evidence could not have been more contrasting. Whether a lunch that was crucial to the plaintiffs’ case on solicitation was a jolly and enjoyable occasion to celebrate a birthday or a secret tense gathering with threats made to harm the attendees was the subject of intense debate. Whether or not there was a birthday cake and a “happy birthday” song at the said lunch was also disputed. This led one counsel to accuse the other side’s witness of hallucinating at the lunch.

[4]       The 1st defendant, Mr Winston Yau Kwok Seng (“Mr Yau”), Walton Singapore’s former Executive Vice-President, Asia, was responsible for the operations of the Walton group in Asia before he resigned on 17 January 2008. He was paid around US$5 million per annum.

[11]     According to Mr Doherty, Mr Dirk Foo revolutionised the organisation of the Walton Singapore’s sales department by implementing a four-tiered structure with Division Managers at the top, followed by Group Managers, Team Managers and Consultants. While Consultants were paid a commission on their sales, Team Managers earned commissions on the sales of all the Consultants in their teams. Group Managers had an overriding commission on the sales made by all the Team Managers and Consultants in their group. Finally, Division Managers were entitled to a commission on their own sales and an override on commissions earned by all the members of their teams. At the material time, Walton Singapore had 5 Division Managers, 10 Group Managers, 100 Team Managers and between 300 to 400 Consultants.

[121] ...... Just for the LB component, [Mr Yau] drew up a commission structure of:

DM    13%
GM    11.5%
TM    10%
Cons   7%

It looks like the commissions on land banking are very hefty indeed. I would be curious to know the commissions on the oil schemes. My guess is they will be hefty as well. But if there are indeed hefty commissions, how does the alleged guarantee work? Surely the sales people are not going to pay back the money they earned.

Walton International Property Group (M) Sdn Bhd by the way was raided and subsequently fined by Bank Negara Malaysia in 2009 and 2010.

Wednesday 20 August 2014

Jobstreet, Masterskill, MH17, Madoff, Pension Funds

[1] Jobstreet announced that Seek has increased its offer from RM 1,730 million to RM 1,890 million, an increase of RM 160 million. Good news for the shareholders who held on to their shares. Probably good negotiations by Mark Chang.

[2] Masterskill announced that it sold its shares in Hong Kong listed company Gayety Holdings Ltd. for a total cash consideration of RM 33 million, netting Masterskill a profit of RM 12 million. I didn't believe much in this (in my opinion rather strange) acquisition, so this sale (and the profit) looks good for the company. Finally some good news for the minority shareholders.

[3] I never used to believe much in those typical US conspiracy theories, but these days, I am not so sure anymore. The following article looks interesting enough to share, although I can't guarantee the truthfulness of the contents (reader beware):

MH17 Verdict: Real Evidence Points to US-Kiev Cover-up of Failed False Flag

[4] Interesting article about the Madoff fraud case:

36,000 Madoff Victims Have Not Received a Dime in Restitution; 1,129 Fully Reimbursed

On May 5, 2014, Irving Picard, the court-appointed trustee in charge of finding and distributing Madoff’s swindled funds to investors released this statement in a press release announcing the fourth interim distribution of funds to victims: “…1,129 accounts will be fully satisfied following the fourth interim distribution. All allowed claims totaling $925,000 or less will be fully satisfied after the distribution.”

Just eight days later, Richard Breeden, the Special Master that’s working on behalf of the U.S. Department of Justice to distribute a separate pool of funds to Madoff’s victims reported that more than 36,000 claimants have filed documents with his office indicating that they haven’t yet received a dime of restitution. Yes, 36,000 people from all over the globe.

That’s bad enough but the story goes downhill from there. Almost six years from the date that Bernard Madoff turned himself in as the largest Ponzi fraudster in the history of finance, the U.S. Department of Justice is still scratching its head over just how much money Madoff actually ripped off from investors and puzzling over how to divvy up its inadequate pot of money

The only consistent message here is that the U.S. financial regulatory structure is just as bad at delivering fraud restitution as it is at detecting fraud.

[5] And lastly an article by Yves Smith: "How Your Pension Fund Became a Casino".

The original premise of the prudent-man rule was that pension-fund managers needed to operate as if their clients were widows and orphans. Sadly, experience has shown that the managers are often as vulnerable to exploitation as the people on whose behalf they are investing.

Tuesday 19 August 2014

Eratat: another S-chip bites the dust (5)

On the same subject, an article in the Business Times (Singapore), some snippets (with some comments by me in red):

The Fujian office of China's bank regulator China Banking Regulatory Commission (CBRC) has found that an Agricultural Bank of China (ABC) bank document purportedly showing a cash balance of 577 million yuan (S$117 million) in an Eratat subsidiary bank account was forged by the subsidiary.

Even more egregiously, representatives of the subsidiary might have impersonated as ABC bank staff to reassure visiting independent auditors and company directors that everything was okay.

They apparently used the bank's Jinjiang Chendai Branch premises earlier this year, verifying the forged bank statement as true. They even informed the visitors that the Eratat subsidiary concerned was a good customer and did not have any loans with the bank.

The news is likely to hit retail investors, who own about three quarters of the company. Eratat had a market valuation of almost S$50 million before trading was suspended in January.

It would be rather naïve if retail investors still expected to get some return on their money, after all the previous information, for instance here. They should have counted on a total loss, anything else would be a bonus.

But Eratat executive director Ye Sanzhi sold off his entire 6.77 per cent stake for S$4.44 million last August.

That is indeed a red flag, and unfortunately not uncommon.

Last November, Eratat was awarded runner-up in the "Most Transparent Company Award 2013, Mainboard Small Caps Category", by the Securities Investors Association of Singapore. The same month, with the company trading at about nine cents a share, Voyage Research had an "increase exposure" call on the company with a target price of 28 cents a share.

Awards etc. do not mean much. There is a whole list of companies being featured on the front page of magazines like Fortune or Forbes which have gone down the drain. Often the moment they were featured was their highest point, after that things only went downhill. Companies with good governance can turn for the worst.

Much more useful is a list of companies with bad governance, they seldom improve.

Monday 18 August 2014

Eratat: another S-chip bites the dust (4)

Announcement by Eratat on the SGX-website:

- HMW is the company’s principal operating subsidiary Fujian Haimingwei Shoes Co., Ltd.
- ABC is the Agricultural Bank of China where Eratat maintained a bank account.
- CRBC is the China Regulatory Banking Commission.

The above announcement seems to indicate a very serious case of fraud, not really unexpected given what happened before, please see the previous blog postings about Eratat.

The above case is also relevant for Chinese companies listed on Bursa Malaysia. There are several China based companies where the amount of cash is unusually high, sometimes as high as RM 1 Billion. The investing public (nor I for that matter) doesn't seem to trust those accounts, and the companies are trading at very low valuations, given their cash holding and profitability per share.

What the Malaysian authorities could do is insist that a high authority at the main office of the banks holding the cash confirm the size of the cash plus indicate that the there are no unreported liabilities. I don't think that is a particularly cumbersome or expensive thing to do.

Either the cash balances (and lack of liabilities) are confirmed as being genuine (in which case the companies might be undervalued), or the opposite (in which case the fraud is exposed, authorities can take action and future damage is prevented, like in Eratat's case).

The transparency provided (either positive or negative) would give a very much needed boost of clarity for all China based companies on Bursa.

Sunday 17 August 2014

Australia: Cheating rife in financial planning

Shocking article in The Age about the situation in Australia regarding financial planners. Some snippets:

.... “The basic qualification to be a financial planner could be regarded as a joke were it not for the fact that financial illiterates armed with nothing more than this flimsy “qualification” are turned loose to advise people on their life savings, with often tragic results. That this has been the case for so long is yet another damning indictment of the slumbering regulator, ASIC.”

Senator John Williams, who is a member of the parliamentary joint committee, says: “You can walk out a shearing shed and do an eight-day crash course and then go and tell people how to invest their life savings. Something is wrong.”

.... Australians have seen recurring examples of rampant abuse of consumers and a lack of professionalism shown by the advisers they trusted, and he warns that only the ability of Australians to identify and place their trust in competent, ethical and more highly educated professional financial planners will re-build confidence in the nation’s markets.

As it currently stands, hairdressers, tyre fitters and mechanics require more onerous standards of education and work experience than a financial planner.

More criticism on ASIC can be found here.

Friday 15 August 2014

Gowex: web of lies

Well researched article by Reuters:

"Special Report - Web of lies: How a Spanish tech star fooled the world"

The tech industry (in which I have been involved for a long time) is unfortunately overrepresented in fraud cases. Malaysia had its fair share of cases related to companies listed on the Mesdaq and ACE market.

Some snippets of the Reuters article:

"Basically, we started with three companies and what we do is: One company bills to Gowex, Gowex bills to another company and the third company bills to the previous one. It is a triangle," Garcia Martin told the court. “Basically, the structure enabled us to make capital increases."

.... Some investors and analysts later expressed skepticism about the company’s performance. In a note in March 2013, NFinance Securities analyst Pierre Schang said he was “disturbed” that Gowex was turning big profits while competitors were registering losses or much smaller profits. Schang did not answer a request to comment further.

Others questioned the firm’s amateurish corporate structure, with a board composed of Garcia Martin, his wife, Florencia Mate, and CFO Marugan.

.... At his court hearing, former CFO Marugan said only about 10 percent of the company’s revenues were real.

.... In the end, it was not Spanish regulators who uncovered the deception, but activist U.S. investor Gotham City Research LLC. On July 1, Gotham City said Gowex accounts were false and set a target price of zero on the stock.

In two days, the company’s market value dropped 870 million euros.

Berkshire 200K, German 10 year bonds below 1%

CNBC reports:

"For the first time ever, a Class A share of Berkshire Hathaway will cost you more than $200,000. That's just one share for the price of a nice 6-bedroom, 4-bath house in Omaha."

While many companies use stock splits to keep their per-share price under $1000, or even below $100, Warren Buffett isn't a fan of that manuever because he thinks it encourages short-term trading rather than long-term ownership.

As a result, Berkshire's Class A has, by far, the largest dollar price per share for any stock trading in the U.S.

Bloomberg reports:

"Germany’s 10-year yields fell one basis point, or 0.01 percentage point, to 1.02 percent at 4:14 p.m. London time after touching 0.998 percent, the least since Bloomberg began tracking the data in 1989."

"Germany’s five-year rates dropped to an all-time low 0.203 percent while the two-year note yield reached minus 0.01 percent, the lowest level since May 2013. A negative yield means investors who hold a security until it matures will receive less than they paid to buy it."

We live in strange times. The global central banks (FED and the like) can be satisfied.

But what negative effects will all this have in the long run? Yield hungry investors are searching for some returns above the meagre interest rates they receive on their fixed deposits, creators of pyramid (and other fraudulent) schemes are having a great time, their business is booming.

Wednesday 13 August 2014

More horror stories regarding China listed companies (2)

Article in the Straits Times (Singapore) on the same subject about which I wrote before:

"Court orders PwC to hand over documents to liquidator"

An interesting (additional) issue is: are the authorities in China cooperating in the investigation?

Tuesday 12 August 2014

Delloyd's hidden gems to be revalued? (2)

I wrote before about Delloyd Ventures announcing a proposed selective capital reduction and repayment exercise in which minority shareholders will receive RM 4.80 per share.

A back of the envelope calculation (taking into account revalued prices for their plantation land) appears to indicate that the price severely undervalues the true value per share.

Delloyd announced yesterday that the price per share has been increased to RM 5.20 per share.

I guess that makes it slightly more palatable.

The independent adviser for this corporate exercise is Affin Investment Bank.

I would love to see them write something along the lines: "we estimate that the RNAV per share is around RM 15, therefore we find the proposed price not fair and not reasonable".

Will they write that? Although independent advice has been improved significantly, I don't think that will happen.

But I do hope that all the relatively larger assets of Delloyd will be revalued in a proper way. The minority investors are entitled to know that piece of information.

That revaluation might happen, if not, that would be most disappointing.

Monday 11 August 2014

More horror stories regarding China listed companies

On the website of Singapore Law Watch is available a judgement regarding a court case by the liquidator of Celestial Nutrifoods Ltd, one of the many so called "S-chips" that went under. The case is interesting, it is about Celestial's former auditor (PricewaterhouseCoopers) who doesn't want to release additional documents to the liquidator, documents that could help the liquidator to recover some assets and/or enable him to take legal action against the alleged perpetrators.

Some snippets (emphasis mine, some comments in blue):

5. On 12 June 2006, the Company raised S$235m from investors by issuing Zero Coupon Convertible Bonds (“the Bonds”). The bondholders were granted put options which allowed them to compel the Company to redeem all or some of the Bonds at 116.5% of their face value. On 23 May 2009, a majority of the bondholders exercised their put options and the Company was required to redeem the Bonds on 12 June 2009. Shortly thereafter, the Company announced it would be unable to meet this obligation. On the due date, it failed to redeem any of the Bonds.

7. After taking control of the Company in December 2010, the Liquidator discovered that the Group’s operating companies, management and directors were based in the PRC. Despite his efforts, he was unable to obtain any meaningful assistance from them with regard to the affairs of the Company or of its subsidiaries. He also ascertained that the Company’s main assets, namely the PRC Subsidiaries, appeared to have been diverted to third parties in the series of suspicious transactions. The Liquidator considered that the Company’s shareholders and creditors had been left holding shares in a worthless company whose assets had been completely stripped away.

8. The Liquidator also discovered that the Company did not have funds to investigate suspicious transactions or to commence legal proceedings against other parties to recover money and assets that were allegedly paid out wrongfully. The Liquidator therefore entered into a Funding Agreement (“the Funding Agreement”) with several creditors (collectively referred to as “Blackrock creditors”) who are members of a group identified as the Blackrock Group.

[this is lucky for the others involved, like the minority shareholders; it won't give them any financial return, but at least a chance at some justice and transparency; in Eratat's case for instance there might not be any fund who helps with legal proceedings]

10 Turning to PwC, its role in regard to the Company was set out in the affidavit of Mr Tan Boon Chok. PwC was engaged to audit the consolidated financial statements of the Company for the financial years (“FY”) 2004 to 2009. It issued audit reports for FY 2004 to FY 2009.

[that might explain PwC's reluctance to provide more information, since they had audited the accounts starting FY 2004]

21. The Liquidator has identified seven suspicious and/or irregular and/or undisclosed transactions undertaken by the Company and the Group between 2006 and 2010 which warrant further investigation. These can be briefly described as follows:

(a) surreptitious disposal of substantially all of the Company’s assets on or around 4 December 2010 by way of an auction (“the Auction”) of the shares of the PRC Subsidiaries which had been pledged to the China Construction Bank (“CCB”) as security for certain loans apparently extended by CCB to the BVI Subsidiaries;

(b) cash payments totalling some S$16.8m to Power Charm Group Ltd (“Power Charm”) between December 2009 and September 2010;

(c) payment of some RMB 70m in or around December 2009 to purchase technical know-how in respect of a Bio-diesel Plant;

(d) goods that had been sold and returned, the value of which amounted to RMB 254m in 2009 and RMB 437.1 million in 2010, and some of which were subsequently re-sold for only RMB 14.8m;

(e) cash payments of some RMB 529m without written documentation in relation to the Soybean Hi-Tech Industrial Zone in Daqing (“Soybean Zone”);

(f) an undisclosed lease of land to construct a hotel known as the Daqing Manhatwen Hotel; and

(g) suspicious transactions described in certain anonymous letters regarding the Company.

78. The Liquidator also needs documents in order to assist in understanding two payments made in late 2008. First, RMB 268m was paid to the Daqing New Hi-Tech City Construction Investment Development Co Ltd (“NHC”) apparently in relation to loans made by NHC to the Group for the construction of what was called the Soybean Zone. Second, a sum of RMB 261m was paid to contractors. These payments were made without written documentation and the Liquidator has not been able to determine whether any services were provided by the contractors. The Liquidator cannot even ascertain the identity of these contractors.

81. In all the circumstances, I am satisfied that the application must be allowed and that PwC and its relevant representatives, Mr Tham Tuck Seng and Tan Boon Chok, shall produce all books, correspondence and documents in their custody, power or control as may be required by the Liquidator including PwC working papers and all documents and records in its possession which were supplied to it by the Company and any member of the Group.

[It is good that PwC has to handover the documents. However, we are already in 2014, while the company went under in 2009, the chance to recuperate any asset or to get some form of justice is getting smaller each year]

Analysis of UMA's

Kenanga research wrote an article about Guocoland (Malaysia) Bhd, titled "Unlocking RNAV".

An interesting observation in the fourth paragraph:

That means that an UMA (Unusual Market Activity query) does have a clear effect.

UMA's were seen as having not much of a bite, but things changed when Can-One was reprimanded and seven directors were fined 350K, as blogged about before.

Saturday 9 August 2014

Fraud at Kontena Nasional

NCB Holdings Bhd has published the findings of the special review by forensic consultants regarding financial irregularities at Kontena Nasional Bhd, its daughter company.

With the authorities being informed of what happened we have to wait for the results of their investigations and the subsequent actions that they might take, this can take quite a while.

The irregularities had (not unexpectedly) a negative effect on the share price over the last year, the graph over the last 5 years, the price is about 40% down from its highest value:

It is the results of Kontena Nasional that is dragging down the results of NCB Holdings, from its last annual report:

NCB is a very tightly held company with PNB as its main shareholder. With only 180,000 shares one can be in the Top 30 of the shareholders.

On the other side, the Top 20 share holders own more than 91% of the total shares. In other words, the free float is tiny.

The accounts over 2013 do have an "emphasis of matter" by the external account, which is quite rare and a red flag:

Tuesday 5 August 2014

Protasco's Puzzling Purchase (4)

I wrote many times rather critical about Protasco's puzzling purchase, for instance here, here, here and here.

Today the company announced the following:

Reference is made to the Company’s announcements dated 30 January 2014, 10 February 2014 and 25 July 2014 (“Announcements”). Unless otherwise stated, defined terms in this announcement shall carry the same meanings as defined in the Announcements.

Protasco Berhad (“Protasco” or “Company”) wishes to announce that the Conditions Subsequent pursuant to Restated SPA have not been fulfilled by the Vendor and the security provider within the Condition Period and accordingly, the Restated SPA lapsed on 28 July 2014. Protasco is in discussion with the Vendor for the Purchase Price to be returned via, amongst others:-

(a) cash;
(b) disposal of the Secured Shares;

in accordance with the terms of the Restated SPA.

I think that in it self is good news for Protasco's shareholders, I never believed in this deal anyhow, with so many red flags and so little transparency.

However, before minority shareholders start to celebrate, the Vendors first have to return the deposit.

I hope Protasco simply gets back its cash, as soon as possible.

Shall we ever know who the people are behind the Vendor? Time will tell.

Saturday 2 August 2014

Slow enforcement, low punishment

I have often complained about slow enforcement and low punishments (often just a reprimand, sometimes a relative small fine) in Malaysia, regarding listed companies.

A recent example of slow enforcement is to be found here, and of low punishments here and here.

However, it is important to notice that all is not well in other countries in the world either.

Two glaring examples just appeared.

Bronte Capital wrote: "Steal three billion dollars, get a 700 thousand dollar fine: the scammers have a better business model - Sino Forest edition".

At its peak, Sino-Forest was the biggest forestry firm on the Toronto Stock Exchange, with a market value of more than $6-billion. It also raised a staggering $3-billion from investors between 2003 and 2010 before falling into creditor protection in 2012.

 Simple question: Where did that $3 billion that was raised go?

Answer: Into someone's pocket.

 Have you made a few billion dollars lately?

 Repeat after me: the fraudsters have a better business model.

In the category "slow enforcement", David Webb provides the following link:

"Hong Kong Institute of Certified Public Accountants takes disciplinary action against a certified public accountant (practising), a certified public accountant and a firm of certified public accountants".

This is in relation to poorly executed audits performed on a company in respect of the financial years 1995 until 1997. In other words, almost twenty years ago.