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.

Bursa: world's longest bull market

Article from Bloomberg: "World's Longest Bull Market Endures Turmoil as Foreigners Return"

Some snippets in italics, with comments by me:


"Malaysia’s energy exports are tumbling, its prime minister is battling corruption allegations and corporate profits are weakening. With all that, the Southeast Asian nation is also home to the world’s most resilient bull market for stocks."


I have written before about the weakening corporate profits.


"Sentiment remains stubbornly buoyant in Malaysia, home to some of the region’s highest dividends, as the country’s $166 billion pension fund underpins demand for equities with share purchases. Even after the FTSE Bursa Malaysia KLCI Index climbed 12 percent from a three-year low in August, it trades near the cheapest relative to global equities in almost a decade."

To sum up:

• Corporate earnings of the 30 Bursa heavyweights have been disappointing since 2012
• Dividends are some of the region highest
• The KLCI index has steadily climbed without a 20% correction
• And P/B ratio is one of the cheapest in the world, having come down from about 1.4 (in 2012) to about 0.8 (currently), relatively speaking

"... the country’s $166 billion pension fund underpins demand for equities with share purchases"

“Malaysia’s bull-market run is primarily driven by institutional support, especially government-linked funds,” said Tan. From 2008 till now, the Employees Provident Fund has seen strong inflows, with assets growing by a compounded annual growth rate of almost 10 percent, he said.

This (the support by government linked funds) sounds all quite artificial, there is clearly a lot riding on the performance of Bursa, but the question is if it is sustainable in the long term.

Does Malaysia really need another fund?

Article in The Malaysian Insider:

"VCAP Asset Managers launches fund to invest in blue chips"

With so many GLFs (Government Linked Funds) already, do we really need another fund?

Given the recent events, would it not be better to freeze all existing funds launches and pay more attention to the very backbone of Malaysia? In other words, to significantly shore up the institutions, in terms of transparency, responsibility, independence, etc.?

Also, would it make more sense to redeem some government loans with the money, instead of dabbling in the local share market, something that is best left to private players?

One snippet of the above article (emphasis mine):


"But because this is an actively managed fund, hopefully you'll get decent outperformance above and beyond blue chip returns"


Can the CEO of VCAP give some facts regarding the possible outperformance?

It is a well known fact that in the US the large majority of the actively managed funds underperform their respective benchmark. Would this be any better in Malaysia?

I personally believe in two extremes:

• Passively managed funds, investing in a basket of shares with the lowest possible management fee (a small fraction of one percent): ETFs.
• Actively managed funds, run by fund managers with a long history of outperformance; often these managers have a contrarian, maverick streak in them.

VCAP is a unit owned by Khazanah, KWAP and PNB, the words "contrarian" and "maverick" do not exactly come into my mind when I think about them.

Fund managers underweight Malaysia

Research from JP Morgan shows that Emerging Market (EM) fund managers have a large underweight allocation for Malaysia. In a survey of key EM managers, only 2 were overweight versus 29 underweight. The resulting score of -27 being the lowest of all major EM countries (some small countries like Qatar having an even worse score).

From the picture on the right can be deducted that the underweight position for Malaysia has been steadily increased from 2008 onwards.

What could be the reasons for them being underweight? Possibly:

• Not very interested in the GLC's (Government Linked Companies)
• Low Daily Turnover on many counters, too low for large fund managers
• Fund managers still remembering the Asian Financial Crisis

I personally have a feeling that trading appears (sometimes) artificial, with large-cap counters (GLCs) being supported by certain (government linked) funds (GLFs).

Malaysia's weight in the index of EM countries has also substantially decreased, once one of the darlings of EM countries, its weightage is now only 3.9%.

Anyhow, not all is lost, Malaysia still might be a good hunting ground for value investors, but then more towards the small and medium cap stocks.

Triumphal and Perak Corp: unfair privatisations?

Article in The Star: "Will minority shareholders triumph in seeking higher value?".


"It has been reported that a group of individual shareholders who own a combined 4.4% stake in Perak Corp have deemed the RM3.90 per share offer by Perak Corp as “ too low”. This is taking into account the fact that the company’s underlying assets, which have not been revalued in a long time, have appreciated. Perak Corp is the owner of Lumut Port via listed Integrax Bhd – an asset that has huge income-generating potential. Its two major property assets, meanwhile, are the 256.8ha in Bandar Meru Raya and 186ha in Behrang.

The minorities estimate that Perak Corp’s revalued net asset value (NAV) is more than RM12. The company’s NAV per share as at Sept 30, 2013 was RM5.03, while it is sitting on RM180mil in cash.

In Triumphal’s case, the offer of RM1 is at a 65% discount to the company’s NAV per share of RM2.84 as at Sept 30 last year. It has been pointed out by analysts that the company has strong asset backing and was in a net cash position of RM17.81mil as at Sept 30 last year."


Delisting exercises are often unfair in Malaysia, done at a steep discount to its NAV (while sometimes the NAV is even conservatively valued). There is a rather awkward "reward" for controlling shareholders, if they don't extract clear value from a listed company then the share price will go down and the controlling parties are able to privatize the company for a low price. Minority investors are often unable to fight these exercises, being a dispersed group.

However, in this case:


"Two major local institutions now have the opportunity to challenge recent privatisation deals involving Bursa Malaysia-listed firms which are seemingly unfair to minority shareholders. The institutions are Permodalan Nasional Bhd (PNB), which owns 12.18% in Triumphal Associates Bhd, and Sime Darby Property Bhd, which controls a 6.13% block in Perak Corp Bhd."


With the current attention for more shareholder activism by institutional investors, these cases come quite timely. Will PNB and Sime Darby put up a fight?

MSWG holds an investor education forum on January 23, 2014 at 10.30AM about these two cases, but also about Kian Joo Can Factory and BERNAS. Interested parties might want to contact MSWG about this event.

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").

Lending money to a related company is a no-no (2)

I received a lot of hits recently on my previous post of eight months ago:

Lending money to a related company is a no-no.

The reason for this is that Related Party Transactions (in the normal course of business) have to be approved yearly, and it was the time of the year again for Panasonic.

The circular to the shareholders can be found here.

Unfortunately, it seems that Panasonic wants to continue with its practice of lending out huge amounts of money to a 100% owned subsidiary (PFI, Panasonic Financial Centre Malaysia) of its controlling shareholder.

The important paragraph can be found here:

The lowest amount of money at the end of each month was a whopping RM 444,000,000.00!

Surely not all that money is needed as a reserve for a rainy day?

I don't have anything further to add to my previous article, I definitely can't improve on the way David Webb worded his objections against this bad governance practice.

I hope that active fund managers like Aberdeen Asset Management (they own 14% of Panasonic) and organisations like MSWG openly voice their dissatisfaction with the above matter at EGMs or in the press.

Hopefully one day Panasonic will change its way, and return back the excess cash to its shareholders in the form of a large cash dividend.

There are about 1,000 companies listed on the Bursa Malaysia, and Panasonic easily belongs to the best 100 companies, if not better, the above is therefore really a shame.

Unfortunately, it looks like there will not be a change any time soon, since the proposal to continue with these practices was approved. The exact amount and percentages of votes were not revealed though, which is also disappointing.

It would be interesting to know how government linked funds (GLFs) have acted on this matter, I have a suspicion that they are much to passive in voicing their concern and that they might not always vote in the best interest of the minority shareholders. They are managing public money, so there should be lots of transparency here.