Monday, 31 October 2016

Fight between Cyrus Mistry and Tata: AirAsia and Singapore Airlines are mentioned (4)

AirAsia announced today the following:

The announcement is quite disappointing, both in size and in content. No timeline is mentioned, nor amount of money involved, no details are given (more information has been released through other channels than was announced).

Also AirAsia does not give a reason why shareholders were not informed before about this matter, the amount of money (allegedly the amount is around RM 13 Million) and the seriousness of the issues at hand seem to warrant that.

Furthermore, issues were raised in Mistry's email regarding "ethical concerns", probably regarding the amount of control that AirAsia has over AirAsia (India) and possibly regarding related party transactions of AirAsia (for instance the leasing of airplanes).

Also, the announcement reads "We refer to the query raised by Bursa Malaysia Securities Berhad on 28 October 2016", but no query has been uploaded on the Bursa Malaysia website, so we don't know what Bursa's exact questions were.

AirAsia loves to bask in the limelight when favourable information is available, which is of course allowed, but surely shareholders and interested parties deserve proper information when the information is less favourable.

Especially for a company that claims to have won two prizes for "Asia's Best Emerging Companies with regards to Corporate Governance" and "Best Managed Company, Best Corporate Governance, Best Investor Relations, and Most Committed to Strong Dividend Policy under The Annual Investor Poll by".

Shareholders might want to ask the company at its next AGM regarding the commitment to "Strong Dividend Policy", AirAsia is not exactly known for its regular dividend payments.

Tata Sons has released the following official statement: "A statement from Tata Sons"

Powerful words, but rather lacking in details.

"It is a matter of deep regret that a communication marked confidential to Tata Sons board members has been made public in an unseemly and undignified manner."

One could also argue that the firing of Mistry and the way it was executed was "unseemly and undignified".

Friday, 28 October 2016

Fight between Cyrus Mistry and Tata: AirAsia and Singapore Airlines are mentioned (3)

The Malaysian main stream media seems to be absent in reporting about the Cyrus Mistry, Tata and AirAsia affair (The Star did publish about AirAsia (a Reuters story), about their leasing unit in a very positive way).

The Edge did however report about the possble fraud: Ousted Tata chief claims fraud at AirAsia India

According to The Times of India "The Civil Aviation Ministry is keeping a close watch on developments related to the purported disclosures made by ousted Tata group chairman Cyrus Mistry about AirAsia India, where Tatas are a partner, and will act if something actionable is brought to its notice.".

Thursday, 27 October 2016

Fight between Cyrus Mistry and Tata: AirAsia and Singapore Airlines are mentioned (2)

Andy Mukherjee from Bloomberg has written about the controversy:

Ratan Tata Has a Case to Answer

Some snippets:

Cyrus Mistry's letter to the board that fired him as the chairman of Tata Sons Ltd. without so much as a thank-you note for his service is such a big hit on WhatsApp message groups that some publishers might already be dreaming of a tell-all book by the jilted Indian executive.

They'll have to wait. For now, the five-page missive, obtained by Bloomberg News Wednesday, contains all the clues there are for investors to try and unravel the mystery behind Mistry's sacking, a dismissal so summary that it must be "unique in the annals of corporate history," he says.

A few such hints of disappointment aside, Mistry's is not a whining memo. If anything, the parts where he shines a light on the sorry shape of some of the operating companies in the $100 billion empire -- not to mention the alleged lack of professionalism in the group's Bombay House headquarters (the dean of Harvard Business School acting as postman) -- should be an eyeopener.

Most investors have long believed that the conglomerate adheres to a stronger code of governance than other Indian family-run businesses. Now it's up to Ratan Tata to reassert that exceptionalism. The founding-family scion carried out the coup against Mistry, and has returned as interim chairman. But if he can't convince public shareholders and bondholders that the Tata group is more than the mere sum of his personal ambitions and idiosyncrasies, then a lasting discount could creep into valuations.

Related to Air Asia's Indian subsidiary, there has been criticism before, for instance here:

"Who really runs AirAsia India?"

One accusation (of several) is regarding the leasing of airplanes:

Other mails indicate that AirAsia India may have a received a raw deal while leasing aircraft from AirAsia Bhd. For instance, old Airbus A320s were priced almost the same as new ones. One A320, made in 2009, and registered as VT-BLR, was leased for $320,000 per month; another, VT-ATF, manufactured in 2014, was leased out for $315,788. The prices do not match the prevailing rates provided by an independent consultant. The leased cost of an Airbus A320 aircraft (February 2010 make) is about $235,000 per month. A 2013 make costs about $280,000, according to data from aviation consulting firm CAPA. Expensive aircraft can mar the costs of a start-up airline and Bhatia seems to have raised this in an email last April.

If the above is true, then the beneficiary would be the leasing unit of Air Asia, exactly the one they plan to spin off.

CLSA wrote about the issue of revenue recognition in their CG Watch 2016 report:

Air Asia is one of the rare home grown regional success stories. It really should start improving its corporate governance though. Being allegedly linked (in Cyrus Mistry's email) to "fraudulent transactions" and "ethical concerns" is embarrassing.

Fight between Cyrus Mistry and Tata: AirAsia and Singapore Airlines are mentioned

Article from the website of MSN:

"Cyrus Mistry is right; problems of the Tata Group were inherited, not of his making"

Some snippets:

Almost every newspaper article which has anything to say about Tata Sons and the upheaval this company witnessed at a board meeting on Monday, lays the blame at Cyrus Mistry's door. Not many commentators have found fault with Mistry's predecessor Ratan Tata, nor have they bothered to analyse how Mistry was given a troubled empire and was left to deal with the mess, with his hands tied.

According to most analysts, nothing that Mistry did in his short four-year tenure was right. He allegedly did not uphold the values that the Tatas have stood for, he moved slowly on the group's restructuring and worst of all he sold family jewels like the steel business in UK - these are some of the myriad allegations which have surfaced in the last 48 hours, after Mistry was sacked as Tata Sons' Chairman.

But was Mistry the sole reason behind the Tata group's sub-optimal workings - the group's debt was rising, profitability was suffering and was he squarely to be blamed for the NTT DoCoMo fiasco or the crisis at the group's steel unit in the UK? According to this piece in the Economic Times, Mistry has denied most of these allegations in a mail to Tata Sons after the momentous Monday meeting. He has also leveled serious charges against members of the board, besides rightfully pointing out the harm to the group's credibility from this sudden sacking.

As several industry watchers wonder about corporate governance practices and whether these were followed while the board sacked Mistry, it is pertinent to note that Mistry could be right on all counts actually. He is surely not to blamed, at least not entirely, for what went wrong in the Tata group's telecom business, in the group's miscalculations of forming two competing ventures in the field of aviation, in the foreign acquisition spree pre-dating Mistry's chairmanship which led to the group's debt pile expanding.

The interesting part for Malaysia and Singapore involves the airline business:

In the email, Mistry said that the group's foray into aviation through joint ventures with Air Asia BhD and Singapore Airlines was at the behest of Tata. In both cases he had been presented with a fait accompli. He is right on both counts. It was Ratan Tata's long standing dream to enter civil aviation business - something which he had tried to do unsuccessfully twice in the past and was finally able to accomplish with AirAsia BhD when the government eased rules for foreign airlines to pick up a stake in Indian carriers. The joint venture company was formed in 2013, surprisingly, as a three way arrangement where the Tatas picked up only 30 percent and a lesser known Indian company Telestra Tradeplace held 21 percent.

The brand image of Tatas was in complete contrast with the ultra low-cost offering of AirAsia India. Even as the JV was continuously plagued with allegations about undue influence of the Malaysian parent - Telestra, which was finally bought out by the Tatas earlier this year after a messy battle splashed all over the newspapers, the airline's expansion plans also suffered due to bickering among the shareholders. And while this low-cost venture was struggling, the Tatas went ahead and forged another venture, with Singapore Airlines, to form full-service carrier Vistara in January 2015. Again at Ratan Tata's behest. The two airlines now operate at the fringes of India's domestic aviation market in terms of market share.

Mistry probably did not bless the creation of two separate, competing companies in the same business - a business where margins are wafer thin and profitability remains a pipe dream - so it would be foolish to lay the blame at his door. No one has understood till date why two airline ventures were formed or why Tatas initially chose to be 'silent' partners in AirAsia India.

I have in my possession a PDF-file which might be the alleged email from Cyrus Mistry, the header of the email reads as follows:

I do not know if this document is authentic, some parts have been blacked out, others have been truncated.

The first paragraph:

The parts about Singapore Airlines and Air Asia:

One crore is equal to 10,000,000 Rupees (or 10,00,000 as they write in India), worth about RM 623,000 or SGD 208,000.

It will be interesting to see how this will pan out, the fight between Tata and Cyrus Mistry, and if the above email is indeed authentic.

Saturday, 22 October 2016

Kamdar: "It's a messy family affair" (5)

I wrote before about this rather strange case.

A new judgment can be found here.

Some snippets (emphasis mine):

[48] The evidential record further disclosed that some years later vide letters dated 20 February 2014 and 7 April 2014 addressed to Bursa Malaysia Berhad, Yap Kim Hong disclosed that he had acted as a nominee in the acquisition of the 4,801,920 undersubscribed shares at RM1.20 per share. The cost amounted to RM5,762,304-00, which monies emanated from the plaintiff’s account. Yap Kim Hong further claimed that he was approached by Bipinchandra to utilise his name.

[49] He added in his second letter that the monies from dividends for 2006 and 2007 were transferred to Bipinchandra. The shares were later sold at a price of RM2,800,000-00 and Yap Kim Hong maintained that he was told to transfer the KGMB shares to another broker. The sale proceeds were to be given to Bipinchandra. On the latter’s instructions however, Yap Kim Hong passed the sale proceeds in cash to Jayesh. There is a picture to support this statement, showing the boot of a car with large quantities of cash contained in a luggage bag.

[50] Bipinchandra denies that Yap Kim Hong was his nominee. He further denied giving instructions to Yap Kim Hong relating to the proceeds of sale of the KGMB shares.

[53] The second cheque was issued as a ‘cash’ cheque with the “A/C Payee Only” crossing cancelled off by the cheque signatory, namely Bipinchandra.

[54] The reverse side of the cheque contained two signatures, identified to be that of Bipinchandra and Jayesh. There was also a handwritten confirmation stipulating that PW-1 of the plaintiff had been contacted with regards to the encashment.

[55] Jayesh maintains that he was called to the bank purely to sign on the reverse side of the cheque, and that he did not take the cash of proceeds of RM2,420,000-00. He maintains that it was Bipinchandra who received these proceeds.

[56] Bipinchandra stated that he did not take the proceeds of the cash cheque, but that Jayesh did so. He maintained that he acted on the instructions of HM Kamdar in relation to this cheque.

[57] It is contended for the plaintiff that either Bipinchandra or Jayesh took the cash proceeds of this cheque. The learned trial judge did not make any finding on this issue. It was simply not addressed. The reason appears to be that this transaction was characterized as a loan for HM Kamdar.

[59] Jayesh testified that pursuant to a family meeting he had advised members of his family who were also shareholders in KGMB that he needed monies for the listing exercise in order to ensure that the price of KGMB shares on listing would be above RM1-00 per share. He further claimed that this sum was utilized for listing expenses.

[62] It is pertinent that in the course of presenting the costs of the listing exercise to the board of directors of KGMB, which amounted to RM2.23 million, this sum of RM580,000-00 did not feature as a part of the expenses. However Jayesh maintained in his testimony that this was because it was a ‘family matter’, whereby he had promised the shareholders a price above RM1-20.

[72] In this context, it is relevant that there were no payment vouchers or any supporting documents available to support the debit entry in the general ledger. This runs awry of the normal accounting practice in the plaintiff which requires a payment voucher and other supporting documents such as an invoice stipulating the purpose of the payment etc. This comprised a part of PW-1 testimony.

[73] There is no record of the alleged verbal instructions of HM Kamdar in relation to the utilization of these monies. Neither is there any board approval for this use of the sum of RM8,842,306-00.

[87] The importance of this letter is that one of the defendants here expressly admits that although these withdrawals were described as a loan to HM Kamdar, none of the monies were utilized as such and were indeed utlised for wholly different purposes. Bipinchandra maintains that a considerable portion of the monies went to Jayesh. A sum in excess of RM5 million was utilized by the plaintiff to purchase over four million shares in its holding company, KGMB, for the purposes of increasing the price of KGMB shares on the date of listing. The legality of such a transaction warrants consideration given the purport of section 67 of the Companies Act 1965.

[112] In these circumstances we have no option but to reluctantly remit this case for re-hearing to the High Court. It would not be tenable for this court to undertake the task of making primary findings of fact in respect of the numerous issues that have not been addressed in the current judgment.

The company announced: the Court of Appeal of Malaysia had on 5 September 2016 via Grounds of Judgment declared a mistrial and ordered to remit this case for re-hearing before a different judge in the High Court.

Simply unworthy of a listed company: undocumented transfers, a cash cheque, large amount of cash in the boot of a car, no board approval, etc, etc, etc.

It also puts some severe question marks regarding the auditing.

The current share price of Kamdar after all those years is only RM 0.36.

Back to Back, Heart to Heart

According to BCAresearch, Hillary Clinton and Donald Trump are the least charismatic candidates ever:

Time for some counselling:

Thursday, 20 October 2016

Doing nothing can be pretty good

Article in The Wall Street Journal:

"What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing"

Some snippets:

Steve Edmundson has no co-workers, rarely takes meetings and often eats leftovers at his desk. With that dynamic workday, the investment chief for the Nevada Public Employees’ Retirement System is out-earning pension funds that have hundreds on staff.

His daily trading strategy: Do as little as possible, usually nothing.

The Nevada system’s stocks and bonds are all in low-cost funds that mimic indexes.

Mr. Edmundson may make one change to the portfolio a year.

His strategy is to keep costs low and not try beating markets, he says. “We’re bare bones.”

From his one-story office building in Carson City, Mr. Edmundson commands funds whose returns over one-year, three-year, five-year and 10-year periods ending June 30 bested the nation’s largest public pension, the California Public Employees’ Retirement System, or Calpers, and deeply-staffed plans of many other states.

With no one else on his investment staff, Mr. Edmundson rarely uses his conference table and four extra chairs. He volunteered his office to pension-fund employees who work for accounting or benefit calculations.

Last month, a wall went up dividing the room. “I’m not going to complain about my office,” he says. “It was too big.”

Monday, 17 October 2016

SC sues Stone Master executive

The Securities Commission announced:

Securities Commission Malaysia (SC) recently filed a suit against Datin Chan Chui Mei, Deputy Managing Director, Stone Master Corporation Bhd (Stone Master) for allegedly causing wrongful loss to the listed corporation.

In the claim, the SC alleged that Stone Master had entered into several agency agreements with 23 foreign companies for the exclusive rights to market and promote, in Malaysia and Singapore, products belonging to the foreign companies. In consideration of the exclusive rights granted to it, Stone Master paid several local representatives of the 23 foreign companies a sum amounting to RM11.59 million in the form of a non-refundable deposit. The SC alleged that of the RM11.59 million, a sum of RM11.54 million was subsequently paid by the local representatives to Datin Chan’s personal account, in breach of sections 179 and 317A(1) of the Capital Markets and Services Act 2007 (CMSA).

Section 179 of the CMSA prohibits a person from using any manipulative device for the subscription, purchase or sale of any securities. Under section 317A, a director or an officer of a listed corporation shall not do anything with the intention of causing wrongful loss to the listed corporation.

In order to prevent dissipation of the RM11.54 million paid into Datin Chan’s banks accounts, the SC had, on 28 September 2016, obtained an injunction from the Kuala Lumpur High Court to restrain Datin Chan from dealing with the monies in her bank accounts up to the amount of RM11.54 million. In granting the injunction, the High Court also ordered her to provide a detailed account of the RM11.54 million which she had received.

In the suit, the SC is seeking various orders, including an order that Datin Chan:
a.contravened sections 179 and 317A of the CMSA;
b.makes restitution to persons aggrieved by the contravention;
c.pays the SC the said sum of RM11.54million, to be held in trust for Stone Master; barred from being a director of a public-listed company for a period of five years.

SC is also seeking a civil penalty for the sum of RM1 million against Chan.

The High Court has fixed 14 October 2016 for her to respond to the injunction application.

Well, that is quite heavy stuff and rather specific in amounts and payments made (except for the exact time line).

Not surprisingly, the share dropped like a stone (pun intended) after the news.

Bursa queried the company on the above, and the company replied in a rather disappointing way, without giving much specifics.

It also appears that Datin Chan stays on as an executive director, no announcement of her resignation has been made.

Would it not be much better if she steps down for the time being given the seriousness of the allegations, as long as the air is not cleared?

Friday, 14 October 2016

Slater and Gordon: hubris, a roll-up and "work in progress" (2)

According to this article in the WSJ:

There’s a cautionary tale playing out in Australia over what can happen when law firms take money from outside investors, something that’s still prohibited here in the U.S.

Slater & Gordon became the world’s first publicly-traded law firm back in 2007, after the passage of legislation that allowed Australian firms to move beyond the traditional partnership model. The United Kingdom soon followed with its own law allowing outside investors in the industry.

Now, after a disastrous acquisition and crashing share price, Slater & Gordon finds itself on the wrong end of a class action suit.

I am sure the reader notices the irony in the above. The article continues:

Slater then went through a restructuring and laid off staff to avoid bankruptcy, but in August the firm said it had lost more than 1 billion Australian dollars. It’s share price has gone down by more than 95% in less than a year, reports.

Tuesday, 11 October 2016

"I've Had The Time of My Life"

I poked fun both at Trump and Clinton before, so I guess it is time to reconcile:

Saturday, 8 October 2016

Idea: Tracker Fund of Hong Kong (2800.HK) (2)

I posted about 3 months ago the first investment idea.

This first idea has performed quite well, from HKD 20.90 to currently HKD 24.60, a gain of about 18%.

I expect a decent dividend to be announced at the end of this month (accompanied by a drop in share price of the same amount).

CLSA published their "Asia Maxima" 4Q16 publication:

Interesting are both the low PB and high dividend yields for Hong Kong, which were indeed reasons for me to buy into the Tracker Fund. I am not too worried about the low earnings growth and ROE, I think they are quite typical for a share market when the economy is not doing well. When the economy swings back to live, these factors will undoubtedly improve.

Singapore's numbers are quite similar to those from Hong Kong.

For Malaysia, as usual, quite high PE numbers. But in the stock universe of CLSA (consisting probably of both higher quality and more liquid shares than average) they do predict a positive earnings growth. That is quite different from the overall picture of the 30 largest cap shares on Bursa where an earnings decline is likely. For me the value in Malaysia has always been in selected small and medium cap shares, not in the blue chips.

In general, emerging markets look cheap relatively versus for instance the US market, which is close to its all-time high and which hasn't seen a bear market since 2008/9.

Why REDtone used "auditor of last resort"? (2)

The issue why REDtone Asia uses an "auditor of last resort" (I wrote about this subject here) is soon not relevant anymore since REDtone announced it will sell its 92.31% stake in the company.

From The Edge:

REDtone International Bhd is selling its entire 92.31% stake in REDTone Asia Inc to Million Vision Development International Ltd for RMB38.31 million (RM23.78 million), to streamline and rationalise its operations including the divestment of non-income generating subsidiaries.

The telecommunication services provider said the disposal consideration is to be satisfied via two methods.

Firstly, the assumption of debt by the purchaser of a sum of RMB21.31 million (RM13.23 million) being amount owing by REDTone International to REDtone Asia and/or its subsidiaries; and secondly, the balance of RMB17 million (RM10.55 million) to be paid in cash.

REDTone International said its original cost of investment in REDtone Asia is about RM75.43 million, incurred since 2010.

As at July 31, the carrying value of REDtone Asia at the group is about RM16.82 million.

Million Vision was incorporated in Hong Kong as an investment holding company on April 28, 2016. Its present director and shareholder is Chan Wa Faat.

Thursday, 6 October 2016

Multi Sports: new independent directors

Article from The Edge "Multi Sports gets new independent directors", some snippets:

Multi Sports Holdings Ltd's shareholders had yesterday approved the appointment of six independent directors to oversee and revamp the shoe manufacturer's operations.

Today, Multi Sports told Bursa Malaysia that Multi Sports shareholders had at the company's special general meeting approved the appointment of Kasinathan Tulasi, Naren Anand Gill, Clarence Yeow Kong Chew, Cheh Chee Mun, Guan Swee Kee and Terence Selvarajah as directors.

Multi Sports major shareholder Paramjit Singh Gill had earlier requisitioned the shareholders' meeting.

Paramjit said he wished to appoint the independent Malaysian directors to "investigate and regularise" the company's operations.

It will be interesting to follow this case, both specifically regarding Multi Sports and in general regarding Chinese listed companies on Bursa.

Officially (according to its last quarterly report) the company has plenty of cash, but given the last quoted share price, there were not many people who actually believed those numbers.

Will Paramjit and his team be able to discover the true situation, what has happened to the company since it IPO-ed on Bursa? Will they be able to extract some value for the minority shareholders? Will Chinese regulators swing into action, when needed?

In my humble opinion shareholders of Multi Sports should count on a total loss, and the (alleged) perpetrators will go scot-free. I hope I am wrong and have to eat my words.

Sunday, 2 October 2016

Patimas: will there be justice? (3)

I wrote first about Patimas, after giving a long list of alleged irregularities and red flags:

"Will the authorities take appropriate action within a reasonable timeframe? Time will tell."

In the next posting in which Bursa handed down fines of RM 2 Million in total to four executive directors I wrote:

"Is the punishment enough, will it act as a deterrent? I don't think so, I think only a jail sentence will suffice."

Now the Securities Commission revealed that it "charged a former Managing Director and three former executive directors of Patimas Computers Berhad (Patimas) with ten charges of causing wrongful loss to the company."

"Law Siew Ngoh, 55, a former Managing Director, Yap Wee Hin, 58, a former Deputy Executive Chairman, Robert Daniel Tan Kim Leng, 59, and Ng Back Heang, 62, both former executive directors of Patimas are said to have made payments totalling RM5.1 million between July to December 2010, for the purported development of various software for Patimas when in fact they were not used for such purpose."

"This is the first time the SC is taking a criminal action for an offence under section 317A(1) of the Capital Markets and Services Act 2007. Under this section, an officer of a listed corporation or any of its related corporation, commits an offence if he does anything or cause anyone to do anything with the intention of causing wrongful loss to the listed corporation or its related corporation. At the material time, the offence was punishable with an imprisonment term not exceeding ten years and a fine not exceeding RM10 million."

Saturday, 1 October 2016

Dufu directors, only a fine and reprimand? (2)

Dufu did indeed announce the reprimands and fines. At least the investors in Dufu know what happened.

Interesting article from Errol Oh in The Star regarding the same matter:

"It’s not mystery meat. It’s Dufu"

Some snippets:

Lee Hui Ta, who’s also known as Li Hui Ta, was was reprimanded and fined RM150,000 because he approved the payment vouchers for those remittances to the US. In other words, he helped Yong commit the offence. Li was then Dufu’s executive director and chief financial officer (CFO).


Where there should be a sweet ending to the meal, we instead get a strange aftertaste. Despite Li’s part in facilitating the remittances to the US, the Dufu board didn’t ask him to leave.

Not only does he carry on as an executive director and CFO, but on June 18 last year, he was appointed the executive chairman to replace Hsu Chin-Shui, who had failed to secure re-election during the company’s AGM the same day.

That means Li is in a highly unusual position of being responsible for the financial management of Dufu as well as heading its board of directors.


There’s another awkward element in Dufu’s governance that should be addressed. A CFO typically reports to the CEO, but how does this work if the CFO is also the board chairman?

The Edge Malaysia in its issue of October 3, 2016 also paid attention to the same matter under the header "Paltry punishment":

"RM 200,000 is a mere 5% of the amount involved. So, does the punishment fit the crime?"