Unique events for Bursa Malaysia?

Two former directors sentenced to jail and fined for CBT

http://www.sc.com.my/main.asp?pageid=379&linkid=2923&yearno=2011&mod=paper

"The Kuala Lumpur Sessions Court today found two former directors of Multicode Electronics Industries (M) Berhad, guilty of committing criminal breach of trust under section 409 of the Penal Code involving over RM26 million of funds belonging to the company.

Gordon Toh Chun Toh was sentenced to 12 years imprisonment while Dato' Abul Hassan bin Mohamed Rashid received a jail sentence of six years. Gordon Toh, a Singaporean, was also ordered to pay a fine of RM1 million, in default two years imprisonment."

Long prison sentences are the only real deterrent for would be offenders. However, there might be an appeal so we have to wait if the sentence will uphold.

Yesterday the independent advice regarding EPIC (Eastern Pacific Industrial Corporation Bhd) was send to the shareholders. The independent adviser Alliance Investment Bank found the offer "fair and reasonable" and advices shareholders to accept the offer. No surprise there, but to be honest, the advice was quite decent.

However, I was very pleasantly surprised by the following:

It is very, very rare for companies listed on the Bursa Malaysia that a director disagrees in public. His reasoning can be found here:

I actually completely agree with Mr. Wan Salleh, nothing to add. I take my hat off for him, as one of the rare directors to dare to speak out in public.

However, on another matter, I was not too pleased about the timetable of this offer:

Shareholders had already nine days the Offer Document with text like "no intention to retain the listing status", "mandatory acquisition", etc. They might be tempted therefore to accept already, not waiting for the independent advice that was send only yesterday. I would strongly suggest combining the two documents in one and sending them together to the shareholder.

BRDB asked to disclose stock owner?

http://biz.thestar.com.my/news/story.asp?file=/2011/9/24/business/9566181&sec=business

"Bandar Raya Development Bhd (BRDB) has been asked by Bursa Malaysia to clarify to its shareholders issues that have been raised in the media regarding the company's proposal to hive off key assets to its major shareholder, reliable sources said.

One of the most sticky issues related to the deal is the unknown identity behind an influential 23.6% block of shares in BRDB held under a nominee account for Credit Suisse.

The Minority Shareholder Watchdog Group (MSWG) had pointed out that this stake was very likely to be the deciding factor in whether the asset sale would go through. This is on the basis that the 23.6% block amounts to 30% of total disinterested shareholders of BRDB and in turn might comprise 50% of votes of shareholders who actually turn up to vote on the matter, which requires only a simple majority to go through."


BRDB "has been asked to clarify"? I definetely hope that some more harsh terms have been used, like "summoned". I am hoping for total transparancy here, both regarding the details of this mysterious shareholder(s), and his/her voting at the EGM.

The Edge: Maybulk/POSH, EPIC, Kretam

In the Edge of September 19, 2011 a few interesting articles:

"POSH continues to be a thorn in Maybulk's side"

At a recent analyst briefing, Malaysian Bulk Carriers Bhd (Maybulk) CEO Kuok Khoon Kuan conceded that the company's 22.08% investment in associate company PACC Offshore Services Holdings Pte Ltd (POSH) was a disappointment. But while accepting the fact that POSH's performance was not as good as expected, he expressed optimism that the industry could have seen some of its worst times."

For the first time ever the management of Maybulk admits that the acquisition of POSH was a disappointment, I would call that a huge understatement. Related Party Transactions (RPT's) have a very bad name in Malaysia, but RPT's during economic crisis are even worse and this deal was no exception. An amount of more than RM 800 million cold hard cash from a Malaysian company was used to acquire a minority part of a much overvalued Singaporean company. The circular was as usual of very low quality, leaving out lots of important (and even essential) information, the valuation of the fleet was suspect (the valuer didn't support his own valuation anymore), the "independent" advice from KPMG was even worse. The Minority Shareholder Watchdog Group (MWSG) didn't want to fight this case for unknown reasons, very disappointing.

The deal went through after a heated EGM, I strongly suspect that funds like Bank Pembanguan Malaysia Berhad, EPF, PNB etc. voted in favor of the deal, as usual, since they alone could easily have blocked it.

I (a foreigner!) fought tooth and nail to stop this deal, but to no avail. I filed many well documented complaints with the Securities Commission (and implied to Bursa Malaysia who is responsible for the quality of the circulars). The case is still pending, almost three years have passed and still no action has been taken. That was one of the reasons for me to start this blog, the way genuine complaints are being stonewalled is simply unacceptable. If the intent is to actively discourage people from filing complaints, then the authorities are doing an excellent job.

I will write in detail about this deal in a few episodes. I still completely not understand how Maybulk, a company with an excellent trackrecord of highly regarded majority investor Robert Kuok, could force such a bad deal through. In an interview on September 9, 2011 Robert Kuok explicitly mentions how he always wanted to come up for the publics interest, not only his own. Were his lieutenants too eager, too sharp? Did the sugar deal with Tan Sri Syed Mokthar have to do with it? I have no idea, we probably will never know. But this deal was really, really bad and justice should be done, it is long overdue. Minority investors who held on to their Maybulk shares suffer up to this day, the share has underperformed the KLCI substantially and the dividend has been cut.


Fair compensation?
"shareholders who purchased EPIC shares after December 10, 2010, will not be entitled to the cash compensation. Is this fair, considering that the announcement that two Terengganu state entities had triggered an MGO for EPIC was only made on August 24 this year? That is a delay of more than eight months."

The above is about the cash compensation scheme where only shareholders can claim money who held the stock at December 10, 2010. It is an interesting dilemma.


PT's should be whiter than white
"Kretam's Holdings Bhd's recent acquisition of a piece of land in Sabah has rubbed some of its minority shareholders the wrong way. In the related party transaction, Kretam is acquiring, among others, Abedon Sdn Bhd, which owed the piece of land. Abedon and Kretam have a common shareholder in Datuk Lim Nyuk Sang, who is the CEO and controlled 55.63% of Kretam before the acquisition. The vendors received new Kretam shares and ICPS at an issue price of RM 2.30 each in exchange for the land valued at RM 413.2 million. The minorities contend that the exchange is lopsided as the deal imputed a much higher value for the piece of land than the value implied for Kretam's own landbank, based on RM 2.30 per share valuation.

RPT transactions are often onerous and to avoid suspicion, substantial shareholders would do well to ensure that such deals are whiter than white."


The problem with RPT's in Malaysia is that they are simply not white, they are black. The large majority that I have seen are plain bad, sometimes worse. There is a whole layer of protections for minorities (which seems to give ample protection), but in almost all cases they will all fail:

• Directors (especially Independent ones) should speak up, they don't
• The Independent Adviser should write an unbiased report, they don't
• Bursa Malaysia should insist on unbiased circular plus independent report, they don't
• PNB, EPF, LTAT, etc should vote against bad deals, they don't
• And after the deal has been done, the Securities Commission should act on complaints, they don't

This is going on for a very long time, and still nothing has changed. And in the last Corporate Governance Blueprint 2011 there is no word about how to give minority investors a fighting chance in these kind of corporate deals.

Updates on Corporate Exercises

Sime Darby / Eastern & Oriental: no news yet regarding a possible Mandatory General Offer (MGO) by Sime Darby or the investigation regarding possible insider trading. On one side we want a fast decision regarding the MGO, every day that goes by people trade the shares of the two companies with incomplete information. On the other side, we do want a good and proper decision, hopefully with an detailed and clear explanation to which future cases can refer back to. Sime Darby's share price suddenly plunged on the possibility of having to make a MGO. But E&O's shareprice is very much below the possible MGO price. The two contradict each other, it will be an interesting case to follow.

Pan Malaysian Industries Berhad (PMI): No news, the majority shareholder is buying some shares of PMI at the market for RM 0.045. The announcement of the unconditional take-over offer was made on August 26 2011, the offer document would be posted within 21 days, that has passed already. PMI also still needs to appoint at least one more independent director (there is only one at the moment), I think they are too late with that as well.

Eastern Pacific Industrial Corporation Berhad (EPIC): the offer document relating to the unconditional take-over offer for RM 3.10 per share and the compensation document for the cash compensation have been posted on September 14, 2011. Alliance Investment Bank will be independent adviser.

DXN Holdings Bhd: conditional take-over offer for RM 1.75 per share. OSK Investment Bank will be the independent adviser (announcement September 8, 2011).

DXN and EPIC are both very decent companies and it would be a pitty if they would be delisted. I am afraid that the chance of both being delisted is quite high though. Instead of trying to persuade foreign (especcially Chinese) companies to list in Bursa Malaysia, I think it would be more worthwhile to investigate why these very decent, medium sized companies are going for delisting. The overall quality of the 1000+ listed companies is already not that great, hundreds and hundreds of listed Malaysian companies have a long term Return On Equity (ROE) below the yield on a Fixed Deposit.

EPIC: Majority Shareholder forgot to make a GO!

In The Edge, August 29, 2011 appeared the article “An EPIC lack of transparency”:

“Last week EPIC Bhd. Announced that Lembaga Tabung Amanah Warisan Negeri Terengganu (LTAW) and parties acting in concert had made a general offer (GO) for the shares they did not own at RM 3.10 apiece.

Apart from the GO to existing shareholders, LTAW plan to compensate those who had sold their shares at below RM 3.10 between Dec 10, 2010 and Aug 23, 2011. The cash payment will be the difference between RM 3.10 and the price at which investors sold their shares in this period.

So, why is EPIC so generous?

The trigger for the GO was the completion of the purchase of a 21.6% stake in EPIC from Ahmad Zaki Resources Bhd (AZRB) by LTAW on Aug 23. EPIC’s announcement says the purchase has lifted the equity interest of LTAW and parties acting in concert to 67.24% from 45.67%.

However, the acquisition process had started way back in on Nov 24 last year when LTAW signed a share sale agreement (SSA) with AZRB to buy its stake in EPIC at RM 3.10. The SSA became unconditional on Dec 10, triggering a GO, the latest announcement says.

The fact is, EPIC’s shareholders were not told that the controlling shareholder was obliged to make a GO. It is baffling why the offer was not made as soon as it appeared that the state, acting via LTAW, had triggered a mandatory GO.

In a takeover exercise such as this, transparency and adherence to the rules of corporate governance are of utmost importance. How can we expect compliance from the corporate sector when state authorities do not play by the same rules?”

Oh my, somebody has been sleeping on the job. And that was not the first time as it was already apparent in the 2010 year report:

EPIC Year report 2010

On page 222 (page 132 of the PDF-file) TISB (Terengganu Incorporated Sdn Bhd) owns 40.59% directly and indirectly. This is wrong since TIS’ ATA’ Ashar Sdn Bhd owned 3.89% of the shares and LTAW 0.98% of the shares, so the percentage of indirect controlled shares should have been 45.46%.

Unbelievable as it is, it seems to be an honest mistake, and the good news is that it is rectified, people who sold their shares in the past after Dec 10, 2010 will also receive RM 3.10. I wonder though what they would do if somebody was actively trading in EPIC shares, would he receive the full RM 3.10 every time he sold his shares and bought some back later on again?

If Bursa Malaysia had followed David Webb’s example, they also should have picked up on this mistake.

http://cgmalaysia.blogspot.com/2011/08/where-is-malaysian-david-webb.html


"Increase transparency by providing a Malaysian database similar to the one David Webb has provided on his website. This will be a useful tool for all serious investors and bring back their attention. Secondly, this will be a very useful tool for the enforcers themselves. Thirdly, journalists can tap from this source for their stories."

On the bad side, this is another GO with “delisting and compulsory acquisition threat”. Again, a GO is good, but I hate the "delisting" threat since Minority Shareholders don't stand a chance to fight it.

The “independent” advisor will most likely follow the wish of the majority shareholders (they do in about 99% of the cases in Malaysia), so Minority Shareholders will not stand a chance. On a side note: I hope that “independent” advices will be abolished soon, but if the Securities Commission decides not to do, then at least I hope they will rename them to “dependent” advices.

The public shareholding spread of EPIC is only 32.7%, since unit trust funds (there are quite a few funds from Public and Great Eastern invested in EPIC) will most likely not be allowed to hold shares in unlisted companies they will be forced to sell. The 25% barrier will be quickly breached, the 10% will most likely follow. Pity, since EPIC is a clearly better than average company: