"Local Corporates Need To Buck Up on Corporate Governance"

I wrote before about James Hay from the Pangolin Fund.

Another interesting interview with BFM can be found here.

00:46 about research on pangolins needing funds
01:45 bonds versus equities
04:50 corporate governance, strong correlation between good CG and returns
05:15 many listed companies are family controlled
05:40 the need to visit companies and meet management
06:10 many companies, especially in Malaysia, still destroy value, diluting shareholders
07:20 lack of shareholder activism, very few fund managers go to AGMs and question management and INEDs
08:20 need to look in past history, company announcements
09:40 short term "adventures" by management in unrelated industries destroys value
10:10 companies should give excess cash back to shareholders, not waste it in risky investments
12:55 Hay also got "fooled", like in Silverbird's case
14:00 concentrated investing, intention to hold the shares for the long term
15:30 Challenger, Singapore listed
16:50 12% performance per year, calculated in USD

Why are so few local fund managers speaking out about bad CG?

It seems they "outsource" that work to MSWG, which is of course the "easy" solution, but not enough.

David Webb on BFM radio

Two days ago David Webb was interviewed on BFM radio, the link can be found here.

I strongly recommend to listen to the whole interview, but here are some pointers:

• Left his banking career in Hong Kong in 1998 when the markets were bombed down, lots of value; also wanted to give back to society by starting the website
• There is a clear conflict of interest when an exchange is listed between the commercial and regulatory departments, in Hong Kong's case the HKEX (Bursa); the other regulator is SFC (SC), from time to time these parties collide; the regulatory function should be taken out of the commercial entity HKEX
• There should be consolidation of the many regulatory bodies into one, dealing with customers/consumers
• In many ways Malaysia is well regulated compared to Hong Kong
• HKEX, the majority of the directors chosen by government
• When Webb was director, information was withheld, so Webb resigned as director
• HK still has no quarterly reporting, one of the rare Asian countries
• There is too much influence by the tycoons, also regarding rules for insider dealing
• IPO's: there is no class action system, court cases are only worth it if somebody has a large investment
• Independent directors, if approved by controlling shareholders then they are not independent, merely rubberstamps; they should be chosen by the non-controlling shareholders
• There is a clear conflict of interest when a government is investing in companies
• The government should not be involved with private ownership
• 1 share = 1 vote, poll voting and publishing of the results should be the norm
• Family controlled companies: minority investors' money is wanted but companies don't want to be accountable to them
• RPT's: there should be an adequate explanation regarding the reason, why not from other sources, why no tender, why exactly from the controlling shareholder
• Webb is investing in under-valued (under-researched) small caps in HK with a Corporate Governance filter
• Manages his own funds for over 18 years, has hugely outperformance the HK index, enjoys not having to be accountable to others
• Holding period more than 5 years on average

Protasco, BFM interview

One kind soul pointed me at an BFM 89.9 interview with Datuk Chong Ket Pen, General Managing Director from Protasco. The interview can be found here. For those people who also like the video, the link is here.

The part about the oilfield acquisition starts around 19:30. Some quick notes by me, and my comments in purple:

• Due diligence is in process, a consultant has been appointed (would it not be better first to do due diligence and then do a deal?)
• Protasco has no real experience in oil & gas, but also in engineering, so hopefully synergy with their current engineering (many experienced hands burned their hands at the notoriously difficult industry)
• RM 170 million is the asking price, might be negotiated downwards (again, why the hurry, why not investigate first?)
• The RM 50 million cash paid is securitized and will be returned if the S&P agreement is cancelled (but against which securities at what value in which account, no details have been provided)
• There will be a profit guarantee which will be the basic justification of the deal (but only secured against shares which represent a small part of the deal)
• The deal is subject to renewal of the concession, which will expire in 2014 (again, why the hurry, why not first renew the concession?)
• An announcement will be made 5/6 weeks later than the interview (January 29, 2013), so somewhere in the middle of March 2013
• The previous Executive Deputy Chairman resigned a few months ago, no reason given
• The 10% Private Placement was meant for the oilfield acquisition

All rather vague, as far as I am concerned, all the red flags are still there. Most importantly, there is no justification whatsoever for either the purchase price or the profit guarantee. It is not that the company that will be acquired made any profits that are comparable, in the contrary, the numbers provided were tiny and loss making.

We will have to wait how things will develop.