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:

• 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.

EPF lost only RM 97 Million on FGV?

Article in The Star:

EPF records RM203.18mil realised loss from Felda Global Ventures stake

One snippet:


The Employees Provident Fund (EPF) recorded a realised loss of RM203.18mil from its investment in Felda Global Ventures Holdings Bhd (FGV) as at August last year.

In a written reply to Dr Ko Chung Sen (DAP-Kampar), the Finance Ministry said, however, that EPF had gained a dividend income of RM105.77mil.

The assumption that most readers will make reading the above is that the loss EPF made on the FGV investment was RM 203 Million, that EPF did however receive RM 106 Million dividends, for a total loss of RM 97 Million.

That is bad, but given that EPF had bought a total of 309M shares in August 2013 for about RM 1.45 Billion, the loss equates to about 7%.

There is one "tiny" problem with the above: the assumption has to be wrong.

EPF must have lost much more on their investment in FGV, my guess is around RM 600 Million, so after adding the dividend of RM 106 Million about RM 500 Million.

The confusion comes (most likely) from losses that EPF had already booked in previous years on the FGV investment. How much these losses were is not revealed.

By mentioning the dividend income of RM 106 Million (which is the total dividend received by EPF over all years), the confusion is further increased. Mixing losses over a limited time with dividends over the lifetime in one paragraph without any further explanation does not seem like a good idea.

My reasoning behind the estimate of much larger losses can be derived from the share graph of FGV:

The first phase (June 2012 until August 2013, from IPO up to the 1st red line) is the accumulation phase in which EPF bought 309 Million shares, for an average price of about RM 4.70, total cost about RM 1.45 Billion.

The second phase (September 2013 until March 2015, between the 1st and 2nd red line) EPF had disposed 110 Million shares, it will definetely have lost money on these trades, but still limited.

The third phase (April 2015 until August 2016, between the 2nd and 3rd red line) is the really painful one, EPF disposed of 199 Million shares and received on average clearly less than RM 2 for these shares, the losses in this phase alone must have been more than RM 500 Million. It is this 3rd phase which makes it obvious that the reported loss of RM 203 Million does not cover all losses.

After adding the RM 106 Million in dividends received and subtracting expenses occurred (brokerage, operational) the losses will be substantial to the tune of about half a Billion RM, much more than the implied losses of RM 97 Million. And that is even without taking into consideration the rather large opportunity costs.

I hope that in the future we can have more clear statements regarding financial matters.

EPF: trading just to recognize returns?

Article in The Star: Can EPF maintain its good returns?

One snippet:


Analysts say that while the EPF knows it has unbooked profits to be made, it does, however, only recognise profits and payments to dividends once it sells its shareholdings.

In order for the EPF to be able to announce their yearly returns it needs to sell shares and buy them back, occurring expenses in the process?

What a strange policy, why do they not just mark to market all of their listed investments?

This does explain the rather weired behaviour (which I have observed numerous times) like in this announcement:

I am dumbfounded, what a waste of money and effort and that just for some silly accounting practice, one which I don't even agree with.

All I can say is: I wish I were EPFs broker.

EPF exits Felda

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


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

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


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

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

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

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

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

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

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

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

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

I wrote before about FGV.

Code for institutional investors

I have often written about the lack of what I call GLF's (Government Linked Funds) in shareholder activism in Malaysia, for instance:

Let’s have real shareholder activism
Institutional investors have to fight
A death knell for shareholder rights


"They have been very disappointing in the last decades, they could have been vocal, they could have voted against controversial deals (especially Related Party Transactions), they chose to stay silent and toe the line. I am sure that if they had issued press releases in the past, announcing how they would vote and why, that newspapers would be more than happy to print their views.

They helped to initially fund MSWG, it looks like these GLF's found that that was enough for them, they let MSWG do the talking and stayed further passive.

I really hope their mentality will change soon; they are managing other people's money and thus have a huge responsibility. We are now Anno 2011, a world where people demand transparency; these GLF's should update their websites, give insights in their holdings, their voting behaviour and their explanations for it, etc."

One of the prime examples of this can be found here, it involves a very controversial RPT cash deal by MMC taking over Senai (a loss making airport) in the midst of the global recession. MSWG tried to organize a meeting, but the following funds could not attend due to "some other work commitment":

• EPF (Kumpulan Wang Simpanan Pekerja)
• PNB
• KWAP (Kumpulan Wang Persaraan)

MSWG and the Securities Commission have issued their "Malaysian Code for Institutional Investors 2014", it is now open for public consultation, the document can be found here.

Some comments:

• What I miss is a general description of the "landscape", mostly some numbers like how much have the institutional funds invested compared to the total market cap of Bursa, in how many listed companies, in how many companies do they have a controlling stake, etc.
• The members of the Steering Committee are almost all from the GLF's, I would have loved to see some participation of non-government linked fund managers like Aberdeen (who is known to fight for the interest of their investors), Public Mutual, etc.
• The paper is luckily quite short and definitely readable, but also on rather high level and thus pretty general; I like more concrete stories from the trenches, what are the really big cases (in my opinion most minority shareholders value has been destroyed through: delisting, relisting, RPT's, private placements), how are they going to tackle those?
• In paragraph 3.4 a list if given how institutional investors can make their concerns known; I think an important avenue is left out, if a company "misbehaves" and (despite feedback given by institutional investors) doesn't repent, then reaching out to the media should definitely be considered. This has happened on many occasions in (mostly) Western countries, and sometimes with success.
• Paragraph 3.5 relates to seeking legal remedies or arbitration. Institutional investors should understand that this is an avenue that is almost impossible for retail investors, the costs do not compensate for possible gains. But institutional investors have often large holdings, and for them it should be a serious consideration. This avenue has so far been neglected.
• Chapter 6: "Institutional investors should publish a voting policy", on important issues (like the ones I described in the previous sentence), I think fund managers should be transparent and publish their specific voting in major issues; people who trusted their money to these asset managers are entitled to know how the asset managers voted.

At the end of the day, the proof is in the pudding, we have to wait and see if there will be a substantial improvement in the involvement by the GLF's, not only passively (behind the scenes), but also more openly and actively ("on the barricades").

MAS should be sold but not at a loss ......?

"Putrajaya should consider selling flag carrier Malaysian Airlines System Bhd (MAS) but not at a loss, its former boss Datuk Seri Idris Jala said today. The Minister in the Prime Minister's Department said MAS was trading at RM6.00 when he was at the helm but currently the share price of the compay has tanked to 30 sen. The government's state asset manager Khazanah Nasional Bhd is the majority owner of MAS, which has posted losses for its last six quarterly results."


The above from an article on The Malaysian Insider. In principle I agree, governments should not run businesses, not in Malaysia or anywhere else in the world.

But Idris Jala mentioned that MAS should not be sold at a loss. Rather puzzling, once the company traded at RM 6 per share, the (in)famous acquisition by Khazanah was even done at RM 8 per share. Now, many rights issues further (which have diluted the value per share), the share is trading at RM 0.31.

The reason why MAS's company valuation has come down so much, is easily summed up by its Group accumulated profits, or rather (as is the case) losses: RM 8,755,439,000.00.

Can one find a potential buyer who will simply "overlook" MAS's patchy earnings history and will pay Khazanah back the price it originally paid for? Very unlikely, I think.

On a personal note, my best investment decisions ever, the ones I am most proud of, were not the ones where I made money on, but the ones where I realized I made a mistake, and sold the shares, even if it was at a loss. I have rarely regretted that.

In other words, not wanting to sell at a loss, when the fundamentals of a company have so much deteriorated, might not be a good strategy, at least in my opinion.

One organisation that also seems to disagree with Idris Jala is the EPF, which has sold down their holding of MAS to below 5% (after which they don't have to declare their trades anymore). In 2010 for instance the EPF still owned 14% of the company.

On Bursa Malaysia's website regarding MAS we can find a "Buy" recommendation by TA Securities Holding, dated March 1, 2013 under the title "The End of a Long Wait?".

Apparently the wait was not yet long enough, less than 3 months later, on May 30, 2013, TA issued a "Sell" recommendation under the title "Likely to Remain in the Red for FY 2013". MAS had again booked disappointing losses, as so often.

For those who think that the airline industry is a bed of roses, please check this website which gives a links to long lists of defunct airlines in the world, per country or continent. Many national airlines can be found there. One interesting airline mentioned on the list is "Malaysia-Singapore Airlines":

"Malaysia-Singapore Airlines (MSA) came into being in 1966 as a result of a joint ownership of the airline by the governments of Malaysia and Singapore. The airline ceased operations after 6 years in 1972 when both governments decided to set up their own national airlines. Hence from that year onwards, Malaysian Airline System, now called Malaysia Airlines, and Singapore Airlines were formed."

The financial situation of Singapore Airlines (SIA) is rather different from MAS, the below amounts are in millions of SGD:

EPF/Petronas, "not fair but reasonable", MBf

[1] P Gunasegaram wrote an article on KiniBiz about EPF accepting Petronas' revised offer for MISC shares under the title: "Shame on you EPF!".

I can't agree more on the article, I strongly recommend to read the full article.

The new offer from Petronas was an improvement of less than 4%, a much too low offer. Why did the EPF so hastily accept this offer that is still way below the fair valuations and below the rights issue a few years ago?

Keeping MISC listed would ensure a healthy dose of transparency, something that Petronas itself also could do with.

It looks like a typical case of "face" where both parties can claim some credit:

• EPF claims that they are actively fighting for the shareholders (I have very strong doubts about this claim), they booked a victory since the price has increased;
• Petronas can claim that they only raised the price by a small margin, in other words the first offer was also "pretty decent".

[2] Errol Oh wrote in The Star: "Mixed feelings over mixed advice".

"A lot of people are befuddled by the on-going streak of independent advisers (IAs) describing general offers and proposed deals as “not fair but reasonable” and yet recommending that shareholders accept the offers or vote for the deals."

I do like to add that there are two improvements compared to the old situation:

• The majority of the delisting offers is deemed to be "not fair but reasonable", while in the past it was almost always "fair but reasonable". At least now the minority shareholder know they are (hugely) disadvantaged.
• The quality of the independent advices has improved recently. There are still some bad examples, but these are more rare. In the past the quality was so low, that I recommended to simply do away with the independent advices, they were a waste of money and time and even worked against minority investors.

For instance, "Where Is Ze Moola" wrote about the horrific delisting of IOI Properties at RM 2.60 in 2009 while a rights issue not too long time before was done at RM 6.25. The "independent" advice from OSK Investment Bank was "fair and reasonable" and recommended the shareholders to accept the offer. This kind of advice would typically cost around RM 500,000. I don't think it was worth the paper it was written on.

"Early this week, a wire report had stated that IOI Corp was planning an initial public offering (IPO) of its property arm in the fourth quarter of 2013, speculating the total value of the listing to be in the region of RM10bil.

This would be a huge improvement in size, considering that it was only in 2009 that IOI Corp had bought back its then-listed property arm IOI Properties Bhd for a mere RM310mil in cash and shares, valuing the unit at about RM1.3bil."

In only 4 years time the value of IOI Properties would have increased by a factor 8? Do the previous minority investors of IOI Property still believe that the offer price of RM 2.60 was indeed "fair and reasonable"?

Another really bad case was the delisting and relisting of Bumi Armada, about which I have written before.


[3] Gurmeet Kaur wrote about the offer for MBF: "Happy ending for MBf minority shareholders":

"The group of minority shareholders who had, for some time now, been holding out for a higher price in the buyout of MBf Holdings Bhd have decided to throw in the towel and accept major shareholder Tan Sri Dr Ninian Mogan Lourdenadin's latest revised offer of RM1.775 per share."

I would not exactly call that a happy ending, RM 1.775 is still way below the estimated Net Assets per share between RM 2.45 and RM 3.20. Holding unlisted shares is simply not an option for most investors, and thus they were pressured to throw in the towel. Still kudos for the minority investors, they did put up a decent fight, but the odds were hugely stacked against them.


It is about time the authorities are looking into this situation: delistings at unfair (low) prices, possibly followed by relisting at inflated prices. They should make the playing field between majority and minority investors a more even one, it is long overdue.

Stating "these corporate exercises were business decisions" will simply not do.

EPF actively fighting for minority shareholders?

The Star published today a (for me rather remarkable) interview with the CEO of the EPF, Tan Sri Azlan Zainol. One snippet:

“We are very particular about governance and are one of the major players in terms of activity at AGMs. We are quite vocal. If we don’t like certain things, we will vote against it."

The perception of the EPF, at least with me, is very different. I have actively followed the Malaysian share market for 18 years, read a huge amount of information, and the silence from the EPF in worrisome CG issues has been deafening. I can only recall one time that they were active, during the privatisation of Malaysian Oxygen Bhd (MOX) together with Aberdeen, but even there I suspect that Aberdeen was the fighter and EPF the follower.

Also, being vocal during AGM's is not really enough. Press is often not allowed and many people will have voted before on paper, without hearing what is said at the AGM's.

Am I wrong, or is EPF really active?

The influential CG Watch 2102 report seems to agree with my view point, please read my previous posting on this report. One item:

12. Are institutional investors actively voting against resolutions with which they disagree?
Malaysia: “marginally” (0.25).

[with 0.00 being the lowest and 1.00 the highest score]

The interview continues:

“I shall not name a company that had very poor governance. We walked away from that investment.”

Why does the CEO not name the company, in this instance or in any other case? In the whole interview with The Star, not one is mentioned.

EPF can be so much more vocal in all CG issues, why is it not displaying more transparency? It can simply issue press releases about certain important matters, for instance why it will vote against a certain resolution together with its reasoning, surely most newspapers would be happy to carry that information.

I would love to eat my words and admit that EPF has indeed changed its way and is now a shareholder activist. But I definitely need clear proof for that, together with concrete cases in which EPF was vocal and fought sight by side with the other minority shareholders. At this moment, I am not aware of any, except for the above mentioned MOX case.

Three, more recent, deals in which EPF was very much involved, did it put up a fight in any of these cases, and if so was it vocal about it?

• Maybulk's related party acquisition of a part of POSH in 2008 and its other RPT in 2009 in which it didn't reveal details of the purchase; EPF did sell all of its shares and thus walked away from that investment, but much too late and at a great cost
• MMC's RPT of the Senai airport
• Possible insider trading with the privatisation of Proton, at the expense of the EPF

EPF plans to invest more in foreign holdings

Good news regarding EPF, it will raise its overseas holdings to 30% by 2017. The maximum currently allowed is 23% of its portfolio, but strangely enough, it invests only 13% abroad.

Large Government Linked Funds own a much too big piece of the local shareholding, smothering the market, leading to a small free float. Another problem is that, unfortunately, often their interests are not aligned to those of minority investors.

It will raise overseas holdings to 30% by 2017, says CEO

(KUALA LUMPUR) Malaysia's Employees Provident Fund (EPF), the second-largest state-run pension system in the Asia-Pacific region, plans to raise holdings of overseas investments to 30 per cent by 2017 to boost returns.

Boosting returns: EPF, Malaysia's state-run pension system, will start a programme to buy global bonds in the second quarter to rebalance its overseas portfolio to be in line with domestic investments, according to its CEO

The retirement fund, with RM470 billion (S$195 billion) in assets, is currently allowed to invest in foreign holdings as much as 23 per cent of its portfolio, said chief executive officer Azlan Zainol, who manages the fund. EPF's investments abroad now account for 13 per cent and will need to be increased, upon government approval, as the fund would be at least RM600 billion to RM700 billion in five to six years, he said.

'We will continue to focus on areas that will give stable returns for this year and the next few years to come,' Mr Azlan said in an interview in Kuala Lumpur on Tuesday. 'These asset allocations that we've been working on have done us well and have contributed to our income reasonably well and have mitigated all kinds of risks that we are facing.'
The Kuala Lumpurbased manager posted RM27.2 billion of gross income from investments last year, 13 per cent more than it earned in 2010, helped mainly by realised gains in domestic and global equities, according to data published on its website.

The fund outperformed South Korea's National Pension Service, with US$305 billion, which posted a preliminary 2.3 per cent return in 2011, according to the nation's Ministry of Health and Welfare.

EPF was the second-largest sovereign pension fund in Asia excluding Japan, behind the Korean fund, according to a ranking by consultants Towers Watson & Co that was released in September.

EPF will start a programme to buy global bonds in the second quarter to rebalance its overseas portfolio to be in line with domestic investments, Mr Azlan said.

Stocks account for about 80 per cent of the overseas investments compared with 35 per cent in the domestic market, he noted.

The majority of EPF's assets are currently invested onshore, primarily in government bonds. The yield on the nation's benchmark 10-year debt is about 1.5 percentage point above similar-dated Treasuries.
'Technically, we can go up to 42 per cent in equities but we don't want to,' Mr Azlan said. 'We will try and keep it within 35 per cent - even at 35 per cent, I feel you're walking at the edge.'

EPF, which has been a net seller of domestic equities this year, plans to increase its holdings of Malaysian stocks, Mr Azlan said. He said he likes banking, utilities, plantations and companies with high-dividend payouts, strong management and that are well-run.

'Generally, I am quite confident the market will be OK, but from certain angles, I hope there will be some troughs,' Mr Azlan said, adding that the market's valuations are 'attractive'.

The fund's focus will be on South-east Asia with 'the strongest growth in Indonesia over the long term', Mr Azlan said.

EPF also has investments in the UK, the US, Japan and Australian stock markets, while it will invest in China through Hong Kong, he said.

The fund has no plans to apply for an investment manager licence in China, he added.

EPF held RM124.6 billion, or 27 per cent of its assets, in government bonds at the end of December, making it the single largest shareholder in that asset class in Malaysia.

It also held RM160.7 billion in loans and corporate bonds, RM167.2 billion in stocks, RM14.9 billion of money-market bills and RM1.8 billion in properties.

The fund paid out RM24.5 billion to members in 2011, equivalent to a 6 per cent dividend rate, the most since 2000. It paid 8.5 per cent between 1983 and 1987, the highest since its inception in 1952, according to data provided by EPF.

EPF collects more than RM2 billion on average every month from its 13 million members, who make a compulsory 11 per cent monthly contribution while employers add another 12 per cent.

Membership is mandatory for working Malaysian citizens, or non-Malaysian citizens who are permanent residents.

Among the fund's investments, Mr Azlan expects RHB Capital Bhd's proposed takeover of OSK Investment Bank Bhd to be completed by the middle of this year. The fund owns 45 per cent of RHB Capital.

The acquisition will be financed via a combination of new shares and cash and will reduce EPF's stake in RHB Capital to 41 per cent, he added. -- Bloomberg

Proton: possible Insider Trading, was EPF one of the victims?

Te recap: on January 16, 2012 DRB-Hicom announced that it would buy the shares of Proton from Khazanah Nasional for RM 5.50 per share and that it would make a Mandatory General Offer for all other shares. But up to that date, the share price of Proton had increased by about 100% in high volume since the first half of November 2011, giving rise to suspicion of insider trading, possibly in a large scale.

The chain of events (official announcements to Bursa Malaysia in red):

14-11-2011 Protons shares are thinly traded around RM 2,70 per share, in low volume of about 300,000 per day, as was normal for the preceding two months.

15-11-2011 The share price takes off, it closes at RM 3.21 in brisk volume of 4,300,000, more than ten times higher than the average volume in the previous days.

The trading volume in Proton shares will stay very high in the coming 12 trading days, averaging 4,400,000 shares.

17-11-2011 Article in The Star: "Research analysts and stockbrokers are surprised by the sudden surge in Proton's share price. They say the marketplace is abuzz with all sorts of rumours.".

3-12-2011 Article in The Star: "Speculations that Proton Holdings Bhd is once again a subject of a takeover or a management buyout persisted as the share price of the national auto maker spiked on Friday, rising to a nine-month high at 51 sen to RM3.61 a share."

5-12-2011 The volume has increased to more than 20 million (60 times its normal volume in the first half of November 2011), the price jumped further up from RM 3.82 to RM 4.50.

Bursa Malaysia finally issues an "UMA" (Unusual Market Activity) enquiry, three weeks after the share price took off in unusual high volume. This day represents the vertical line in the above graph.

6-12-2011 Proton announces: "The Board of Directors of PROTON wishes to clarify that after making due enquiry with the Board of Directors and major shareholders, the Company is not aware of any reason for the unusual market activity in the shares of the Company recently, and further, that there is no material corporate development not previously disclosed.". Khazanah Nasional is a major shareholder of Proton.

The article in The Star of that day: "Euphoria is in the air for Proton Holdings Bhd as its share price put on 89 sen or 24.6% to close at RM4.50, amidst talk that its largest shareholder, Khazanah Nasional Bhd, is divesting its stake in the national carmaker. A weekly reported that Khazanah was likely to ask for business proposals from parties interested in its 42.7% stake in Proton.".

8-12-2011 DRB-Hicom announces: "We refer to Bursa Malaysia Securities Berhad’s (“Bursa Malaysia”) telephone query on Thursday, 8 December 2011 regarding the above article appearing in page 1 of Starbiz section, The Star newspaper dated 8 December 2011. In this regard, we wish to inform Bursa Malaysia that the Company is not aware of the source and the basis of the article."

The article in The Star: "DRB-HICOM Bhd's bid for control over Proton Holdings Bhd is likely to include the presence of Volkswagen AG at a later stage, a reliable source said. DRB-HICOM's plan is to first secure a controlling block in Proton. But at a later stage or second phase of the deal, DRB would divest some of its equity to Volkswagen, resulting in both parties sharing control and management in Proton, the source said. Such a structure could make the deal more desirable, considering that it moved away from the prospects of Proton falling into the hands of a foreign party, an issue which was likely to have been part of the reasons why previous attempts by Volkswagen to buy into Proton were scuttled."

12-12-2011 Article in The Star: "Proton adviser Tun Dr Mahathir Mohamad said that Khazanah was selling because it was not pumping more money into Proton, which needed funds for research and development work on new products such as hybrid cars. “I worry about the buyer (DRB-HICOM) having enough money to inject into Proton. The shares it will be buying are above market price, which will make profitability difficult,” Dr Mahathir said after delivering a speech at the MIDF Investment Forum organised by MIDF Amanah Investment Bank Bhd".

13-12-2011 Announcement by Proton: "The Board of Directors of Proton Holdings Berhad wishes to inform that after making due enquiry with the Major Shareholder, Khazanah Nasional Berhad ("Khazanah") has informed that, in its normal course of business, it regularly receives proposals, enquiries and expressions of interest in relation to its various investments and companies where it has interest in, including Proton.  Khazanah will make necessary disclosure at the appropriate time."

Article in The Star: The time has come for Khazanah Nasional Bhd to state its intentions about its 42.7% stake in Proton Holdings Bhd. With so much speculation on Khazanah's possible divestment plans, it would only do Khazanah and the market good if it said something more than the usual “We don't comment on speculation”.

28-12-2011 Article in The Star: "Persistent rumours about a possible takeover had resulted in spikes in Proton's share price in recent weeks. Among the names linked to the takeover included local automotive assembler DRB-HICOM Bhd, the Naza group (the country's largest privately held automotive group), Sime Darby Bhd and UMW Holdings Bhd.".

31-12-2011 Article in The Star "Should Proton Holdings Bhd go to DRB-HICOM Bhd?"

5-1-2011 The volume increases further to 9,500,000 shares, the share price closes above RM 5.00.

6-1-2011 Article in The Star: "The share price of Proton Holdings Bhd jumped to an intra-day four-year high of RM5.16 as talk and speculation on state fund Khazanah Nasional's 42.7% stake sale in the national carmaker intensify..... Industry observers said DRB-HICOM seemed to be the front-runner in the fight for the stake".

9-1-2011 The volume is 8,700,000 shares.

DRB-Hicom announces regarding the article "Bid for Proton Stake": "We refer to Bursa Malaysia Securities Berhad’s (‘Bursa Malaysia”) telephone query on 9 January, 2012 regarding the above article appearing in the various newspapers dated 9 January 2012. We wish to inform Bursa Malaysia that DRB-HICOM has always viewed Proton Holdings Berhad (“Proton”) as an important automotive industry player and accordingly DRB-HICOM was on the look-out for when opportunity will arise to explore any viable proposal(s) which will benefit and add value to the Group’s business and expansion plans. In this regard, the Company has submitted a bid for the acquisition of Proton’s shares held by Khazanah Nasional Berhad (“Khazanah”). As at to date, the proposal is pending decision by Khazanah.".

12-1-2011 15.9 million shares are traded between RM 5.34 and 5.49

13-1-2011 11.8 million shares are traded between RM 5.18 and 5.53

16-1-2011 Proton shares are suspended and the announcement is made that DRB-Hicom will buy over the shares for RM 5.50.


The above chain of events make a bad overall impression. It looks very much that certain parties where privy of inside information.

Why was Bursa Malaysia so late with its Unusual Market Activity query? The share price of Proton had increased already over 3 consecutive weeks by a whopping 70% while the daily turnover had risen 20-fold when it finally took action.

The announcement on December 6, 2011 by Proton looks puzzling to say the least. The market was rife with rumour, but Proton nor Khazanah Nasional wasn't aware of anything at all?

The fact that the share price was more or less capped on RM 5.50 on the days before the final announcement on January 16, 2011, do suggest that certain parties might have known the price that DRB-Hicom would offer.

Also, both Proton and DRB-Hicom appeared remarkably passive in issuing announcements, both only responded on queries from Bursa Malaysia (most notably on December 6, 8 and 13, 2011 and January 9, 2012) from Bursa Malaysia, they didn't initiate these announcements themselves.

From Bursa Malaysia's website: "We place significant emphasis on timeliness, adequacy and accuracy of disclosure to enable investors to make informed investment decisions.". Was that really the case in the above corporate exercise? I have strong doubts about that.

Who are the victims of the possible insider trading? Everyone who sold his shares between November 15, 2011 and January 16, 2012. EPF is definitely one of them:

Disposed 16/11/2011  500,000 
Disposed 17/11/2011  50,000
Disposed 24/11/2011  4,392,300 
Disposed 30/11/2011  2,714,000 
Disposed 30/11/2011  2,000,000 
Disposed 02/12/2011  1,000,000
Disposed 02/12/2011  1,000,000 
Disposed 02/12/2011  1,000,000
Disposed 05/12/2011  441,300 
Disposed 05/12/2011  1,000,000 
Disposed 06/12/2011  100,000 
Disposed 06/12/2011  577,800 
Disposed 16/12/2011  60,000

EPF sold about 15 million shares of Proton, for a price clearly below the MGO price. If the buyers of these shares were trading with insider information, then EPF was disadvantaged for an amount of roughly RM 20-30 million on those trades.

Will EPF take any action? Until now, they have always been as quiet as a mouse, so I would not count on it.

Previous posts about this issue:

http://cgmalaysia.blogspot.com/search/label/Proton

Towards nationalisation and international irrelevance? (2)

Some comments on the article of yesterday:

• The author warns about a very serious issue that is slowly cropping up and could have devastating effects in the long term. This reminds me of frogs, if you throw them in hot water they will immediately jump out, however if you put them in cold water and slowly boil the water the frogs will not feel the difference and stay in it until they die. The frog is the Malaysian exchange with PNB, EPF etc slowly turning up the heat.
• From a corporate governance point of view I liked the way PNB made a General Offer for SP Setia (no "delisting threat", management responded that the price undervalued the business, etc.). However, I very much share the worry of the author. In general business is best left to the private sector, not the public sector.
• The author doesn't mention Khazanah Nasional, Ministry of Finance etc, does that mean that they are not included in the statistics? That would make matters even worse.
• International irrelevance: Malaysia once made up 30% of the emerging markets index, now it is reduced to only 3%. If the free float continues to diminish the threat of irrelevance is very real.
• EPF and PNB currently control 40% of the market capitalisation: it has been said that if one party controls 10% of the market, it becomes the market, it can't outperform the market. With the two big funds controlling 40%, any chance of outperformance is gone. They will underperform the market due to costs, although percentagewise those costs might not be that high.
• "Voting rights of minority investors will diminish in value": we have seen already many examples of this, cases where (in my opinion) the deals offered were really bad for minority shareholders, but the deals were nevertheless voted through with the help of GLICs.

The solution, as mentioned by the author, is so simple, yet it requires a large change in the mindset: let PNB, EPF etc. invest abroad. It would avoid the crowding out and at the same time increase the healthy competition, Malaysian companies have to fight with foreign ones to get investments.

Towards nationalisation and international irrelevance?

A very important article about the increasing influence of Government Linked Investment Companies and their worrisome implications.

From The Edge Malaysia, October 10, 2011.

By Yeoh Keat Seng, manager of the KSC Incrementum Fund. The views expressed here are his own.

I felt compelled to write this opinion piece after reading with great consternation Permodalan Nasional Bhd’s (PNB) launch of a takeover offer for S P Setia.

Investor reaction has so far ranged from relief (that they will be taken out at a premium) and dismay (that the offer caps the longer-term upside of S P Setia) to disillusionment (over the exchange’s possible dual loss of an illustrious property company and a highly respected entrepreneur) and downright indignation.

In this article, I would like to focus the discussion on the possible reasoning behind such acquisitions by government-linked investment companies (GLICs) and their longer-term implications rather than dwell on the S P Setia deal.

As a start, I must say that given the circumstances and the direction in which GLIC’s have been heading, the real question was when, rather than if, they would embark on such private sector acquisitions. And I would go further to predict that we can anticipate a spree of more such transactions if the landscape does not change.

The problem as I see it stems from our stock market’s inability to keep pace with the accelerated growth of our GLIC’s; the high investment concentration of GLIC’s on domestic equities; and their growing desire to exert influence on their investee companies.

GLICs such as the Employees Provident Fund, PNB, Tabung Haji and Lembaga Tabung Angkatan Tentera have grown rapidly since the 1990s for a host of reasons, including the captive nature of our mandatory pension funds, our growing workforce and high savings rate, and the exceptional appeal of our savings schemes.

By comparison, the growth in our stock market capitalization has trailed far behind owing to the lack of sizeable new listings over the last decade with a couple of exceptions, and the decompression of the valuation of our market over time. As an indication, the combined assets of the EPF and PNB have grown to an estimated 40% of our stock market’s capitalization today from only 24% in 1995.

As at end-2010, GLIC’s held domestic equities worth over RM 300 billion, translating into around 30% of the local stock market’s capitalization. Considering that ownership of between 25% and 50% is often adequate to control a company, and that some of the government linked companies (GLCs) themselves also own other listed ones, the influence that these GLICs wield in reality extends to a few multiples their fund size.

This assertion can be backed by a sampling of the top 20 largest listed companies. Of these, 10 companies accounting for 57% of the 20 companies’ total capitalization (03 32% of the entire market’s capitalization) are classified as GLCs. Of the remainder, the two gaming companies have no GLIC ownership while all the rest have at least one of them as a significant shareholder. (We consider funds managed by GLICs as extensions of themselves.)

Having GLICs as major investors in our largest capitalized companies is not an issue. In fact, GLICs are seen as strong anchor shareholders for banks, telcos and companies in the utility and heavy industry sectors with their deep pockets and long holdings tenure lending credibility, especially in times of distress.

The problem arises when GLICs move a couple of tiers down and start buying into mid-sized companies run by entrepreneurs. Putting aside PNB’s earlier acquisition and eventual privatization of Island & Peninsular and Petaling Garden of which they were already major shareholders, this trend can be traced back to almost a year ago when UEM Land initiated the acquisition of Sunrise. Sime Darby’s more recent proposal to buy a sizeable block of Eastern & Oriental may also be seen in the same light.

These deals could probably be differentiated from the latest one in that they were strategic and characterized by GLC-operating companies buying into peers with complementary strengths, and involved willing buyers and willing sellers. Nevertheless, it could just as well be said that they set a precedent that may open the floodgates for acquisitions by GLIC’s.

Why should there be more such acquisitions? Since the clause for GLICs growing faster than the stock market is structural in nature, it is unlikely to reverse for the foreseeable future. This means that as they seek to deploy their ever-growing funds in the local market, more and more companies will be acquired, starting from the larger and better managed and eventually cascading down to the smaller and less well-managed ones.

As mentioned earlier, GLICs already control half of the 20 largest companies. Over time, they should easily control at least half of the next 20 and over an even shorter period, the next 20. Assuming they continue to dogmatically pursue a policy of investing almost exclusively in the domestic equity market, a day would come when the majority of our top 100 companies will be entitled to carry GLC membership cards.

Where does this leave our local entrepreneur owners who hold less than a controlling stake in their listed companies? Feeling stifled and paranoid about being the next candidate to be bought out and coming under pressure to defend their companies.

This trend creates several highly disconcerting possible implications for our market.

First, GLICs buying out mid-cap companies run the risk of eliminating entrepeneurs and crowding out the private sector. If our GLICs had taken over S P Setia, AirAsia, IOI Corp or JobStreet in the early days of their growth trajectory, it is doubtful these would have grown to become the industry champions they are today.

I am not saying that institutional shareholding is incompatible with entrepreneurship as the phenomenal success of the late Steve Jobs and Apple Inc would attest to. Apple was already listed and owned by institutional investors when Steve Jobbs returned in 1997, turned it into an icon and generated 100-fold value creation in the process.

However, Apple’s shareholders are commercial organizations with an uncomplicated profit-making motive. None of them had control over the company and management was given free rein as they continued to deliver.

In comparison, our GLOC CEO’s have KPI’s that often extend beyond maximizing shareholder value. It could be difficult for a strong-minded and successful shareholder entrepreneur to peacefully co-exist with new controlling shareholders that may want to impose their influence on areas such as management composition, CEO compensation, business direction, capital funding, corporate culture and so on.

Even a decision as fundamental as whether the company should retain the bulk of its earning for reinvestment or whether earnings should be largely paid out to meet the income needs of GLIC shareholders could be a source of tension.

Singapore and China too face the highly sensitive issue of GLICs or state-owned enterprises (SOEs) crowding out the private sector. Over there, the crowding out takes place via GLICs or SOEs out-competing smaller companies by virtue of being endowed with subsidies or other unfair advantages, having better access to credit or by simply being better run.

Malaysia seems to be formulating its own model in the game – buying out publicly listed companies that presumably will then compete aggressively with the private sector.

Second, the free float of our stock market will decline over time and minority investors risk getting squeezed out as liquidity becomes a problem. Even more importantly, their voting rights will diminish in value, weighted against the holdings of these giants. The idea of using GLICs to buy out foreign investors to defend our stock market was first mooted during the Asian financial crisis and sadly, it could become a reality someday even though this is not longer the desired direction.

Third, the Malaysian market’s weighting on international benchmarks such as the MSCI, which takes into account free float, will shrink even further. Already, Indonesia’s market capitalization has almost caught up with ours while its trading volume has surpassed ours.

Fourth, it will inevitable create an equity bubble as the market cannot grow fast enough to absorb the inflow of new funds. With too much funds chasing too few stocks, prices are bound to inflate. If we extrapolate this far enough, it is possible that our market could someday trade at stratospheric levels that Japan did in the 1990s.

Why should we argue against the creation of a bull market where stocks could get inflated to PER levels of 30 times, 40 times or even 50 times? Simply because we know it will not last. For an idea of the after-effects, please refer to Japan’s double-decade bear market.

From being the most dynamic market in the region, Bursa Malaysia has traded down to a stature where the market’s velocity is one of the lowest around. The same applies to its foreign shareholding level. This can be attributed to many reasons, but certainly the risk of being semi-nationalised and becoming internationally irrelevant ranks high.

Today, with international investors having their choice pickings of investment markets, we cannot offer an attractive proposition if their view of our market is that the entrepreneur community is shrinking, liquidity is poor and the voice of minority shareholders will shrivel over time.

To prevent the problem from escalating, there has to be immediate recognition of the potentially destructive nature of this trend. The longer we wait, the greater the inertia, and the harder it would be to contain it.

What are the possible solutions? Since the continued fast-paced growth of GLIC assets can be taken as a given, the most optimal solution is to open up the funds to invest in a broader spectrum of asset classes beyond domestic equities, such as international equities and bonds, private equities, real estate, commodities and so on.

To achieve this goal, it is imperative that GLICs undertake a holistic review of their mandates and conduct a comprehensive asset allocation exercise. This should take into account not just their own needs and comfort zone, but also that of the domestic capital market’s ability to accommodate them as well as the long-term risk implications of their actions today.

Let’s have real shareholder activism

Below article is from Errol Oh from The Star, October 1, 2011. PNB's behavior regarding Asia File is indeed puzzling.

I have written in the past about what I would like to call "Government Linked Funds" (GLF's) like PNB, EPF, Valuecap, LTAT etc. They have been very disappointing in the last decades, they could have been vocal, they could have voted against controversial deals (especially Related Party Transactions), they chose to stay silent and toe the line. I am sure that if they had issued press releases in the past, announcing how they would vote and why, that newspapers would be more than happy to print their views.

They helped to initially fund MSWG, it looks like these GLF's found that that was enough for them, they let MSWG do the talking and stayed further passive.

I really hope their mentality will change soon; they are managing other people's money and thus have a huge responsibility. We are now Anno 2011, a world where people demand transparency; these GLF's should update their websites, give insights in their holdings, their voting behavior and their explanations for it, etc.


ON Wednesday, Permodalan Nasional Bhd (PNB) was a central player in two unrelated corporate developments. Of course, the top news of the day was the fund manager's general offer for shares in property developer SP Setia Bhd.

That alone warrants StarBizWeek today offering at least a cover feature and a comment piece. And there will surely be more coverage in the coming weeks as the story unfolds.

PNB's other headline-grabbing corporate manoeuvre on Wednesday was equally intriguing and surprising. At the AGM of stationery maker Asia File Corp Bhd, PNB voted against the reappointment of three independent directors and refused to approve the directors' fees of RM242,000 for financial year ended March 2011.

However, PNB didn't have enough votes to outnumber the ayes, and the resolutions went through. Although the state-owned company failed to change the outcome of the AGM, it certainly made a statement. Only thing is, what was it trying to say?

The Asia File management doesn't seem to know. A daily quoted executive chairman Lim Soon Huat as saying: “They (PNB) decided to request for a poll (to vote on the resolutions) without notifying us ahead of time and we were shocked. The reason given by the representatives who attended the shareholders' meeting was that their boss told them to vote like that.”

The same newspaper labelled PNB's move at the Asia File meeting as “a rare display of shareholder activism”, but that's stretching things a bit.

It's not the first time that shareholders act mysteriously and without warning when there's no indication of any dispute at shareholder or boardroom level during general meetings to block the passage of routine resolutions, such as the re-election of directors.

For example, during the AGM of Chemical Company of Malaysia Bhd (CCM) in April 2003, the voting on the 11 resolutions were by way of poll. Three were not carried, including the resolution to re-elect group executive director Oh Kim Sun, who had been slated to take over as CCM's managing director in October that year. The identity of the shareholder who voted against the resolutions wasn't made public.

There were similar instances last year at the AGMs of Envair Holdings Bhd, Industronics Bhd, Seacera Tiles Bhd and Nakamichi Corp Bhd, when plain vanilla resolutions were defeated. Are these cases of shareholder activism at work too? We don't know the answer because the shareholders concerned haven't come forward to say why they were against the resolutions.

It's a good time to revisit the concept of shareholder activism. For one thing, it takes more than showing up at a shareholders' meeting and blind-siding everybody by silently opposing resolutions.

Instead, it ought to involve active engagement with the relevant parties (the board and management, and other shareholders and stakeholders) to bring about changes in a company's policies and actions. Usually, it's about pressuring company executives, and that requires using the media and mobilising public opinion.

The February 1999 Report on Corporate Governance by the High-Level Finance Committee on Corporate Governance refers to shareholder activism by institutional investors in the context of “demanding and pursuing higher corporate governance standards”.

The Securities Commission's (SC) Corporate Governance Blueprint 2011, issued in July, brings an updated perspective on this topic, plus a deeper discussion. In recommending the formulation of a code for institutional investors, the document says such a step can strengthen the accountability of institutional investors to their own members and investors.

“Responsible ownership requires high standards of transparency, probity and care on the part of the institutions, which may be met by adhering to a set of over-arching principles in the form of a code for institutional investors. There is a need for institutional investors to review their existing practices in the light of growing recognition of the significance of their role and heightened expectations to monitor management and moderate managerial discretion,” adds the SC in the blueprint.

“The new code will require institutional investors to explain how corporate governance has been adopted as an investment criteria and the measures they have taken to influence, guide and monitor investee companies. It is also important for institutional investors to include governance analysis in their investment appraisal to help identify better governed companies.”

The plan is for institutional investors in Malaysia to form a working group to draw up the code. The blueprint lists some areas in which there should be best practices to be incorporated in the code. No.1 is “Commitment to engagement”.

“The code for institutional investors must address the issue of transparency with regard to institutional investors and their agents' commitment to meaningful engagements and whether such engagement policies are effectively implemented,” says the SC.

Hopefully, we don't have to wait long for the code. It tickles the imagination to speculate on the motives behind the strange goings-on at AGMs and EGMs, but people don't invest based on amusement value. It's far better that we work towards having true shareholder activism, when ownership rights are exercised openly and responsibly.

Maybulk: before and after POSH

These are the pictures from Maybulks 2007 year report:

Profits and earnings were rising nicely and even shareholders equity was going up despite paying large dividends. It can't get much better than that. This was the company I liked so much that I invested in. A good part of the profits was from selling vessels, but this was almost recurring in nature, Maybulk seemed to be very skilled in it.

This is the share price chart until the announcement of POSH:

It reached a high of RM 5.40, it had come down since then due to the global economic outlook. Also there were worries about oversupply for tankers and bulk carriers. On the other hand, Maybulk would go into the recession with more than RM 1,400,000,000 in cash and short term deposits (September 30, 2008), not many companies on the Bursa Malaysia would be in such a sweet spot. Surely the management of Maybulk would use the money wisely?


But then, out of the blue, the company announced the controversial POSH deal, and things would never be the same again for Maybulks shareholders.


From the 2010 year report:

Profits down and dividend cut from 38ct to a paltry 10ct a share. Revenue and profit for the first half of 2011 would be 26% and 10% down and the investment in POSH had worked out badly.

From Ze Moola's website "Maybulk: Does poor corporate governance have a negative impact on a stock?":

http://whereiszemoola.blogspot.com/2011/09/maybulk-does-poor-corporate-governance.html

Ze Moola stressed that Maybulk had bought listed securities in the past without disclosing details. I agree that companies should disclose this important information. In Maybulk's case it  involved amounts larger than RM 100 million, why do shareholders get a detailed list of all properties and vessels, but not of the listed companies it invested in? Also, if companies don't need the cash it should consider distributing it in the form of dividends to the shareholders.

This is the 3 year chart comparing Maybulks share price with the CI from Ze Moola's website:

An amount of RM 100 invested in a basket of CI shares would be worth about RM 135, the same amount invested in Maybulk shares only RM 70, in other words Maybulk has underperformed by a very large amount since the announcement of the POSH deal.

We can see from the above graph that Maybulk initially held up quite well. Looking at the changes of shareholding of the Bursa Malaysia website it seems that EPF was (almost) solely responsible for that. On the day the POSH deal was first announced (September 15, 2008) EPF owned 56 million shares. Surprisingly, EPF must have liked the deal a lot, since it kept on buying Maybulk shares until February 2010 when it owned 83 million shares. Apparently they changed their mind about Maybulk since they have been net seller ever since, their current holding is 72 million shares.

To me it is a mystery why an organization like EPF bought 27,000,000 shares in a company with a large controversial Related Party Transaction as described in the previous blogs about Maybulk. And then, finally, changed its mind and started to sell 11,000,000 shares in the open market.


Maybulk announced another related party transaction occurred in 2009:

"Malaysian Bulk Carriers Berhad (“MBC” or “the Company”) wishes to announce that its subsidiary, Ambi Shipping Pte Ltd (”Ambi Shipping”) has signed a Memorandum of Agreement dated 25 September 2009 to acquire a vessel, Ikan Juara, from Juara Shipping Pte Ltd (“Juara Shipping”) for a cash consideration of USD23.75 million. This is a related party transaction as Juara Shipping is itself a wholly-owned subsidiary of Pacific Carriers Limited (“PCL”), a major shareholder of MBC."

But Maybulk didn't want to disclose for which price it bought the vessel for, and thus also not the profit it had made on it:

"Pursuant to a confidentiality agreement between the lessor and the lessee (PCL Group), the original cost of investment cannot be disclosed."

I urged the authorities (Securities Commission and/or Bursa Malaysia) to pursue this matter, not having to disclose the original cost of investment would mean that related party transactions can not be properly checked by minority shareholders.

For the benefit of the readers I will reveal the original cost here: USD 17,608,071. In other words, PCL booked a profit of USD 6.14 million or about RM 21,300,000. Not bad since PCL only bought the vessel two months before.

I retrieved the above information from the ACRA website in Singapore at a fee. Why was this (publicly available) information not revealed to the shareholders of Maybulk, and why did Bursa Malaysia not want to press this issue further? Should all shareholders have to go through the hassle of finding out where this information can be found?

PMI, serious Corporate Governance Issues

PMI (Pan Malaysian Industries Bhd) today issued its notice to shareholders:

http://announcements.bursamalaysia.com/EDMS/subweb.nsf/all/5BA3E1652E0A2ECF482578FF002E0B56/$File/PMI-%20Notice%20to%20Shareholders.pdf

I have blogged about PMI and its General Offer with delisting threat before:

http://cgmalaysia.blogspot.com/2011/08/pmi-sad-story-for-minority-shareholders.html

Ze Moolah blogged three times about PMI:

http://whereiszemoola.blogspot.com/search/label/PMI

In the most recent one, http://whereiszemoola.blogspot.com/2011/08/and-pmi-minorities-are-rewarded-so.html, he detailed how badly Minority Investors would have done if they had bought shares in 1993 due to all the rights issues and the falling shareprice due to the horrible financial results.

According to the latest year report there are only four directors in PMI at the moment, all non-executives. The only independent director in PMI is Ooi Boon Leong, 74 years old. However, I would doubt his independency since he has been with PMI for 20 years. He is also the Chairman of Pan Malaysia Holding Bhd. which is 69% deemed controlled by PMI. He was ousted as an director from Chemical Company of Malaysia Bhd. (CCM), a company partly controlled by MUI (again linked to PMI), most likely through the vote of Permodalan Nasional Bhd. (PNB). In the following article, Ooi is called a “Malayan United Industries Bhd (MUI) Group-linked directors”.

http://www.asiaviews.org/index.php?option=com_content&view=article&id=3219:headlinealias3219&catid=1:headlines&Itemid=2

“Another tussle is brewing at Chemical Company of Malaysia Bhd (CCM). In its recent annual general meeting (AGM), both Malayan United Industries Bhd (MUI) Group-linked directors, Khet Kok Yin and Ooi Boon Leong @ Law Weng Leun, failed in their bid for a re-election. They were among five directors seeking re-election, but the other three, Datuk Tan Kay Hock, Datuk Mohd Hussaini Abdul Jamil and E Sreesanthan all passed their bid.

Instead of a simple show of hands, both Khet and Ooi’s re-election went through the ballot poll. Interestingly, the poll was called by CCM’s largest shareholder, Permodalan Nasional Bhd (PNB). For the record, PNB has a 27.63% stake at CCM, while MUI’s Pan Malaysia Industries Bhd is CCM’s second largest shareholder with a 26.94% stake. During the AGM, some 58% of shareholders representing some 294 million or 80.4% of total shareholders voted against these directors. At time of writing, it is still unclear why PNB called for the poll and why both MUI-group linked directors did not get enough support. Perhaps, this tussle is still too soon to call, expect more CCM events to dominate the headlines in the coming weeks.”

Unfortunately, as usual, we do not know the reasoning off PNB, which has always been much too secretive about its motives, similar to the other large institutional investors in Malaysia.

EPF has issued its Corporate Governance Principles and Voting Guidelines:

http://www.kwsp.gov.my/index.php?hdl=bin&rp=976

PMI doesn't seem to pass the Corporate Governance guidelines from EPF:

• A minimum of 7 directors (PMI only has 4) for each listed company
• A balance between executive and non-executive directors: there are only non-executive directors
• A succession plan for directors exceeding 70 years old: PMI doesn’t seem to comply with directors of 72, 74 and 77 years old
• Independent director’s term should be limited to 12 years: Ooi Boon Leong is already 20 years a director of PMI

On 8 March 2006 PMI had become an affected listed issuer pursuant to PN17. A restructure followed including a rights issue. That issue was not received very well by Minority Shareholders, the total acceptance was only 31.2%, most likely all by the Majority Shareholder who also took care of the excess applications.

The prospectus can be found here:

http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/3b9b5800077b48694825752700270f93/$FILE/PMIND-Page%2071%20to%20Page%20140%20(2.1MB).pdf

PMI had to make a forecast for the earnings and projected losses (page 86 & 87) in 2009, 2010 and 2011, which is what indeed happened. But interestingly enough, it projected profits from 2012 onwards due to:

• Rental renewals at higher prices
• Development profit from the project on the acquired land
• Increase in price of MUI shares
• Reduced interest expenses

If this projection is still valid, would it not be strange to delist the company exactly when it starts to turn around?

Probably the strangest of the whole exercise is why two large shareholders sold their shares, both exactly at Aug 25^th 2011, for the paltry amount of RM 0.045, about the lowest price ever in the history of PMI. The shareholders (both companies are registered at the same address: 10th Floor, Menara Hap Seng, No. 1 & 3, Jalan P. Ramlee, 50250 Kuala Lumpur) are:

• Hope Foundation, 241 million shares
• Permata Bistari Sdn Bhd, 160 million shares

Even in 2011 the share has traded often between RM 0.055 and 0.070 cent (22% to 55% higher than the offer price), and just a few years ago in 2008 it traded at much higher prices, between RM 0.20 and RM 0.40.

It should be noted that the maximum price that was paid to Hope Foundation and Permata Bistari Sdn Bhd is the price that is offered to the Minority Investors, so its is very relevant for the General Offer. Interestingly, both companies have also invested in the past in Pan Malaysian Capital Bhd.

What can Minority Shareholders do?

They can file a complaint with the Securites Commission aduan@seccom.com.my, preferable with a copy to the Minority Shareholder Watchdog Group: watchdog@mswg.org.my

I will email both organisations about the above issues, although I am not a shareholder of PMI.

Especcially relevant are the following issues:

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

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

Source: page 202, "Capital Markets and Services Act 2007"