Synergy between car parts and mining?

China Automobile Parts made an announcement:


The Company wishes to announce that it has been informed by its major shareholder, namely Guotai International Holdings Limited (“Guotai”) (“Vendor”), via its letter dated today that it had entered into a conditional binding heads of agreement (“HOA”) with Siburan Resources Limited (“SBU”) (“Purchaser”), an Australian public-listed company which is a West-Australian based exploration company with tungsten and gold projects in Australia, New Zealand and Papua New Guinea.
 
The HOA entails the acquisition by SBU of 100,000,000 existing ordinary shares of USD0.10 each (“Sale Shares”) representing 16.67% of the issued capital of CAP from Guotai International Holding Limited, for a total purchase consideration of RM60,000,000 representing a purchase price of RM0.60 per CAP share.
 
To satisfy the purchase consideration of RM60,000,000, SBU shall issue to Guotai and/or its nominees 417,360,000 fully paid ordinary shares in the capital of SBU or equivalent to 62.5% stake in SBU (after the acquisition) at an issue price of $0.05 per share, which is equal to the Australian dollar equivalent of RM60,000,000.


Siburan is one of those typical Australian listed mining company, tiny and loss making, often based in Perth. Someone "in the know" told me there are hundreds of those.

A few things are rather odd about this proposed deal.

First of all CAP's shares are priced at a huge premium (RM 0.60), while Siburan's shares are priced at market value (AUD 0.05), why?

Secondly, what is the synergy between a Chinese car parts maker and an Australian listed mining company? I don't quite get it.

Thirdly, Siburan has a marketcap of only AUD 14.6M or RM 42M. To buy over shares worth RM 60M, it has to issue an enormous amount of shares, 417M to be exact, while currently there are only 239M issued.

Fourthly, Siburan (while not even holding enough shares to equity account CAP's earnings, for that it needs to own at least 20% of CAP's shares), will be some sort of holding company for these shares.

In other words, there will be a large group of investors (mostly Australians), who own shares in Australia listed company Siburan, which act as a holding company for 16.7% of the shares of Bursa Malaysia listed CAP, which owns a Bermuda listed company, with all of its operations based in China. By the way, the 16.7% might get diluted in a later stage due to a massive 300M warrants that are outstanding for CAP.

Fifthly, shares of CAP went up, from about RM 0.34 to RM 0.42, interesting because for CAP hardly anything will change, except that one major shareholder will sell some of his shares to a new large shareholder, who will appoint one director of CAP.

To me, it all doesn't make any sense at all. But then again, getting Chinese companies listed on Bursa never made any sense to me, so that should not come as a surprise to the readers.

Australia 'paradise' for white-collar criminals (2)

And, not completely unexpected, Medcraft, the Chairman of the Australian Securities and Investments Commission has backtracked his previous statement that "Australia was a "bit of a paradise" for white-collar crime".

At a Senate estimates hearing the next day, he said he wanted to "correct" the comments as reported, having received a phone call from Finance Minister Mathias Cormann expressing his concern.


The Sydney Morning Herald continues (some snippets):


It was the sort of startling and "courageous" comment rarely heard from a senior public servant.

Greg Medcraft, the chairman of the Australian Securities and Investments Commission, may well be regretting his since-retracted statement this week that Australia was a "bit of a paradise" for white-collar crime.

But if his aim was to attract attention to the issue of penalties for corporate wrongdoing in Australia, his lapse into frankness may well have done the trick.

Medcraft has been pushing for months for tougher penalties in this area. In February, he told a Senate committee that Australia's penalties were inadequate, with the criminal sanctions inconsistent and civil fines set too low.

When it came to deterring white-collar crimes, Medcraft said, "you have to lift the fear and suppress the greed".

"The thing that scares white-collar criminals is going to jail, and that's what scares them everywhere in the world.

"The penalties, particularly civil penalties, in Australia for white-collar offences are basically not strong enough, not tough enough."

Nationals senator John Williams, an outspoken critic of the financial advice sector who has pushed for widescale reform, told the hearing: "I've said for 5½ years that we should have a royal commission into white-collar crime because I believe Australia is, today, a paradise for white-collar crime."

Some argue ASIC could make better use of the penalties available to it – that the problem is one of enforcement.

"In some cases it's true that Australia's maximum penalties can be less than the maximum penalties overseas," said corporate law expert Juliette Overland from Sydney University.

She agrees that there is a "good argument" for more consistency in sentencing of corporate wrongdoing in Australia.

But she says the focus should be on "deterrence up front, and the idea that if you engage in this conduct you will get caught", she said.

"The biggest problem with a lot of corporate crime is that it's so hard to uncover … if people think it's only a small chance you will get caught, they might still think it's worth a try."


The above is all very relevant in the Malaysian context. Ten, twenty years ago enforcement of white-collar crimes was virtually non-existent. I am pretty sure that some corporate "players" refer to this as "the good old time".

The good news is, things have clearly improved: more enforcement, and even some jail sentences. There is also much more transparency for investors these days, enabling them to stay away from "dodgy" companies and their insiders. That is, if investors do their homework.

But still, the glass is half full, there are many cases where the alleged perpetrators seem to get away with their loot, or receive at best a much delayed slap on the wrist.

Good enforcement should have the following characteristics:

• a high chance that the perpetrators will be caught;
• the punishment itself should be an adequate deterrent;
• the whole process should be relatively fast (justice delayed is justice denied), this includes a fast response to credible complaints received from the public;
• non-biased, it should not be that certain VIPs appear to be above the law;
• transparent, both regarding the backgrounds of the enforcements, but also when no action is taken in cases where it seems that rules might have been broken.

Malaysia can still clearly improve on the above.

Australia 'paradise' for white-collar criminals

I wrote several times in a negative way about the Australian financial industry, and the lack of enforcement: here, here, here and here.

I have insights in a few (rather dodgy, to put it mildly) companies listed on the Australian exchange, and am indeed shocked, I think that most of those companies would not have been allowed to list on Bursa Malaysia. Next to that, the financial statements of the smaller listed companies compare very badly to the statements of ACE listed companies.

It seems that the chairman of the ASIC (Australia's Securities Commission) seems to agree on that, according to this article on Sydney Morning Herald's website.

Some snippets:


Australia is a "paradise" for white-collar criminals because of its soft punishment of corporate offences, the Australian Securities and Investments Commission chairman, Greg Medcraft, says.

Mr Medcraft said the only realistic response was harsher jail terms and bigger penalties for white-collar crime.

He also repeated calls for a national competency exam for financial advisers in the lead up to a crackdown on the industry and more funding for ASIC to investigate the finance sector, including a user-pays funding model.

Finance industry players were not "Christian soldiers", Mr Medcraft said on Tuesday, but were motivated by fear and greed.

"You have to lift the fear and suppress the greed," he said.

"This is a bit of a paradise, Australia, for white collar.

"The thing that scares white-collar criminals is going to jail and that's what scares them everywhere in the world."

"The penalties, particularly civil penalties, in Australia for white-collar offences are basically not strong enough, not tough enough. All you're doing is giving them a slap on the wrist [and] that is not deterring people."

In the past few years ASIC has come under fire over its handling of scandals at the financial planning arms of the Commonwealth Bank, Macquarie Group, and Storm Financial.

At recent Senate and parliamentary committee inquiries the corporate regulator was accused of being too slow to act against dodgy financial planners, of lacking transparency and being too trusting of big business.

Mr Medcraft admitted ASIC had made mistakes, but said its capacity to investigate and pursue corrupt financial advisers had been curtailed by a lack of resources.

He vowed to be more transparent about ASIC's enforcement actions and said the regulator would "not be captive to the big end of town".

"If we want to react faster, then having more resources to be able to do it is important," he said.

The Australian Securities and Investments Commission plans to devote more resources to scrutinising and investigating the financial advisory industry while also forcing the sector to lift its game through better education, monitoring and reporting of breaches.

"The Great Australian Investment Ponzi"

A friend pointed me at an interesting, hard hitting blog with the above title, written by someone who calls himself "Dr. Benway".

From Wikipedia: "Dr. Benway is the name of a recurring character in many of William S. Burroughs' novels, including Naked Lunch and Nova Express. He is referred to only as "Dr. Benway" or "Doc Benway" (his first name is never revealed).

He lacks a conscience and is more interested in his surgical performance than his patients' well-being."

The last sentence does indeed seem to be valid for the blog.

In the blog, rather specific cases are mentioned regarding Australian listed companies.

Some of the companies have links to companies listed on the Singapore or Malaysia exchanges, so readers of this blog might be interested.

The readers should themselves judge if they agree with the contents and/or if the wording chosen by "Dr. Benway" is too strong/controversial for their taste. As usual: "reader beware".

Articles regarding the Blumont group: here, here and here.

Articles regarding the Catcha group: here, here and here.

Other articles: here, here and here.

Australia: Cheating rife in financial planning

Shocking article in The Age about the situation in Australia regarding financial planners. Some snippets:


.... “The basic qualification to be a financial planner could be regarded as a joke were it not for the fact that financial illiterates armed with nothing more than this flimsy “qualification” are turned loose to advise people on their life savings, with often tragic results. That this has been the case for so long is yet another damning indictment of the slumbering regulator, ASIC.”

Senator John Williams, who is a member of the parliamentary joint committee, says: “You can walk out a shearing shed and do an eight-day crash course and then go and tell people how to invest their life savings. Something is wrong.”

.... Australians have seen recurring examples of rampant abuse of consumers and a lack of professionalism shown by the advisers they trusted, and he warns that only the ability of Australians to identify and place their trust in competent, ethical and more highly educated professional financial planners will re-build confidence in the nation’s markets.

As it currently stands, hairdressers, tyre fitters and mechanics require more onerous standards of education and work experience than a financial planner.

 

 

More criticism on ASIC can be found here.

Watchdog shies away from enforcement

I have often complained about (lack of) enforcement in Malaysia regarding corporate matters, but it seems that in Australia a similar problem occurs. That is, if the article written by Michael West in The Sydney Morning Herald is indeed true. Some snippets (emphasis mine):


In mid-2008 the Australian Securities and Investments Commission was warned Storm Financial group was going to blow up.

We know this because we warned them ourselves.

"Clean bill of health" was the response. Six months later, Storm and its 13,000 clients and $4 billion in funds collapsed. On the barometer of sheer human misery, this was the worst collapse the country had seen.

The regulator had been fielding complaints about Storm's founder Emmanuel Cassimatis since Cassimatis had been flogging financial product for the Commonwealth Bank in the 1990s.

It had also been warned in advance about Allco and Babcock, ABC Learning, Rubicon, City Pacific and Australian Capital Reserve. No doubt a host of others. These are merely the ones we were involved with, or knew about.

Entire industries blown to smithereens: plantation schemes such as Great Southern, debenture funds such as Westpoint and mortgage funds such as City Pacific, with almost no regulatory action and nary a prosecution. Some $30 billion in savings.

The message, and one which is by no means lost on sharp operators, is that you can swindle people with impunity and you will not be brought to justice; as long as you are big enough.

In this job, you hear the tales of life savings lost, savvy con-jobs - often actionable but rarely apprehended - and the dreadful stories of suicide and marriage breakdown. For two decades we have been listening to this stuff while trying to get ASIC to act.

In the past, we had wondered why they were loath to discuss schemes which might soon obliterate people's life savings. More than once we pleaded, "Look, we're on the same side here. We should be trying to nail these hucksters together. Can we talk?" No.

The regulator did act the other day. It set up a section on its website where it names and shames journalists: "ASIC responds to wayward reporting.''

It is fair to say that many good people work at the corporate regulator. It is also fair to say, caveat emptor, there should be a burden of vigilance on investors themselves. ASIC cannot be expected to prevent every collapse or bring every miscreant to justice.

It confronts complex matters of policy and execution.

Yet the cultural problems run deep. The big one is guts. The leadership has always been weak. They regulate by press release, they keep their heads low. They are reactive, not proactive.

And so, in the wake of the scandal inside the Commonwealth Bank's financial arm, they now face an inquiry, the Senate Inquiry into the Performance of ASIC. Last week chairman Greg Medcraft identified what he saw as the problem: "communications".

In testimony before the Senate, Medcraft blamed bad PR for ASIC's woes. He also said the penalties regime could be toughened to enforce good corporate behaviour.

But ASIC already has the powers. It is not the laws that need to change, it is their enforcement.

Australia's biggest pension scam

An article in The Global Mail by Mike Bowers:

"Inside the Offshore Fraud: The Villains and Victims of Australia’s Biggest Pension Scam"

The timeline gives a clear picture what happened:

Investors are protected by 5 parties:

• The trustee, who keeps all assets in trust
• The fund manager, who manages the assets in the best interest of the investors by giving instructions to the trustee, without being allowed to "touch" the assets
• The financial advisor, who is responsible to give good investment advice to his clients
• Auditors, both internal and external, checking the books
• The securities regulator who is responsible for licensing etc.

Yet in this case, involving the Astarra Strategic Fund managed by Trio Capital, all were sleeping on the job:

• The fund manager and the trustee were connected;
• The financial advisors received huge incentives to recommend this fund: "Retail investors could invest in the Strategic Fund with as little as $1000, and were often advised to do so by financial planners, who received an up-front commission of up to 4 per cent.";
• Auditors KPMG (internal) and WHK (extrernal) are reputed companies, yet didn't see the danger; unfortunately, having one of the "Big Four" accounting firms is not exactly a guarantee against fraud or scams, as many cases have shown in the past;
• Trio Capital, who ran the Astarra Strategic Fund was licensed by Australian financial-regulation authorities

One of my favourite bloggers, John Hempton from Bronte Capital was the whistle-blower in this case, acting on a tip off, the story "A dark privatised social security story: Astarra, the missing money and how examining a fund manager owned by Joe Biden’s family led to substantial regulatory action in Australia" (which is a beautiful read) can be found here.

Remarkably how fast Hempton found out that the persons behind the hedge fund had a rather patchy background, a clear red flag. And yes, Joe Biden is the US Vice President.

Another informative article written by Dominic McCormick, Hempton's tipper, can be found here.

Luckily the authorities acted fast, as can be seen from the above timeline, in a few months all related funds were suspended and only two years later one manager was jailed and many other were punished to a lesser degree. Lots of stories have been written about the case, informing the public. Unfortunately, the alleged mastermind behind it all probably goes scot-free.

What can be learned from this case?

• Investors should be aware that fund managers don't handle money themselves, they should be separated from the trustees;
• Investors should be informed about fees, high fees are a red flag since the advisors have a clear incentive to recommend the investment;
• Don't put all your eggs in one basket, please read the story about John Telford;
• Even having several reputable companies or authorities overseeing an investment vehicle is not a guarantee that nothing fishy is going on;
• Whistle-blowers form an important part in the eco-system, if the authorities had not acted so quickly, much more damage would have been done.

In Malaysia several similar cases have occurred, Genevva gold trading scheme was one, SJ Asset Management another. Both cases have dragged on for years, not much information is forthcoming. I hope one day we will get as much clarity about these (and other) cases as in the above Australian scam. Their investors and the public at large deserve it, as do the alleged perpetrators.

Make IPO documents readable

I have complained many times in the past about the large (unreadable) IPO documents in Malaysia, for instance here (AirAsia X, 492 pages), here (Astro, 596 pages) and here (Bumi Armada, 600+ pages).

Quantity does not substitute quality. One of the most important aspects for me is the corporate history, who invested how much for how many shares? Or, when a company is delisted and relisted, why is there such an enormous increase in valuation, what were the reasons for delisting and what has changed that the company want to list again, what assurance do minority investors have that the company will not be delisted again?

Unfortunately, these important issues are not properly tackled. Instead, we get hundreds of pages of detailed information which is not really helpful at all, and only makes the documents more or less unreadable.

The Straits Times published an article "Big is not always beautiful with IPO documents" on June 10th, 2013 written by Goh Eng Yeow. The link to the full article can be found here.

Some snippets (emphasis mine in bold):


Some of us have grown tired of trying to make sense of initial public offering (IPO) documents that have become thicker than the Yellow Pages.

So the prospectus issued by Manchester United last year ahead of a United States listing was a joy to behold.

In just 152 pages, excluding appendices, the famed English football club was able to tell Wall Street investors why they should be buying its shares and the risks they faced in doing so.

It begs the question: Would Man U have been able to achieve similar brevity if it had pressed on with its listing plans here?

In all likelihood, its offer document would have ended up more like the one put out by IHH Healthcare, which made its debut about the same time. Its IPO featured a 667-page document 7cm thick and weighing about 3kg.


It is interesting that the writer uses a Malaysian company listed in Singapore as an example (a company that was also partly delisted before, listing previously delisted companies  seems to be the flavour of the day in Malaysia).

A bit further:


".....In Singapore, by contrast, where lawsuits over soured IPOs are virtually non-existent".


The same is unfortunately also very true in Malaysia, where many IPO's have shown disappointing results from the day they were listed, but hardly anyone has ever been punished for that. It is important to note that companies should in actual fact increase earnings once they are listed, since they attract a fair amount of money during the listing process, money that should help to grow earnings.

What is needed is the introduction of class action suits, which would make it more easy for minority shareholders to take action against the perpetrators. An organisation like MSWG would be able to take legal action, and disgruntled minority investors could register with them to file their claim.

I am sure that would help to level the playing field between majority shareholders and minority shareholders, and also would increase the quality of companies that file for an IPO.

The newspaper article continued:


Nor is the problem confined to Singapore apparently. When the Australian securities regulator asked for feedback on how to make prospectuses more user-friendly two years ago, the litany of complaints it attracted were woefully similar.

Australian investors complained that their prospectuses were long and difficult to read, complete with repetitive summaries and risk disclosures that resembled a shopping list.

It led Australian Securities and Investments Commission (Asic) deputy chairman Belinda Gibson to observe that prospectuses must clearly advise investors on what information they should focus on, and in language they can understand.

Asic's solution was to advise issuers to draw up an investment overview to help investors grasp the contents. It also encouraged issuers to cut down on the prospectus' length by leaving out irrelevant information and using cross-referencing to avoid repetition as much as possible.

Now, that is one approach that would be warmly welcomed by the local investment community as the battle to attract huge IPOs heats up among major bourses.

After all, a company may not want to list on a stock exchange where IPO documents read like gibberish, when Wall Street has set the trend issuing prospectuses that even a novice investor can understand.

But the big challenge would be to get investment bankers and their lawyers to change their mindsets and agree to cut down on irrelevant information.

While the aim of cramming the prospectus with as much information as possible was ostensibly to enable investors to make informed decisions, it may also be a catch-all effort to escape any legal liability in case the IPO subsequently turns sour.

One corporate lawyer says the Securities and Futures Act lays down onerous liabilities for professionals who fail in their due diligence. Their only defence is to "make all reasonable inquiries and ensure there are no omissions".

This explains why investment bankers assume a worst-case scenario each time they work on an IPO, putting in every bit of information that may exonerate them from any liability if something goes wrong.

But it raises a point made many times in this column: Are hefty prospectuses issued to protect the investment bank, or the investors for whom they are supposedly intended?

To remedy the problem, the Singapore Exchange (SGX) can try to make its rules less prescriptive as it revises its Listing Manual, and establish broad guidelines, rather than specific rules, on company disclosures.

For example, take the current SGX rule on "interested person transactions" - which sets transactions above $100,000 as the benchmark for disclosure.

Corporate lawyers note that in a $1 billion IPO where each senior executive's airfare can run into several hundred thousand dollars, that rule alone can result in several pages of disclosures on travelling expenses. That would only trivialise the prospectus.

Investors now have the equities markets the world over to invest in. To get a fighting chance to compete with far bigger bourses like Wall Street for the world's sexiest IPOs, we should at least ensure our listing documents are just as readable.


And with that conclusion I have to agree full-heartedly. I hope the authorities will take note of the newspaper article and act upon it.

Late MCA leader accused of stealing A$20m from Aussie firm (2)

I wrote before about Zheng He Global Capital, the Australian listed company named after the famous Chinese explorer:

I doubt if Zheng He would be happy with his name being used given the rather unfortunate events that happened in the company.

The Sydney Morning Herald followed up on this case with several articles, written by "Insider", Ian McIlwraith. Below the texts in full, here some interesting snippets:

• "The deal appears to have been a little more complex than that, though, because the money was moved into Zheng He accounts near the end of each month, and out again at the beginning of the following month - meaning Zheng He's bank statements each month showed that the money was there, but in reality it was being used by Lin's companies". This kind of tactics is rumoured to happen more often in China, with certain banks supporting this kind of dodgy tactics.
• Robert Payne only lasted two days as director, as described in the second article, aptly titled "Short Stay"
• "That is a shame, because if it is delisted, shareholders may never hear about how the hunt for the money is going". And that is exactly what happened, the company is delisted, and I doubt if the ASIC (Australian Securities and Investments Commission) is able to do anything at all about what occurred.

Highly unsatisfactory and unjust for the investors of Zheng He Global Capital, who lost their investments, and not exactly good PR for Malaysia.


Disappearing, reappearing loans test ASIC's reach (May 30, 2012)

Australia's relations with Malaysia may be tested again if the corporate watchdog pursues claims that a former Malaysian government minister, Dato Tan Tian Hong, took more than $20 million from an ASX-listed company to repay a personal debt.

The now suspended, China-based credit guarantee company Zheng He Global Capital told shareholders this week that Tan, who died last year, used his position as executive chairman to organise secret 136.79 million yuan ($21 million) loans to 10 companies associated with fellow Zheng He director, Rong Cheng Wei.

Zheng He's acting chairman, Andrew Smith, who has spent this year trying to unravel what happened, believes the loans were designed to use the public company's cash to repay $US18.8 million borrowed by Tan from Wei in April 2010 to facilitate Zheng He's public float.

Tan might be out of reach, but Smith has sent letters of demand to his deceased estate in Malaysia.

Fascinatingly, about the same time as Smith's lawyers were drawing up those demands, Tan's widow, Catherine, used her family's 55.3 per cent shareholding in Zheng He to demand the appointment of four new directors to the board.

With no hope of beating that board challenge, Smith yesterday afternoon bowed to the inevitable and convened a board meeting, agreeing to the new appointments.

It will be interesting to see whether they decide to continue legal action against the Tans. Insider suspects investors in Zheng He can kiss that money, and probably their investments, goodbye.

Smith, though, may have bought them some insurance. Insider hears he met representatives of the Australian Securities and Investments Commission yesterday and provided them with a detailed file on all the events.

ASIC's difficulty is going to be that while Zheng He is in Australia, the business that made the loans is in China, the accused ''thief'' is now dead, and the other former director said to be involved in the suspect loans, Wei, is also in China. Insider understands neither Tan nor Wei have assets in Australia, apart from Zheng He shares.

The political thorn for ASIC's chairman, Greg Medcraft, will be that Tan was a respected leader of the Malaysian Chinese Association political party, and served as a deputy finance minister and deputy minister in the Prime Minister's office under former Malaysian strongman Dr Mahathir Mohamad. Mahathir and his wife attended the funeral.

The Zheng He loans story does not, however, end there. Rong Cheng Wei's companies, according to Smith, defaulted on all the loans - leaving Zheng He indebted to the banks last August.

Smith said that in a recent meeting with Wei ''he confirmed that, as a consequence of the defaults under the finance arrangements, the … loans had now been repaid in full''.

In Zheng He's prospectus, Wei was not only credited with playing a role in the financing of Zhouning county's public welfare system, he was awarded ''the Excellent Entrepreneur award from Zhouning county's police force from 2003 to 2006''.

Tan's widow signed an agreement last August taking responsibility for the loan defaults, according to Smith, and the deposit around that same time of 140 million yuan into Zheng He bank accounts, by two China-based companies associated with a Lin Liang, were assumed to be the product of that agreement.

In February this year, a routine audit found the cash was no longer in the company's bank accounts, having been withdrawn on the authorisation of Lin (who had been appointed chairman of Zheng He's China subsidiary).

Smith's investigation in recent weeks discovered that Lin believed his companies had only ever been lending the money to Zheng He, and had taken it back.

The deal appears to have been a little more complex than that, though, because the money was moved into Zheng He accounts near the end of each month, and out again at the beginning of the following month - meaning Zheng He's bank statements each month showed that the money was there, but in reality it was being used by Lin's companies.


Short Stay (June 8, 2012)

Robert Payne, who joined the board of the floundering Zheng He Global Capital on May 29, looks like setting a record for the briefest appearance on the board of a listed company.

Zheng He told the market late yesterday that Payne has quit - and his resignation is backdated to June 1, which means that he lasted a mere 48 hours on the board of a company that once had aspirations to be a financier to China but is now looking collapse in the face.

Insider is not wholly surprised that Payne has departed. The last time Zheng He was mentioned here was when the Malaysia-based major shareholder decided to nominate him and three others to the company's board, giving them voting control.

Their nominations had come hot on the heels of Zheng He's executive chairman, Andrew Smith, launching legal action against entities associated with that same shareholder after spending some months trying to find out why $20 million had disappeared from the company's bank accounts.
Smith fell on his directorial sword on May 30, after the new directors rolled across the boardroom border - as did two other former directors.

He had already fired himself as an executive the day before, although his termination was not due to take effect until last Friday.

Insider also hears that not long before he did leave, Smith had delivered a fat file to the corporate walloper on the results of his investigations, showing where he thought the $20 million had gone.

The question now is whether the Australian Securities and Investments Commission wants to chase an investigation through Australia, China and Malaysia.


Small and suspended from ASX but law is the law (August 3, 2012)

ZHENG He Global Capital might be a tiny company, and it has been suspended from ASX trading for nearly six months - but that does not excuse it from complying with the Corporations Act.

Yet, from what Insider can work out, it is now a fortnight since it became a two director company, and neither of those live in Australia.

For those of you who do not sleep with a copy of the legislation, Insider can tell you that Australia's company law says very clearly that a public company must have a minimum of three directors - and at least two of them must be Australian residents.

Zheng He fails on both hurdles, judging by its most recent announcements to the ASX - although with $20 million of shareholders' funds having inexplicably evaporated from the company's bank accounts in China, that may be the least of the sins committed against investors.

Local investors only know about the missing money, and its circuitous path through Chinese businessmen and the family bank accounts of Zheng He's deceased former chairman, Dato Tan Tian Hong - who was also a deputy finance minister of Malaysia - because of the efforts of former chairman Andrew Smith.

Smith tracked down how and where the $20 million went, although Zheng He's empty coffers and the fact that any litigation would require going to court in both Malaysia and China limited his efforts. He was planning to send a legal letter of demand to the Tan family when the former chairman's widow, Catherine, used her family's 55.3 per cent shareholding in Zheng He to thrust four new directors onto the board.

Rather than spend money holding an extraordinary meeting to defend their position, the existing board fell on their directorial swords, and Tan's four nominees took control.

Based on the filings of those four with the Australian Securities and Investments Commission on their appointment, Insider can only conclude that Zheng He has been in breach of the law since May 30 because only one of the men, Melbourne-based Robert Payne, lived in Australia.

Payne resigned within 48 hours, which makes Insider wonder whether Payne realised that consenting to being a director of Zheng He may not have been the smartest thing he had done.

Of the three remaining directors, two lived in Malaysia and the other in China. On July 20, one of the Malaysian directors quit, leaving two people. No explanations were given for either departure, and there was no indication that the company acknowledged it was in breach of the law and had plans to remedy the situation.

Insider finds it difficult to believe that ASIC is not aware of Zheng He's status, because the word was that former chairman Smith made a complaint to the corporate regulator before he left.

Not only that, the new board of Zheng He has said nothing about its plans for a company that has no employees, no business - but does have a theoretical $20 million claim against interests associated with its major shareholder.


Old favourites appear once more in ASX hall of shame (August 24, 2012)

Finally, one of Insider's favourite listed companies, Zheng He Global Capital, is also facing delisting for not paying fees. As noted earlier this month, Zheng He has had only two directors, neither of them Australian residents, since July - which would seem to put it in breach of a whole lot more than not paying listing fees. Maybe those two are too busy trying to recover the $20 million that shareholders thought was the company's assets, but turned out to be claimed, and banked, by the Malaysian-based family that is Zheng He's largest shareholder.

That is a shame, because if it is delisted, shareholders may never hear about how the hunt for the money is going.

Australia is a Big Bubble

Astonishing article on the website of The Atlantic.

"Would you believe it if I told you that Australia's financial sector is worth more than the eurozone's financial sector? Well, it doesn't matter if you believe it or not. It's true. The technical term for this is "jaw-dropping." The chart below, from Cullen Roche of Pragmatic Capitalism, puts it all in rather stunning picture perspective."

Albert Edwards warned before about the biggest bubble in recent history in this article.

• Because Australia has gone so long without a recession, everyone has been convinced that it's managed by geniuses, and that the economy there is solved. This is classic bubble thinking.
• But Australia has telltale signs of a bubble.
• 5 of the world's most expensive cities are now in Australia (Sydney, Melbourne, Adelaide, Brisbane, and Perth).
• Not one Australian city falls into traditional measures of "affordability."
• The entire Australian economy is premised on the wheels not coming off China.

Says Edwards:

Our own more Minskyan interpretation of events is that the lack of volatility in the Australian economic cycle and the absence of any recession since 1991 has led Australians to have an excessive appetite for debt in the belief the future will reflect the past. But for us, suppressed volatility is merely storing up an even bigger crash further down the road.

And thus is should not come as a surprise to see this kind of article:

"Australia’s sub prime mortgage scandal grows"

In April, we learned via the Australian newspaper how Australia’s largest banks are being forced to forgive mortgage debts of borrowers granted loans based on falsified or fraudulent information supplied by mortgage brokers.

Then in June, the Australian followed-up with further reports (here and here) of Australian sub-prime lending, and the battle playing-out between unscrupulous lenders and borrowers.

Now the Senate Inquiry into the post-GFC banking sector has revealed several instances of banks providing home loans to people who can’t afford them, and doctoring the paperwork so the loans looked okay. As well as allegations of widespread boosting in loan approvals.

Perhaps the most shocking of the revelations are instances where the banks have been enticing elderly Australians into Ponzi-like mortgages that they had no way of repaying.


Has the World learned anything from the 2008/2009 Global Financial Crisis? It doesn't look like it.

Real estate and banks in Australia appear to be in bubble territory, European shares might be a contrarian play. European banks appear cheap (although risky), Marc Faber recommends to buy selected European telecom players, who have fallen tremendously in value since 2000. The richest man in the world, Mexican Carlos Slim also has his eye on this group of companies.