"For a lot of investors, the name is all they know about a company"

Article in The Sydney Morning Herald:

"A Goldman you've never heard of is selling its shares in Hong Kong"

One snippet:


Goldman is planning an initial public offering in Hong Kong - but it's not the Goldman you've heard of.

Goldman Faith Holdings, a local engineering subcontractor which adopted its current name less than a month ago, lodged an application to list on the main board of the Hong Kong stock exchange, according to a December 19 filing. The name of the company, which works on electrical systems for hospitals in the city, sports similarities to Wall Street investment bank Goldman Sachs in both English and Chinese.

The Chinese name of Goldman Sachs, which combines connotations of prestige and prosperity, is pronounced "go sing" by Cantonese speakers in Hong Kong. Goldman Faith also chose a Chinese name read as "go sing," using an identical first syllable and a second syllable with the same sound but different intonation. The subcontractor's Chinese name has the meaning of prestige and integrity.

"For a lot of investors, the name is all they know about a company," said Mike Leung, an investment manager at Hong Kong brokerage Wocom Securities. "The company is probably hoping that it gets more publicity and more people would pay attention."

It appears Jho Low is not alone in naming companies after well-known and trusted companies from the West, may be one does not need an education from Wharton Business School to do that.

EPF exits Felda

Article in The Edge: Felda Global falls 3.70% on EPF exit as shareholder, one snippet:


"Shares in Felda Global Ventures Holdings Bhd (FGV) fell 3.70% this morning after the Employees Provident Fund (EPF) said it no longer has any stake in FGV, as it assures members that the EPF practises high standards of corporate governance in its investments, with robust policies on risk control and asset allocation.

At 9.17am, FGV fell 6 sen to RM1.56 with 2.31 million shares traded.


"In line with these best practices, we have been closely monitoring the equity performance of FGV over the years and have gradually sold down our shareholding," the retirement fund said in a statement yesterday."

Investing one's own money in shares is risky, and needs proper analysis.

Investing OPM (Other People's Money) requires more diligence and responsibility.

Investing in IPO's even more so, due to all the hype.

EPF invested OPM in FGV's shares during its IPO, even became "cornerstone investor". In February 2012 it owned 185 Million shares in FGV valued at about RM 1 Billion.

Now EPF said it sold all shares in FGV, which must have resulted in a loss of a several hundred million RM, apart from the opportunity cost.

Would this not be a good time for EPF to clarify why it invested in FGV in the first place, what changed along the years, if there were any corporate governance concerns regarding FGV, and if EPF actively tried to do something about those?

Sentences like "best practices" and "closely monitoring" don't add any information, that is simply boilerplate text.

This is a concrete case in which EPF most likely has lost a substantial amount of money. When an investment takes off, and generates a nice amount of profit EPF is entitled to boast about it, but if the opposite happens, surely its members deserve a proper explanation.

I wrote before about FGV.

PNB reveals secret of how it makes money to pay high dividends (2)

Article in The Star: "PNB optimistic about 2017"

Lots of numbers are mentioned, but the most important number (per managed fund) is missing:

"The increase/decrease in the Net Asset Value (marked to market) per unit over 2016"

This is a pretty basic number, essential to measure the long term performance in the long run.

Once we know this number we can compare it to other funds, or to the total (that is taking into account dividends received) returns on Bursa.

A simple question: was this number positive over 2016? And how does it compare to the price investors pay per unit?

Disappointing that this all important number is not given, and that the journalists present didn't ask for it.

I wrote before about this subject.

It's a small world

Two interesting articles:

Penny stock crash: John Soh accused of witness tampering

7 executives of Platinum Partners charged with US$1 bil fraud

In it the companies in the "Penny Stock Saga" (Blumont, Asiasons and LionGold) are linked to ISR and John Soh and to US-based hedge fund Platinum Partners.

It is indeed a small world in the world of finance.

Good to see that at least some enforcement is being delivered in Singapore and the US.

Remains the question: John Soh seems to be (allegedly) the mastermind in this all, what would have happened if the Malaysian authorities would have punished him more appropriately for his alleged role in the downfall of several Malaysian listed companies?

The fine of RM 6 Million seems to be woefully inadequate, at least to me.

Millions and Billions

Two interesting articles in The Edge.

Shell Malaysia gets MTO at RM1.92 per share


The offer was triggered after MHIL's conditional sale and purchase agreement for 51% of Shell Refining, signed in February 2016 with Shell Overseas Holdings Ltd, turned unconditional today, Shell Refining said in a filing on Bursa Malaysia today.


I wrote before about this matter. The acquirer wants to retain the listing status, which means this is a "friendly" offer, minority shareholders can simply accept or reject the offer, there is no pressure.

The second article:

Konsortium PetroHub to raise US$180 bil over next 5 yrs for refineries in Kedah

Konsortium Asia PetroHub (KPHUB) expects to raise US$180 billion in funds over the next five years for its oil refinery facility construction project in Kedah known as Sultan Abdul Halim Refinery Complex.

The consortium was formed by a group of companies, namely IMC London, a group of bankers and funders based in Britain who have a 50% share, as well as VR4U Technologies Sdn Bhd with a 30% share and another local based company with a 20% share.

The amount raised will be used to fund four additional refineries over the next five years. There are six refineries to be developed in total and the first two will be developed starting January 2017.


Both articles about refineries, but there is something rather "strange" going on if we compare the two articles:

• Regarding Shell, at the current share price the whole company is valued around USD 150 Million (that starts with the letter "M")
• Regarding KPHUB, it expects to raise USD 180 Billion (that starts with the letter "B")

The refinery of Shell will be quite old, and probably smaller in size, but does this explain a thousand fold valuation difference? It seems rather puzzling to me.

The article continues: "The second agreement was with QMIS World Trade International, which has close collaborations with various Chinese conglomerates and will act as a listing agent in Nasdaq US and Hong Kong Stock Exchange to raise funds for the project."

I tried to Google on "QMIS World Trade International", expected to find a company with lots of experience in this matter, having done dozens of multibillion dollar deals on many international exchanges. But I could not find anything relevant, it even looks like they have no website, a fate they seem to share with VR4U Technologies Sdn Bhd .

Lots of questions remain .......

KFM: to RTO or not to RTO, that is the question? (2)

Two good articles about the same matter:

How KFM is dealt with is worrying

How quickly interest dies

The ball is firmly in Felcra's court.

Felcra was very fast in withdrawing its LOI (Letter Of Intent).

Now it needs to quickly come with the reason(s) for that.

And surely the authorities are watching closely. The credibility of the market is at stake.

KFM: to RTO or not to RTO, that is the question?

On December 13, 2016 Kuantan Flour Mills announced:


"KFM had on 9th December 2016 secured a Letter of Interest (‘LOI”) from Felcra on its interest to explore and possibility to participate in KFM’s equity."


On December 15, 2016 the company announced:


.... the Company had on 14th December 2016 received a letter from Felcra with details stated in the letter as below :

"After urgent deliberation of our register of interest to explore the possibility of participating in KFMB’s equity, we hereby inform that, effective immediately, we are retracting our register of interest and ceasing all exploratory pursuit to participate in Kuantan Flour Mills Berhad equity.

On a query from Bursa the company replied:

The Board of Directors of KFM wishes to inform that the Company is not aware of any particular reason on the above retraction and is in the process of seeking clarification from Felcra Berhad .

It all sounds rather strange, what has happened that changed the decision of Felcra so drastically, so quickly?

The share price of KFM went from RM 0.04 to RM 0.24, up 600%. Some people must have made a lot of money.

For KFM this is already the second time of an aborted RTO, which makes it even more curious.

Blast from the Past: UEM/Renong

From an "old hand" in the industry, someone who was first a bank analyst, then Head of Research and finally Sales. Lightly edited by me:


..... But then the super bull-run for Malaysia came in 1993 when the index moved from a low of 645 points to a high of 1332. Everyone was a winner then and I remember the words of my remisier friend, “money is like free!”. From thereon I was hooked. The adrenalin rush, the excitement of coming to the office every morning and feeling smug given that all your BUY recommendations are winners.

Its was am amazing ride right  to the BIG crash in 1997. Along the way I became the infrastructure analyst and was right at the epicenter of the major infrastructure projects from the North South Expressway, the Second Link, LRT and all the highways and byways and the KLCC twin towers, Gelang Patah – now known as Iskandar Malaysia and Putrajaya.

Naturally I was the analyst for the infamous UMNO related UEM/Renong group.  I still remember accompanying clients on helicopters to have an overview of  the construction works and the countless roadshows globally. I even travelled on the Concorde from London to New York for an IPO. Those were the go-go days. …. Of course I was not with [company] then!

UEM/Renong was also the tipping point for both the Malaysia market and me as an analyst for the wrong reasons.  It was the TWO stocks to own in Malaysia as there were the prime beneficiaries of the government’s infrastructure spending and took the market to dizzy heights. The music stopped 17th November 1997 when UEM bought a 33% stake in its parent Renong @ RM3.24 a piece when the market price was RM1.90 for USD685.8m. This was  just when the Asian Financial crisis was unravelling!  The market lost 20% in value in three days. Talk about governance. 

...... The Malaysian market has never seen those days since. 


Interesting that the "old hand" mentioned the UEM/Renong scandal as the tipping point, and not for instance the capital controls, or any of the other scandals of those days.

As Warren Buffett mentioned: "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.".

Unfortunately for Malaysia, in the UEM/Renong case things were not done differently, and the country suffered a huge reputational damage.

Have we learned anything from that episode, was there ever a proper analysis done what exactly happened, why, by whom, who profited and when, by an independent committee? No.

For those people that are counting for an inkling of justice in the 1MDB case, these are not hopeful words.

FGV: mixing politics with business

Article in The Star: "A roller coaster ride in store for FGV"

Some snippets:


The simple kampong folks who had relied on the value of these shares as their retirement income are now wondering what is in store for them now.


This applies to all shareholders of all companies, there is an issue of being properly informed about the possible risks of investing in listed companies, being warned that shares can go up but also down, about not putting all your eggs in one basket. And I don't mean hiding the risks somewhere on page 232 of a listing prospectus 500 pages thick. The media also has a role to play in this.


The reality is that FGV has been the undisputed worst plantation stock performer ever since its initial public offering (IPO) in July 2012. The share price decline was so bad that the company was removed from the Bursa Malaysia KLSE Index stocks last year.

Since its hyped-up listing at RM4.45 per share, the battered government-linked stock closed at RM1.67 yesterday representing a whopping 62.5% decline in share prices.


Many IPOs are very much hyphed these days and disappoint after being listed. The authorities might want to look into this issue. It (partially) explains the disappointing performance of the Bursa market.


It has serious political implications as the country heads towards a general election, speculated to be held next year.

The small holders are loyal supporters of the Barisan Nasional and their interests deserves [sic] to be protected.

FGV is regarded as a government “protected” stock and rightly so too.


Is the writer of this article (Wong Chun Wai) proposing a new sort of Corporate Governance, one whereby shareholders of listed companies who are loyal supporters of the ruling political party get some sort of special protection and others not?

An "interesting" proposal, but one which can not get any support whatsoever from this blog.

The Star itself is a listed company and majority owned by a political party, may be that explains the writer's thoughts though.

In my opinion, most of the problems of FGV are caused (not solved) by political connections, so the solution is rather simple: cut all ties between politics and business. Let professional managers  run companies (like FGV) without any political interference whatsoever. Cut the dead wood, base decisions on mergers and acqusitions on proper commercial terms, etc.

In the short run there might be some pain in certain quarters, in the long run there will be many gains for all.

Dual class shares: another really bad idea (2)

I wrote before about this issue.

Proponents of Dual class shares often point a some US companies that have dual class shares and are doing quite well. One of the companies mentioned is Facebook.

May be those people should read the following article from Bloomberg:

Facebook's Investors Criticize Marc Andreessen for Conflict of Interest

One snippet:


Earlier this year, Facebook Inc.'s Mark Zuckerberg came to his shareholders with a big question: would they approve him maintaining voting control of the company, even if he sells most of his stock?

The monumental shift would benefit Zuckerberg because it would let him sell shares to fund philanthropy, but it had the potential to harm investors by diluting their power over decision making. And before putting the vote to shareholders, Facebook's board had the power to influence the outcome.

But the board's process was flawed, according to investor lawsuits filed against Facebook's directors in April and recently unsealed court filings in Delaware's Chancery Court. The company went through the motions of protecting minority shareholders, but one board member seemed more interested in protecting Zuckerberg himself, investors allege.

Zuckerberg has voting control among shareholders because his stock has most of the voting rights. He wanted to sell shares, but didn't want to lose his majority voting status. So he proposed setting up a new Facebook stock class. The new shares would automatically dilute the voting power of existing shareholders, because every share with voting power will split into three shares -- one that has power, and two that don't. In the new arrangement, the non-voting shares are less attractive as currency in acquisitions and may make it harder for the largest social-network provider to get tax benefits, among other issues. 

The question was put to a vote by shareholders, but there was never any doubt about the result. Since Zuckerberg has majority voting control of the company, what he favors wins the day. Zuckerberg's proposal won the vote, and he got his way: He can sell his stock and maintain voting control. The shareholders approved the creation of a new stock class. The only entity that had any power to affect the outcome was Facebook’s board, which had already weighed the issue months earlier, in his favor. 

In August 2015, with the chief executive's blessing, Facebook's board set up a special committee, choosing the three directors who were least beholden to Zuckerberg or financially affected by the decision -- Susan Desmond-Hellmann, Marc Andreessen and Erskine Bowles -- to represent shareholders while weighing the matter, according to a regulatory filing.

But Andreessen, a venture capitalist at Andreessen Horowitz and a long-time Facebook board member, is a close Zuckerberg ally. While on the committee, Andreessen slipped Zuckerberg information about their progress and concerns, helping Zuckerberg negotiate against them, according to court documents. The documents include the transcripts of private texts between the two men, revealing the inner workings of the board of directors at a pivotal time for Facebook. 


David Webb wrote about this:


Awful corporate governance at Facebook. Zuckerberg pushed through a scheme to create and distribute non-voting Class-C shares so that he can further reduce his investment without losing voting control. A so-called "independent committee" of 3 directors was established, including Andreessen, who secretly coached Zuckerberg on how to deal with them. Then he gets to vote it through at the shareholder meeting anyway.    

One could argue that at least some shareholders took action: "The plaintiffs suing Facebook's board include pension funds, like the Employee Retirement System for the city of Providence, Rhode Island, and individual investors."

But how much chance is there that the same will happen in Singapore (or Malaysia for that matter)? I think almost none.

Xingquan: heavy losses (4)

Story in The Edge: "Rejection of shoes a ‘one-off unfortunate event"

And a video can be found here:

This alleged order (I wrote before about this issue) for 3.6 Million pair of shoes must have been by far the largest order in Xingquan's existence. According to the video, it was one of the requirements of the project that inspection and all certification had to be done after the delivery of the last batch.

That doesn't make any sense whatsoever, why this strange requirement?

And why accept the huge order (if the customer really insists on this strange requirement), because the risk must be very high?

Just to put things into context:

Let's assume that the height of this wall is 20 shoeboxes, and that the length of each shoebox is 1/3 of a meter, then in one meter one can store 60 shoeboxes each containing one pair of shoes. The alleged order was 3,600,000 pair of shoes, in other words:

60 km shoeboxes (uninterrupted), the distance from Kuala Lumpur to Seremban!

Xingquan should prove, beyond any reasonable doubt, checked by reliable, independent auditors:

• that the order really existed
• who the agency was that placed the order
• that Xingquan actually made 3,600,000 pair of shoes, during which time and in which locations
• in which place(s) they stored the finished shoes
• that the agency formally rejected the shoes
• to which customer Xingquan sold the discarded shoes to

As long as that has not happened, I just dont believe the story, it is simply too crazy and doesn't make any sense whatsoever.


"Wu said management will explore the possibility of declaring dividends as well. It is understood that this has been demanded by some shareholders. As at June 30, the company had cash and cash equivalents of 1.14 billion yuan."


First Xingquan executed a rights issue, because it claimed it needed extra money, it raised about RM 44 Million with that (I wrote about this strange issue here and here).

Then it blew RM 387 Million in a single quarter (for a good part because of the above alleged screw up), almost nine times the amount raised in the rights issue.

And now suddenly the company "will explore the possibility of declaring dividends"?

Uber: does the business model make economic sense?

Three hard hitting articles published on the "naked capitalism" blog regarding Uber:

Can Uber Ever Deliver? Part One – Understanding Uber’s Bleak Operating Economics

Can Uber Ever Deliver? Part Two: Understanding Uber’s Uncompetitive Costs

Can Uber Ever Deliver? Part Three: Understanding False Claims About Uber’s Innovation and Competitive Advantages


Some snippets:


Uber’s refusal to consider an IPO may best be explained by the recognition that publishing detailed, audited financial data confirming these massive losses and the complete lack of progress towards profitability could undermine public confidence about its inevitable march to industry dominance.

Uber is currently the most highly valued private company in the world. Its primarily Silicon Valley-based investors have a achieved a venture capital valuation of $69 billion based on direct investment of over $13 billion. Uber hopes to earn billions in returns for those investors out of an urban car service industry that historically had razor-thin margins producing a commodity product. Although the industry has been competitively fragmented and structurally stable for over a century, Uber has been aggressively pursuing global industry dominance, in the belief that the industry has been radically transformed into a “winner-take-all” market.

Unlike most startups, Uber did not enter the industry in pursuit of a significant market share, but was explicitly working to drive incumbents out of business and achieve global industry dominance. Uber’s huge valuation was always predicated on the dramatic growth towards global dominance. Thus if Uber’s valuation and industry dominance were to be welfare enhancing, Uber’s efficiency and competitive advantages would need to be overwhelming, and there would need to be clear evidence of Uber’s ability to generate large profits and consumer welfare benefits out of these advantages.

Published financial data shows that Uber is losing more money than any startup in history and that its ability to capture customers and drivers from incumbent operators is entirely due to $2 billion in annual investor subsidies. The vast majority of media coverage presumes Uber is following the path of prominent digitally-based startups whose large initial losses transformed into strong profits within a few years.

This presumption is contradicted by Uber’s actual financial results, which show no meaningful margin improvement through 2015 while the limited margin improvements achieved in 2016 can be entirely explained by Uber-imposed cutbacks to driver compensation. It is also contradicted by the fact that Uber lacks the major scale and network economies that allowed digitally-based startups to achieve rapid margin improvement.


Still one article to go in this series: "The next article in this series will discuss that Uber’s strategy for earning returns on its $13 billion investment was always based on eliminating both competition, and any regulatory/legal obstacles to the exploitation of anti-competitive market power."


KWAP has invested an undisclosed amount in Uber, so for their sake we must hope that the articles picture a too bleak future of the economics of Ubers business.

“the biggest insurance scam in Sarawak”?

Article in The Star: "Shake-up at Gibraltar BSN"

Some snippets (emphasis mine):


A management shake-up has occurred at Gibraltar BSN Life Bhd following alleged multi-million insurance investment fraud cases at the life insurance company.

Dubbed collectively as “the biggest insurance scam in Sarawak” by media in Sabah and Sarawak, the cases, which came to light late last year, allegedly involved Gibraltar BSN agents collecting insurance premiums amounting to millions from over 150 customers for policies that did not actually exist.

According to reports, the customers, mostly from Sibu, Sarawak, were enticed by “returns offered of between 8% and 14% per annum”.

In some cases, there were also allegations of misappropriation of client payments.

It is understood that the insurance agents involved are no longer with the company.

Gibraltar BSN is a joint venture (JV) between the American-based Prudential Financial, Inc (PFI) and Bank Simpanan Nasional (BSN), a statutory body under the Finance Ministry.

PFI has a 70% stake in the JV, with BSN holding the remaining 30% interest.

Gibraltar BSN did not respond to StarBizWeek queries on whether it had or is being investigated by the authorities and whether there had been any action taken against it so far but said that there has been a change in top management of the company in recent months.


This sounds pretty serious, hopefully the enforcement agencies will quickly take appropriate action.

MyEG shares jump after juicy government contract (3)

I wrote before about this issue, here and here.

Bursa announced the following enforcement:


Bursa Malaysia Securities Berhad (635998-W) (Bursa Malaysia Securities) has publicly reprimanded My E.G. Services Berhad (“MYEG” or “the Company”) and its Managing Director, Wong Thean Soon for breaching the Main Market Listing Requirements of Bursa Malaysia Securities Berhad (Main LR).  In addition, the Managing Director has been fined RM50,000.

MYEG is publicly reprimanded for breaching paragraph 9.08(2) of the Main LR which prescribes that a listed issuer must ensure that no disclosure of material information is made on an individual or selective basis to analysts, shareholders, journalists or other persons unless such information has previously been fully disclosed and disseminated to the public (i.e. to Bursa Malaysia Securities pursuant to paragraph 9.08(5) of the Main LR).  In the event that material information is inadvertently disclosed on the occasion of any meeting with analysts, shareholders, journalists or others, it must be publicly disseminated as promptly as possible.

MYEG had at the CIMB Conference on 6 January 2015 disclosed the government’s decision for MYEG to implement the fully online renewal of foreign workers’ permit from 2015 onwards (“the New Renewal of Foreign Workers Permit Arrangement”) as well as impact of the same to the Company (e.g. market share and market potential).

However, the announcement on the New Renewal of Foreign Worker Permit Arrangement was made to Bursa Malaysia Securities only on 9 & 12 January 2015 and even so, without any disclosure of details of its impact / implication on MYEG’s financials which was disclosed in MYEG’s presentation to the fund managers at the CIMB Conference.

The New Renewal of Foreign Workers Permit Arrangement was material / significant to the Company’s business and prospects as well as financials to MYEG particularly as the arrangement would increase the Company’s market share on renewal of foreign work permits from 8% (based on MYEG’s representation at the CIMB Conference) to 100%.

There was a significant increase of up to 26% in the Company’s share price from 6 January 2015 to 9 January 2015 with high volume traded following MYEG’s presentation at the CIMB Conference on 6 January 2015, the CIMB Equities research report issued on 7 January 2015 which had, amongst others, stated that the target price for MYEG was to be RM7.80 (from RM5.28) and The Star article on 9 January 2015 which had reported on the New Renewal of Foreign Workers Permit Arrangement. 

Wong Thean Soon, the Managing Director of MYEG is publicly reprimanded and fined RM50,000 for breaching paragraph 16.13(b) of the Main LR where he had permitted the Company’s breach of paragraph 9.08(2) of the Main LR.  He had selectively disclosed information on the New Renewal of Foreign Workers Arrangement in making the presentation for MYEG at the CIMB Conference on 6 January 2016.

In addition to the public reprimand, MYEG is required to undertake or arrange for the necessary training programme(s) in relation to compliance with the disclosure obligation under the Main LR and ensure its directors and relevant personnel of the Company attend the same.
Bursa Malaysia Securities views the contravention seriously as the disclosure obligations are fundamental obligations of listed companies to preserve and sustain market integrity and investor confidence.

Bursa Malaysia Securities has reminded MYEG and its Board of Directors on their responsibility to maintain the appropriate standards of corporate responsibility and accountability to its shareholders and the investing public.


The above enforcement was expected, it is reasonably fast and gives the right amount of detail in the above press release, both regarding the impact of the contract on the business of MyEG and on the share price.

However, the size of the fine (only RM 50K) looks very low, is this really an adequate deterrent? Especially since Wong Thean Soon settled only a few months before the highest regulatory amount in the history of the SC:


"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."

INIX: why no audited accounts of its associate? (2)

Today the company issued its annual report.

The Chairman's statement is disappointing, only one page, widely spaced, hardly giving any useful information about the loss incurred and the plans going forward to improve its results. Surely an annual report should be more informative than that.

"Maintaining the profit trend"? The company just lost RM 5 Million and has accumulated losses of RM 20 Million! I surely hope, for the sake of the minority shareholders, that the trend will not be maintained.

I was interested in the associate company that didn't have audited accounts (page 64). No reason was given, instead a short, simplified balance sheet was given, but the profit & loss was rather comical:

If this same information was given to the auditors of INIX, then I understand why they qualified the accounts.

INIX: why no audited accounts of its associate?

INIX announced that its audited accounts are qualified, the reason given by the auditor:

I can come up with several scenario's why the audited financial stataments were not made available, each with its own degree of how serious the impact would be for INIX.

But why do we have to guess which scenario is the one, why does INIX not simply provide the proper reason for the above?

Surely minority investors deserve to know, this seems to me to be material information.

Oops, CIMB releases Vivocom's results premature (2)

During the day CIMB took the research note from their website:

And later Vivocom announced their 3rd quarter results, very similar (but not exactly the same) as the numbers from CIMB. Probably CIMB used some preliminary numbers in their research report.

Bursa just today announced that it reprimanded SKP Resources and fined 3 executive directors.


SKP had verbally disclosed the Contract including the contract value [RM 400 Million worth] to 2 research houses on 7 May 2015 without making an announcement of the same to Bursa Securities immediately thereafter.


Of interest for the Vivocom case is the following (emphasis mine):


..... a listed issuer must ensure that no disclosure of material information is made on an individual or selective basis to analysts, shareholders, journalists or other persons unless such information has previously been fully disclosed and disseminated to the public (i.e. to Bursa Malaysia Securities pursuant to paragraph 9.08(5) of the Main LR).


In other words, it appears that Vivocom clearly breached the listing rules in a similar way as SKP by selectively disclosing (preliminary) quarterly results to CIMB.

Apart from that, there is the ethical issue, surely CIMB, being professionals in this business, must have know that Vivocom was breaching the listing rules.

And lastly there is the question if Vivocom and CIMB were much too close for comfort, as witnessed by the many postive research reports from CIMB, the high target price and the above breach of the rules.

Oops, CIMB releases Vivocom's results premature

CIMB released a research report about Vivocom "Tracking expectations":

There is one "tiny" problem with this, the company itself has not yet announced its quarterly results.

That is of course a major screw up.

Both from the side of CIMB and from Vivocom.

It also shows that certain parties are privy to inside information, while others (the public) are not. A situation that should be avoided. The question is if this happens more often, a company releasing sensitive information to other parties before the information is officially announced.

I wrote twice about CIMB reporting about Vivocom, here and especially here. CIMB has a rather aggressive price target of RM 0.62 vs current share price of only RM 0.18.

Who Wins and Who Loses in a Global Trade War?

Article from Harry Dent, some snippets:


My research in recent months has focused increasingly on how the surprise Brexit vote and Trump’s victory are actually not that surprising after all. They’re a clear sign of a growing number of everyday people rejecting the massive globalization trend that has surged since World War II.

The world “shrinking” seemed to be a win-win at first. Countries could focus on what they do best and export to others while importing what they need. And, yes, longer-term that does work, as Adam Smith first espoused in 1776.

But there’s a catch, as Australian Steve Keen, one of those rare economists who truly understands how the world works, says. That is, you can’t just switch from one major industry to the other without some major costs to infrastructures and labor unemployment. So once you’ve set off down a particular path of specialization, there’s really no turning back.

You can’t turn a steel mill into a semiconductor factory, or at least not without major retooling and costs. And the skills that staff must possess to work in each kind of plant differ wildly.

In short, specialization of labor is good, until it turns bad. So too, globalization has been an economic boon, until now…

We’ve reached that point where it’s time for a reset before we can progress once again.

Global trade, just like any other trend, surged and has now hit its limits. It must reset and consolidate before it can resurge again.

This is the nature of any cycle!


If Dent is indeed right, then things look bleak, in particular for Hong Kong and Singapore, but also for Malaysia, three countries that depend a lot on international trade.

Time will tell ....

Chinese "IPO fraud school"

Interesting article on Seeking Alpha:

KGJI: A 'Fraud School' Success Story

Some snippets:

Muddy Waters, a research firm that has exposed many Chinese frauds, authored a White Paper on the organized network that brought numerous fraudulent companies onto U.S. exchanges. The presentation and research paper, Frauducation, cited a 2012 Chinese Today's Fortune article that discussed an investigation into a Chinese "fraud school." The article (translated into english) describes a "systematically criminal" platform:


... the "fraud school" is a small investment bank and financing counseling company. It uses a network of accounting firms and law firms based in HK and US to jointly operate to present "trash" enterprises as fast-growing and huge-profitmaking super stars, thus catching the foreign investors' eyes, gaining private funding, and subsequently going public in the US....After that, they will keep coaching the firm on producing falsified reporting documents in order to make it keep "growing" with the eventual goal of listing on a primary exchange (i.e. NYSE or NASDAQ) and collect even more money from US investors.


While the investment bank leading the fraud school was not specifically named in the article, the research paper highlighted the likelihood of it being a Hong Kong outfit named Chief Capital.

The Frauducation white paper also examined the audit firm of Jimmy C.H. Cheung & Company. Cheung was the earliest auditor of record for RINO and audited ChinaCast (OTCPK:CAST) which, according the SEC, was a "massive" fraud. We discovered that Cheung also performed audit work for Kingold.


The article further details alleged irregularities regarding Kingold. The share of Kingold went down from 2.00 to about 1.30, but recovered to 1.60 on Friday.

A video by Muddy Waters about the alleged Chinese fraud school can be found here.

I am not aware if any Bursa or SGX listed company went to this alleged fraud school. But the audit firm of Jimmy C.H. Cheung & Company (featured in the above video) did auditing work for a SGX listed company.

The firm is called International Healthway Corp (IHC), from it's IPO offer document (dated 1 July 2013)

And it seems that nothing has changed, the same auditor is still auditing the subsidiaries in Hong Kong according the the latest anual report. That looks like a red flag.

But there are many more red flags. Investor Central in an article named "International Healthway Corporation Limited - Do the directors really live in the Thye Hong industrial building in Leng Kee?" came up with "29 questions that need to be asked".

And according to this article the authorities are also looking at trading of IHCs shares.

Even in the boardroom there seems to be problems.

The auditor of IHC (PricewaterhouseCoopers) issued a "disclaimer of opinion" in the 2015 annual report:

PNB reveals secret of how it makes money to pay high dividends

Article in The Star: "PNB reveals secret of how it makes money to pay high dividends"

That is indeed a catchy heading.

I have to admit, I have been a sceptic of the PNB funds, both regarding the high returns, the absence of down years and the fact that so many people borrow money to invest in these funds.

The problem with the article in The Star is, that nowhere is exactly revealed to the reader how PNB does make money to pay its high dividends. That is disappointing, to say the least, because that seems to have been the purpose for the meeting according to the title of the article.

Some of the returns of PNB funds can be found here and in other postings in the same blog.

I notice that the returns are getting lower, from the juicy double digit returns in the nineties to returns in the high single digits in this century.

But even those high single digits are much higher than average long term Malaysian share market returns.

I have written before about two subjects that seem relevant to this discussion:

• Bursa: long term returns: "My best overall guess of the long term yield including dividends and costs incurred of a portfolio is in the range of 4-5% per year" 
• Poor earnings growth for Bursa listed companies (5): "At the moment it looks like that the [2016] earnings will come in around RM 53 Billion, lower than the 2012 results, about 12% lower than the 2014 results"

I hope PNB will share its presentation (hopefully with lots of numbers to digest) not only with journalists but also with the Malaysian public.

AirAsia's New Lease of Life

Interesting article by Bloomberg.

Some snippets:


AirAsia loses money at the operating level on ticket sales, just about makes it back on ancillary revenues, but makes its real money from selling and leasing back its own aircraft.

That makes plans by Group CEO Tony Fernandes to sell this golden goose rather unsettling. The unit could be separated as soon as December, he said earlier this year, and may fetch as much as $1 billion.

There would be some definite benefits. Investors have often looked askance at AirAsia's leasing business, particularly because many of its sale-and-leasebacks have been not to lessors but to its own affiliates in Indonesia, Thailand, the Philippines and India. AirAsia's stock shed more than half its value in less than three months last year after GMT Research issued a report criticizing the accounting used in such deals, though it has since more than recovered what was lost.

Putting the leasing unit at arm's length will both help Fernandes pay down debt, and remove the shadow GMT's report cast.


Still, any sale won't come without risks. Investors who've become accustomed to the comfortable cushion provided by all those lease earnings will find the business has less to fall back on if times grow leaner.

Pasukhas: no written contract?

Pasukhas Group announced to Bursa:

This seems very strange, in this age even an email or WhatsApp message can be used as a form of proof. Did Pasukhas, a listed company, really close contracts without any documentation at all?

And the defendant did not properly serve a payment claim?

The amount of money is not exactly peanuts, more then RM 1.6 Million.

Is this the usual way of working for Pasukhas, has this happened before?

And how exactly can the auditor sign of on the accounts when there are no contracts or proper payment claims?

Ananda Krishnan playing the listing-delisting-relisting game again? (2)

The company announced:


We refer to the article in The Star Online on 16 November 2016 entitled "Billionaire Ananda Krishnan exploring taking ASTRO private”.

As far as the Company is aware, after due enquiry, it has not received confirmation of any privatisation proposal.  

Ananda Krishnan playing the listing-delisting-relisting game again?

Article from The Star: "Billionaire Ananda Krishnan exploring taking Astro private".

Some snippets:


According to industry sources, Ananda, who owns 40% of the pay-TV operator, is looking at a corporate exercise to take out the rest of the shareholders in the company via his private vehicle Usaha Tegas Sdn Bhd.

“The exercise is still in preliminary stages and details have yet to be finalised. Usaha Tegas feels that the market is not valuing the company fairly,” said a source.

Listed at RM3 a share in October 2012, Astro’s share price has hovered below that level.

The above is what I call the "listing-delisting-relisting" game, a popular pass time for Malaysian tycoons with Bursa listed companies.

I don't like that "game", since minority investors have no realistic chance to defend themselves, being "threatened" with holding shares in an unlisted company. Unfortunately, nothing much has changed, Bursa does not see this as a problem.

Another snippet:

Based on previous takeover exercises, Ananda is known not to stinge on taking his companies private, and is likely to offer a fair price to shareholders for the takeover.

"Not to stinge"? I don't agree with that statement at all, for more background on the Bumi Armada delisting and relisting, please read the following blogpost: 2 Billion: "a little money"

Time to Trash Discounted Cash Flow as a Valuation Tool

I have never been a fan of company valuations based on DCF (Discounted Cash Flow) models. The uncertainty is too large, small changes in a few parameters will give wildly different valuations and the important parameters are never revealed (in other words, minority investors who disagree with the valuations can't fight them).

Not surprisingly, it is the "weapon of choice" for any financial engineer who is asked to come up with some crazy high valuation for instance for a Related Party Transaction (as unfortunately is too often the case in Malaysia). Just tinker a bit with the growth rate until the preferred value appears.

Arturo Cifuentes, Ph.D., an adjunct professor of business in the Finance & Economics Division of Columbia University, puts it more eloquent in this article, some snippets:


Joel Dean, an American economist who died in 1979 and made important contributions to corporate finance, introduced the Discounted Cash Flow (DCF) approach as a valuation tool in 1951.  The thought was that if the Net Present Value (NPV) of the cash flows of an asset or project, estimated with the DCF method, was positive, the investment was worth pursuing.  The idea was motivated by an analogy with bond valuation.  It had long been established that the price of a bond corresponds to its future cash flows, discounted with a rate determined by the market – a rate determined primarily by the credit risk associated with the issuer.

However, the analogy between bonds and project cash flows is not as clean as it seems.  In the case of a bond, the future cash flows are well-defined.  In essence –and this is critical – the uncertainty in the bond cash flows derives from the issuer’s potential inability to pay (credit risk). But there is no uncertainty as to the amount to be paid.  To put it differently, the bond has no upside.  Therefore, the probabilistic distribution of the cash flows is one-sided; it only includes downside scenarios.
In contrast, the uncertainty in a project comes from not knowing the cash flows rather than from the capacity of the project to pay them.  Moreover, even if we make an optimistic estimate of the cash flows, there is always the possibility to exceed that estimate.  That is, the cash flow distribution is two-sided: There is upside and downside potential.

These differences are further exacerbated because the life of a project is not as clearly defined as the time-to-maturity of a bond.  Project cash flows have notoriously uncertain lifespans.  Strangely, economics textbooks never address the shortcomings of the project-bond valuation analogy.


His conclusion:


Much of the problems affecting the DCF method come from the fact that it tries to capture with one factor – the discount rate – two completely different effects: the time value of money and the stochastic nature of the cash flows.  Not only that, it attempts to transform a problem which is probabilistic in nature (cash flows are uncertain) into a deterministic problem by appealing to the “right” discount rate.

Finance is undergoing a major review of its fundamentals as a result of the subprime mortgage crisis.  Markets are more complex, more psychologically driven, more interconnected, and more unstable than previously recognized.  The limitations of models based on questionable assumptions (normal distributions, stable volatilities, simplistic utility functions, efficiency of markets, rational decision makers, etc.) are being re-examined.  There is no reason to exclude the DCF from this exercise.

In light of these arguments, there is a strong case for refocusing research on valuation techniques.  We should abandon efforts aimed at determining the “correct” discount rates.  An honest assessment of these efforts inevitably leads to one conclusion: After years of investigating this topic, basic guidelines are as elusive as they were 50 years ago.  Instead, we should shift gears and focus on developing good tools aimed at characterizing cash flows probabilistically.  That is, at developing tools to estimate their means, standard deviations, and correlations.  Moreover, the merits of incorporating into the valuation calculation the benefits that a project could bring to the relevant stakeholders, as well as the risk tolerance of the potential investors, should be explored.

It is, in any event, unacceptable to argue that the complexity of cash flow valuation makes it an exception that can only be handled through amorphous concepts like discount factors and not with the normal rules of probability and statistics.

Equity Crowd Funding: Buyer Beware

Article from Bloomberg:

"You Too Can Invest In a Startup Likely to Go Bust"

Some snippets:


Of the more than 1,000 companies backed since 2011, only three have been sold. While it's normal for a high percentage of startups to go bust, critics are starting to wonder when the success stories will come. The lack of pay-outs, along with increased economic anxiety following the U.K. decision to leave the European Union, may already be cooling interest.

Three companies have sold after raising money on Crowdcube. Camden Brewery was bought by Anheuser-Busch InBev SA/NV for a reported 85 million pounds, nearly doubling what online investors put in. A car-sharing startup, E-Car Club, sold for about triple the original amount. Wool In The Gang, a supplier of knitting kits, was acquired for about the same price that investors put in; Crowdcube backers got  a gift certificate in lieu of payment.


Those numbers look absolutely horrible. Of course, in some of the remaining cases it is still too early to tell the result, the company can still be (highly) succesfull.


“You see the success of Google and Facebook and whatever, and you see what the share price used to be and there are all these stories if you had brought $1,000 worth of Facebook when it was a year old it would be worth tens of millions now. People see that stuff and they want to see if they can get their little part of it.”


The big question is, are these type of companies offered on the crowd funding platforms? Is it possible that the high quality, highly scalable, highly promising ones attract enough outside (VC) money, so they won't list on the crowd funding platforms, only companies "desparate" to get money will list?

Another question is, if there is sufficient enforcement in cases of fraud or misrepresentation, are there enough (realistic) legal opportunites for the investors to get back at the promoters?

Equity Crowd Funding suddenly has become more popular in countries like Malaysia and Singapore. Time will tell if the returns will be sufficient for the retail investors.

XOX: even more dilution

From The Star "Betting on a big name", some snippets:


Over the week, smallish firm XOX Bhd said it was proposing to issue 250 million new ordinary shares of 10 sen per subscription share to Macquarie Bank Ltd, as part of a fund-raising exercise to boost expansion of its Voopee mobile application.

That’s about 42.03% of the existing issued and paid-up share capital of the company.

“This would allow XOX to preserve cash flow for reinvestment and/or operational purposes; and is an expeditious way of raising funds from the capital market as compared to other forms of fund raising such as a rights issue exercise,” the company said.

On the surface, this begs the question, why would a global bank buy into a small firm? A loss-making one at that.

Investors would do good to not merely chase big names that seemingly emerge in firms.

While it is not impossible for such firms to attract quality investors, sometimes the investments are done on behalf of individuals using the bank as the conduit. If that were the case, then the money is really coming from individuals and not the bank itself.

Sometimes, a good name is all it takes to attract the attention of retail investors looking for a “good” buy. What follows after that is anybody’s guess.


I have written before about XOX, more specifically here:


... current shareholders (who might include loyal shareholders who bought shares of XOX at its IPO price of RM 0.80), who inject further money to subscribe to the rights issue, and who inject even more money to exercise their warrants, will in total only receive 36% of the enlarged shares in the maximum scenario.

And almost all of the dilution due to the restricted issue and SIS will be done at a price that is only a small fraction of the RM 0.80 that shareholders paid at the IPO.

Is this the way the company wants to reward its loyal shareholders?



From the above article it seems that the loyal shareholders are "rewarded" again, this time with a dilution of 42%, again at a fraction of the IPO price.

Next to that is the issue which party is really behind the exercise, is it Macquarie bank, or one of its customers? Surely minority shareholders are entitled to know that.

Activist investors in Singapore

From Bloomberg: "Activists Take Aim at Singapore's 'Buy, Pray, Hope' Model"

Some snippets:


Activist investors, having targeted companies in Japan and South Korea in recent years, have discovered a new playground in Asia.

In Singapore, where activist investing was virtually unheard of until now, two companies have found themselves in the crosshairs in the past month alone. Quarz Capital Management Ltd. urged retailer Metro Holdings Ltd. to return excess cash to investors and Dektos Investment Corp. pushed Geo Energy Resources Ltd. to change its debt structure, saying the coal-miner’s shares are undervalued by as much as 60 percent.

The investors are challenging a clubby, consensus-driven corporate culture where shareholder interests have traditionally taken a back seat. In doing so, they’re shining a light on a swathe of small companies that are undervalued, flush with cash and often ignored by analysts.

“We are on the cusp of change here,” said Lawrence Loh, associate professor at the National University of Singapore and director of the Centre for Governance, Institutions and Organisations at the NUS Business School. “Singapore is probably one of the best-kept secrets, it’s a very fertile ground for digging by activist investors.”

Engaging companies publicly came late to the market because generally, “boards and senior management prefer a collaborative approach, which is in line with Asian culture,” said David Gerald, president of the Securities Investors Association of Singapore, an industry group representing shareholders.

That may be starting to change as investors realize that reliability and transparency of local accounting and regulatory frameworks can work in their favor. Activist investors and short sellers are encouraging Singaporean shareholders to speak out at annual meetings and in discussions with management, said Dektos founder Roland Thng.

“In the past in Singapore, it was just a case of ‘I am a shareholder, I buy, I pray, I hope,”’ Thng said. “Now it’s a case of ‘I let my money really work hard for me. But with my voice, I can make it faster.”’

The more critical approach is spreading to retail investors -- a development that will ultimately benefit Singapore, according to Thng.

“Local investors are getting more daring, at least they know that they have the right to do that,” he said. “And that will give a boost to Singapore’s corporate landscape which still is a bit staid and more focused on consensus than in the U.S.”


This blog is all in favour of increased shareholder activism.

How about the situation in Malaysia, will activist investors take on the Board of Directors as well? The "clubby, consensus-driven corporate culture where shareholder interests have traditionally taken a back seat" corporate culture is even more prominent in Malaysia than in Singapore.

Would anybody dare to take on one of the "sleepy", underperforming GLCs, or would that be seen as "efforts to undermine the Malaysian economy". Those scary, threatening words (used to contain any critical remark) are heard more often lately.

Time will tell ....

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 FinanceAsia.com".

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".

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.".

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.

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.