Friday, 30 January 2015

Tanjung Offshore: possible misconduct

I wrote several times about Tanjung Offshore: here, here and here.

The Independent committee announced its findings.

The Maritime Executive wrote the following commentary:

Malaysia’s Tanjung Offshore has suspended three top executives after an internal inquiry into possible misconduct.

The company released a statement saying the suspensions were made on the recommendation of an independent committee.
Tan Sri Tan Kean Soon and Muhammad Sabri bin Ab Ghani have been suspended from their executive roles with immediate effect, but remain as directors of the company. Non-Independent Director Tan is a paid advisor of Tanjung, while Sabri is Executive Director.
Dato Harzani bin Azmi’s services as a paid advisor to the company have also been suspended with immediate effect. His earlier nomination to the board of directors shall not be considered, the company said in a statement.
Tanjung will hold further investigations into the findings of the independent committee which included several instances of possible conflict of interest and breach of fiduciary duty by Tan and Sabri, both individually and together, and possible breaches of procedure and limits of authority by Harzani among other matters.
The independent committee was formed on January 8, 2015 by the board to conduct an internal review following speculative media articles and purported complaints to the authorities against the company.
The possible conflicts of interest and breaches of fiduciary duty may have resulted in, among others, loss of business opportunity and potential income stream related to the Bourbon deal. A proposed asset injection by Bourbon Offshore Asia Pacific was mutually terminated in December 2014, following changes in the prevailing economic, financial and market conditions including declining oil prices.
The possible conflicts and breaches may also have resulted in disadvantageous and lopsided terms for a contract under negotiation, and potential  future loss related to a Construction Work Request (CWR) project worth about RM250 million ($69 million).
These possible conflicts and breaches also may have been the cause for the dissemination of confidential company information to third parties related to both the Bourbon deal and the CWR project. These could also be potentially jeopardizing the company’s relationship with CNPC Offshore Engineering (CPOE) in China in on-going negotiations for a drilling contract in Malaysia.
The board will seek legal advice on its next course of action, and will make the appropriate reports to the authorities wherever necessary, said Tanjung.

It must be noted that in the official announcement of the company the link between the three suspended directors and the alleged misconduct is not made, most likely because of legal issues (everyone is presumed innocent until proven guilty).

We can safely assume that the authorities (SC and/or BM) are also on this case, possible conflict of interest (without announcing it) and breach of fiduciary duties of directors are quite severe.

Thursday, 22 January 2015

"Iskandar Malaysia is Only Going One Way – Down"

Quite good article from a Singaporean website, I thought might be relevant for Malaysians also.

Although I am not exactly a property expert, I did echo similar concerns in the past, for instance here:

"Two Iskandar developers (to IPO in 2014), I am scared all the clever money has been made already, and the property market is way too hot and might already be cooling"

Some snippets from the article at DrWealth's website:

When you drive around Iskandar Malaysia, it’s not uncommon to see swathes of empty apartments with no one living inside. Therein lies perhaps the main issue with the region – the lack of a critical mass of people, especially locals, staying in the area.

In the beginning, the majority of property purchases were made by foreigners, particularly Singaporeans, who were seduced by the attractive price tags.

Unfortunately, the property cooling measures announced in Malaysia’s 2014 Budget have thrown a spanner in the plans of many of these potential investors. Since the beginning of the year, foreigners can only purchase property worth at least RM1 million, have to pay more in Real Property Gains Tax, and must contend with a 2 percent property levy. These moves have whittled the number of potential property investors in Iskandar.

Couple this with the glut of housing development projects being launched by big Chinese developers such as Country Garden and Guangzhou R&F and you’re looking at the classic problem of unchecked growth – supply outrunning demand.

QE in Europe is doomed to failure

Article in The Telegraph about William White, "The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world's financial system going into 2015. Mr White is a former chief economist to the Bank for International Settlements - the bank of central banks - and currently an advisor to German Chancellor Angela Merkel."

Some snippets below. The bold paragraph looks relevant to Asia. It does remind me of 1997/1998 when the roof came down and so many companies got hurt because they had borrowed in USD. It appeared to make sense, the RM was more or less fixed to the USD at 2.5 to 1, while the interest rate on the USD was lower. But there is no free lunch here, as many would find out, the RM crashed versus the USD and companies were sitting on huge one-off losses. For Jusco (Aeon) it would be the only year since listing that they lost money.

Beggar-thy-neighbour devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West.

He said the global elastic has been stretched even further than it was in 2008 on the eve of the Great Recession. The excesses have reached almost every corner of the globe, and combined public/private debt is 20pc of GDP higher today. "We are holding a tiger by the tail," he said.

He warned that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. "Sovereign bond yields haven't been so low since the 'Black Plague': how much more bang can you get for your buck?"

"QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market," he said.

"Even after the stress tests the banks are still in 'hunkering down mode'. They are not lending to small firms for a variety of reasons. The interest rate differential is still going up," he said.

"The emerging markets got on the bandwagon by resisting upward pressure on their currencies and building up enormous foreign exchange reserves. The wrinkle this time is that corporations in these countries - especially in Asia and Latin America - have borrowed $6 trillion in US dollars, often through offshore centres. That is going to create a huge currency mismatch problem as US rates rise and the dollar goes back up."

Mr White said central banks have been put in an invidious position, compelled to respond to a deep economic disorder that is beyond their power. The latest victim is the Swiss National Bank, which was effectively crushed last week by greater global forces as it tried to repel safe-haven flows into the franc. The SNB was damned whatever it tried to do. "The only choice they had was to take a blow to the left cheek, or to the right cheek," he said.

He deplores the rush to QE as an "unthinking fashion". Those who argue that the US and the UK are growing faster than Europe because they carried out QE early are confusing "correlation with causality". The Anglo-Saxon pioneers have yet to pay the price. "It ain't over until the fat lady sings. There are serious side-effects building up and we don't know what will happen when they try to reverse what they have done."

The painful irony is that central banks may have brought about exactly what they most feared by trying to keep growth buoyant at all costs, he argues, and not allowing productivity gains to drive down prices gently as occurred in episodes of the 19th century. "They have created so much debt that they may have turned a good deflation into a bad deflation after all."

Wednesday, 21 January 2015

Malaysia net oil importer, surprise?

Article in The Star: "Govt reveals M'sia net importer of crude oil, petroleum products since 2014", some snippets (emphasis mine):

"In a surprise turn of events, the Government has disclosed that Malaysia is a beneficiary of declining crude oil prices because the country is a net importer, and not exporter, of the commodity and petroleum products, if liquefied natural gas (LNG) was not in the equation."

Surprise turn of events?

Anyone who had the data from the past and extrapolated it within reason should have suspected this.

If this was properly communicated to the public is another matter.

I wrote in the past the posting "Malaysian oil statistics are puzzling" based on an article of Claire Barnes.

I wrote: "Luckily for Malaysia, it is still a net exporter in gas, although production seems to have slowed down a bit in recent years:"

The price of Natural Gas has however also come down a lot, in tandem with the price of oil and other commodities.

Monday, 19 January 2015

1MDB needs a new script

An article written by Anita Gabriel with this title appeared in The Business Times (Singapore) today, some snippets:

"Another thing that will serve the fund and its communication team well is to rid itself of the notion that all its critics have a political agenda.

That's undeservedly self righteous for a fund that has racheted up over RM40 Billion in debt, rolled over a RM2 billion debt three times over a year, switched auditors and bosses twice and is in the red to the tune of RM665 million in 2014."

I fully agree with this. Most likely it is in reference to (for instance) this article in The Malaysian Insider:

"1MDB’s critics politically driven, don’t know full facts, says new chief"

The seasoned investment banker said it was "quite clear" most of the allegations directed at the company had been driven more by "political rather than genuine business considerations", he told The Malaysian Insider in an email interview.

There have been many excellent articles about 1MDB by publications like Bloomberg, Reuters and The Business Times (Singapore). Surely these were not political driven.

Besides that, there were many other excellent articles from Malaysian publications like MalaysiaKini/KiniBiz and The Edge.

Everyone is interested in transparency, not in some sort of blame game.

Definitely not a good start by the new CEO of 1MDB, the remark about political motives.

Myself I am very interested in the funds 1MDB invested in (either currently or in the past). 1MDB has never been transparent about them, as far as I am aware.

According to this article:

"Australian firm Avestra Asset Management has been managing over US$2 billion of 1Malaysia Development Bhd's monies invested in several Cayman Islands funds."

Avestra was recently fined by the ASIC (the securities commission of Australia) for having committed six offences.

Controversial blogger "Dr Benway" wrote about this same issue (AG Financial) long before ASIC had fined the company (here, here and here). Please note that I can in no way guarantee the correctness of the postings by "Dr Benway".

Based on their own website it seemed that Avestra's business is run from a house or apartment on Australia's Gold Coast, which seems to be peculiar for an asset management company managing billions of RM:

The above seems puzzling. 1MDB should be transparent about the details of the funds it invested in, the rationale behind the decision, if it paid commissions (and if so, how much and to whom), the returns it received, the due diligence it had performed, etc.

Anita Gabriel recommends 1MDB to follow in the footsteps of Khazanah Nasional:

"It took Khazanah half its live span or ten years to turn its back on the secretive-style of investing which had previously drawn huge public outcry in the country

These days, the annual events where Khazanah provides some key indicators and updates on its investments are markedly more staid, relatively dull even; and that's a good thing. Transparency begets trust which begets credibility, all of which 1MDB is in deficit at this point."

Sunday, 18 January 2015

MyEG shares jump after juicy government contract (2)

I wrote before about this issue.

MyEG announced on January 14, 2015 (emphasis mine):

The Board of Directors of MY E.G. Services Berhad (“MYEG”) wishes to clarify that there were no delay in announcing the online renewal of foreign maid and foreign worker permits (also known as “Pas Lawatan (Kerja Sementara) (“PL(KS)") as the service has been available to the public on MYEG’s portal at since 2011 with the launch of the online renewal of foreign maid PL(KS) followed by the launch of the online renewal of foreign worker PL(KS) in 2013.

The Board of Directors also wishes to clarify that the online renewal of foreign maid and foreign worker PL(KS) are part of MYEG’s ordinary course of business involving development and implementation of E-Government services and the provision of other related services for the E-Government initiatives.

Further, the Board of Directors would also like to clarify the following:-

1)     The original scope of service was to enable the public to renew their foreign maid and foreign worker PL(KS) online which has not changed with the recent cessation of PL(KS) renewal at Immigration Department’s counter. Nevertheless, the Government mandated for MYEG to compile the database of foreign worker which is to be accessed by the Government without increasing the fee to be collected by MYEG.

2)     Previously, PL(KS) can be renewed through the Immigration Department’s counter or through MYEG’s portal. The recent announcement by the government to only allow foreign maid and foreign worker PL(KS) to be renewed online through MYEG’s portal is at the prerogative of the Government which MYEG cannot make any announcement on behalf of the Government. The online renewal of foreign maid and foreign worker PL(KS) contributed approximately 5% of MYEG group’s revenue for the first quarter of financial year ending 30 June 2015, before the cessation of PL(KS) renewal at the counter. The cessation of PL(KS) renewal of foreign maid and foreign worker at the counter is expected to contribute positively to the earnings of MYEG’s group in the future, but we are not able to ascertain the exact impact at this point in time.

3)     The convenience fee approved by the Government was RM38 which has been imposed since the start of the online renewal of foreign maid and foreign worker PL(KS) in the years 2011 and 2013 respectively. There was no revision to this amount even with the cessation of PL(KS) renewal at Immigration Department’s counter and the expansion of the scope of service requested by the Government as stated in Section (1) above.

Is the announcement that PL(KS) can only be renewed through MyEG's portal material information?

If so, should it have been disclosed by MyEg in a timely matter to Bursa's announcements website?

I guess that Bursa and SC will look into this matter.

The Edge Malaysia wrote in their weekly publication of January 19, 2015:

".... But this is material information that would brighten its earnings prospects and timely announcement is necessary for the investing public to make informed decisions.

If such information is not revealed to the public, would it be considered insider trading if those investors who were privileged to get hold of the news at a conference two weeks ago traded in MyEG's shares?

Indeed, MyEG's shares soared following CIMB Research's report on the development after the conference.

No doubt, the company cannot speak on behalf of the government, in this case the Immigration Department, as it is not owned or controlled by the government. Yet, its top executives chose to reveal the information to a small group of fund managers at an investment roadshow.

Perhaps, it is time for the government departments to be mindful of prompt disclosure - a practice prized by Bursa Malaysia and the Securities Commission."

Page 40 of Bursa's Corporate Disclosure Guide:

And page 54:

Saturday, 17 January 2015

Masterskill: why take 0.60 if one can get 1.10? (2)

In my previous posting about Masterskill I wrote:

"Why would anyone not exercise a put option to sell ones shares for RM 1.10 per share, and then less than 4 months later accept an offer for RM 0.60 per share, a whopping 45% lower? For Siva Kumar the difference between the two offers is close to RM 60 Million cash...."

That is exactly what Focus Malaysia in their January 17-23, 2015 issue asked Siva Kumar, his answer:

"On this matter, Siva says though the deal was very attractive, he decided to sell his stakes to Creador and SMRT considering the uncertainty of the buyer being able to exercise the option on time. As such, he felt that selling his stake to Creador, which was already accumulating MEGB [Masterskill] shares then, would be the best choice."

Regarding "being able to exercise the option on time", it should be noted that Gary How entered in the option agreement on March 19, 2014. In other words, How had about nine months to actively arrange the money, not counting the time before the option was signed which probably also adds a few more months.

Friday, 16 January 2015

Tomypak: CG issues (2)

I wrote before Tomypak and corporate governance issues.

The Apollo Fund wrote again about the company in the manager's report for 4Q2014:

In the last quarterly we wrote about the change of control at Tomypak Holdings; we expected that the Securities Commission would require a General Offer and hoped that the independent directors would then rise to the occasion and use the opportunity to open up to competitive bidding. Neither of these happened: the SC decided not to act, the independent directors decided to rubberstamp the appointment of directors proposed by the new shareholders despite track records which cause us some concern, and our nomination of directors to protect the interest of minority shareholders was rejected. We put much effort into this situation over the last nine months, and cannot report any return on that effort: the new shareholders are treating minorities with contempt, and the long-serving independent directors are ineffective. The share price remains depressed on low volume, so it was not a significant contributor to the fund's poor 4Q performance (and fortunately it is one of our smallest holdings) - but the flexible packaging industry has great potential, and this used to be a leader in the sector, so the turn of events is decidedly disappointing.

The third quarterly results of Tomypak are disappointing compared to those of one year ago:

Hopefully the company will improve in the near future, both regarding it's business and it's corporate governance.

Thursday, 15 January 2015

Tanjung Offshore: some shareholder activism (3)

In my previous posting about Tanjung Offshore I wrote:

".... what are "matters arising from recent media reports on the Company"? How do we know which media reports the Board of Directors has knowledge off? Why do they not just list the matters at hand, what exactly is the Independent Committee going to review?"

That question is answered in the latest announcement by the company:

"The duties and responsibilities of the Independent Committee shall be as follows:-

i) To investigate any unauthorized dissemination of Company’s confidential information to the media in the past twelve (12) months and any officer’s breach of fiduciary duty;

ii) To investigate the dissemination of misleading information to the media resulting in negative investor perception of the Company upon publication in the media over the past twelve (12) months

iii) To review the Bourbon transaction based on minutes of the recent Management Committee meeting dated 26 December 2014;

iv) To review the acquisition of the remaining 49% stake in Gas Generators (M) Sdn Bhd which was completed in October 2013, the acquisition of a property in the United Kingdom in 2014 and the resource trading operations in The Philippines; and

v) To engage professionals to perform independent valuation of the said transactions undertaken by the Company (if necessary).

The Independent Committee shall commence its first meeting on 15 January 2015 and is expected to complete this review by end of January 2015."

Hopefully (an extract of) the report regarding the review will be published on Bursa's announcements website shortly after the review has been finished.

Fraud at mTouche?

The company announced yesterday:

The Board of Directors of mTouche wishes to announce that there are possible financial irregularities pertaining to operating expenditure transactions entered into between MTSB, a wholly owned subsidiary of mTouche and PLIL, a third party, from February 2009 to October 2010 amounting to RM6.3 million. The transactions were related to the provision by PLIL of a “quality database for data-mining and marketing of MTSB's services” to users in Malaysia as well as to send out SMSes to the Database (“Database and SMS Services”).

Triggering event

Following the resignation of two members of the Board of Directors in 2012, the Board of Directors was made aware of vide an anonymous letter dated 26 November 2013 addressed to the Audit Committee Chairman, Mr Yeap Teik Pung, that there may be inconsistencies in the transactions carried out between MTSB and PLIL.

The Board of Directors instructed the Management of mTouche to conduct an internal investigation on its records with regards to PLIL and the Database and SMS Services which was concluded in February 2014. The internal investigation revealed that there are no records showing that PLIL had provided any of the Database and SMS Services as stated in the Service Agreement entered into between MTSB and PLIL.

The Board of Directors then appointed PKF Advisory Sdn. Bhd. (“PKFA”) on 17 June 2014 to carry out a special audit to assess the nature and circumstances of the said transactions, perform a review of supporting documentation relating to the transactions and perform system checks to determine the veracity of the said transactions. 

Findings of PKFA

On 8 January 2015, PKFA submitted their final report to the Board of Directors. PKFA concluded that the veracity of the payments made to PLIL is highly questionable and there are indications of irregularities, discrepancies, inconsistencies and anomalies in the accounting records and supporting documents with significant payments made to PLIL, whose veracity is suspicious and cannot be reasonably ascertained.

A summary of the findings is as follows:

1.   Inconsistencies in the payment control process of MTSB pertaining to payments made to PLIL;
2.   Non-disclosure of details of the transactions to senior management;
3.   Override of controls and policy and procedures;
4.   No corresponding sales traced to the services provided by PLIL;
5.   Irregularities noted from the review of the contract entered into between MTSB and PLIL; and
6.   Uncertainty of the identity of PLIL from the company searches.

Financial Impact

The Board of Directors is of the view that as the RM6.3 million Operating Expenses has been fully accounted for in the financial years ended 31 December 2009 and 2010, there will be no material impact to the financial statements for the financial year ended 31 December 2014.

Follow up actions

The Board of Directors have, amongst others, taken the following measures and/or steps to safeguard the best interests of mTouche and its shareholders:-

1.   Lodge a police report which was done on 13 January 2015;
2.   Seek legal advice on the possible courses of action mTouche can take to recover the losses; and
3.   Review the current internal control processes to ensure that similar transactions will not recur.

The Board of Directors could not make any announcement earlier as it did not have sufficient evidence to substantiate the allegations and to assess with certainty the financial and operational impact to mTouche.

A few things are interesting in this announcement.

It mentions "Following the resignation of two members of the Board of Directors in 2012", somehow suggesting that they might had something to do with the matter. The description is not very clear, since five directors resigned in 2012 (and one ceased to be alternate director). But most likely the statement points at the only two executive directors who resigned that year:

Something else is "Uncertainty of the identity of PLIL from the company searches". A Google search on "Pearl Legend International" yields nothing (except the above announcement and related articles), which is very weird in the current age. Why did nobody notice before?

Monday, 12 January 2015

Masterskill: why take 0.60 if one can get 1.10?

Masterskill announced:

"that it has today received a Notice of Conditional Take-Over Offer (“Notice”) from Arenga Pinnata Sdn. Bhd. (“APSB” or “Offeror”) through CIMB Investment Bank Berhad to undertake a conditional take-over offer to acquire all the remaining ordinary shares of RM0.20 each in MEGB (excluding treasury shares) (“Shares”) not already held by the Offeror (“Offer Shares”) at a cash consideration of RM0.60 (“Offer Price”) for each Offer Share (“Offer”)."

If RM 0.60 per share is a good price or a bad price, I honestly don't know.

Masterskill had produced a horrible set of numbers from the moment it was listed. Besides that, corporate governance did not appear to be one of their strongest points, to put it mildly. From that point of view, the deal doesn't look that bad.

On the other hand, the IPO price was RM 3.80, in that light the price looks pretty horrific. Many shareholders will be sitting on substantial losses.

However, something else is going on, something puzzling to say the least.

RM 0.60 is the price per share offered now, which Siva Kumar has accepted:

But Siva Kumar had a put option to sell his shares for the price of RM 1.10 per share, according to this announcement:

Why would anyone not exercise a put option to sell ones shares for RM 1.10 per share, and then less than 4 months later accept an offer for RM 0.60 per share, a whopping 45% lower? For Siva Kumar the difference between the two offers is close to RM 60 Million cash, a nice and tidy sum of money.

Are we missing something, a piece of the puzzle?

Saturday, 10 January 2015

Tanjung Offshore: some shareholder activism (2)

I blogged about Tanjung Offshore before.

Unfortunately, it looks like Tanjung's problems only have increased. In other words, shareholders should stay alert and active.

Firstly, on November 20, 2014 the company announced its third quarterly results, which were far from inspiring, in the contrary:

Secondly, the company announced:

"We refer to the article entitled “Tanjung Offshore to abort Bourbon RTO deal?” that appeared on The Edge Financial Daily today.

On behalf of the Board of Directors of Tanjung (“Board”), AFFIN Hwang Investment Bank Berhad (formerly known as HwangDBS Investment Bank Berhad) (“AFFIN Hwang IB”) wishes to announce that Tanjung and the Vendor Group (as defined in the announcement dated 5 June 2014 comprising Farid Khan Bin Kaim Khan and his business partners, Mower Tunggal Jaya PT, Megagold Indonesia PT and Zona Maju Mapan PT and their business partners and Bourbon Far East Pte Ltd) have, via an exchange of letter, mutually agreed to terminate the heads of agreements in relation to the Proposals (“HOAs”) on 29 December 2014 (“Termination Letter”) with immediate effect without any legal and financial recourse against each other."

May be not unexpected, the termination itself, but still, it always appeared to be a rather strange deal.

And why does the company need to react on an article of The Edge, why did it not proactively announce the news itself?

KiniBiz wrote "Was Tanjung Offshore venture doomed from the start?" (behind paywall). Some snippets:

Tanjung Offshore’s case was definitely not aided by their lack of disclosure of the deal, even to their own shareholders. A Bursa Malaysia announcement, which came out after the minority shareholders’ spokesperson had reached out to the media, was a statement that the deal would be negotiated to benefit all shareholders, and that yes, they were negotiating a waiver from Ekuinas for the three-year non-competition clause of the sale. Why is it that minority shareholders, who are most definitely shareholders, by the way, were marginalised to such an extent, as to not know of the proceedings of the deal? Tiger smells something fishy, and not of the good variety, either.

It all just seems a mess. Why did Tanjung Offshore not secure a waiver from Ekuinas before proposing the deal? Why was the deal not made with proper regard to global oil prices at the time? Did the group not see the potential fall in oil prices? Why were shareholders marginalised?

Thirdly, the company announced:

"The Board of Directors of Tanjung Offshore Berhad ("Company") wishes to announce that the Board has formed an Independent Committee to review and make recommendations on matters arising from recent media reports on the Company."

That looks like a good move, given all the events that have happened.

But it sounds very passive, the company should have been much more transparent and proactive, corporate governance standards appear to be very poor.

Also, what are "matters arising from recent media reports on the Company"? How do we know which media reports the Board of Directors has knowledge off? Why do they not just list the matters at hand, what exactly is the Independent Committee going to review?

In Focus Malaysia of Jan 10-16, 2015 an article "Tanjung Offshore has host of issues to tackle", some snippets:

A group of minority shareholders has claimed the company’s acquisition of an office building in Birmingham requires a shareholder nod, contrary to the company’s claim it did not need such an approval.The Malaysian Anti-Corruption Commission (MACC) is also believed to be looking at the company’s acquisition of the remaining 49% stake, worth RM34.3 mil, in Gas Generators (M) Sdn Bhd (Gastec, pictured) in October 2013. Based on documents provided to FocusM by minority shareholders, the company spent RM58.07 mil to purchase the Birmingham property. Thus, the deal exceeds the maximum 25% threshold and requires Tanjung Offshore to seek shareholder approval. “In this case, the minority shareholders’ interest has been compromised. The right to vote has been hijacked by the board of directors,” claims a representative for the group of minority shareholders, who collectively hold a 4.9% stake in the company.

Wednesday, 7 January 2015

MyEG shares jump after juicy government contract

Article in The Star, some snippets:

Shares of MyEG Services surged at mid-morning on Wednesday after it was appointed by the government to compile and maintain database on the country’s foreign workers.

CIMB Research in a note said that it has raised MyEG's target price from RM5.28 to RM7.80.

It said the database will come from employers of foreign workers that must use MyEG’s online foreign workers work permit renewal services (FWPR) from 2015 onwards.

“We bump up our EPS forecasts by 38%-63% to reflect higher earnings mainly from the FWPR...."

Looks like MyEG got a pretty juicy contract here. According to CIMB Research the company was suddenly about 50% worth more, just because of this single contract.

Good news also for major shareholder Wong Thean Soon, who owns 44 million shares directly and 197 million shares indirectly. If the estimate of CIMB is correct than his worth has increased by more than half a billion RM.

Suddenly the highest regulatory settlement in the history of the Securities Commission doesn't look that large anymore:

"On 26 September 2014, Wong Thean Soon (“TS Wong”), entered into a settlement with the Securities Commission Malaysia (“SC”) in the sum of RM7,000,000 when he agreed without admission or denial of liability, to settle a claim that the SC was proposing to institute against him and 13 others for the manipulation of MyEG Services Berhad shares between 16 January 2007 and 24 April 2007, contrary to section 84(1) of the Securities Industry Act 1983."

Monday, 5 January 2015

Fraud at Kontena Nasional (2)

I wrote before about NCB Holdings and the fraud at Kontena Nasional.

Today the company announced:

"... the resignation of En. Syahrul Azmir bin Ahmad Zaki as the Chief Executive Officer of Kontena Nasional Berhad, a wholly owned subsidiary of NCB Holdings Bhd. The effective date of resignation is from 1st January 2015."

No reason was given, which is exceptional.

In an unrelated announcement it was reported that MISC sold its shares in NCB to a wholly-owned subsidiary of MMC Corporation.

With the majority shareholder of MMC (Tan Sri Syed Mokhtar) already having stakes in other Malaysian ports, there might be a potential for a monopoly.

Sunday, 4 January 2015

Malakoff associate gets penalty of RM 157M

MMC Corporation announced regarding legal proceedings against an associate company of Malakoff  in connection with sea water desalination plant in the district of Tlemcen, Algeria:

"...that MCB [Malakoff Corporation Bhd] had been informed by AAS [Almiyah Attilemcania Spa] solicitors on 30 December 2014 that the lower court of Ghazouet (“Court”) in the district of Tlemcen has imposed a penalty of DZD3,929,038,151.36 (approximately US$44.6 million at the exchange rate of US$1=DZD88) on AAS in respect of the Legal Proceedings (“Penalty”).

AAS has been advised by its solicitors that the Penalty would not be enforced until the exhaustion of all rights to appeal by AAS in respect of the Legal Proceedings. AAS had filed an appeal against the decision of the Court to the Algerian Court of Appeal."

That is quite a high penalty, it is not often that one sees a penalty of more than RM 100 million.

The Malaysian press has been rather silent about the case. Some more details can be found in this announcement:

3. During the financial year 2009, it was discovered that there was a considerable gap between the value of the delivered equipment and the value of the payment made by AAS to the supplier cum contractor (“Invoice Gap”). AAS wrote to the supplier cum contractor requesting for clarifications as they are responsible to resolve tax and customs issues. The invoice gap however was not resolved by the supplier cum contractor and the Algerian Customs then initiated investigations and thereafter the charge was brought against AAS.

4. Due to the Invoice Gap, it is alleged that AAS has failed to repatriate a sum of USD26,900,000. No interest is imposed in the Legal Proceedings but the Court can impose penalty as it deems fit.

Malakoff is planning a relisting exercise, after having been listed and subsequently delisted before. The kind of "games" that are often played by Malaysian tycoons on Bursa. The valuation at relisting is often very much higher than the valuation when the company was delisted. Unfortunately, there is not much that minority investors can do against this practice.

Friday, 2 January 2015

Moody and its Chinese red flags

From Reuters: "China developer Kaisa says fails to repay $51 mln loan, may default on others"

Chinese property developer Kaisa Group Holdings said it had failed to repay a HK$400 million ($51.3 million) loan and warned it may default on more debt, the latest problem to hit the firm amid a downturn in the real estate sector. In a stock market filing late on Thursday, the company said the payment of the loan and its interest became compulsory on Dec. 31, following the resignation of its chairman Kwok Ying Shing. The failure to repay the HSBC term loan may trigger default on other loan facilities, debt and equity securities, co-chairman Sun Yuenan said in the filing to the Hong Kong exchange.

China observers are most likely not surprised, the Chines property market appeared to be red hot, and the balance sheets of many developers stretched, Kaisa was one of them.

As so often, with 20/20 hindsight we are all experts. But there was one company which did stick out its neck, namely Moody, in 2011. Its report "Red Flags for Emerging Market companies: A Focus on China" can be found here.

Kaisa does indeed feature on the list of Chinese property issuers, with seven possible red flags being tripped and a negative outlook on its bond rating:

We know now that Kaisa is indeed in big troubles, so it appears to be a job well done by Moody's.

But quite soon after publishing the report drew the attention of the Hong Kong regulators, according to this article from Reuters:

"The report caused a sharp fall in the stock and debt prices of some Hong Kong-listed companies it flagged, including West China Cement (2233.HK) whose shares slumped 17 percent before rebounding. That prompted stinging criticism from some market analysts who debated the agency's risk framework, especially since at least one of the so-called "red flags" was publicly denied by one of the companies. The Moody's note also grabbed the attention of the city's market regulator, the Securities and Futures Commission."

David Webb wrote "SFC actions risk chilling critics" about this issue:

.... let's look at the total returns on the stocks since the day before the report (8-Jul-2011) up to the end of 2014 to see whether Moody's scoring system was broadly right. Kaisa's stock is down 42.07% , but it wasn't one of the top 5 companies singled out by the report, which tested 61 companies with 20 possible red flags. The top 5 were: West China Cement Ltd (2233), down 69.76%, Winsway Enterprises Holdings Ltd (1733), down 92.14%, China Lumena New Materials Corp (0067) down 56.86% (and suspended), Hidili Industry International Development Ltd (1393), down 89.07% (source: Webb-site Total Returns) and last but not least, LDK Solar, which was US-listed and is  now bankrupt. We'd say that's a pretty good hit rate, even though industry factors are involved in some of the declines. For all HK-listed stocks, the median (718th) stock in that period returned 0.32%.

One can of course argue with Moody's methodology, but that kind of debate on which factors matter for future performance is what makes a market.

The Moody's appeal has yet to be heard, and the SFC's Decision Notice is not yet a public document, so we don't know what the precise allegations are, the arguments in their favour are or what Moody's full appeal will be, but we hope that the SFC has more grounds for complaint than a few errors in a report covering numerous companies, because it would be unreasonable to expect that a report on 61 companies with 20 different flag-tests would be correct on all of the 1220 tests.

And further down the article:

The risk of a chilling effect

Free markets depend on free speech and the open exchange of opinions and analysis, whether it turns out to be right or wrong. The SFC will need to tread very carefully in this area and show good grounds for their actions in the SFAT and MMT, otherwise they are likely to have a chilling effect on critical research. That would be very bad for the market, for at least three reasons:
  1. There is a systemic skew in investment bank/broker research which produces far more "buy" or "hold" (don't sell) notes than actual "sell" recommendations, because banks face conflicts of interest in seeking business with companies and in maintaining open doors for their analysts. Often the diplomatic way out is just to quietly drop coverage rather than put out a "sell" note. So we need investors, short or long, to express their opinions freely.
  2. In China, as with other emerging markets, there are vast problems with corporate governance, fraud and corruption, and these need to be exposed, partly to improve market efficiency and partly to deter such behaviour by reducing the chance that it will remain unnoticed.
  3. One of Hong Kong's core competitive advantages over mainland China is supposed to be the ability to speak freely.

I can't agree more with that.

Wishing all readers a Happy and Healthy 2015!