AirAsia X released its 3rd quarter 2017 results and the following press release.
One snippet:
“The Company did well operationally in 3Q17. However, the third quarter financial performance was set back by the one-off provision for doubtful debt of RM50.2 million. It is a necessary action that has to be taken as we move on from past management’s business decisions. With the observed booking trends, we are in line with expectations for a recovery in the 4Q17."
RM 50.2 Million is a lot of money, Air Asia X should give more details regarding this provision for the benefit of its shareholders. The AirAsia group loves to bring positive news to the media in a big way, but seems rather "hesitant" when the news is bad.
Also, blaming the past management is not exactly "elegant". Was the Board of Directors aware of the issue at hand? If yes, then they might also have to bare part of the brunt. If not, why were they not informed?
Showing posts with label Corporate Governance. Show all posts
Showing posts with label Corporate Governance. Show all posts
Friday, 24 November 2017
Friday, 3 November 2017
Sapura Energy: excessive remuneration for Directors? (3)
Article in The Star: Sapura Energy tumbles on Mokhzani’s exit
One snippet:
Shares of Sapura Energy Bhd tumbled more than 9% in early Thursday trade following report that Tan Sri Mokhzani Mahathir is disposing off his entire stake in oil and gas services company.
This is the second time Mokhzani is offloading its stake in an oil and gas firm. In 2015, Mokhzani’s private vehicle, Khasera Baru Sdn Bhd sold off a block of 190.3 million shares in SapuraKencana Petroleum Bhd for close to RM820mil in total.
Industry players said Mokhzani’s exit did not come as a surprise. They added that Mokhzani believed the oil and gas industry was a global issue and prefers to redeploy his resources in other investments.
Mokhzani through Khasera Baru has a 10.10% stake in Sapura Energy.
According to a term sheet, Mokhzani is looking to sell up to RM905.1mil of Sapura Energy shares.
The bookbuilding range for the offer represents 605 million Sapura Energy shares was between RM1.42 and RM1.49 a share.
The price range represents an 8% to 12.3% discount to Sapura Energy’s closing price of RM1.62 on Wednesday ahead of the bookbuilding launch.
Khasera Baru will not own any Sapura Energy shares after the sale.
"Industry players" said "Mokhzani believed the oil and gas industry was a global issue and prefers to redeploy his resources in other investments".
May be, but could this (yearly renumeration of RM 84M, most likely by the CEO) or this (RM 70M yearly fees, most likely to a company linked to the same person) while the company was losing more than half a billion RM over the last two years have to do with it?
Also taking into consideration that two resolutions were voted against by 18% and 22% of the votes, rather unusual in the Malaysian context.
The sale is suprising given that the share price is roughly at its lowest point of the last five years. Why would anybody want to sell now, especially since it looks like the price of oil has turned and oil inventories are running low?
I guess there is more to the story than "Mokhzani believing the oil and gas industry was a global issue".
One snippet:
Shares of Sapura Energy Bhd tumbled more than 9% in early Thursday trade following report that Tan Sri Mokhzani Mahathir is disposing off his entire stake in oil and gas services company.
This is the second time Mokhzani is offloading its stake in an oil and gas firm. In 2015, Mokhzani’s private vehicle, Khasera Baru Sdn Bhd sold off a block of 190.3 million shares in SapuraKencana Petroleum Bhd for close to RM820mil in total.
Industry players said Mokhzani’s exit did not come as a surprise. They added that Mokhzani believed the oil and gas industry was a global issue and prefers to redeploy his resources in other investments.
Mokhzani through Khasera Baru has a 10.10% stake in Sapura Energy.
According to a term sheet, Mokhzani is looking to sell up to RM905.1mil of Sapura Energy shares.
The bookbuilding range for the offer represents 605 million Sapura Energy shares was between RM1.42 and RM1.49 a share.
The price range represents an 8% to 12.3% discount to Sapura Energy’s closing price of RM1.62 on Wednesday ahead of the bookbuilding launch.
Khasera Baru will not own any Sapura Energy shares after the sale.
"Industry players" said "Mokhzani believed the oil and gas industry was a global issue and prefers to redeploy his resources in other investments".
May be, but could this (yearly renumeration of RM 84M, most likely by the CEO) or this (RM 70M yearly fees, most likely to a company linked to the same person) while the company was losing more than half a billion RM over the last two years have to do with it?
Also taking into consideration that two resolutions were voted against by 18% and 22% of the votes, rather unusual in the Malaysian context.
The sale is suprising given that the share price is roughly at its lowest point of the last five years. Why would anybody want to sell now, especially since it looks like the price of oil has turned and oil inventories are running low?
I guess there is more to the story than "Mokhzani believing the oil and gas industry was a global issue".
Monday, 16 October 2017
CNLT, where is the enforcement?
From kehakiman's website regarding CNLT (Far East) Bhd, a company formerly listed on Bursa:
11. The Employees’ complaint of fraudulent trading straddled 8 allegations of fact that allegedly occurred between 2006 and 2008. They were as follows:
(a) CNLT, primarily through its managing director, the Appellant, prepared or issued fictitious invoices in 2007 to an entity known as MTI (Far East) Sdn Bhd amounting to RM4,271,745.06 with a view to inflating or overstating its revenue, such that CNLT would appear to be a ‘going concern’, or at the very least, not as insolvent as it actually was;
(b) Overstating the value of the plant and machinery of CNLT;
(c) Siphoning of CNLT’s funds by way of payment of rental to Golden Privilege Sdn Bhd when there was no such tenancy agreement. This company was controlled by the Appellant and the 7th defendant;
(d) CNLT’s assets in the sum of USD1,250,000 were dissipated or channelled to CNLT’s largest shareholder, JCT Limited, the 8th defendant after CNLT had been listed as a PN17 company;
(e) CNLT, through inter alia, the Appellant caused 3 cheques in the sum of RM160,000.00 to be issued on 11 September 2007. These cheques were encashed on 12 September 2007;
(f) Failure to cause CNLT to remit contribution to Employees Provident Fund (“EPF”) and Social Security Organization (SOCSO), both employer and employee despite deducting the requisite employee contribution since August 2007. Neither was income tax paid, despite the requisite deductions having been made;
(g) The Appellant’s action in dissipating assets out of the reach of provisional liquidators in May 2008; and
(h) Payments were made out to preferred unsecured creditors, as well as some shareholders in the sum of not less than RM2,841,696.00 without validation at the time the restraining order dated 26.10.2007 was in force.
12. It was the Employees’ case that by reason of the foregoing matters the business of CNLT was carried on from 2006 onwards until it was wound up in January 2009 with intent to defraud creditors of the company, or for a fraudulent purpose. For the purpose of the application of section 304 of the Act in this suit the creditors contemplated here were the Employees.
13. By this action, the Employees sought inter alia the following orders:
(a) a declaration that the business of CNLT had been carried on by the defendants with intent to defraud creditors of CNLT, in particular the Employees pursuant to section 304 of the Act;
(b) a declaration that the defendants shall be jointly and/or severally liable and personally responsible, without any limitation of liability for all of the debts or other liabilities of CNLT; and
(c) an order that the defendants, jointly and/or severally do pay the outstanding debt due and owing to the Employees by CNLT.
Very heavy accusations, and what did the judge decide?
18. At the end of the trial, the learned trial judge held that the Employees had proved 7 out of 8 allegations. It was held that allegation (c), the siphoning of CNLT’s funds by way of payment of rental to Golden Privelege Sdn Bhd, was not made out. The learned trial judge found that payments to JCT limited were void as they were against the law prohibiting undue preference.
19. The learned trial judge accordingly held that the business of CNLT was carried on by the Appellant with intent to defraud the creditors of CNLT including the Employees pursuant to section 304 of the Act. A declaration was made to that effect by the court. There was however no such declaration granted in respect of the other directors of CNLT. The court also held that the Appellant was personally liable to the Employees, to pay the Employees the sum of RM2,910,201.78 as claimed with interest.
Most of the proven allegations happened more than ten years ago.
A forensic report was made, with many observations similar to the above. The company however denied all in an announcement to Bursa. Since the judge held that seven allegations have been proved, the truthfulness of the contents of that announcement should be reviewed.
The above court case was a private affair by the employees who were disadvantaged. It seems they are winning their case, good for them, it must have been a quite costly and lengthy affair.
But what have the authorities done so far, for instance in regards to the minority investors who have been disadvantaged? From what I could find, not much.
Bursa reprimanded the company (I don't think anybody will be bothered by that) and delisted it (basically disadvantaging the minority investors by depriving them an opportunity to trade their shares). No action whatsoever was taken against any individual.
SSM obtained a conviction: "The Kuala Lumpur Sessions court today convicted Dato’ Prem Krishna Sahgal (‘Dato’ Prem’) for committing an offence under section 364 (2) of the Companies Act 1965. Dato’ Prem was sentenced to pay a fine of RM40,000.00 in default 6 months imprisonment."
It continues "SSM hopes the above decision will send out a clear message". I doubt that, I find the punishment very light, especially given the small chance of getting caught.
Where is the enforcement for any of the other (very serious) allegations, why have Bursa and/or SC still not taken any action in this matter?
Justice delayed is justice denied.
11. The Employees’ complaint of fraudulent trading straddled 8 allegations of fact that allegedly occurred between 2006 and 2008. They were as follows:
(a) CNLT, primarily through its managing director, the Appellant, prepared or issued fictitious invoices in 2007 to an entity known as MTI (Far East) Sdn Bhd amounting to RM4,271,745.06 with a view to inflating or overstating its revenue, such that CNLT would appear to be a ‘going concern’, or at the very least, not as insolvent as it actually was;
(b) Overstating the value of the plant and machinery of CNLT;
(c) Siphoning of CNLT’s funds by way of payment of rental to Golden Privilege Sdn Bhd when there was no such tenancy agreement. This company was controlled by the Appellant and the 7th defendant;
(d) CNLT’s assets in the sum of USD1,250,000 were dissipated or channelled to CNLT’s largest shareholder, JCT Limited, the 8th defendant after CNLT had been listed as a PN17 company;
(e) CNLT, through inter alia, the Appellant caused 3 cheques in the sum of RM160,000.00 to be issued on 11 September 2007. These cheques were encashed on 12 September 2007;
(f) Failure to cause CNLT to remit contribution to Employees Provident Fund (“EPF”) and Social Security Organization (SOCSO), both employer and employee despite deducting the requisite employee contribution since August 2007. Neither was income tax paid, despite the requisite deductions having been made;
(g) The Appellant’s action in dissipating assets out of the reach of provisional liquidators in May 2008; and
(h) Payments were made out to preferred unsecured creditors, as well as some shareholders in the sum of not less than RM2,841,696.00 without validation at the time the restraining order dated 26.10.2007 was in force.
12. It was the Employees’ case that by reason of the foregoing matters the business of CNLT was carried on from 2006 onwards until it was wound up in January 2009 with intent to defraud creditors of the company, or for a fraudulent purpose. For the purpose of the application of section 304 of the Act in this suit the creditors contemplated here were the Employees.
13. By this action, the Employees sought inter alia the following orders:
(a) a declaration that the business of CNLT had been carried on by the defendants with intent to defraud creditors of CNLT, in particular the Employees pursuant to section 304 of the Act;
(b) a declaration that the defendants shall be jointly and/or severally liable and personally responsible, without any limitation of liability for all of the debts or other liabilities of CNLT; and
(c) an order that the defendants, jointly and/or severally do pay the outstanding debt due and owing to the Employees by CNLT.
Very heavy accusations, and what did the judge decide?
18. At the end of the trial, the learned trial judge held that the Employees had proved 7 out of 8 allegations. It was held that allegation (c), the siphoning of CNLT’s funds by way of payment of rental to Golden Privelege Sdn Bhd, was not made out. The learned trial judge found that payments to JCT limited were void as they were against the law prohibiting undue preference.
19. The learned trial judge accordingly held that the business of CNLT was carried on by the Appellant with intent to defraud the creditors of CNLT including the Employees pursuant to section 304 of the Act. A declaration was made to that effect by the court. There was however no such declaration granted in respect of the other directors of CNLT. The court also held that the Appellant was personally liable to the Employees, to pay the Employees the sum of RM2,910,201.78 as claimed with interest.
Most of the proven allegations happened more than ten years ago.
A forensic report was made, with many observations similar to the above. The company however denied all in an announcement to Bursa. Since the judge held that seven allegations have been proved, the truthfulness of the contents of that announcement should be reviewed.
The above court case was a private affair by the employees who were disadvantaged. It seems they are winning their case, good for them, it must have been a quite costly and lengthy affair.
But what have the authorities done so far, for instance in regards to the minority investors who have been disadvantaged? From what I could find, not much.
Bursa reprimanded the company (I don't think anybody will be bothered by that) and delisted it (basically disadvantaging the minority investors by depriving them an opportunity to trade their shares). No action whatsoever was taken against any individual.
SSM obtained a conviction: "The Kuala Lumpur Sessions court today convicted Dato’ Prem Krishna Sahgal (‘Dato’ Prem’) for committing an offence under section 364 (2) of the Companies Act 1965. Dato’ Prem was sentenced to pay a fine of RM40,000.00 in default 6 months imprisonment."
It continues "SSM hopes the above decision will send out a clear message". I doubt that, I find the punishment very light, especially given the small chance of getting caught.
Where is the enforcement for any of the other (very serious) allegations, why have Bursa and/or SC still not taken any action in this matter?
Justice delayed is justice denied.
Sunday, 1 October 2017
Former Protasco director charged with RM 68 Million fraud (2)
Almost five years ago, Protasco announced what arguably is one of the most puzzling announcements I have seen of any Bursa listed company.
It was made during the XMas holiday as if to escape any attention, which (if intended) did indeed succeed, there was hardly anything written about the deal in the papers, while Bursa did not issue any query which is remarkable given the lack of details given.
I received an anonymous tip about it, and wrote "Protasco's Puzzling Purchase", and followed it up by about 30 other blog postings.
At the start of 2016 things finally seemed to move forward, I wrote "Former Protasco director charged with RM 68 Million fraud".
Now, after another two years, according to a recent article in The Star, "Ex-directors discharged from cheating case":
Two former company directors who were charged with cheating the board of directors, making a false declaration and criminal breach of trust involving more than RM80mil have been discharged from the case.
However, Datuk Ooi Kock Aun, 49, and Datuk Tey Por Yee, 40, have not been acquitted by the court.
The order to discharge but not acquit them was given by Kajang Sessions court judge Surita Budin after deputy public prosecutor Muhammad Ilmami Ahmad made a proposition to withdraw the case.
The DPP said the Attorney-General’s Chambers had reviewed all the evidence in totality before deciding to withdraw the case.
Ooi and Tey were accused of cheating Protasco Bhd’s board of directors and its officers by withholding information that he had direct involvement with PT Anglo Slavic Utama, a company incorporated in Indonesia.
The offence, under Section 420 of the Penal Code for cheating, was allegedly committed at Protasco’s office at Level 2, Corporate Building Unipark Suria, Jalan Ikram-Uniten, Kajang, between November 2012 and Jan 30, 2014.
Both of them were also charged with making a false declaration to a Commissioner for Oaths in Jalan Metro Pudu, off Jalan Yew, on July 25, 2014.
Other papers have been very quiet about this discharge.
Where does this leave the minority investors of Protasco, which lost almost RM 100 Million in this case and a (possibly related) other investment in Indonesia?
Until now hardly any information has been provided, the most basic questions have been unanswered, for instance: who was the seller of the PT Anglo Slavic shares (in other words, the owner(s) of the BVI company)? And was he/she in any way connected to any of the then acting directors of Protasco?
It seems very unclear what the current status is, both from the regulators point of view or from Protasco's side. A very unsatisfactory situation all together.
It was made during the XMas holiday as if to escape any attention, which (if intended) did indeed succeed, there was hardly anything written about the deal in the papers, while Bursa did not issue any query which is remarkable given the lack of details given.
I received an anonymous tip about it, and wrote "Protasco's Puzzling Purchase", and followed it up by about 30 other blog postings.
At the start of 2016 things finally seemed to move forward, I wrote "Former Protasco director charged with RM 68 Million fraud".
Now, after another two years, according to a recent article in The Star, "Ex-directors discharged from cheating case":
Two former company directors who were charged with cheating the board of directors, making a false declaration and criminal breach of trust involving more than RM80mil have been discharged from the case.
However, Datuk Ooi Kock Aun, 49, and Datuk Tey Por Yee, 40, have not been acquitted by the court.
The order to discharge but not acquit them was given by Kajang Sessions court judge Surita Budin after deputy public prosecutor Muhammad Ilmami Ahmad made a proposition to withdraw the case.
The DPP said the Attorney-General’s Chambers had reviewed all the evidence in totality before deciding to withdraw the case.
Ooi and Tey were accused of cheating Protasco Bhd’s board of directors and its officers by withholding information that he had direct involvement with PT Anglo Slavic Utama, a company incorporated in Indonesia.
The offence, under Section 420 of the Penal Code for cheating, was allegedly committed at Protasco’s office at Level 2, Corporate Building Unipark Suria, Jalan Ikram-Uniten, Kajang, between November 2012 and Jan 30, 2014.
Both of them were also charged with making a false declaration to a Commissioner for Oaths in Jalan Metro Pudu, off Jalan Yew, on July 25, 2014.
Other papers have been very quiet about this discharge.
Where does this leave the minority investors of Protasco, which lost almost RM 100 Million in this case and a (possibly related) other investment in Indonesia?
Until now hardly any information has been provided, the most basic questions have been unanswered, for instance: who was the seller of the PT Anglo Slavic shares (in other words, the owner(s) of the BVI company)? And was he/she in any way connected to any of the then acting directors of Protasco?
It seems very unclear what the current status is, both from the regulators point of view or from Protasco's side. A very unsatisfactory situation all together.
Wednesday, 9 August 2017
Dual class shares: another really bad idea (2)
I wrote before about this subject.
It seems that Bursa is still considering to allow dual class shares in Malaysia.
Just to show one "horror" case what might happen, Alphaville wrote about the company DryShips (listed as DRYS on the NASDAQ): "Who buys DRYS?".
One snippet:
Taking into account the rapid series of share consolidations Dryships has had down the years, the stock price has fallen from $1.483bn per share to $1.40.
So what’s going on?
We first looked at this thing last month, at which point the peak-to-trough stats stood at an historical high of $206m and a low then of 99 cents. Over the past fortnight, following fresh consolidation of the shares, the price has fallen 80 per cent.
The company has a market cap of $7.26m, but (as of July 21) it held cash of $58.6m and a book value of $652m, against debt of $237m. Its fleet of tankers and drybulk vessels stands at 39.
Confused? Here’s what’s happening.
In April this year DryShips, which is registered in the Marshall Islands, struck a deal with a BVI firm, Kalani Investments, whereby Dryships would sell up to $226m worth of stock to the BVI entity over a two year period.
The deal sees Kalani getting the DryShips stock at a discount and they quickly dump the newly-issued equity on the US market. The flood of stock depresses the share price, which falls below $1 — risking suspension under Nasdaq rules. So, once a month for the past four months, DryShips has enacted share consolidations — most recently at 1-for-7 — to get the price back above a dollar.
It’s these repeated consolidations which throw up the comic historic share price high of $1.483bn when the chart is reset.
The company is controlled by a Greek shipping financier, George Economou, through super-voting stock. Many of the vessels in the DryShips fleet have been acquired from Economou’s private interests — so if you follow the money you’ll see it is flowing from US investors, by way of the Caribbean, to his family estate.
David Webb wrote again about the dual class shares "One Board, One Regulator".
Webb also mentions many other issues that are relevant to Malaysia (and Singapore), for instance:
8. Full disclosure of the identities of subscribers (including beneficial owners of 10% or more of their votes or equity) and the numbers of shares subscribed in placings, whether at initial listing or subsequently. [in the Malaysian context, a six year old blog posting Private Placements: abolish them or limit them, nothing has changed]
9. Full disclosure of the identities of beneficial owners of counterparties to notifiable transactions (acquisitions, disposals or loans) by listed companies. No more hiding behind BVI curtains. [in the Malaysian context just one example: Protasco's Puzzling Purchase, the vendor being owned by Anglo Slavic Petrogas Ltd, a BVI company]
11. INEDs: boards or shareholders can continue to nominate candidates for election as Independent Non-Executive Directors, but controlling shareholders, executive directors and their associates must abstain from voting in the elections, due to their obvious conflict of interests. This will leave independent shareholders to elect the INEDs. Otherwise, INEDs serve at the pleasure of the King, making a joke of their independence.
12. Tighten the permissible general mandate to dilute existing shareholders by issuing new shares for cash, with a maximum of 5% enlargement in any year, at a maximum discount of 5% (currently: 20% at a 20% discount). Any larger size or discount should require a rights issue, or approval by 75% of votes cast by independent shareholders on a special resolution. This would raise HK pre-emption standards to the UK's.
And regarding legislation:
1. provide investors with access to justice in the form of class action rights. The loser-pays costs system will deter vexatious or meritless cases;
It seems that Bursa is still considering to allow dual class shares in Malaysia.
Just to show one "horror" case what might happen, Alphaville wrote about the company DryShips (listed as DRYS on the NASDAQ): "Who buys DRYS?".
One snippet:
Taking into account the rapid series of share consolidations Dryships has had down the years, the stock price has fallen from $1.483bn per share to $1.40.
So what’s going on?
We first looked at this thing last month, at which point the peak-to-trough stats stood at an historical high of $206m and a low then of 99 cents. Over the past fortnight, following fresh consolidation of the shares, the price has fallen 80 per cent.
The company has a market cap of $7.26m, but (as of July 21) it held cash of $58.6m and a book value of $652m, against debt of $237m. Its fleet of tankers and drybulk vessels stands at 39.
Confused? Here’s what’s happening.
In April this year DryShips, which is registered in the Marshall Islands, struck a deal with a BVI firm, Kalani Investments, whereby Dryships would sell up to $226m worth of stock to the BVI entity over a two year period.
The deal sees Kalani getting the DryShips stock at a discount and they quickly dump the newly-issued equity on the US market. The flood of stock depresses the share price, which falls below $1 — risking suspension under Nasdaq rules. So, once a month for the past four months, DryShips has enacted share consolidations — most recently at 1-for-7 — to get the price back above a dollar.
It’s these repeated consolidations which throw up the comic historic share price high of $1.483bn when the chart is reset.
The company is controlled by a Greek shipping financier, George Economou, through super-voting stock. Many of the vessels in the DryShips fleet have been acquired from Economou’s private interests — so if you follow the money you’ll see it is flowing from US investors, by way of the Caribbean, to his family estate.
David Webb wrote again about the dual class shares "One Board, One Regulator".
Webb also mentions many other issues that are relevant to Malaysia (and Singapore), for instance:
8. Full disclosure of the identities of subscribers (including beneficial owners of 10% or more of their votes or equity) and the numbers of shares subscribed in placings, whether at initial listing or subsequently. [in the Malaysian context, a six year old blog posting Private Placements: abolish them or limit them, nothing has changed]
9. Full disclosure of the identities of beneficial owners of counterparties to notifiable transactions (acquisitions, disposals or loans) by listed companies. No more hiding behind BVI curtains. [in the Malaysian context just one example: Protasco's Puzzling Purchase, the vendor being owned by Anglo Slavic Petrogas Ltd, a BVI company]
11. INEDs: boards or shareholders can continue to nominate candidates for election as Independent Non-Executive Directors, but controlling shareholders, executive directors and their associates must abstain from voting in the elections, due to their obvious conflict of interests. This will leave independent shareholders to elect the INEDs. Otherwise, INEDs serve at the pleasure of the King, making a joke of their independence.
12. Tighten the permissible general mandate to dilute existing shareholders by issuing new shares for cash, with a maximum of 5% enlargement in any year, at a maximum discount of 5% (currently: 20% at a 20% discount). Any larger size or discount should require a rights issue, or approval by 75% of votes cast by independent shareholders on a special resolution. This would raise HK pre-emption standards to the UK's.
And regarding legislation:
1. provide investors with access to justice in the form of class action rights. The loser-pays costs system will deter vexatious or meritless cases;
Monday, 7 August 2017
Sapura Energy: excessive remuneration for Directors? (2)
I wrote about this issue before, one snippet:
"We notice three government linked funds in the list of substantial shareholders. Will they make noise about the above remuneration? At the last AGM that did not happen, all resolutions were approved by a large majority of the shareholders."
The largest vote against any of the resolutions was only 2%.
The company held its AGM on July 25, 2017, and the results are as follows:
Of interest are resolutions 8 (payments of director fees) and 10 (authorising the directors to issue new shares) which received 18% and 22% of the votes against, a very large change compared to the voting behaviour of a year before.
It is safe to assume that the controlling shareholders voted in favour of the resolutions, meaning that the percentage of votes against from the non-controlling shareholders is even higher.
Are these the signs of some shareholder activism which starts to pop up at Sapura Energy? I most certainly hope so.
The Edge Malaysia (edition August 7, 2017) brought up another issue regarding related party transactions. It wrote an article "A RM70 mil annual poser at Sapura", one snippet:
"It is not clear why the listed company has to pay this fee to its controlling shareholder, which has epresentatives on the board holding executive positions and are paid alaries and director fees."
The amount can be found in the annual report, second part, page 189 (pdf page 139):
Surely the minority shareholders of Sapura Energy deserve a proper explanation on the above transactions.
"We notice three government linked funds in the list of substantial shareholders. Will they make noise about the above remuneration? At the last AGM that did not happen, all resolutions were approved by a large majority of the shareholders."
The largest vote against any of the resolutions was only 2%.
The company held its AGM on July 25, 2017, and the results are as follows:
Of interest are resolutions 8 (payments of director fees) and 10 (authorising the directors to issue new shares) which received 18% and 22% of the votes against, a very large change compared to the voting behaviour of a year before.
It is safe to assume that the controlling shareholders voted in favour of the resolutions, meaning that the percentage of votes against from the non-controlling shareholders is even higher.
Are these the signs of some shareholder activism which starts to pop up at Sapura Energy? I most certainly hope so.
The Edge Malaysia (edition August 7, 2017) brought up another issue regarding related party transactions. It wrote an article "A RM70 mil annual poser at Sapura", one snippet:
"It is not clear why the listed company has to pay this fee to its controlling shareholder, which has epresentatives on the board holding executive positions and are paid alaries and director fees."
The amount can be found in the annual report, second part, page 189 (pdf page 139):
Surely the minority shareholders of Sapura Energy deserve a proper explanation on the above transactions.
Thursday, 3 August 2017
XingQuan: boardroom getting rather empty
Two more independent directors of XingQuan resigned, "Due to time commitment issue" and somewhat more specific:
As he will not be able to discharge and perform the duties and responsibilities of an independent director due to the expiry of the employment contract of the CFO in early May 2017, the resignation of Audit Committee Chairman in end of May 2017, the recent resignation of the other independent director, and the inability of the Company to secure suitable candidates to fill the aforesaid vacancies since May 2017, he therefore tender resignation as an independent director.
That means that the audit committee is now vacant, as is the department of independent directors. Any takers? If not, who will defend the rights of the minority investors?
I have warned several times about XingQuan, the first time (XingQuan: does the company believe its own cash?) almost exactly two years ago.
So far no visible action has been taken by the authorities. Did it really have to come this far? Fast, adequate action might for instance have prevented the rights issue, pouring more good money after bad. Or may be some of the assets could have been saved and liquidated, to the advantage of the minority investors.
In a unrelated case, the Securities Commission has taken action against a father and son for submitting false or misleading information. But the punishment is a mere reprimand and permanent moratorium regarding listings in Malaysia. I guess the perpetrators will simply shrug their shoulders and move on, the world outside Malaysia is pretty large after all.
The real test will be if the Malaysian authorities will be able to fine foreigners or impose a jail sentence. So far no action of that kind has ever been taken against any of the listed Chinese companies in Malaysia. Time will tell if it ever will happen.
If it turns out to be near impossible to impose these penalties, then Bursa should never have allowed foreign companies to list in Malaysia, because of the absence of any significant deterrent.
As he will not be able to discharge and perform the duties and responsibilities of an independent director due to the expiry of the employment contract of the CFO in early May 2017, the resignation of Audit Committee Chairman in end of May 2017, the recent resignation of the other independent director, and the inability of the Company to secure suitable candidates to fill the aforesaid vacancies since May 2017, he therefore tender resignation as an independent director.
That means that the audit committee is now vacant, as is the department of independent directors. Any takers? If not, who will defend the rights of the minority investors?
I have warned several times about XingQuan, the first time (XingQuan: does the company believe its own cash?) almost exactly two years ago.
So far no visible action has been taken by the authorities. Did it really have to come this far? Fast, adequate action might for instance have prevented the rights issue, pouring more good money after bad. Or may be some of the assets could have been saved and liquidated, to the advantage of the minority investors.
In a unrelated case, the Securities Commission has taken action against a father and son for submitting false or misleading information. But the punishment is a mere reprimand and permanent moratorium regarding listings in Malaysia. I guess the perpetrators will simply shrug their shoulders and move on, the world outside Malaysia is pretty large after all.
The real test will be if the Malaysian authorities will be able to fine foreigners or impose a jail sentence. So far no action of that kind has ever been taken against any of the listed Chinese companies in Malaysia. Time will tell if it ever will happen.
If it turns out to be near impossible to impose these penalties, then Bursa should never have allowed foreign companies to list in Malaysia, because of the absence of any significant deterrent.
Saturday, 22 July 2017
FGV's lack of transparency
Good article in The Star: Why FGV should handle whistle blowers with care
Some snippets and some comments by me:
In fact, one of the reasons why the Employees Provident Fund (EPF), a stickler for corporate governance, disposed of its interest in FGV is because there was no separation of powers between the board and the major shareholders.
The provident fund, for instance, felt that the total remuneration package for the chairman, which was stated at RM2.67mil in the 2016 annual report, was seen as too high.
The powerful provident fund expressed its dissatisfaction on the way FGV was managed by disposing its shares. In fact EPF’s chief executive officer Datuk Shahril Ridza Ridzuan hardly completed a year as a board member of FGV.
I am sorry to say but I find this very disappointing from the EPF. By selling they even drove down the share price giving them an even lower price for the last shares they sold.
Could they not have done more? If they were unhappy about the Corporate Governance inside FGV then they could have voiced out their concerns, first internally, and when no adequate response has been issued, they can simply call for a press conference. Surely journalists from all major media outlets would show up and report on the issues. That would have forced the company to issue replies to some thorny issues and would have given some much needed transparency. Who knows, some M&As might have been prevented that way, for the benefit of almost all parties involved.
Only now, after Isa has been moved out of FGV does the board admit that the company lacked governance.
The problem with all the initiatives from Bursa and SC is that it looked like CG was good inside FGV. But FGV was simply ticking all the boxes.
"Real" CG is not about ticking boxes, but how the company handles itself for instance in cases of conflict of interest (rather common in Malaysia), transparency towards shareholders, major strategic decisions like M&A activities, etc.
The question is if FGV actually has improved its CG? From the announcements that have been made on the Bursa website I doubt it, I find hardly any relevant information on what has been going on the last few months, for instance nothing about:
He [Zakaria] should not be penalised for speaking out. Because this would render redundant all the governance structures and whistle blowing channels that are in place in FGV.
Exactly. Whistle blowing in Western countries is already difficult enough (many regret later on that they blew the whistle), doing the same in Malaysia (a country with the highest Power Distance Index in the world) is so much more difficult. We need to respect people who speak out based on conviction and proper information.
I hope to see a healthy dose of transparency in the near future, what was really going on the last few months, and a proper, honest evaluation of the controversial M&As FGV has done in the past. Several companies in Singapore (most notably SingPost and Singtel) have done so in similar situations (by an independent advisor under the guidance of the independent directors) and an extract of the final report has been forwarded to the SGX website. Will the same happen with FGV? We will wait and see.
Some snippets and some comments by me:
In fact, one of the reasons why the Employees Provident Fund (EPF), a stickler for corporate governance, disposed of its interest in FGV is because there was no separation of powers between the board and the major shareholders.
The provident fund, for instance, felt that the total remuneration package for the chairman, which was stated at RM2.67mil in the 2016 annual report, was seen as too high.
The powerful provident fund expressed its dissatisfaction on the way FGV was managed by disposing its shares. In fact EPF’s chief executive officer Datuk Shahril Ridza Ridzuan hardly completed a year as a board member of FGV.
I am sorry to say but I find this very disappointing from the EPF. By selling they even drove down the share price giving them an even lower price for the last shares they sold.
Could they not have done more? If they were unhappy about the Corporate Governance inside FGV then they could have voiced out their concerns, first internally, and when no adequate response has been issued, they can simply call for a press conference. Surely journalists from all major media outlets would show up and report on the issues. That would have forced the company to issue replies to some thorny issues and would have given some much needed transparency. Who knows, some M&As might have been prevented that way, for the benefit of almost all parties involved.
Only now, after Isa has been moved out of FGV does the board admit that the company lacked governance.
The problem with all the initiatives from Bursa and SC is that it looked like CG was good inside FGV. But FGV was simply ticking all the boxes.
"Real" CG is not about ticking boxes, but how the company handles itself for instance in cases of conflict of interest (rather common in Malaysia), transparency towards shareholders, major strategic decisions like M&A activities, etc.
The question is if FGV actually has improved its CG? From the announcements that have been made on the Bursa website I doubt it, I find hardly any relevant information on what has been going on the last few months, for instance nothing about:
- The work done by Idris Jala, let alone the contents of his report (probably only the major shareholder is privy to this information).
- The serious allegations by Zakaria (and others) regarding expensive, non-core acquisitions in the past
- The real reasons for the resignation of the previous Chairman and who the new chairman is (the last might have been an honest oversight though)
- The Edge Malaysia wrote a very good series of articles with lots of useful information (including interviews of the main persons involved), most of which was never revealed
He [Zakaria] should not be penalised for speaking out. Because this would render redundant all the governance structures and whistle blowing channels that are in place in FGV.
Exactly. Whistle blowing in Western countries is already difficult enough (many regret later on that they blew the whistle), doing the same in Malaysia (a country with the highest Power Distance Index in the world) is so much more difficult. We need to respect people who speak out based on conviction and proper information.
I hope to see a healthy dose of transparency in the near future, what was really going on the last few months, and a proper, honest evaluation of the controversial M&As FGV has done in the past. Several companies in Singapore (most notably SingPost and Singtel) have done so in similar situations (by an independent advisor under the guidance of the independent directors) and an extract of the final report has been forwarded to the SGX website. Will the same happen with FGV? We will wait and see.
Wednesday, 31 May 2017
Sapura Energy: excessive remuneration for Directors?
From the annual report of Sapura Energy:
Those numbers seem very high, especially given the rather poor recent results of the company:
While the company lost a combined amount of RM 585,000,000 over the last two years, the directors earned a combined fee of more than RM 187,000,000 over the same period.
The share price over the last five years:
After reaching almost RM 5, the share price has declined by about 64%, nothing to shout about for the minority shareholders. And dividends have not been much better:
In other words: 37,000 shareholders received less in dividends than the Directors in remuneration. It seems the company is more interested in rewarding the Board of Directors than the shareholders.
If we look in more detail we notice the following:
Most of the remuneration for the directors is earned by a single person (I assume Sharil, the president and group CEO, although unfortunately the director is not named), and mostly based on performance.
But with the company losing more than half a billion over the last two years, the share price down a lot and the dividend cut, one wonders what the KPIs for that performance are.
The fees for the non-executive directors are also on the high side:
The major shareholders of the company:
We notice three government linked funds in the list of substantial shareholders. Will they make noise about the above remuneration? At the last AGM that did not happen, all resolutions were approved by a large majority of the shareholders.
Let's wait and see if the next AGM to be held in July will be any different.
Those numbers seem very high, especially given the rather poor recent results of the company:
While the company lost a combined amount of RM 585,000,000 over the last two years, the directors earned a combined fee of more than RM 187,000,000 over the same period.
The share price over the last five years:
After reaching almost RM 5, the share price has declined by about 64%, nothing to shout about for the minority shareholders. And dividends have not been much better:
In other words: 37,000 shareholders received less in dividends than the Directors in remuneration. It seems the company is more interested in rewarding the Board of Directors than the shareholders.
If we look in more detail we notice the following:
Most of the remuneration for the directors is earned by a single person (I assume Sharil, the president and group CEO, although unfortunately the director is not named), and mostly based on performance.
But with the company losing more than half a billion over the last two years, the share price down a lot and the dividend cut, one wonders what the KPIs for that performance are.
The fees for the non-executive directors are also on the high side:
The major shareholders of the company:
We notice three government linked funds in the list of substantial shareholders. Will they make noise about the above remuneration? At the last AGM that did not happen, all resolutions were approved by a large majority of the shareholders.
Let's wait and see if the next AGM to be held in July will be any different.
Monday, 29 May 2017
Wing Tai GO: Pangolin not happy (2)
Article on the website of The Star:
Takeover offer for Wing Tai Malaysia seen undervalued
One snippet:
He further notes that only less than 15% shares in Wing Tai are held collectively by institutional investors, who are more likely to have the holding power.
“Even if they stand together, it will be difficult to pose any challenge to the offer,” he explains.
CIMB Research made the following comment:
We see this transaction as positive for Wing Tai, as it is earnings accretive by reducing minority leakage from WTM.
Loyal minority investors who held on to their Wing Tai shares throughout the years, through thick and thin, are now described as causing "minority leakage" to the majority shareholder.
Well, I guess that is one way to put it, definitely not mine though. Has the term ever been used when a company went for a listing, as in: "we want to IPO our subsidiary because we want to increase minority leakage"?
Takeover offer for Wing Tai Malaysia seen undervalued
One snippet:
He further notes that only less than 15% shares in Wing Tai are held collectively by institutional investors, who are more likely to have the holding power.
“Even if they stand together, it will be difficult to pose any challenge to the offer,” he explains.
CIMB Research made the following comment:
We see this transaction as positive for Wing Tai, as it is earnings accretive by reducing minority leakage from WTM.
Loyal minority investors who held on to their Wing Tai shares throughout the years, through thick and thin, are now described as causing "minority leakage" to the majority shareholder.
Well, I guess that is one way to put it, definitely not mine though. Has the term ever been used when a company went for a listing, as in: "we want to IPO our subsidiary because we want to increase minority leakage"?
Friday, 12 May 2017
China Automobile Parts: "bad reputation"? (2)
In addition to my previous blog post about this subject, things have possibly made a clear turn for the worse, according to its latest announcement.
The Company’s auditor, PKF has requested to carry out certain procedures that include the verification of the Company’s value added tax devices with the relevant tax authorities’ system directly and complete the verification of the consignment notes/appropriate delivery documentation against the sales invoices. The Company wishes to inform that the tax system in Fujian Province, China underwent three major upgrades and reforms within a year and this may have resulted in certain tax information being inaccurate. In order to meet PKF’s request, the person in charge of the Company is in the midst of liaising with the tax department, so that the auditor can clarify directly with the tax department where necessary.
This seems like a good action by PKF, comparing the official tax numbers with the alleged comparable numbers as provided by CAP. Many short sellers use indeed tax numbers of the company, its subsidiaries or trading partners.
On the auditor’s request to seek confirmation with the banks on the Company’s recorded bank balances, the Company will co-ordinate and make the necessary arrangement with the bank for PKF to seek confirmation verification where applicable.
And this also deserves attention, in several cases of Chinese companies listed on Bursa I have strong doubt about the bank balances. I even recommended Bursa to let all these China based companies to do a voluntarily, independent confirmation of the bank balances by an expert party. If the cash is not there, immediate action can be taken, and there would be no need to throw more good money after bad money (for instance through a rights issue). However, if the cash is really there, then that might add to the credibility of the company.
This confirmation has to be done in a proper way though, there have been cases where a company falsified the statements and the online banking system, and even the regional branch manager of the bank was in the fraud.
The auditor highlighted that it has come to their attention that there appears to be certain ongoing litigation involving the Company and certain of its directors whereby certain records appear to indicate amongst others that the Company had undertaken significant borrowings and had defaulted in repayment, resulting in a claim and litigation during financial year ended 31 December 2016 (“FYE 2016”) against the Company and certain of its directors by the lending bank. The Company wishes to inform that it has appointed a lawyer, Fujian Shi Long Law Firm, to verify and confirm the litigation cases involving the Company and certain of its directors. The Company will make announcement on the development of the above matter in due course if necessary.
If the underlined is indeed true (and the auditor must have had pretty reliable information regarding this, otherwise the above would not have been published), then that would be an extremely serious matter.
Shareholders should brace themselves for the worst.
The Company’s auditor, PKF has requested to carry out certain procedures that include the verification of the Company’s value added tax devices with the relevant tax authorities’ system directly and complete the verification of the consignment notes/appropriate delivery documentation against the sales invoices. The Company wishes to inform that the tax system in Fujian Province, China underwent three major upgrades and reforms within a year and this may have resulted in certain tax information being inaccurate. In order to meet PKF’s request, the person in charge of the Company is in the midst of liaising with the tax department, so that the auditor can clarify directly with the tax department where necessary.
This seems like a good action by PKF, comparing the official tax numbers with the alleged comparable numbers as provided by CAP. Many short sellers use indeed tax numbers of the company, its subsidiaries or trading partners.
On the auditor’s request to seek confirmation with the banks on the Company’s recorded bank balances, the Company will co-ordinate and make the necessary arrangement with the bank for PKF to seek confirmation verification where applicable.
And this also deserves attention, in several cases of Chinese companies listed on Bursa I have strong doubt about the bank balances. I even recommended Bursa to let all these China based companies to do a voluntarily, independent confirmation of the bank balances by an expert party. If the cash is not there, immediate action can be taken, and there would be no need to throw more good money after bad money (for instance through a rights issue). However, if the cash is really there, then that might add to the credibility of the company.
This confirmation has to be done in a proper way though, there have been cases where a company falsified the statements and the online banking system, and even the regional branch manager of the bank was in the fraud.
The auditor highlighted that it has come to their attention that there appears to be certain ongoing litigation involving the Company and certain of its directors whereby certain records appear to indicate amongst others that the Company had undertaken significant borrowings and had defaulted in repayment, resulting in a claim and litigation during financial year ended 31 December 2016 (“FYE 2016”) against the Company and certain of its directors by the lending bank. The Company wishes to inform that it has appointed a lawyer, Fujian Shi Long Law Firm, to verify and confirm the litigation cases involving the Company and certain of its directors. The Company will make announcement on the development of the above matter in due course if necessary.
If the underlined is indeed true (and the auditor must have had pretty reliable information regarding this, otherwise the above would not have been published), then that would be an extremely serious matter.
Shareholders should brace themselves for the worst.
Thursday, 4 May 2017
Maxwell: More Mayhem (2)
Maxwell finally published its annual report, bit too late, but better late than never.
The start is promising:
"Moving Forward", interesting motto, but how to move forward when the revenue of the last three quarters has been exactly zero? In other words, the company has ceased all its business.
Regarding its financial position, the company remarks:
"The Group owned a cash and cash equivalents of RM360.673 million (2015: RM366.713 million) with zero debt as at the end of the financial year 2016. The Group has been in net cash position for the past 6 financial years since it was listed on the Main Market of Bursa Malaysia Securities Berhad back in 2011."
That sounds good, RM 361 Million cash, but the accounts are again heavily qualified by the auditors, and again in relation to its alleged cash (among many other items):
As disclosed in Note 10(b) to the financial statements, during the financial year, Jinjiang Zhenxing Shoes & Plastics Co. Ltd., a subsidiary company of the Company, placed RM337.21 million (RMB510.00 million) with an asset management company, Jinjiang Jin Chuang Private Capital Management Co. Ltd., (“Jin Chuang”) (晋江晋创民间资本管理有限公司). The management of Jinjiang Zhenxing Shoes & Plastics Co. Ltd., are unable to provide the relevant information and supporting documents to the Company in respect of the placement of the cash with the asset management company.
On 26 April 2016, the Company announced that Jinjiang Zhenxing Shoes & Plastics Co. Ltd., had on 6 April 2016 notified Jin Chuang to transfer all the funds. On 19 July 2016, the Company announced that the funds placed with Jin Chuang would be transferred into Jinjiang Zhenxing Shoes & Plastics Co. Ltd.’s bank account or a bank account nominated by Jinjiang Zhenxing Shoes & Plastics Co. Ltd., upon maturity.
We were unable to obtain sufficient appropriate audit evidence on the cash and cash equivalents as at the end of the financial year. Therefore, we could not determine the effect of adjustment, if any, on the financial statements of the Group.
It really seems that the company is dragging its feet in proving that the funds (RM 337 Million) really exist. One possibility (which is rather likely, in my humble opinion) is that the cash is simply not there, it probably never was. It would not exactly be the first time that this would happen to a company from China.
The company further stated:
On 14 April 2017, the Company announced that the Company, Jinjiang Zhenxing Shoes & Plastics Co. Ltd. and Maxwell (Xiamen) Co. Ltd. appointed a legal firm in PRC, namely Shanghai Zinger Law Office (上海致格律师事务所) to conduct a special due diligence on Advertising and Promotion Expenses (Note 30.1(1)) and funds placed with Jinjiang Jin Chuang Private Capital Management Co. Ltd. (晋江晋创民间资本管理有限公司) (Note 30.1(2)) and to issue a special legal opinion thereon. As at the date of this report, the lawyer has yet to issue any legal advice on this matter.
I wrote about this marketing issue 18 months ago, why wait so long to appoint a legal firm to conduct due diligence? What have the independent directors and/or the regulators done all this time? Has there been any activity and/or pressure from their side, or do they let the company continue in this rather shameful way?
Sunday, 30 April 2017
China Automobile Parts: "bad reputation"?
It is not often that Bursa listed companies talk themselves down, but that is exactly what China Automobile Parts seems to have done.
In a reply to a query they wrote:
Mr Goh Yoke Tong was appointed as INED on March 31, 2017, became chairman of the audit committee on April 4, 2017 and resigned on April 28, 201 "Due to his other personal commitments".
That leaves only one member in the audit committee, we wish him good luck.
In a reply to a query they wrote:
Mr Goh Yoke Tong was appointed as INED on March 31, 2017, became chairman of the audit committee on April 4, 2017 and resigned on April 28, 201 "Due to his other personal commitments".
That leaves only one member in the audit committee, we wish him good luck.
Saturday, 1 April 2017
Huishan: all INEDs resign at the same moment, coincidence?
China Huishan Dairy Holdings has been lately in the news, for all the wrong reasons (for instance here, here and here).
The company made an announcement regarding several issues at hand. One of them was the resignation by all four independent non-executive directors.
It must be noted that every statement is different which seems to add to the credibitly of each one.
I strongly doubt though the sincerity of the reasons stated. Surely the real reason is that the company is in turmoil and the INEDs don't want to get dragged into the matter any further.
The fact that all four resign exactly now can not be a coincidence.
I am very much against these kind of "useless statements", if the directors don't want to give the true reason then a simple statement like "no comment" is much better. At least the reader does not feel like he is taken for a fool.
- Mr. Song would like to spend more time on his other business and commitments
- Mr. Gu is getting increasingly busy with his other commitments and is afraid he may not have sufficient time to perform his duties as an INED
- Mr. Tsui would like to concentrate on his company’s business and personal commitment which requires more of his dedication
- Mr. Kan would like to concentrate on his other own commitments which require more of his dedication
It must be noted that every statement is different which seems to add to the credibitly of each one.
I strongly doubt though the sincerity of the reasons stated. Surely the real reason is that the company is in turmoil and the INEDs don't want to get dragged into the matter any further.
The fact that all four resign exactly now can not be a coincidence.
I am very much against these kind of "useless statements", if the directors don't want to give the true reason then a simple statement like "no comment" is much better. At least the reader does not feel like he is taken for a fool.
Tuesday, 21 February 2017
"Snap", the sound of voting rights
Article in The Star:
Snap arrives in London to woo sceptical investors ahead of IPO
Some snippets (emphasis mine):
Snap Inc, owner of popular messaging app Snapchat, kicked off its first investor roadshow on Monday, looking to persuade London money managers to back its initial public offering in the face of concerns about its growth prospects, valuation and corporate governance.
The U.S. company, which has yet to make a profit, is targeting a valuation of between $19.5 billion (£15.6 billion) and $22.3 billion from listing on the New York Stock Exchange, after cutting its initial target of $20 billion-$25 billion last week following investor feedback.
Some fund managers have said they will stay away from Snap given its decision to adopt a three class share structure - the first of its kind - that will mean shareholders who buy in through the IPO will not have any voting rights.
Yes, dear readers, mayhem has descended on us: people are asked to fork out billions of USD for a company with a history of losses and will receive no voting rights in return for that.
While all forms of engineering have made strong progress throughout the years resulting in a more safe and efficient world, financial engineering has been the one and only exception.
Time trusted principles (like one share, one vote) are abandoned in place of sheer madness, just for the sake of coming up with more extreme solutions, for which the consultants can charge handsome commissions.
One manager offered some "comforting" words:
"Snapchat offers a cocktail of hype, insane valuations, dubious fundamentals and weak governance. However, the same was said about companies like Google and Facebook when they listed," said Geir Lode, head of global equities at Hermes Investment Management.
Snap arrives in London to woo sceptical investors ahead of IPO
Some snippets (emphasis mine):
Snap Inc, owner of popular messaging app Snapchat, kicked off its first investor roadshow on Monday, looking to persuade London money managers to back its initial public offering in the face of concerns about its growth prospects, valuation and corporate governance.
The U.S. company, which has yet to make a profit, is targeting a valuation of between $19.5 billion (£15.6 billion) and $22.3 billion from listing on the New York Stock Exchange, after cutting its initial target of $20 billion-$25 billion last week following investor feedback.
Some fund managers have said they will stay away from Snap given its decision to adopt a three class share structure - the first of its kind - that will mean shareholders who buy in through the IPO will not have any voting rights.
Yes, dear readers, mayhem has descended on us: people are asked to fork out billions of USD for a company with a history of losses and will receive no voting rights in return for that.
While all forms of engineering have made strong progress throughout the years resulting in a more safe and efficient world, financial engineering has been the one and only exception.
Time trusted principles (like one share, one vote) are abandoned in place of sheer madness, just for the sake of coming up with more extreme solutions, for which the consultants can charge handsome commissions.
One manager offered some "comforting" words:
"Snapchat offers a cocktail of hype, insane valuations, dubious fundamentals and weak governance. However, the same was said about companies like Google and Facebook when they listed," said Geir Lode, head of global equities at Hermes Investment Management.
Sunday, 22 January 2017
AirAsia mentioned in Rolls-Royce bribery case
Article from Malaysiakini (partially behind paywall), some snippets:
UK's Serious Fraud Office (SFO) has named AirAsia Group as one of several foreign parties involved in bribery cases with jet engine manufacturer Rolls-Royce PLC.
AirAsia Group, in an immediate response, told Malaysiakini that it had complied with procedures in its dealing with Rolls-Royce.
This was despite Rolls-Royce employees believing that the credits would lead the AirAsia Group executive to perform his function "improperly".
"This financial advantage was given at the request of the AirAsia group executive, in return for showing favour towards Rolls-Royce in the purchase of products and services provided by Rolls-Royce and its subsidiaries, including Total Care Agreement services to be supplied to AirAsia X, a subsidiary of AirAsia Group," it said.
It also alleged that there was an attempt to conceal the fact that the credits, given to AirAsia X in 2013, would be used for the private jet, which was unrelated to the AirAsia Group.
On Oct 17, 2012, a Rolls-Royce employee reported to the Rolls-Royce senior employee that the AirAsia Group executive was seeking to "make the corporate jet deal 'invisible' with its 'value covered within additional A330 Total Care Agreement charges" for AirAsia X".
On March 15, 2013, a Rolls-Royce employee reported to his senior that the AirAsia X senior employee, who had been negotiating for the Air Asia Group executive's private jet, wanted a "cash settlement that is off the record and not visible to the AirAsia X group".
The Rolls-Royce employee raised concern that it was "unethical and likely illegal" and would rather not handle the case.
The Rolls-Royce employee complained that the AirAsia X senior employee had avoided discussing the private jet in front of other AirAsia X or Rolls-Royce employees and refused to communicate via email about the matter unless it was verbally or on Blackberry Messenger, a secured chat application.
In an interview during the SFO's investigation, the Rolls-Royce employee said the AirAsia X senior employee went as far as suggesting that the Corporate Care entry fee for the private jet be secretly spread across other AirAsia X payments to Rolls-Royce.
"Rolls-Royce employees believe the relevance of the jet to the issuing of those credits was most likely to be concealed from AirAsia X executives by the AirAsia X senior employee.
The above sounds very worrisome and requires an official, much more detailed answer from AirAsia than given.
I have written before about the huge amount of RPTs between the different companies in the AirAsia group and also the privately owned companies. This gives rise to numerous conflict of interest situations.
If the holding company was listed, with all subsidiaries (like AirAsia, AirAsia X and the subsidiary owning the private airplane) 100% owned, then many problems (like the above mentioning in the Rolls-Royce bribery case) would not have existed in the first place.
UK's Serious Fraud Office (SFO) has named AirAsia Group as one of several foreign parties involved in bribery cases with jet engine manufacturer Rolls-Royce PLC.
AirAsia Group, in an immediate response, told Malaysiakini that it had complied with procedures in its dealing with Rolls-Royce.
This was despite Rolls-Royce employees believing that the credits would lead the AirAsia Group executive to perform his function "improperly".
"This financial advantage was given at the request of the AirAsia group executive, in return for showing favour towards Rolls-Royce in the purchase of products and services provided by Rolls-Royce and its subsidiaries, including Total Care Agreement services to be supplied to AirAsia X, a subsidiary of AirAsia Group," it said.
It also alleged that there was an attempt to conceal the fact that the credits, given to AirAsia X in 2013, would be used for the private jet, which was unrelated to the AirAsia Group.
On Oct 17, 2012, a Rolls-Royce employee reported to the Rolls-Royce senior employee that the AirAsia Group executive was seeking to "make the corporate jet deal 'invisible' with its 'value covered within additional A330 Total Care Agreement charges" for AirAsia X".
On March 15, 2013, a Rolls-Royce employee reported to his senior that the AirAsia X senior employee, who had been negotiating for the Air Asia Group executive's private jet, wanted a "cash settlement that is off the record and not visible to the AirAsia X group".
The Rolls-Royce employee raised concern that it was "unethical and likely illegal" and would rather not handle the case.
The Rolls-Royce employee complained that the AirAsia X senior employee had avoided discussing the private jet in front of other AirAsia X or Rolls-Royce employees and refused to communicate via email about the matter unless it was verbally or on Blackberry Messenger, a secured chat application.
In an interview during the SFO's investigation, the Rolls-Royce employee said the AirAsia X senior employee went as far as suggesting that the Corporate Care entry fee for the private jet be secretly spread across other AirAsia X payments to Rolls-Royce.
"Rolls-Royce employees believe the relevance of the jet to the issuing of those credits was most likely to be concealed from AirAsia X executives by the AirAsia X senior employee.
The above sounds very worrisome and requires an official, much more detailed answer from AirAsia than given.
I have written before about the huge amount of RPTs between the different companies in the AirAsia group and also the privately owned companies. This gives rise to numerous conflict of interest situations.
If the holding company was listed, with all subsidiaries (like AirAsia, AirAsia X and the subsidiary owning the private airplane) 100% owned, then many problems (like the above mentioning in the Rolls-Royce bribery case) would not have existed in the first place.
Tuesday, 3 January 2017
EPF exits Felda (2)
Article in The Star: "EPF not to be blamed for leaving FGV", some snippets and some remarks by me.
Regarding the title of the article, I don't blame EPF for exiting, in the contrary, I just question why EPF invested in FGV in the first place.
The FGV was sitting on a cash pile of more than RM5bil and its business model was pretty straight forward – which is to collect the fresh fruit bunches and process them into crude palm oil.
The plan was always to expand aggressively through acquistions (even the name hinted clearly at that, "Global Ventures"), for instance this article in the Borneo Post:
The strategic initiatives to improve efficiency include extensive oil palm replanting programme to improve age profile at approximately 15,000 hectares per year utilising Felda’s award-winning planting materials to increase fresh fruit bunch production and improve oil extraction rate.
The proceeds would also be used for potential acquisitions of additional land bank in South-East Asia and Africa for planting oil palm and rubber by 2015.
Meanwhile, Felda would expand downstream capabilities to enhance value of its upstream products.
This included further acquisitions and investments in refinery assets, consumer packed plants and bulking facilities.
The suspension means that Isa will be stripped of the post of vice-president that he had won with the highest number of votes among the three posts of vice-president at the same party polls.
Salim said Mohd Isa, who is Federal Territories minister, was found guilty on five of nine charges he had faced with regard to party discipline.
The Star continues:
"There is nothing wrong with active politicians sitting on the board of companies."
Regarding the title of the article, I don't blame EPF for exiting, in the contrary, I just question why EPF invested in FGV in the first place.
The FGV was sitting on a cash pile of more than RM5bil and its business model was pretty straight forward – which is to collect the fresh fruit bunches and process them into crude palm oil.
The plan was always to expand aggressively through acquistions (even the name hinted clearly at that, "Global Ventures"), for instance this article in the Borneo Post:
The strategic initiatives to improve efficiency include extensive oil palm replanting programme to improve age profile at approximately 15,000 hectares per year utilising Felda’s award-winning planting materials to increase fresh fruit bunch production and improve oil extraction rate.
The proceeds would also be used for potential acquisitions of additional land bank in South-East Asia and Africa for planting oil palm and rubber by 2015.
Meanwhile, Felda would expand downstream capabilities to enhance value of its upstream products.
This included further acquisitions and investments in refinery assets, consumer packed plants and bulking facilities.
In general, roughly 2/3rd of acquisitions globally fail, either they are done for the wrong reasons, or because of the information bias, etc. Investors in FGV should thus have known at that point in time that things might not work out well, those acquisitions might destroy value instead of enhancing it.
The risk was minimal for the EPF. As long as FGV keeps cutting its production cost and utilises its huge cash pile for re-planting activities there is very little to fear.
First of all FGV had announced already they would not just use the money solely for internal purposes. Secondly, since when has an equity investment "minimal risk"?
However even then, there were some nagging issues especially when it came to some corporate governance practices.
Why invest when there are "nagging issues"?
For starters, FGV chairman Tan Sri Mohd Isa Samad is also the chairman of Federal Land Development Authority (Felda) which is the major shareholder of the listed company. Isa, who is also a politician closely aligned to Putrajaya, also sits on board of many subsidiaries.
Please note this article:
Umno vice-president Tan Sri Mohd Isa Abdul Samad (pix) has been suspended from the party by its disciplinary board for six years for breach of the party's code of ethics during the party elections last year, according to his political secretary, Salim Shariff, on Friday.
Salim said Mohd Isa, who is Federal Territories minister, was found guilty on five of nine charges he had faced with regard to party discipline.
The Star continues:
"There is nothing wrong with active politicians sitting on the board of companies."
Oh my ....... where to begin?
One should try to minimize conflict of interest situations, because it is exactly those situations that often cause serious problems.
In Malaysia it looks like the policy is to maximize conflict of interest situations.
"Like all its investment companies, the EPF would have certainly voiced its concerns over FGV’s board composition."
Can the writer give concrete examples of this voicing of concerns? I have hardly ever seen the EPF actively fighting for minority investor's rights. EPF is in a very strong position, I am pretty sure that if they voice their concern many newspapers would write about those concerns. Apart from voicing their concerns, the EPF can also actively vote against resolutions. This would also serve as an example for the small minority investors, who would feel more powerfull.
I normally like Shanmugam's articles, but definetely not this time .....
Tuesday, 13 December 2016
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.
..... 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.
Saturday, 10 December 2016
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.
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.
Friday, 9 December 2016
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.
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.
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