Friday, 31 July 2015

Fake degrees at listed companies? (3)

Received a helpful tip about my post of yesterday regarding Lim Yin Chow.

First of all an example of the disclosure in the 2012 annual report (page 5) of Rev Asia:

Bursa has established that "Dr" Lim has not graduated from the University of Hong Kong. That is bad.

But more worrisome is that he is involved in the healthcare business where his "doctors" title must have carried even more weight.

One example can be found in an interview in The Edge (dated November 29, 2009), listed on the website of HSC (it can also be found on the website of The Edge).

One snippet:

"Dr Lim: We saw how things work there, and wanted to try them here. Over here, most hospitals are opened by businessmen. We're medical people, so we know what the market or patient wants."

The question that remains: is a reprimand and fine from Bursa really enough?

Thursday, 30 July 2015

Fake degrees at listed companies? (2)

Media release from Bursa Malaysia:

Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded and imposed a fine of RM30,000 on Lim Yin Chow, a former Non-Executive Director of Stemlife Berhad (STEMLFE), Signature International Berhad (SIGN) and Rev Asia Berhad (REV) for breaches of paragraphs / Rules 2.18(1)(a) and (c) and 16.13(a) of the Bursa Malaysia Securities Main Market Listing Requirements (Main LR) / ACE Market Listing Requirements (ACE LR).

Paragraph / Rule 2.18(1)(a) and (c) of the Main LR / ACE LR states, amongst others, that a listed issuer/corporation or a director of a listed issuer/corporation must ensure that any statement, information or document presented, submitted or disclosed pursuant to the Main LR / ACE LR must be clear, unambiguous and accurate as well as not false or misleading.

Paragraph / Rule 16.13(a) of the Main LR / ACE LR states that a director of a listed issuer/corporation must not cause a breach of the Main LR / ACE LR by such listed issuer/corporation.

Lim Yin Chow had submitted and/or caused STEMLFE, SIGN and REV to submit inaccurate and false / misleading statements pertaining to his qualification as a holder of degree of Bachelor of Medicine and Bachelor of Surgery (MBBS degree) at the University of Hong Kong in 1992 (False Statements) in various announcements and annual reports of the companies.

I wrote almost exactly three years ago:

"I did a few Google searches with the above mentioned universities, and did indeed get quite a few hits of directors of listed Malaysian companies.  Will Bursa Malaysia or any of the listed companies take action?"

I haven't heard any news from that. It seems Bursa only takes action when it receives a tip off (from the above press release): "arising from a complaint to Bursa Securities and upon investigation".

That is disappointing, Bursa should be more proactive. With a list of diploma mills and Google search they should be able to catch more people.

Tuesday, 21 July 2015

Xidelang: worrying warrants (2)

The company announced the following:

Reference is made to an article published in The Edge Malaysia dated 20 July 2015 stating that no adjustment was made to the exercise price of XDL’s outstanding warrants 2014/2017, which have been issued by the Company on 24 January 2014 and are expiring on 22 January 2017 (“XDL-WB”) following the completion of the Company’s recent bonus issue of warrants on the basis of one (1) warrant for every three (3) existing ordinary shares held (“XDL-WC”) (“Bonus Issue of XDL-WC”).
The Company wishes to clarify that any adjustments to be made to the number as well as exercise price of XDL-WB shall be based on the provisions specified in the deed poll of XDL-WB dated 9 December 2013 (“Deed Poll”).
Pursuant to Condition 5.1.8, Third Schedule of the Deed Poll (relating to issuance by the Company of any securities convertible into or with rights to acquire or subscribe of shares, which in this case is XDL-WC), the exercise price of XDL-WB will be adjusted if the exercise price of XDL-WC is less than 90% of the five (5)-day weighted average market price (“5D-WAMP”) of XDL shares when the exercise price of XDL-WC is determined.
Accordingly, the Company wishes to advise that no adjustments are required to be made to the existing XDL-WB’s exercise price based on the price fixing of XDL-WC exercise price of RM0.115 that was determined at the initial announcement of the Bonus Issue of XDL-WC on 15 May 2015, pursuant to the provision of the Deed Poll. The 5D-WAMP of XDL shares up to and including 14 May 2015, being the date immediately prior to the announcement of the Bonus Issue of XDL-WC is RM0.1048.

The Edge never indicated that Xidelang had broken any rule by not adjusting the exercise price of the WB warrant, in the contrary.

The question is about fairness. Shareholders will receive free WC warrants (something that has real value), while WB warrant holders get nothing. And apparently, the company can continue issuing new warrants without any benefit for the WB warrant holders as long as the exercise price of new warrants is 90% or more of the 5-day weighted average market price.

Added to that, if members of the Board of Directors of Xidelang would have owned a large amount of WB warrants, would they have made the same decision regarding the exercise price for the WC warrants, or would they have chosen a lower amount so that the exercise price of the WB warrants would be adjusted downwards, making their WB warrants more valuable?

I have tried to find the deed for the WB warrants on the website of Bursa announcements, but could not find it.

Sunday, 19 July 2015

Xidelang: worrying warrants

I wrote before about Xidelang's previous warrant issue.

Xidelang issued a new warrant, XDL-WC. The motivation:

The first two are of course blatant nonsense, since all shareholders receive the same deal there is no reward for any specific shareholder.

And if all shareholders exercise their warrants, then they all have more shares, but in percentage of course still exactly the same.

Let's put it differently: Warren Buffett has managed Berkshire Hathaway for 50 years, increasing the share price from around USD 20 to around USD 200,000, a ten thousand fold increase. He did this without ever issuing warrants (or bonus shares or rights shares or any other instrument).

Can Warren Buffett be accused of not having rewarded its shareholders by not issuing truckloads of warrants?

Xidelang IPO-ed on Bursa in 2009, and the share price is still lower than its IPO price. Just to put things in perspective.

Would it not be better if Xidelang would simply mend its business, instead of bothering with the attempts at financial engineering through issuing all kind of instruments?

The third and fourth reason mentioned above are potentially "dangerous", some companies who issue warrants count on the money to come in from the exercise, but when the shares suddenly go down no warrant is exercised and the company runs into financial troubles.

The Edge Malaysia (edition July 20, 2015) published a article "Why, Xidelang?" in which it wrote that Xidelang has not adjusted the exercise price of the previous warrant of Xidelang, XDL-WB, which was issued last year, leaving it at 35 sen against the mother share of 16 sen.

The Edge writes: "as of the end April 30, none of the directors surface as the 30 largest holders of XDL-WB. Could this be the reason for the nonchalance?".

This sounds outright unfair for the holders of those WB warrants.

And strangely enough, it seems to be allowed according to the rules.

I wrote a few times about the horrific treatment warrant holders get for instance at a delisting exercise (here and here).

For minority investors in shares the environment on Bursa is already difficult enough from a corporate governance point of view. So often the big guys win.

But for investors in warrants things appear to be much worse, they don't have much rights at all.

That bags the question: is the public properly informed of this, is there a label attached to warrants warning potential investors about the lack of rights that they will have?

If the rights of warrant holders are so minimal, why can Bursa not simply do away with them? These financial instruments are simply not needed. Abolishing them will not negatively impact the Malaysian economy in any way, shape or form. If there is any impact, it would be (slightly) positive.

Wishing all Muslim readers:

Sunday, 12 July 2015

Toyo Ink and its Perilous Power Play

The Edge wrote two articles about Toyo Ink's diversification plans (here and here).

Toyo Ink is a smallish company in the ink industry. Its revenue over the last five years has been roughly RM 100 million, on which its net earnings are between 1 and 4 Million. It has not paid any dividends over the same period.

In 2008 it suddenly wanted to diversify in the power industry in Vietnam, with a project that completely pales its existing ink business in Malaysia. Things have slowed down considerably, but it has invested in those seven years about RM 124 Million, a rather large amount which is roughly equal to its shareholders funds.

The auditors have emphasized the matter in the last annual report:

In other words: the future is highly uncertain depending on many agreements which are partially outside their influence.

It seems there are three important issues at stake:

  • Does Toyo Ink have relevant experience in the power industry? I did not find any going through the profiles of the Board of Directors.
  • Does Toyo Ink have relevant experience in Vietnam? Again I did not find any going through the profiles of the Board of Directors. I have written many articles about doing business in China, conditions in Vietnam are worse, capitalism has started much later than in China.
  • Does Toyo Ink have the financial muscle to pull this project off the ground? The total development cost is estimated at RM 13.2 Billion, around 100 times Toyo Ink's shareholder equity (even after a recent rights issue).

The company will ask shareholders to continue with the project by forking out RM 133 Million for consultancy services. Total expenditure would thus increase to about RM 260 Million.

Hopefully the company will clarify the project with a clear budget and planning.

But even if it does, I am still very worried about this whole project, it completely doesn't seem to make any sense at all to me. Is more good money thrown after bad?

Thursday, 9 July 2015

China changing the rules of the game

One thing I hate very much: changing the rule during the game. And that is exactly what seems to be going on in China, where the regulator banned investors holding more than 5 percent to sell shares for the next six months.

Will these extreme measures help? I doubt it. It will probably create artificial side effects, like a fund manager holding more than 5 percent in one holding and less than 5 percent in another. If there are redemptions in the fund then the manager has to sell. He would like to sell a bit of both holdings, but due to the new rules he cant sell the first holding, so has to sell much more in the one he has a smaller holding.

Companies will perform badly in the short term if most of their holding is held by shareholders who own less than 5 percent. All rather strange, to say the least.

From Bloomberg:

"China’s Stock Sale Ban Draws Scorns From Templeton, Wells Fargo"

Templeton Emerging Markets Group calls it an act of “desperation.” UBS Wealth Management labels it “extreme.” And Wells Fargo Funds Management says it just “postpones the inevitable.”

China’s decision to ban major stockholders from selling stakes in listed companies has drawn skepticism from foreign investors. The money managers, with combined assets of almost $4 trillion, say the latest step to stem the country’s equity rout is just another measure to meddle in the market and won’t be enough to restore investors’ confidence.

“It suggests desperation,” Mark Mobius, chairman of Templeton Emerging Markets Group, said by phone. “It actually creates more fear because it shows that they’ve lost control.”

The China Securities Regulatory Commission said Wednesday that investors with holdings exceeding 5 percent as well as corporate executives and directors are prohibited from selling stakes for six months. The rule is intended to stabilize capital markets amid an “unreasonable plunge” in share prices, it said.

While China has already ordered government-owned institutions to maintain or increase stock holdings, the CSRC directive expands the sales ban to non-state companies and potentially foreign investors who own major stakes in mainland businesses.

Wednesday, 8 July 2015

AirAsia X lodges complaint with SC

According to this article in The Star, AirAsia X has lodged a complaint against GMT Research with the Securities Commission.

First of all, I have to admit that I haven't read the original article by GMT Research (I have read though the freely available articles).

Secondly, filing a complaint with the SC is not akin to suing a company, everybody can file a complaint with either SC or BM.

The article is not very specific about the reasons behind the complaint, only one item is mentioned:

“GMT has accused AAX, among others, of practising or allowing profit shifting between AirAsia Bhd (AAB) and AAX by way of transfer pricing of the service fees and costs charged by AAB,” it said.

A reference is made to article 177 of the CMSA:

In other words, even if what GMT wrote was not correct (I am not sure about that, no concrete example with supporting evidence is given), then still it must be proven that either GMT didn't care that the information was wrong, or that they knew that the information was wrong. Looks to me rather difficult to prove.

For two more links from GMT Research about AirAsia: here and here.

AirAsia and AirAsia X are probably the most hyped companies listed on Bursa, the public is bombarded by PR campaigns on a weekly (sometimes daily) basis. Many times "rumours" are picked up by the media, which are then denied a few days later. Twice (free) PR, all very much in the Richard Branson style.

Both AirAsia and AirAsia X have however hugely disappointed in the last few years, despite using very aggressive accounting techniques.

Naturally, that combination will attract critical comments, may be not so much in Malaysia, where the mainstream media seems rather cosy with AirAsia (AirAsia is of course a large advertiser) but more so outside.

It is (at least for me) disappointing when one of the most hyped companies, having one of the worst post IPO performances, can't stand some critical comments.

Especially given the recent events in Malaysia, where "shooting the messenger" is (as always) very widespread.

Tuesday, 7 July 2015

Does Malaysia really need another fund?

Article in The Malaysian Insider:

"VCAP Asset Managers launches fund to invest in blue chips"

With so many GLFs (Government Linked Funds) already, do we really need another fund?

Given the recent events, would it not be better to freeze all existing funds launches and pay more attention to the very backbone of Malaysia? In other words, to significantly shore up the institutions, in terms of transparency, responsibility, independence, etc.?

Also, would it make more sense to redeem some government loans with the money, instead of dabbling in the local share market, something that is best left to private players?

One snippet of the above article (emphasis mine):

"But because this is an actively managed fund, hopefully you'll get decent outperformance above and beyond blue chip returns"

Can the CEO of VCAP give some facts regarding the possible outperformance?

It is a well known fact that in the US the large majority of the actively managed funds underperform their respective benchmark. Would this be any better in Malaysia?

I personally believe in two extremes:
  • Passively managed funds, investing in a basket of shares with the lowest possible management fee (a small fraction of one percent): ETFs.
  • Actively managed funds, run by fund managers with a long history of outperformance; often these managers have a contrarian, maverick streak in them.

VCAP is a unit owned by Khazanah, KWAP and PNB, the words "contrarian" and "maverick" do not exactly come into my mind when I think about them.

Monday, 6 July 2015

Kamdar: "It's a messy family affair" (4)

I have written before about Kamdar.

The company announced:

Further to the announcement made on 14 October 2014 pertaining to the issuance of Writ of Summons together with Statement of Claims to Bipinchandra A/L Balvantrai, Jayesh R. Kamdar Rajnikant and Yap Kim Hong (“the Defendants”), the Board of Directors of Kamdar Group (M) Berhad (“KGMB” or “the Company”) wishes to announce that the Learned High Court Judge had on 1 June 2015 dismissed its wholly-owned subsidiary, Kamdar Sdn Bhd’s (“KSB” or “the Plaintiff”) claim against the Defendants that the Plaintiff is to pay to the 3 Defendants RM60,000.00 each in cost.

KSB will decide whether to appeal the decision only after due consultation with it's lawyers.

Sunday, 5 July 2015

Ire-Tex: MD resigns and is reappointed same day (2)

Interesting article by Errol Oh in The Star: "A pattern of turbulence".

The article zooms in on the events at the Ire-Tex AGM, but also those at Wintoni Group's AGM, some snippets:

Wintoni Group Bhd held its latest AGM on June 26. Seven resolutions were tabled but the majority of the shareholders at the meeting approved only two – the ones on the directors’ fees and the reappointment of the auditors.

The four directors who were up for re-election didn’t get enough votes and the company, a provider of automation systems, subsequently announced their retirement. It didn’t end there though.

On the same day, all four were appointed to the board and they assumed their previous roles. Retired lieutenant general Datuk Khairuddin Mat Yusof returned as non-executive chairman. Soo Tee Wei was reinstated as executive director. Mohd Sopiyan Mohd Rashdi and Ansari Abdullah continue as independent directors and members of the audit and nomination committees. It’s as if the AGM outcome was a mere blip.

From a corporate governance point of view a rather remarkable set of events, to put it mildly.

The article continues:

The similarities between Ire-Tex and Wintoni draw attention to Tey [Datuk Larry Tey Por Yee] as an investor because in the past couple of years, he has surfaced as a substantial shareholder in several listed companies: Ire-Tex, Wintoni, Protasco Bhd, Asdion Bhd and Malaysia Pacific Corp Bhd.

And then the writer details the diversification plans and the "signs of turbulence" for the above five companies.

Instead of "diversification" the term "diworsification", coined by investor Peter Lynch, might be more appropriate:

"when a company diversifies its business so broadly, it lacks a core focus. Management becomes distracted by the different, unrelated operations, and the whole firm begins to suffer."

Tey Por Yee did by the way also invest in Maemode, but that company went under so fast that there might not have been time for a diversification.

For students in CG, Tey Por Yee is definitely an interesting person to follow.

Friday, 3 July 2015

JES: will the CEO take action against her father?

In Singapore SGX listed (China based) company JES announced that an employee of the company has run away with the company's account books, chequebooks and financial seals, delaying the probe into financial irregularities of Mr. Jin Xin.

Apparently the books were not digitally stored in the "cloud", in which case a simple back-up would have been enough to preserve the data.

The company promised to take necessary action against Jin Xin:

Strong words by the CEO, and certainly a great assurance for the beleaguered shareholders (JES's shares are suspended for four months already) that appropriate action will be taken, until one realizes that Jin Yu is actually the daughter of Jin Xin.

From the Straits Times:

A female employee has delayed an investigation into dubious payments to the former boss of Chinese shipbuilder JES International by "absconding" with the company's books.

JES International has begun legal proceedings in China against the woman, administrative officer Ju Li Li, to recover the documents.

After Mr Jin Xin, the group's former chief executive and chairman, resigned in March, Ms Ju "absconded" with the group's administration records and seals of all its Chinese subsidiaries, JES told the Singapore Exchange last night.

JES, now helmed by Mr Jin's daughter, Ms Audrey Jin Yu, said it had intended to investigate its financials after uncovering possible irregularities during a periodic review. These included "questionable transactions" between the group and companies in which Mr Jin's interests were not declared, JES said.

But "the financial records of the group, including account books, chequebooks and financial seals, had been removed... by relatives of Mr Jin", JES said in its filing.

Mr Jin, who resigned from his post as executive director due to "health issues" on May 25, is not the only one to have quit.

On May 15, JES appealed to the Singapore bourse to extend its deadline for announcing first-quarter earnings, citing "a severe shortage of manpower" after half of its finance department resigned.

JES assured shareholders yesterday that if the books are recovered and Mr Jin is found at fault, "necessary action" would be taken. Trading of JES shares has been suspended since March 4. The shares last traded at 2.6 Singapore cents.

Thursday, 2 July 2015

Ire-Tex: MD resigns and is reappointed same day

A remarkable set of events, the company has provided the following clarification:

Reference is made to the Company’s announcement on 29 June 2015 in relation to the retirement of Dato’ Dr Yap Tatt Keat (“Dato’ Dr Yap”) as Managing Director and his subsequent re-appointment on the same day.

The Board of Directors wishes to inform that Dato’ Dr Yap had expressed his intention for early retirement effective from 29th June 2015, post the Company's 13th Annual General Meeting (“AGM”) after 20 years of service with the Ire-Tex Group. Hence, he did not offer himself for re-election at the AGM.

However, due to concerns raised by key stakeholders namely bankers, customers and suppliers, to Dato’ Dr Yap's unexpected early retirement, the Board of Directors had persuaded Dato’ Dr Yap to defer his retirement plans. Consequently, in the best interest of Company, Dato’ Dr Yap had accepted his re-appointment as Managing Director of the Company in the Board meeting held immediately after the AGM. As such, he will remain in the Board until a succession plan is put in place.

Ire-Tex is a company with several, possibly large, problems.

It has just acquired subsidiaries which don't seem to be performing well at all:

There was a large variation in results, always a red flag:

Many changes in directorship in the last year:

The accounts were qualified (always a large red flag):

In addition to that, the following "emphasis of matter":

An investigative accountant has been appointed, with a very wide scope, 28 action points in total, including allegations in an anonymous letter.

The largest shareholder of Ire-Tex is Tey Por Yee, the third largest is Ooi Kock Aun, the same duo we already met in the Protasco affair:


GrabTaxi worth more than AirAsia?

According to this article in the Wall Street Journal:

More cash is pouring into the increasingly competitive ride-hailing business in Asia, fueling local competitors to global market leader Uber Technologies Inc.

Southeast Asia-focused ride-hailing app GrabTaxi is getting an infusion of over $200 million in fresh capital in its latest fundraising round led by U.S. hedge fund Coatue Management LLC, according to a person familiar with the situation. The investment values the company at over $1.5 billion including the fresh capital from the latest fundraising, according to the person.

USD 1.5 Billion is equivalent to RM 5.7 Billion, clearly higher than the current marketcap of AirAsia, which is RM 4.4 Billion.

Is that really fair, if we look at revenue, profits, assets, barriers to entry (landing rights) etc?

I have doubts about that, but time will tell.

Regarding a company operating in the same industry (but on a global level), Uber, an article asks the question:

"Uber is seeing $470M in operating losses: Can it ever be profitable?".