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"

10 Largest Malaysian IPOs

Below is a list of the ten largest IPOs in the last ten years on Bursa Malaysia.


                              == Market Cap ==
Company          IPO date      IPO       Now     Change
Petronas Chem   26/11/2010    42,480    53,600     26%
Maxis           19/11/2009    40,650    44,836     10%
IHH             25/07/2012    24,891    54,855    120%
Felda           28/06/2012    19,335     5,363    -72%
Astro           19/10/2012    15,592    15,199     -3%
Bumi Armada     21/07/2011    12,124     4,165    -66%
Westports       18/10/2013     9,037    14,356     59%
Malakoff        15/05/2015     9,000     8,400     -7%
UMW O&G         01/11/2013     6,702     2,000    -70%
AirAsia X       10/07/2013     2,963     1,452    -51%


Some comments:

• 6 out of 10 companies are still below their IPO price, that is not impressive at all
• if one would put the same amount of money in each stock, then one would have a loss of 5%
• on average the companies IPO-ed about 3.5 years ago
• for international investors, the RM is down by about 20% versus the USD since 3.5 years ago, so the results are much worse
• the market cap off all 10 companies together has risen though, since their combined IPOs
• it is mostly IHH saving the day, with EPF continuing to buy IHH shares aggressively even at a rich PE of around 60
• Maxis, Astro, Bumi Armada and Malakoff are all "listed-delisted-relisted" cases, Bursa should really take decisive action to discourage this kind of financial engineering which comes at the expense of the minority shareholders, it is long overdue
• quite a few resource related companies on the list, they have not fared well lately

There was once a time when companies were listed at single digit PEs supported by profit guarantees, the valuation was set by the authorities. Needless to say, there was a lot of interest by investors, and some IPOs were oversubscribed by 100 times.

Those days are over, companies nowadays set their own price, which is of course correct. New, "sexy" terms were introduced by financial engineers, like "cornerstone investors", "greenshoe options" and "stabilising manager".

But from the above data, it seems the IPO price is often quite rich these days, and not much upside (if any) is provided in exchange for the risk that IPO investors take.

Combined with my previous posting about poor earnings growth for the Top 30 companies (not surprisingly there is quite some overlap), things don't look that impressive.

Bursa can hold as many international roadshows as they want, but at the end of the day, it is the fundamentals and valuations that count. And they really have to improve.

Aircel-Maxis case: are the Malaysian authorities refusing to cooperate? (2)

Astro Malaysia Holdings Berhad announced today:

"Astro Malaysia Holdings Berhad (“AMH”) refers to the media statement issued by Astro All Asia Networks Limited ("AAANL") that the Central Bureau of Investigation, India (“CBI”) has on 29 August 2014 filed a charge-sheet in relation to, among other things, AAANL's acquisition of shares in Sun Direct TV Private Limited in 2007. The media statement states that AAANL has learnt from media reports in India that the charge-sheet names AAANL, Mr. T. Ananda Krishnan and Mr. Augustus Ralph Marshall, amongst others.

Mr. T. Ananda Krishnan has a deemed substantial indirect interest in both AMH and AAANL while Mr. Augustus Ralph Marshall is a non-executive director of AMH as well as a director of AAANL.

We wish to clarify that AAANL is a separate and distinct legal entity and is not a member of the AMH Group of Companies.

This charge does not implicate, nor impact AMH, the entity listed on Bursa Malaysia Securities Berhad."


Maxis Berhad announced today:

"Maxis Berhad refers to the announcement made on 10 October 2011.

Maxis Berhad refers to the press release issued by Maxis Communications Berhad (MCB) today pertaining to media reports that the Central Bureau of Investigation, India has on 29 August 2014 filed a charge-sheet in relation to, among other things, MCB’S acquisition of Aircel Limited from Siva Ventures Limited in 2006. The charge-sheet names, amongst others, MCB, Mr. Augustus Ralph Marshall (a non-executive director of Maxis Berhad and MCB)  and Mr. T. Ananda Krishnan (who has a deemed substantial indirect interest in both Maxis and MCB).
    
This development does not implicate and will not have any impact on Maxis Berhad, the entity listed on Bursa Malaysia Securities Berhad."


That is of course good news for the current shareholders of Astro Malaysia Holdings Berhad and Maxis Berhad.

But the case is still highly relevant for Astro All Asia Networks Limited  and Maxis Communications Berhad, both their Board of Directors and their shareholders, during the above mentioned acquisitions in 2006 and 2007. And thus also for the Malaysian authorities.

Interestingly, both companies were subsequent to the alleged events delisted, Maxis Communications Berhad in July 2007, Astro All Asia Networks Limited  in June 2010.

And both were relisted again, but under a different name and in a different corporate structure: Maxis Berhad in November 2009 and Astro Malaysia Holdings Berhad in September 2012.

And both in such a way that "this charge does not implicate, nor impact" them, according to the above two announcements.

Was that one of the reasons behind the delisting and subsequent relisting (in a different structure) of both companies?

More information at The Malay Mail:

"Maxis denies wrongdoing in Indian telco scandal, scrambles for investment treaty shields"

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

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

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

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

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


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


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


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


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

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


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

7-Eleven IPO hits a snag? (2)

The Star published an article "More explanation needed to justify high 7-Eleven valuations" on its website. Some snippets:

"Disclosures surrounding the toppish valuation of Seven Convenience Bhd, the owner of 7-Eleven stores, is the reason why its planned flotation has hit a snag, banking sources said.

According to the sources, Seven Convenience’s listing application did not sufficiently explain the justification behind the increased value of the 7-Eleven business, following its privatisation back in 2006.

“In cases where companies have been privatised before and are then being brought back into the market (via an initial public offering or IPO), disclosure rules dictate that a very clear explanation needs to be given to justify the increased value of the asset,” said one banker, adding that a similar issue had arisen in last year’s listing of Astro Malaysia Holdings Bhd. The issuers had to provide additional disclosures to justify the much higher valuation they were looking to get from the second listing of Astro.

Astro had been taken private in 2010, only to be re-listed, minus its overseas assets, in January 2012 at a price of RM3 per share for its retail portion, which was at a lofty price-to-earnings ratio of 24 times.

It is understood that this disclosure was lacking in Seven Convenience’s IPO documents. Various reports on Monday stated that Tan Sri Vincent Tan’s US$700mil (RM2.17bil) IPO of Seven Convenience had either been rejected or deferred by the Securities Commission (SC).

One source told StarBiz that the owners were looking to float the company at a massive price earnings multiple of more than 30 times historical earnings.

However, sources added that this disclosure issue could be eventually resolved and predicted that Seven Convenience’s listing would be deferred to next March, possibly when it shows a new set of earnings that justifies its high valuation."


As far as I know, the above is not confirmed by the Securities Commission, who normally doesn't comment on on-going cases. However, the above explanation does sound plausible.

Regular readers of this blog might remember the IPO of Astro, especially this posting (pointing out that much relevant information was missing from the draft IPO prospectus, especially regarding the delisting exercise) and this posting (noticing a much improved IPO prospectus).

Other (rather negative) articles about Astro can be found here. I am still bearish on Astro, I don't think TV has a bright future versus the combination of internet and mobile devices.

Did Astro employees buy shares on margin? (2)

Received an excellent comment on the previous posting from MH Fong:

Agree with your assessment, specifically on the moral hazard element of it. There is no good reason for Astro to bail out its staff who, in this case, must be treated as ordinary shareholders.

If they do want to compensate them for the decline in share price, they must do the same for all shareholders, e.g. capital repayment, special dividend, etc. (And no, I swear I'm not an Astro shareholder).

Furthermore, I personally have issues with companies allotting IPO shares to employees; if you really want your staff to benefit, give them options instead, which at least gives them some protection from the swing in the market.

I don't think there should be a witch-hunt about who's selling down though. I disagree with positions that suggest that market volatility is a bad thing especially in a market like Bursa that is often criticised for its poor velocity.

Two things come to mine about Astro: It was overvalued and investors suspect that much and two, Astro decided against a Greenshoe, which is fairly common for IPOs of this size. I think it was a bad decision (a bad bet, if you will) rather than anything conspiratorial to forego the Greenshoe.

Finally, one last comment on the giant IPOs pushed through this year. I suspect that the decline in Astro's share price is indicative of a a new element of uncertainty creeping into share trends post-IPO, even for blue chips. And here's where I'll throw in a shameless plug for Nate Silver's brilliant book, The Signal and The Noise. Great stuff about predictability.

The book can be found on Amazon's website. I am afraid I have not yet read the book, although it is very much in my alley, making predictions and putting my money where my money is, is basically what I do.

Nate Silver's blog FiveThirtyEight became rather famous when it predicted the latest US elections accurately.

Where is the "Malaysian Nate Silver" predicting the coming elections, both overall and per state .....?

Did Astro employees buy shares on margin?

The article "What can Astro do for its employees?" on the website of The Star suggests that employees of Astro might have bought shares on margin:

"Last week Astro had a town hall meeting with their staff to talk about the share price fall and it is really up to the company to handle the situation because no organisation will like to have a group of disgruntled employees. There may be the pressure of margin calls for those who had taken financing to buy their allotment of shares. There might be employees who might not have the ability to hold on to their shares."

The share of Astro has indeed performed quite badly:

On the other hand, a decline of 12% is not exactly shocking. If employees did indeed buy shares with borrowed money during the IPO and can't even stand a loss of this magnitude, then something is very wrong.

The writer offers a piece of advice:


Astro perhaps needs to figure out what it can do to assist their employees. A bonus or ex-gratia payment or even a one-off payment based on a pre-determined price below the IPO price to employees will do a lot to help those in need. That show of goodwill will certainly cure any grouses employees will have and it will automatically lower their holding cost of Astro's shares. It's a goodwill gesture but it's one for Astro to make.


I disagree very much with this advice. First of all, there is no free lunch here, money that will be used to bail out employees will come out of the pockets of others, in this case other shareholders of Astro.

Secondly, from the point of view of "moral hazard" this is really, really bad advice.

If indeed employees have bought shares on margin, then first of all there should be a transparent investigation, based on what information and assumptions they did that.

The Malaysian authorities are proud of the 3 large IPO's this year, but cracks have started to appear. I hope there will be an evaluation say one year in the future how this all panned out, with transparency which "cornerstone" investors held on to those shares, which sold their shares for a quick buck.

Astro IPO: "let the buyer beware"

Article "Betting on IPOs not always a sure profit" in the Business Times by Francis Fernandez in the category "Weekend Notes". Some comments by me in blue.


CAVEAT emptor, the Latin phrase for "let the buyer beware", must be ringing in hard on those of us who had believed that subscribing to initial public offer (IPO) shares is like getting a free lunch.

Who could blame them, considering that Malaysia's mega IPOs have given investors handsome returns, that is until Astro Malaysia Holdings Bhd's IPO.

There was no free lunch this time around. The stock tumbled. Some investors lost money and market players have been crying ever since, baying for heads to roll.

"Tumbled", the stock is 4.7% down since its listing. Not really shocking, athough it might go down further due to negative sentiment.

For those who lost money on Astro shares, it is time for a reality check. The stock tumbled; it did not crash. There is also no such thing that every IPO must end up making money.

Just look at the Facebook Inc IPO, the biggest this year, which saw the company priced at around a price-to-earnings ratio of 85 times, despite a decline in both earnings and revenue in the first quarter of 2012.

Comparing Facebook listed on the Nasdaq with Astro listed on Bursa, is that not comparing apples with oranges? It is hard to find two cases that are more different.

The stock fell like the nine pins in a bowling alley and hasn't recovered ever since. Those who invested in Facebook at the IPO stage lost big money.

Just like how Mark Zuckerberg, Facebook's founder and chief executive was hounded after the IPO started trading downwards, Astro major shareholders are also beginning to get some stick.

The Internet has been buzzing this week with comments made by Investor Central's Mark Laudi about the Astro IPO.

Laudi posed a few questions, questions that should have been asked by critical journalists in Malaysia.

For those of us who are unfamiliar with Laudi, he is an award-winning broadcaster who used to report live from the floor of the Singapore Exchange on CNBC Asia.

Is Laudi's thought on the Astro IPO valid or are the inputs given by the likes of OSK Securities, Affin Securities, JP Apex Securities and ECM Libra on Astro's valuation more solid?

The four companies mentioned are brokers, I have never taken an opinion by any broker serious, often they have vested interest. In the US they are very strict with announcing conflict of interest (should be clear to all who have watched Bloomberg or CNBC), in Malaysia unfortunately not.

Those research firms had valued the Astro shares at more than RM3 each.

Investors and non-investors alike can choose to debate on it but at the end of the day, it is the responsibility of those who had bought the Astro shares to read the prospectus in detail before parting with their money.

I agree, but the writer should have mentioned here that the IPO prospectus contained 687 pages! Who has time to read that in detail, as the writer suggests? The authorities have gone overboard in what has to be declared, making it very hard (especially for laymen) to find the essential information, which is sometimes not even in the prospectus (hence the need for critical, objective, investigative journalists).

For those who did not do just that, there is no point crying over spilled milk.

Critical remarks regarding Astro

Investor Central posted on its website a video of Mark Laudi, making some very critical comments regarding Astro and its IPO relisting. Some text of it can be found on the website of The Malaysian Insider.

The questions asked and the issues raised by Laudi seem to be reasonable, why can't Malaysian journalists do the same, why are they so tame? The Malaysian public at large is not helped by that attitude, in the contrary.





Some good news for Astro is that a Singapore court upheld the arbitration award over Indonesia's Lippo Group, the details (including full judgement) can be found here.

Just 2% of Astro's shares to the Malaysian public at large

Another excellent column from P. Gunasegaram in The Star, some snippets:

Astro’s initial public offer yet again demonstrates how retail investors are discriminated against

Initial public offerings or IPOs these days are a misnomer of sorts. Why? Because the proportion of shares offered to the public are a tiny proportion of the total number of shares offered to gain a listing.

That's a shame at least in Malaysia where there is substantial retail demand for these IPOs, especially those which are considered to be investment grade and offer good probabilities for recurrent income and dividends on top of price appreciation.

But ironically, retail investors basically the Malaysian public are systematically and deliberately shut off from these IPOs and instead foreign and local institutions, and even some individuals are blatantly favoured in the allocation of those shares.



Out of the 269 million shares for the Malaysian public, only 104 million, just 2% of the paid-up capital or just under 7% of the offer shares was allocated to the Malaysian public at large, hardly an initial public offering.


And here's the interesting part, the public issue for the 104 million shares was oversubscribed more than six times. That means the Malaysian public was prepared to subscribe for 624 million shares, even when they knew the chances of getting an Astro share was small.

Should they not be given a far better chance of getting Astro shares?

Perhaps what is most galling about the entire thing is that there is a system by which fair allocation can be made to retail investors. The solution is quite simple.

Just wait for all the responses, both institutional and retail, for the offering and then allocate it fairly according to a publicly disclosed formula instead of setting the proportion for retail at a ridiculously low level way in advance.


I hope that one day, when the dust is settled, research is done how things panned out, how long those "cornerstone" investors actually held on to those shares, how much profit they made, etc.

Astro playing the listed/delisted/relisted game (2)

I blogged before about Astro's listing delisting and subsequently relisting.

The final prospectus dated 21st September 2012 can be found here, part 1 of the listing brochure can be found here.

I have to admit that I am pleasantly surprised about the changes made in paragraph 6.1 (pages 63-65, pdf pages 86-88). Information regarding its listing in 2003, the General Offer price in 2010, the Net Asset Backing per share, Earnings Per Share and EBITDA are all given. Also the reasons for the delisting is given and the restructuring details after the company was delisted, including new products and services and capital expenditure occurred.

I am still not exactly a fan of General Offers (especially the ones with a "delisting" threat) nor of companies that are being relisted so quickly afterwards, but the changes in the prospectus are definitely helpful in understanding what happened the last two years.

I will not subscribe to the IPO. Firstly because I never do that anymore, I prefer to wait about two years after a company is listed until all is settled and the hot air of an IPO has left the valuation. From time to time one misses a good opportunity because of that, but it is more than compensated by avoiding the companies that disappoint after their listing.

Secondly because I find the risk/reward not exactly enticing. The TV industry has had some clear changes during the last 45 years or so, but I expect things to change must faster in the coming years. And I am not sure if those changes will be good for companies like Astro. Being priced to perfection, the upside looks limited while there might be downside if technological changes move against its business model.

Still, I rate the chance that the share price goes up say 5-10% on the first listing day rather high.

NB: I am not a financial advisor, readers should decide themselves after doing their own research, as always.

Astro playing the listed/delisted/relisted game

Astro Malaysia Holdings Bhd (Astro) has announced it will list again on the Bursa Malaysia, the latter will most likely appreciate to have another heavyweight on share market.

But again, as many other listings lately (Bumi Armada, IHH, Malakof), this is (partially) a repackaged company that has been listed before. It all seems rather puzzling, what is the rationale about this all? Who are the winners in these exercises, and, more importantly, who are the losers?

The authorities are so confident about improved corporate governance standards in Malaysia, so surely prospective investors will be well informed about this all. But are they really?

The "Exposure draft" prospectus can be found here at the website of the Securities Commission. The size of it is enormous, 10.8Mb, 596 pages. Is there actually an investor who will read this all?

But quantity is no substitute for quality, so we really would like to see all the relevant information in the prospectus.

If we search for the word "delist" we only receive some explanation on page 52:

A few more hits don't add any information at all to this. But this information seems to sidestep the most important issues at hand, like:

• At what share price and market cap was Astro before listed in 2003?
• At what share price and market cap was Astro delisted in 2010?
• How many shares were compulsory acquired?
• How does the market cap, turnover, earnings of the current Astro compare to those of the delisted company?
• Why was Astro listed before, why did it change its mind and delisted again?
• Why is Astro listing again, such a short while after it delisted?
• And why would Astro not delist again, having done so before?

Why are these important questions not answered, why is there only one small paragraph about its previous listed history, while the whole prospectus contains almost 600 pages.

Ze Moolah also blogged about Astro, and he quotes a stunning revelation that the company was delisted at RM 8.3 Billion, will be listed again around RM 18.7 Billion just two years later, for a cool RM 10 Billion difference, or RM 10,000,000,000.00. And even more stunning, the company is relisting without its overseas operations.

Surely Astro should detail these issues in its prospectus. Why is the current valuation reasonable, when the larger company was delisted at a much lower valuation, which was deemed to be "fair and reasonable"? The independent advice circular can be found here.

Salvatore Dali also blogged about Astro. He expects the IPO to be well received, which is quite possible, since government linked funds will most like "support" the share price.

Another interesting remark from Salvatore Dali: "Plus retail players can again raise their hands in the air and say the same thing, good ones you bypass us, tough ones you come to us."

How true, when large IPO's are made, retail investors have to do with peanut allocations, sometimes as small as 2% of the amount of shares. Smaller IPO's however, which are not supported by government linked funds, have large allocations for the public. But so many times these companies have disappointed, from the very first day they are listed. And the authorities have hardly ever taken any action against the promoters.

It all seems very artificial to me, and does not have much to do with a free market, but the authorities seems to be very satisfied with all of this. If retail investors actually like what they see and have confidence in what is going on, is something else. Another issue is the puzzling lack of information about previous delisting exercises.

Worrisome words from the Khazanah MD

http://www.btimes.com.my/Current_News/BTIMES/articles/astro31-2/Article/index_html#ixzz1csyY1UD8

"Pay television operator Astro All Asia Networks plc is best taken private at this stage of its development, the chief of its major shareholder Khazanah Nasional Bhd said.

"We feel in its current stage of development with high definition television and the Indian investment, it is time when it needs to be taken off the market. I think you get better value ... but the debt market gets developed as a result," managing director Tan Sri Azman Mokhtar told reporters on the sidelines of the Invest Malaysia conference yesterday.

"But you can see the track record of the Usaha Tegas group ... they eventually go back for a listing," he said, referring to the recent re-listing of the group's Maxis Bhd.

Khazanah, which owns about 21.4 per cent of Astro, together with other owners Usaha Tegas Sdn Bhd and Bumiputera foundations had on March 17 offered to buy out minority shareholders of Astro at RM4.30 a share.

Astro closed up 2 sen at RM4.28 yesterday."

I am getting very worried when highly influential people, like the MD of Khazanah, utter these kinds of words. Do they actually understand the implications of what they say? From a corporate governance point of view the implications are simply horrific. Like there is some sort of "game" going on, where the big players (the majority shareholders) can list, privatize and relist companies at will, at a moment and price that is convenient to them.

Taking a listed company private is a nice way to describe the process in which minority shareholders are kicked out of a company, often at low prices (sometimes at very low prices). It starts with making all kind of "threats" to shareholders holding shares in unlisted companies, shares for which no ready market exists, and with clearly less legal avenues for complaints. If minority shareholders don't want to sell, then their shares can be mandatory acquired when certain thresholds are breached. Independent advisers are supposed to come with unbiased reports, but in almost all cases they are hugely biased, favoring the major shareholders, urging the minority shareholders to indeed accept the (very) low offer price. Finally, there is a huge information bias, the majority shareholder has much more inside information about the company (both about the current conditions and the future outlook) than the minority shareholders.

Unfortunately, these practices happen a lot in Malaysia. And the fact that the majority shareholders can get away with it and the minority shareholders hardly have any chance to fight them, doesn't make it right, in the contrary. Rules have been improved somewhat lately, but there is still much to do, for instance authorities still have never bothered to come down on independent advisers that issue biased reports.

In my opinion, companies should not be taken private, unless there is a very clear reason for it (the company has hardly any business left and the liquidity of the shares is extremely low), which is often not the case at all. Shareholders invest in companies based on long term projections, it is simply unthinkable if (for no aparent reason) they are forced out of their shares, against their will.

And secondly the price offered should be fair and reasonable, beyond any doubt:

• It should be at a clear premium to its average last traded price
• It should not be at a discount to its net asset value.
• The Board of Directors should have made attempts to unlock the value of the assets (for instance by holding auctions).

For this we need better rules and much more active enforcement by SC and BM.

Below my encounter with the above mentioned Usaha Tegas group in the privatization of Bumi Armada (Barmada), and its subsequent relisting again.

In 2003 Barmada’s Minority Investors received a notice that there would be a General Offer (GO) for their shares, that the Majority Investors had no intention to continue with the listed status of the company, that no dividends might be paid, that rights issues might be necessary for further funding and that shares would be mandatory acquired if certain thresholds were reached.

Please note that the GO in itself is good, but the company should not be allowed to use the delisting threat. In this case the offer was for only RM 7 per share, with net earnings per share of RM 1 and growing nicely, an excellent balance sheet and one of the highest Return on Equity’s (more than 20%) of the whole Bursa Malaysia. The offer price was horrific low by any standard, there was no premium, the share price had been clearly higher before at which price I (and other Minority Investors) had not sold my shares. The PE of about 7 compared with PE’s of 15 to 20 of similar, much lower quality companies.

The circular was (as usual in these kind of exercises) of very low quality, lots of important information was left out (despite Full Disclosure based Regulation). In this case the Majority Investors try to paint as bleak as possible picture of the company’s future (to try to convince the Minority Investors to sell at the low price).

I filed a complaint with the Securities Commission, was asked to come to the office twice, but these talks turned out to be fruitless. I pointed at the following very important rules (emphasis is mine):

(a)    that the shareholders and directors of an offeree and the market for the shares that are the subject of the take-over offer

(i) are aware of the identity of the acquirer and offeror;  

(ii) have reasonable time in which to consider a take-over offer (A); and  

(iii) are supplied with sufficient information (B) necessary to enable them to assess the merits of any take-over offer;  

(b) that, so far as practicable, all shareholders of an offeree have equal opportunities to participate in benefits accruing from the take-over offer, including in the premium payable for control (C);  

(c) that fair and equal treatment of all shareholders, in particular, minority shareholders (D), in relation to the take-over offer, merger or compulsory acquisition would be achieved; and  

(d) in its response to, or making recommendations with respect to any take-over offer, merger or   compulsory acquisition, the directors of the offeree and acquirer shall act in good faith (E) to observe the objects, and the manner in which they observe the objects, specified in this subsection,

and that minority shareholders are not subject to oppression or disadvantaged by the treatment and conduct of the directors (F) of the offeree or the acquirer.  

My comments regarding the implementation of these rules in the Barmada case:

(A): the time to consider the take-over offer, to study the documents, to try to rally other Minority Investors, to contact the MSWG, to try to write articles for newspapers & magazines was extremely short and definitely nor reasonable at all, and the important “independent” report was send even much later to the Minority Investors, there was hardly any time to react on it.

(B): lots of important information was missing, like: What is the sales pipeline? What are the profit projections for the coming years? No recently audited Profit & Loss or Balance Sheet was given.

(C): there was no premium at all let alone for control, the price was based on an artificial low price at which certain bondholders of Barmada’s parent company were prepared to sell.

(D): this rule, which is so clear and important is never ever used by SC/BM. It should however, in any case where there is doubt, and in the advantage of the Minority Investor.

(E): by cutting the dividend, not giving a reason for that and providing inadequate information directors breached the listing rules that explicitly require this information.

(F): again, it cannot get clearer than this rule, why is it never used by SC/BM?

I contacted the MSWG, was supposed to meet the CEO but only met two analysts who didn’t know anything about the case. Later there was supposed to be a meeting with other fund managers, but I never received an invitation. MSWG did not put up any fight at all, very disappointing.

My complaints to SC and BM lasted a very, very long time, no information was ever given in the meantime, and finally (after almost three years) both came to the same conclusion, nothing wrong had happened. First of all very strange given all the clear evidence I had given of the opposite (I had provided many pages with detailed information about the issues involved). Secondly SC/BM both didn’t want to point out any reason at all for its decision. I was clearly stonewalled by both institutions.

Barmada has since relisted recently. After taking into account the bonus and rights issues, the current price corresponds to about RM 140 in 2003 terms, in other words a 20-fold increase in price, for each lot of 1,000 shares investors would not receive the paltry RM 7,000 but RM 140,000 (my friends, my relatives, my wife and my company owned dozens of lots in total). 

In the relisting exercise, it was important for the Majority Investor to paint a picture as rosy as possible. The contrast with the GO brochure of 2003 was very stark. Bursa Malaysia, who should look into this and assure that information is of the same level aparently turned their head the other direction. The reason why the majority shareholder of Barmada wanted to delist in 2003, the very low delisting price (at the current amount of shares the equivalent to only RM 0.20), the pressure that was put on the Minority Investors, the way Minority Investors were treated in the past, all was conveniently left out of the relisting circular although the circular contained more than six hundred (!) pages.

The total market value of the shares that were acquired by the Majority Investor from the Minority Investors has since increased by RM 2,500,000,000! In 2003 Barmada had thousands of shareholders, many of the larger minority shareholders were funds with each again thousands of unit trust holders. If a total of 50,000 people were invested in Barmada (either directly or through unit trust funds), then this would mean that RM 50,000 per person of value was created, in which they were not allowed to share.

More information about the Bumi Armada case:
http://www.apolloinvestment.com/pirates.htm
http://whereiszemoola.blogspot.com/search/label/Bumi%20Armada
http://cgmalaysia.blogspot.com/2011/08/over-prescriptive-regulation-and-bumi.html