The ink was not yet dry of my previous posting while Glaucus Research posted their short seller report about Real Nutriceutical Group Limited (HK: 2010).
The share is down about 9% at the moment.
Many of the allegations in the report touch on similar concerns related to many of the China listed companies on Bursa.
Showing posts with label Glaucus. Show all posts
Showing posts with label Glaucus. Show all posts
Thursday, 22 October 2015
Sunday, 24 November 2013
Finally Prince Frog responds (2)
One person was so kind to send me the comments by CLSA (one of the brokers whose reports tend to have a rather high quality). I mostly agree with their opinion, some snippets (and comments by me in blue):
Good news for Prince Frog today as the HKEx has given the company the green light to address investors and publish an important clarification document. While the company’s defence leaves open questions about its market share, we are encouraged that management of Prince Frog is taking the issue seriously.
[of course they had to, if they had not addressed the issues, that would have been the largest red flag possible]
We cut our target multiple to 9x 15CL PE, a 50% discount to peers given the overhang of the market share question. We cut our recommendation from BUY to O-PF and would be BUYers of the stock below HK$3.5.
[my problem with valuing this kind of companies is that either some of the accusations of Glaucus are true (in which case any price might be too high), or all accusations are wrong (in which case the current price might be decent); the large drop in share price seems to indicate that some investors think there is at least a decent chance that (part of) the accusations of Glaucus are true]
The lengthy clarification document provides a comprehensive defence of the company aimed primarily at discrediting the Glaucus short-seller report. While it lacks hard evidence (bank statements, sales receipts, etc.) [that was one of my problems with the report, it could have been much more concrete, another area is comparisons with other companies in the same industry] the simple fact that the exchange allowed the company to publish should be viewed as a positive. The continued implicit backing by the company’s auditor is also a key point which is inferred from the document.
Prince Frog has provided a lengthy defence based mostly on the fact that their sales are in 3rd and 4th tier cities and it is unclear if Nielson’s data set covers the area where Prince Frog is making its sales. In specific Prince Frog notes: “the Company’s sales revenue derived from distributors located in the third and fourth-tier cities had consistently accounted for approximately 70% to 77% of the Group’s total sales in each financial year from 2008 to 2012.” The argument is that Neilson could not possibly cover these areas with a high percentage of accuracy hence the conclusion from the short seller report must be flawed.
While we believe the logic makes sense, there are going to be continued questions and overhang on this point. There is nothing new in the clarification document that would give investors more confidence in the company’s sales figures.
["high percentage of accuracy", when differences between methods used are very large, then there is no need for a high percentage of accuracy, so this issue will indeed remain]
The other major issue raised in the short-seller report is that the company’s taxes paid did not match with a list published by the local government. The company’s defence here is that there was an option to “opt in” to the government’s list of top paying enterprises. The company only opted in starting in 2012 which is why they were not on the list previously. A letter which confirms this was provided to the company and reviewed by the company’s law firm and stock exchange.
[I agree, anyhow these tax issues in China seem to be rather murky]
The report ends with:
More information is always good and we hope the company will continue to disclose this information in the future.
Good news for Prince Frog today as the HKEx has given the company the green light to address investors and publish an important clarification document. While the company’s defence leaves open questions about its market share, we are encouraged that management of Prince Frog is taking the issue seriously.
[of course they had to, if they had not addressed the issues, that would have been the largest red flag possible]
We cut our target multiple to 9x 15CL PE, a 50% discount to peers given the overhang of the market share question. We cut our recommendation from BUY to O-PF and would be BUYers of the stock below HK$3.5.
[my problem with valuing this kind of companies is that either some of the accusations of Glaucus are true (in which case any price might be too high), or all accusations are wrong (in which case the current price might be decent); the large drop in share price seems to indicate that some investors think there is at least a decent chance that (part of) the accusations of Glaucus are true]
The lengthy clarification document provides a comprehensive defence of the company aimed primarily at discrediting the Glaucus short-seller report. While it lacks hard evidence (bank statements, sales receipts, etc.) [that was one of my problems with the report, it could have been much more concrete, another area is comparisons with other companies in the same industry] the simple fact that the exchange allowed the company to publish should be viewed as a positive. The continued implicit backing by the company’s auditor is also a key point which is inferred from the document.
Prince Frog has provided a lengthy defence based mostly on the fact that their sales are in 3rd and 4th tier cities and it is unclear if Nielson’s data set covers the area where Prince Frog is making its sales. In specific Prince Frog notes: “the Company’s sales revenue derived from distributors located in the third and fourth-tier cities had consistently accounted for approximately 70% to 77% of the Group’s total sales in each financial year from 2008 to 2012.” The argument is that Neilson could not possibly cover these areas with a high percentage of accuracy hence the conclusion from the short seller report must be flawed.
While we believe the logic makes sense, there are going to be continued questions and overhang on this point. There is nothing new in the clarification document that would give investors more confidence in the company’s sales figures.
["high percentage of accuracy", when differences between methods used are very large, then there is no need for a high percentage of accuracy, so this issue will indeed remain]
The other major issue raised in the short-seller report is that the company’s taxes paid did not match with a list published by the local government. The company’s defence here is that there was an option to “opt in” to the government’s list of top paying enterprises. The company only opted in starting in 2012 which is why they were not on the list previously. A letter which confirms this was provided to the company and reviewed by the company’s law firm and stock exchange.
[I agree, anyhow these tax issues in China seem to be rather murky]
The report ends with:
More information is always good and we hope the company will continue to disclose this information in the future.
Thursday, 21 November 2013
Finally Prince Frog responds
Five weeks ago Glaucus Research launched its attack on Prince Frog. Trading in the shares of the latter company was halted and Prince Frog prepared an answer to the allegations. Only now the official reply was published. The time it took to respond is worrisome long, normal would be a reply within one week.
The reaction of the market was not good:
Although quite a bit of answers are given (in total 24 pages), doubts remain. I think Prince Frog could have been more specific in several cases.
Some reactions:
Bloomberg
Wall Street Journal
I expect Glaucus to respond soon.
The reaction of the market was not good:
Although quite a bit of answers are given (in total 24 pages), doubts remain. I think Prince Frog could have been more specific in several cases.
Some reactions:
Bloomberg
Wall Street Journal
I expect Glaucus to respond soon.
Thursday, 31 October 2013
Prince Frog as quiet as a mouse, NQ’s "Top Ten Lies", China Minzhong's earnings dive
I wrote before about "Prince Frog", it is already more than 2 weeks and the company has still not officially replied, worrisome. The longer it takes, the higher the chance the company is indeed a fraud.
Regarding NQ Mobile, targeted by Muddy Waters, the latter has written a new report called "NQ’s Top Ten Lies Since Friday". It can be found here. I am not an expert in this matter, but I did speak to someone knowledgeable in this area, and he told me that NQ Mobile was suspicious for a longer time, that there were enough rumours regarding the company.
Regarding China Minzhong, which was targeted by Glaucus, the company announced its quarterly results.
This looks like a nice picture:
But this not, earnings are down by 60%:
And this one is rather strange:
Cash up a lot, but borrowings also, why would a company want to borrow so much money if it has RMB 1.57 Billion in cash?
Indofood has acquired 89% of the company, we will have to wait how that will work out.
These are tough times for China based companies listed overseas, but they only have themselves to blame, in my opinion. Conservative accounting, a healthy dose of transparency and rewarding the shareholders through sizeable dividends would go a long way to battle the sceptical observers. But I haven't seen much of that lately.
Regarding NQ Mobile, targeted by Muddy Waters, the latter has written a new report called "NQ’s Top Ten Lies Since Friday". It can be found here. I am not an expert in this matter, but I did speak to someone knowledgeable in this area, and he told me that NQ Mobile was suspicious for a longer time, that there were enough rumours regarding the company.
Regarding China Minzhong, which was targeted by Glaucus, the company announced its quarterly results.
This looks like a nice picture:
But this not, earnings are down by 60%:
And this one is rather strange:
Cash up a lot, but borrowings also, why would a company want to borrow so much money if it has RMB 1.57 Billion in cash?
Indofood has acquired 89% of the company, we will have to wait how that will work out.
These are tough times for China based companies listed overseas, but they only have themselves to blame, in my opinion. Conservative accounting, a healthy dose of transparency and rewarding the shareholders through sizeable dividends would go a long way to battle the sceptical observers. But I haven't seen much of that lately.
Thursday, 24 October 2013
Glaucus targets Prince Frog (2)
It is already eight days ago that Glaucus published its report about Prince Frog, but the company still hasn't officially responded.
However, as "Imenwe" pointed out in the comments of my previous posting:
- BFM paid attention to this case (worrisome were some negative comments at the end about short sellers);
- Kim Eng (Hong Kong) wrote a company update about Prince Frog
Until now, the company has hinted (during conference calls) at several scenario's, but I find them not very convincing. Also, the longer it takes for the company to officially reply, the more worrisome it will get. A strong, confident company should first of all never have been in this place (especially since several rumours have been aired before), secondly should have quickly come with an accurate and strong riposte.
The reports both by Nielsen and the government of China are too different from what Prince Frog reports. I find it hard to reconcile them.
The extremely high margins and short "average days inventory turnover" versus industry players are worrisome.
The issue of Prince Frog having more sales in the lower tier cities, and less sales in the Tier 1 and 2 cities in China: I find that strange. Glaucus writes that Prince Frog has previously mentioned themselves that that was not the case. Also, a company that claims it grew eight fold compared to the industry only doubling its revenue, to me the way to do that is to aggressively market ones products in the bigger cities. In the smaller cities it is possible to do, but it would depend on huge manpower, and it takes a long time for that network to grow. In the areas of branding (getting good quality shelve space), marketing and distribution lots of effort have to be done.
If I had to make a choice which party to believe, based on the information that I now have, I would definitely choose Glaucus. For the shareholders of Prince Frog, I hope I am wrong.
Wednesday, 16 October 2013
Glaucus targets Prince Frog
Glaucus Research (about which we have written before, in the case of Singapore listed China Minzhong) this time has targeted "Prince Frog International Holdings Ltd" (1259.HK), a Hong Kong listed, China based producer of child care products.
Their report can be found here.
Main issue: Glaucus claims that Prince Frog's revenue is hugely overstated. It does give quite a bit of information to support its claim.
After releasing the report, the share price dropped quickly, about 25%.
HKEX has halted trading in the company, pending a clarification by the company.
The allegations are not new, a blogger has written before about the issue that revenue might be overstated.
However, I have received a research report by CLSA (dated August 24, 2013) which refers to an "in-depth" study done through more than 200 interviews with Chinese parents and found that Prince Frog is the 2nd best known brand behind Johnson & Johnson. This result is very different from the numbers presented by Glaucus.
The question is, was this study by CLSA done in a proper way, 200 is not that high number, and of the group of interviewed people was not chosen random, then the results might be biased.
Prince Frog did a conference call today, to clarify the items raised. However, quite a few answers were rather "evasive" (in my opinion). Two examples:
I guess we have to wait for an official announcement by the company, where they can give a detailed explanation of the situation.
Their report can be found here.
Main issue: Glaucus claims that Prince Frog's revenue is hugely overstated. It does give quite a bit of information to support its claim.
After releasing the report, the share price dropped quickly, about 25%.
HKEX has halted trading in the company, pending a clarification by the company.
The allegations are not new, a blogger has written before about the issue that revenue might be overstated.
However, I have received a research report by CLSA (dated August 24, 2013) which refers to an "in-depth" study done through more than 200 interviews with Chinese parents and found that Prince Frog is the 2nd best known brand behind Johnson & Johnson. This result is very different from the numbers presented by Glaucus.
The question is, was this study by CLSA done in a proper way, 200 is not that high number, and of the group of interviewed people was not chosen random, then the results might be biased.
Prince Frog did a conference call today, to clarify the items raised. However, quite a few answers were rather "evasive" (in my opinion). Two examples:
- Q: Given that the company has the frog cartoon, shouldn’t consumers throughout the country all know of the brand?
- A: The brand survey was based on 15-50 year olds. Children recognize the brand; but parents don’t necessarily. The survey methodology from Nielson was limited to 13,500 people across 30 cities.
- My opinion: 13,500 people is a lot; the answer on parents not knowing the brand is rather strange.
- Q: Clarification on insider Xie’s sell down in the stock?
- A: At the beginning of 2012, Mr Xie sold shares to the market to increase the free float to improve liquidity due to investor demand.
- My opinion: well, that is an "interesting" way to bring it. If a company books stellar results and the free float is limited, then the share price can only go one direction, up. Insiders selling while the company claims to book excellent results will always turn investors jittery.
I guess we have to wait for an official announcement by the company, where they can give a detailed explanation of the situation.
Friday, 6 September 2013
Glaucus vs Minzhong, some observations
The attention for the “Singapore Squeeze” (Financial Times) Glaucus vs Minzhong seems to wane. Probably good, since a lot more is happening in the world these days. Still some observations:
A good article can be found here, comparing the Glaucus vs China Minzhong case with the Muddy Waters vs Olam case.
Some more background of the situation in China can be found here.
"SIAS calls on regulators to punish short sellers", article in The Business Times.
"The heavy weight of the law must be felt by these mischievous perpetrators,” said SIAS President and Chief Executive David Gerald"
(SIAS is more or less the MSWG of Singapore)
Strong words, but the reader probably already know that I completely disagree with this argument. If people buy shares, convince others about their investment case (using subjective or even wrong arguments) and subsequently sell their shares for a tidy profit, that is exactly the same. And if those people would be prosecuted, countries better build a few more jails, since this is happening every day of the year in every country of the world.
In addition to that, Glaucus was very transparent about their interest, and their arguments were backed by a lot of data and arguments. One might not agree with some, but that is something else.
"The SIAS said yesterday that it has had meetings with China Minzhong and is satisfied the company has “vindicated itself”."
I find that a bold and rather naïve statement, I think to give such a definite answer much more work has to be done to give such a definite answer. Somebody on the Valuebuddies forum mentioned:
"China Aviation Oil, ACCS, HongXing and Jurong Technologies had been awarded Transparency award by SIAS and many investors had been hurt by investing into these companies. How many more of such useless awards does the Singapore market need to see before such awards are stopped?"
In my previous posting "And Glaucus responds ...." I wrote several times that it looked like Minzhong admitted that certain things were not in order.
Associate professor Mak Yuen Teen from the NUS Business School puts it more specific in a letter to The Business Times (emphasis mine):
"Is China Minzhong saying it keeps 2 sets of books?"
"China Minzhong has provided a succession of rebuttals to the allegations of US-based short seller Glaucus Research Group, including highly detailed ones on Sept 1 and 3, complete with extracts of source documents. Although its efforts in rebutting the allegations are commendable, they are unlikely to completely dispel the concerns raised by Glaucus. The source documents provided by the company can understandably provide only a partial picture of the true situation.
While the company has cited the fact that it has consistently received clean opinions from its external auditors and that the auditors have not withdrawn their opinions, the auditors themselves have been silent. Given the well-known challenges faced by auditors in China and the fact that all of China Minzhong's business is conducted through subsidiaries there, the auditors may be reluctant to bet their partners' bonuses that the allegations of Glaucus are totally without basis. It is likely that only a comprehensive special audit will be able to dispel all the concerns raised by Glaucus, but we cannot realistically expect a company to commission a special audit each time allegations are made about its financials.
Unfortunately, China Minzhong's latest announcement on Sept 3 contains statements that may not help its cause in dispelling concerns. It stated that "Glaucus's assertion that documents that are publicly available are more reliable than those not in the public domain is flawed. The public information was not obtained independently by the regulators but based on our filings. Where there is inconsistency in information, it is only logical to look to the source documents to verify the truth . . . for SAIC (State Administration for Industry & Commerce) filings, given the purpose and intention of such filings, the key consideration is to ensure that the company operates within its permitted business scope and duly informs SAIC of changes to its registered particulars". It stated that it places great emphasis on the accuracy of accounts which affect its tax liability but appears to admit that its SAIC filings may be inaccurate.
Is this a public admission that it is keeping two sets of books? Rather disconcertingly, it does not seem to see anything wrong with filing inaccurate information in order to comply with regulatory requirements.
Given that the company's filings to SAIC in China may be inaccurate, how can investors be sure that its financial statements and announcements to the Singapore Exchange here are really true and fair, especially when it is clear that regulatory enforcement is easier for Chinese authorities than for Singapore authorities?
China Minzhong's statement also confirms the challenges of doing proper due diligence for Chinese companies using publicly available information, even those filed with regulatory authorities in China, and once again highlights the risks of investing in Chinese companies."
A good article can be found here, comparing the Glaucus vs China Minzhong case with the Muddy Waters vs Olam case.
Some more background of the situation in China can be found here.
"SIAS calls on regulators to punish short sellers", article in The Business Times.
"The heavy weight of the law must be felt by these mischievous perpetrators,” said SIAS President and Chief Executive David Gerald"
(SIAS is more or less the MSWG of Singapore)
Strong words, but the reader probably already know that I completely disagree with this argument. If people buy shares, convince others about their investment case (using subjective or even wrong arguments) and subsequently sell their shares for a tidy profit, that is exactly the same. And if those people would be prosecuted, countries better build a few more jails, since this is happening every day of the year in every country of the world.
In addition to that, Glaucus was very transparent about their interest, and their arguments were backed by a lot of data and arguments. One might not agree with some, but that is something else.
"The SIAS said yesterday that it has had meetings with China Minzhong and is satisfied the company has “vindicated itself”."
I find that a bold and rather naïve statement, I think to give such a definite answer much more work has to be done to give such a definite answer. Somebody on the Valuebuddies forum mentioned:
"China Aviation Oil, ACCS, HongXing and Jurong Technologies had been awarded Transparency award by SIAS and many investors had been hurt by investing into these companies. How many more of such useless awards does the Singapore market need to see before such awards are stopped?"
In my previous posting "And Glaucus responds ...." I wrote several times that it looked like Minzhong admitted that certain things were not in order.
Associate professor Mak Yuen Teen from the NUS Business School puts it more specific in a letter to The Business Times (emphasis mine):
"Is China Minzhong saying it keeps 2 sets of books?"
"China Minzhong has provided a succession of rebuttals to the allegations of US-based short seller Glaucus Research Group, including highly detailed ones on Sept 1 and 3, complete with extracts of source documents. Although its efforts in rebutting the allegations are commendable, they are unlikely to completely dispel the concerns raised by Glaucus. The source documents provided by the company can understandably provide only a partial picture of the true situation.
While the company has cited the fact that it has consistently received clean opinions from its external auditors and that the auditors have not withdrawn their opinions, the auditors themselves have been silent. Given the well-known challenges faced by auditors in China and the fact that all of China Minzhong's business is conducted through subsidiaries there, the auditors may be reluctant to bet their partners' bonuses that the allegations of Glaucus are totally without basis. It is likely that only a comprehensive special audit will be able to dispel all the concerns raised by Glaucus, but we cannot realistically expect a company to commission a special audit each time allegations are made about its financials.
Unfortunately, China Minzhong's latest announcement on Sept 3 contains statements that may not help its cause in dispelling concerns. It stated that "Glaucus's assertion that documents that are publicly available are more reliable than those not in the public domain is flawed. The public information was not obtained independently by the regulators but based on our filings. Where there is inconsistency in information, it is only logical to look to the source documents to verify the truth . . . for SAIC (State Administration for Industry & Commerce) filings, given the purpose and intention of such filings, the key consideration is to ensure that the company operates within its permitted business scope and duly informs SAIC of changes to its registered particulars". It stated that it places great emphasis on the accuracy of accounts which affect its tax liability but appears to admit that its SAIC filings may be inaccurate.
Is this a public admission that it is keeping two sets of books? Rather disconcertingly, it does not seem to see anything wrong with filing inaccurate information in order to comply with regulatory requirements.
Given that the company's filings to SAIC in China may be inaccurate, how can investors be sure that its financial statements and announcements to the Singapore Exchange here are really true and fair, especially when it is clear that regulatory enforcement is easier for Chinese authorities than for Singapore authorities?
China Minzhong's statement also confirms the challenges of doing proper due diligence for Chinese companies using publicly available information, even those filed with regulatory authorities in China, and once again highlights the risks of investing in Chinese companies."
Tuesday, 3 September 2013
And Glaucus responds .....
Glaucus Research responded within one day on the documents submitted by China Minzhong.
I invite the reader to go through the whole document, the executive summary only takes one page, the more detailed information another 15 pages.
I find it a good, proper and fast response.
From the front page of The Business Times (Singapore) of today, some snippets with comments of mine in [red]:
"It [Minzhong] will also conduct more rigorous checks on the documentation of its customers and suppliers in China.
[sounds like an admission that the documentation of customers and suppliers was indeed not in order]
Mr. Lin: "China is still a developing country. Many things are still not regulated...."
[sounds like an admission that certain items might indeed not have been properly regulated]
"Among various things, Glaucus raised suspicions that China Minzhong's past sales and purchases might have been fabricated.
This was because a key customer which China Minzhong said had contributed to its sales from fiscal year 2007 onwards was found to have been incorporated only in November 2009.
Another key supplier had been deregistered and stripped of its business license in February 2010, but China Minzhong continued to trade with it until October 2010 until the company failed to meet supply quality.
Both China Minzhong CFO Ryan Siek Wei Ting and Mr. Lin yesterday shrugged off the accusations, noting that doing business in China is not a black-and-white matter as the regulatory environment is weak."
[it would have helped if they had been more specific]
"Said Mr. Siek: "When you do business, obviously the formal entity is important. But I think what is more important [seems to indicate that the formal entity might not have been in order] is that the sales are genuine, you really deliver the products, get the receipts, and collect the cash".
[one problem is that the receipts are not available in public, and most likely run in the thousands and thousands of papers, Minzhong only showed a hand full of them]
Lin said: "Business in China is complicated. But facts are facts. You can't run away from the customs, you don't have to use other documentation to catch me out."
[one problem is that the customs documentation is not available in public, and most likely runs in the thousands and thousands of papers, Minzhong only showed a hand full of them]
I find the general impression of all of the above rather weak. It seems to indicate that certain things were indeed not in order, but by showing a few, selected documents (documents that we can't verify) everybody has to believe them.
At the very least, minority shareholders of Minzhong should have been clearly warned about all these matters, which issues are not in black-and-white, which entities might not have been properly registered, etc.
And also, China Minzhong has deliberately chosen not to list in China, but in highly regulated Singapore. It has to take the consequences of that decision.
I think this is the moment that the authorities and the independent directors have to show leadership, and order a independent investigation into the matters raised by Glaucus.
I invite the reader to go through the whole document, the executive summary only takes one page, the more detailed information another 15 pages.
I find it a good, proper and fast response.
From the front page of The Business Times (Singapore) of today, some snippets with comments of mine in [red]:
"It [Minzhong] will also conduct more rigorous checks on the documentation of its customers and suppliers in China.
[sounds like an admission that the documentation of customers and suppliers was indeed not in order]
Mr. Lin: "China is still a developing country. Many things are still not regulated...."
[sounds like an admission that certain items might indeed not have been properly regulated]
"Among various things, Glaucus raised suspicions that China Minzhong's past sales and purchases might have been fabricated.
This was because a key customer which China Minzhong said had contributed to its sales from fiscal year 2007 onwards was found to have been incorporated only in November 2009.
Another key supplier had been deregistered and stripped of its business license in February 2010, but China Minzhong continued to trade with it until October 2010 until the company failed to meet supply quality.
Both China Minzhong CFO Ryan Siek Wei Ting and Mr. Lin yesterday shrugged off the accusations, noting that doing business in China is not a black-and-white matter as the regulatory environment is weak."
[it would have helped if they had been more specific]
"Said Mr. Siek: "When you do business, obviously the formal entity is important. But I think what is more important [seems to indicate that the formal entity might not have been in order] is that the sales are genuine, you really deliver the products, get the receipts, and collect the cash".
[one problem is that the receipts are not available in public, and most likely run in the thousands and thousands of papers, Minzhong only showed a hand full of them]
Lin said: "Business in China is complicated. But facts are facts. You can't run away from the customs, you don't have to use other documentation to catch me out."
[one problem is that the customs documentation is not available in public, and most likely runs in the thousands and thousands of papers, Minzhong only showed a hand full of them]
I find the general impression of all of the above rather weak. It seems to indicate that certain things were indeed not in order, but by showing a few, selected documents (documents that we can't verify) everybody has to believe them.
At the very least, minority shareholders of Minzhong should have been clearly warned about all these matters, which issues are not in black-and-white, which entities might not have been properly registered, etc.
And also, China Minzhong has deliberately chosen not to list in China, but in highly regulated Singapore. It has to take the consequences of that decision.
I think this is the moment that the authorities and the independent directors have to show leadership, and order a independent investigation into the matters raised by Glaucus.
Monday, 2 September 2013
And Indofood makes an offer .....
The Minzhong/Glaucus saga took yet another turn, this time majority investor Indofood (PT Indofood Sukses MakmurTBK) made an offer to acquire the shares of Minzhong for SGD 1.12 per share. The announcement can be found here.
Surely most minority investors of Minzhong, who must have worried a lot over the weekend, will be happy with this new development.
Minority investors of Indofood however might not share this joy, the share of Indofood went more than 9% down today on the news of the acquisition.
If Glaucus will still respond to the defence put up by the management of Minzhong, I don't know, I definitely hope so, but it might not be useful anymore given the take-over offer by Indofood.
Since Indofood is a listed company, observers might still be able to follow the future performance of Minzhong. And that might give an indication who eventually was right, Glaucus or the management of Minzhong or both to a certain extent.
Today in The Straits Times a rather strange (at least in my humble opinon) article appeared under the title "Time to rein in errant short-sellers" by Goh Eng Yeow. The article is behind a paywall, but the text can be found here.
Some snippets, with my comments in red:
"The time has surely come to deal with the foreign short-sellers who have been wreaking havoc on the local stock market."
Wreaking havoc? Only two companies, Olam in November 2012 and Menzhong last week, while both have had their fair share of criticism before the reports of the short sellers came out.
Olams case: in response to the report the company has shored up its balance sheet with a rights issue, has tidied up its balance sheet and has increased communications with the investors. Olam also dropped its planned court case against Muddy Waters. Net effect has been (very) positive for the shareholders of Olam.
Minzhongs case: Glaucus came with a report that looked initially quite impressive, Minzhong came with a decent, equally lengthy answer, Glaucus has yet to respond.
For both companies, the jury is still out, much too early to tell, especially in Minzhong's case.
But even more interesting, who wrote the following:
"Those which act responsibly like Glaucus by providing full disclosure can complement regulatory efforts and should be viewed as an important component of the governance framework."?
The answer is none other than The Business Times, sister organisation of The Straits Times, both owned by SPH.
"The latest attack came last week and sent the market into a spin, yet the basis of the seller's claims against a locally listed firm did not appear to stand up to much scrutiny."
One single China based company send the Singaporean share market into a spin?
Glaucus' report does not stand up to much scrutiny? Everyone his opinion, but I think it is much too early to draw that conclusion. I don't think the statements by Minzhong have been checked yet, also, there is still enough room for questions.
Short-sellers sell borrowed stocks in the belief that the share price will fall, resulting in a handy profit if their bets prove correct. But the means some of them use to try to herd other investors into making those bets pay off leave much to be desired.
And what about people who have long positions and make all kind of bullish projections/rumours, not based on any reality, sending the shares up, enabling them to sell their shares at a profit?
There has to be symmetry in this argument, Glaucus is at least transparent about it's position.
But the fact is that Glaucus has a chequered record. US-listed China real estate website play SouFun Holdings, which it attacked in April, has since doubled in price.
There is no short-seller with a 100% track record. There is also no fund manager being "long" with a 100% track record of making profits. Being a short-seller is extremely tough, since on average shares will increase in value.
True, there are US activist hedge funds that claim to play a vigilante role in the market by uncovering fraud in misbehaving publicly listed firms by taking up "short" positions against them and then publishing damning reports to drive the share price down. Since they are people who purportedly put their money where their mouth is, this is supposed to give credence to their allegations. But the fact remains that most of these operators are unregulated, unlicensed research outfits, unlike the professional stock analysts employed by banks and stockbroking outfits, who are subject to a host of tough rules imposed by the Monetary Authority of Singapore (MAS) and the Singapore Exchange.
I am following the share markets for more than 20 years, but I have never taken any report from any broker ever serious. In much too many cases they are conflicted and simply can't issue a "sell" advice, even if they want to. To assume otherwise would be extremely naïve.
"Professional stock analyst", sorry to say, I find many disappointing, if they would really be good they probably would be fund manager.
The fact that MAS is regulating their operations has nothing to do with the quality (or lack of it) of the broker recommendations.
What the MAS has to do is to examine Glaucus' allegations carefully and determine if any securities laws have been broken - and ask for redress from its US counterpart, if this is indeed the case.
And what the SGX has to do is to examine Glaucus' allegations carefully and determine if any securities laws have been broken by Minzhong - and ask for redress from its China counterpart, if this is indeed the case.
On our part, efforts should be made to level the playing field. For a start, let us make it mandatory for all short-sellers to disclose their positions. The current practice of asking them to volunteer the information simply does not wash.
I am all in favour of transparency. But now we are at it, shouldn't all writers of all reports also declare their positions, be it short or long?
If the SGX (or Bursa Malaysia for that matter) doesn't want these kind of short-sellers, then they should simply ban short selling: "if you can't stand the heat, get out of the kitchen".
If there had been more of these short-sellers a few years ago, who had signalled the many, many fraud cases in China listed companies on the SGX, surely the damage would have been much more limited, the SGX would have taken more measures at an earlier stage, the public would have incurred much less damage and the reputation of the SGX would have been much better.
"Time to rein in errant short-sellers", I would prefer "Time to rein in errant journalists".
Surely most minority investors of Minzhong, who must have worried a lot over the weekend, will be happy with this new development.
Minority investors of Indofood however might not share this joy, the share of Indofood went more than 9% down today on the news of the acquisition.
If Glaucus will still respond to the defence put up by the management of Minzhong, I don't know, I definitely hope so, but it might not be useful anymore given the take-over offer by Indofood.
Since Indofood is a listed company, observers might still be able to follow the future performance of Minzhong. And that might give an indication who eventually was right, Glaucus or the management of Minzhong or both to a certain extent.
Today in The Straits Times a rather strange (at least in my humble opinon) article appeared under the title "Time to rein in errant short-sellers" by Goh Eng Yeow. The article is behind a paywall, but the text can be found here.
Some snippets, with my comments in red:
"The time has surely come to deal with the foreign short-sellers who have been wreaking havoc on the local stock market."
Wreaking havoc? Only two companies, Olam in November 2012 and Menzhong last week, while both have had their fair share of criticism before the reports of the short sellers came out.
Olams case: in response to the report the company has shored up its balance sheet with a rights issue, has tidied up its balance sheet and has increased communications with the investors. Olam also dropped its planned court case against Muddy Waters. Net effect has been (very) positive for the shareholders of Olam.
Minzhongs case: Glaucus came with a report that looked initially quite impressive, Minzhong came with a decent, equally lengthy answer, Glaucus has yet to respond.
For both companies, the jury is still out, much too early to tell, especially in Minzhong's case.
But even more interesting, who wrote the following:
"Those which act responsibly like Glaucus by providing full disclosure can complement regulatory efforts and should be viewed as an important component of the governance framework."?
The answer is none other than The Business Times, sister organisation of The Straits Times, both owned by SPH.
"The latest attack came last week and sent the market into a spin, yet the basis of the seller's claims against a locally listed firm did not appear to stand up to much scrutiny."
One single China based company send the Singaporean share market into a spin?
Glaucus' report does not stand up to much scrutiny? Everyone his opinion, but I think it is much too early to draw that conclusion. I don't think the statements by Minzhong have been checked yet, also, there is still enough room for questions.
Short-sellers sell borrowed stocks in the belief that the share price will fall, resulting in a handy profit if their bets prove correct. But the means some of them use to try to herd other investors into making those bets pay off leave much to be desired.
And what about people who have long positions and make all kind of bullish projections/rumours, not based on any reality, sending the shares up, enabling them to sell their shares at a profit?
There has to be symmetry in this argument, Glaucus is at least transparent about it's position.
But the fact is that Glaucus has a chequered record. US-listed China real estate website play SouFun Holdings, which it attacked in April, has since doubled in price.
There is no short-seller with a 100% track record. There is also no fund manager being "long" with a 100% track record of making profits. Being a short-seller is extremely tough, since on average shares will increase in value.
True, there are US activist hedge funds that claim to play a vigilante role in the market by uncovering fraud in misbehaving publicly listed firms by taking up "short" positions against them and then publishing damning reports to drive the share price down. Since they are people who purportedly put their money where their mouth is, this is supposed to give credence to their allegations. But the fact remains that most of these operators are unregulated, unlicensed research outfits, unlike the professional stock analysts employed by banks and stockbroking outfits, who are subject to a host of tough rules imposed by the Monetary Authority of Singapore (MAS) and the Singapore Exchange.
I am following the share markets for more than 20 years, but I have never taken any report from any broker ever serious. In much too many cases they are conflicted and simply can't issue a "sell" advice, even if they want to. To assume otherwise would be extremely naïve.
"Professional stock analyst", sorry to say, I find many disappointing, if they would really be good they probably would be fund manager.
The fact that MAS is regulating their operations has nothing to do with the quality (or lack of it) of the broker recommendations.
What the MAS has to do is to examine Glaucus' allegations carefully and determine if any securities laws have been broken - and ask for redress from its US counterpart, if this is indeed the case.
And what the SGX has to do is to examine Glaucus' allegations carefully and determine if any securities laws have been broken by Minzhong - and ask for redress from its China counterpart, if this is indeed the case.
On our part, efforts should be made to level the playing field. For a start, let us make it mandatory for all short-sellers to disclose their positions. The current practice of asking them to volunteer the information simply does not wash.
I am all in favour of transparency. But now we are at it, shouldn't all writers of all reports also declare their positions, be it short or long?
If the SGX (or Bursa Malaysia for that matter) doesn't want these kind of short-sellers, then they should simply ban short selling: "if you can't stand the heat, get out of the kitchen".
If there had been more of these short-sellers a few years ago, who had signalled the many, many fraud cases in China listed companies on the SGX, surely the damage would have been much more limited, the SGX would have taken more measures at an earlier stage, the public would have incurred much less damage and the reputation of the SGX would have been much better.
"Time to rein in errant short-sellers", I would prefer "Time to rein in errant journalists".
Sunday, 1 September 2013
And Minzhong responds .....
The response by China Minzhong filed at the SGX website can be found here, with annexures here, here and here.
The quantity of the response is good, 19 pages filled with information. Certain points look convincing, but others leave questions, at least to me.
For instance:
And there is even a Malaysian twist to the story, quite a few of the vegetable contracts that are shown are shipped to Klang.
Interesting to watch how events will unfold, the suspension of the shares will be lifted from tomorrow onwards (at least Minzhong has requested that), how will the share price react?
Also, what will the answer of Glaucus be, it is hard to believe they will not come with a response from their side.
And lastly, will the SGX order (for instance) an independent investigation in the case, with the documents supplied by Glaucus and Minzhong to start with? To clean the air for once and for all?
The quantity of the response is good, 19 pages filled with information. Certain points look convincing, but others leave questions, at least to me.
For instance:
- Page 3, Glaucus claimed that Hong Kong Yifenli Trading Co. was incorporated only in November 2009, Minzhong responds by showing sales contracts. But when was Yifenli then incorporated, and would it not have been more convincing to show the incorporation papers?
- Putian Daziran Vegetable Produce Co did not report any cost of goods sold according to Glaucus, Minzhong responds again with sales contracts, but did this company file them with the SAIC?
And there is even a Malaysian twist to the story, quite a few of the vegetable contracts that are shown are shipped to Klang.
Interesting to watch how events will unfold, the suspension of the shares will be lifted from tomorrow onwards (at least Minzhong has requested that), how will the share price react?
Also, what will the answer of Glaucus be, it is hard to believe they will not come with a response from their side.
And lastly, will the SGX order (for instance) an independent investigation in the case, with the documents supplied by Glaucus and Minzhong to start with? To clean the air for once and for all?
Saturday, 31 August 2013
Glaucus whacks China Minzhong
I updated the below posting several times with new information that I found. Very interesting is this link from Lighthouse Advisors in which they explained in their June 2012 report (starting the last paragraph of page 3) why they divested their stake in Minzhong.
As far as I can see, all the reasons given sound reasonable and might strengthen the case for Glaucus Research:
I wrote one time before about short seller Glaucus, from an article in The Business Times (Singapore):
"Those which act responsibly like Glaucus by providing full disclosure can complement regulatory efforts and should be viewed as an important component of the governance framework."
Glaucus Research is one of those research institutions who focus on short selling of possible frauds and/or overvalued companies. Its website can be found here.
For those who question their motives, they are very open about it in their disclaimer:
Other well known short sellers are Muddy Waters, Citron Research and James Chanos.
Some more information on Glaucus Research can be found in this interview with Soren Aandahl in the SCMP.
The same founder was interviewed in The Edge, and mentioned that they were actively looking into a Singaporean company. Well, the Singapore share market didn't have to wait long. On Monday August 26, 2013 Glaucus published its report about Singapore listed China company "China Minzhong Food Corporation".
The information that it contained is highly damaging, that is, if it is indeed true. It is also insightful, how these short sellers do their research and what indicators they look at. One suspicious indicator was that the margins of Minzhong compared to other players in the same industry were just much too good to be true. Something else was that the company claimed to make a lot of profit, but it didn't show up in the cash.
One interesting chart in the report reveals the large number of S-chips (China companies listed in Singapore) that have gone down so far:
Worrisome, also since many of the better auditors were involved, apparently that is no guarantee that the accounts can be trusted.
A lot of supporting evidence on China Minzhong (either directly or circumstantial) is presented in the 49 page report, plus several documents as supplemental evidence.
On a side note, in Glaucus' report about China Metal Recycling (which company the SFC tries to wind up, meaning the allegations were indeed true) it does mention, rather interestingly, that it received a lot of support from local Chinese organisations in their search for evidence.
At least one prediction came true so far:
"we believe that Singapore regulators will halt trading of Minzhong's shares pending a full investigation into the Company".
That did indeed happen, after the share tumbled about 50% in high turnover in a matter of just two hours.
One letter in the Singapore media suggested that the SGX should have halted trading more early, and that circuit breakers would have had the desired effect.
Regarding the quality of the allegations by Glaucus, I leave it to the readers to form their own opinion, they do appear rather convincing to me. A lot of discussion is going on at the Valuebuddies forum regarding this case. A good write up can be found here, from blogger "Ninja Master Fund".
China Minzhong so far has only reacted in a rather standard letter (which can be found on the SGX website), without any detail at all, just claiming that Glaucus "misunderstood" their business model.
We have to wait for much more specific information regarding the detailed allegations by Glaucus, that Minzhong overstated their revenue and profit significantly and other serious matters.
Minzhong did release their quarterly earnings numbers, which on the surface appear to be very good.
But the million dollar question is: are they really believable? According to Glaucus, they aren't.
In one contest however, Glaucus seems to have the clear advantage, the beauty of their logo.
Glaucus:
China Minzhong:
Bursa Malaysia has recently started to promote short selling. Are they ready for these kind of events, if something similar would occur? Would they welcome short sellers like Glaucus Research?
And on another matter, are they really still keen to list Chinese company on Bursa?
To the Malaysian readers: Happy Merdeka.
As far as I can see, all the reasons given sound reasonable and might strengthen the case for Glaucus Research:
- Two comparable businesses are Chaoda Modern (almost certainly a fraud) and China Green (fair share of CG issues)
- Limited management ownership of Minzhong who received their shares at almost zero cost gives a temptation for the management to act in their own benefit at the expense of that of the other shareholders
- GIC of Singapore came in much more early than the IPO, they might have done due diligence in 2006, but the company has changed a lot since then
- The business model is cash flow negative, the land is leased and thus the company can not borrow against it, share placements are far more likely than dividends
I wrote one time before about short seller Glaucus, from an article in The Business Times (Singapore):
"Those which act responsibly like Glaucus by providing full disclosure can complement regulatory efforts and should be viewed as an important component of the governance framework."
Glaucus Research is one of those research institutions who focus on short selling of possible frauds and/or overvalued companies. Its website can be found here.
For those who question their motives, they are very open about it in their disclaimer:
Other well known short sellers are Muddy Waters, Citron Research and James Chanos.
Some more information on Glaucus Research can be found in this interview with Soren Aandahl in the SCMP.
The same founder was interviewed in The Edge, and mentioned that they were actively looking into a Singaporean company. Well, the Singapore share market didn't have to wait long. On Monday August 26, 2013 Glaucus published its report about Singapore listed China company "China Minzhong Food Corporation".
The information that it contained is highly damaging, that is, if it is indeed true. It is also insightful, how these short sellers do their research and what indicators they look at. One suspicious indicator was that the margins of Minzhong compared to other players in the same industry were just much too good to be true. Something else was that the company claimed to make a lot of profit, but it didn't show up in the cash.
One interesting chart in the report reveals the large number of S-chips (China companies listed in Singapore) that have gone down so far:
Worrisome, also since many of the better auditors were involved, apparently that is no guarantee that the accounts can be trusted.
A lot of supporting evidence on China Minzhong (either directly or circumstantial) is presented in the 49 page report, plus several documents as supplemental evidence.
On a side note, in Glaucus' report about China Metal Recycling (which company the SFC tries to wind up, meaning the allegations were indeed true) it does mention, rather interestingly, that it received a lot of support from local Chinese organisations in their search for evidence.
At least one prediction came true so far:
"we believe that Singapore regulators will halt trading of Minzhong's shares pending a full investigation into the Company".
That did indeed happen, after the share tumbled about 50% in high turnover in a matter of just two hours.
One letter in the Singapore media suggested that the SGX should have halted trading more early, and that circuit breakers would have had the desired effect.
Regarding the quality of the allegations by Glaucus, I leave it to the readers to form their own opinion, they do appear rather convincing to me. A lot of discussion is going on at the Valuebuddies forum regarding this case. A good write up can be found here, from blogger "Ninja Master Fund".
China Minzhong so far has only reacted in a rather standard letter (which can be found on the SGX website), without any detail at all, just claiming that Glaucus "misunderstood" their business model.
We have to wait for much more specific information regarding the detailed allegations by Glaucus, that Minzhong overstated their revenue and profit significantly and other serious matters.
Minzhong did release their quarterly earnings numbers, which on the surface appear to be very good.
But the million dollar question is: are they really believable? According to Glaucus, they aren't.
In one contest however, Glaucus seems to have the clear advantage, the beauty of their logo.
Glaucus:
China Minzhong:
Bursa Malaysia has recently started to promote short selling. Are they ready for these kind of events, if something similar would occur? Would they welcome short sellers like Glaucus Research?
And on another matter, are they really still keen to list Chinese company on Bursa?
To the Malaysian readers: Happy Merdeka.
Tuesday, 6 August 2013
Weekly roundup
Several interesting articles in Singaporean newspapers:
[1] Article about Claire Barnes and the Apollo fund managed by her, one of the best performing funds in Asia. Warren Buffett often warned investors in Berkshire Hathaway that the performance of the previous years would not be able to sustain. This humility is typical of good fund managers and Claire Barnes is no exception, she explains the stellar performance of her fund for a good part on the initial years which coincided with the Asian crisis, when some unbelievable bargains were available. Peter Lynch was a successful fund manager for Fidelity, but he was very much disappointed once he found out that investors on average had actually lost money in his fund. The reason was that much more money was invested when the index had gone up a lot, and money was withdrawn when the index had gone down a lot. The Apollo Fund has closed on occasions, when Claire Barnes had problems finding value. This seems to make perfect sense.
[2] Article about AirAsia X CEO Azran Osman Rani and his entrepreneurial background. Great story, also touching on his twitter against racism. I have issues with Corporate Governance in both AirAsia and AirAsia X and have written several times about them, but I do admire the people who run these businesses.
[3] Article about BFM 89.9 founder and CEO Malek Ali and his entrepreneurial journey, another great story. However, also a less great paragraph, Malek was summoned to Malaysia's Communications & Multimedia Commission (MCMC) where he had to explain why his radiostation invited someone from the Economist Intelligence Unit (EIU) to discuss its Global Democracy Index. More about this index can be found here and here. Malaysia was classified as a "flawed democracy", which is less bad than it sounds, it means Malaysia is in the 2nd category out of 4, and ranked 71st out of 167 countries. Apparently the results from the EIU were deemed to be not favourable enough for the powers that be, hence the need to call Malek, a very worrisome development.
[4] Article in The Business Times about the important role that short sellers play in governance, highlighting the case of China Metals Recycling (CMR), which is the latest China company to come under official scrutiny amid allegations involving inflated accounts:
"What's interesting from a markets and governance perspective is that the allegations about CMR's finances first surfaced in January when US short-selling firm Glaucus Research Group published a report recommending a "strong sell" because, among various reasons, CMR's claim (on its website) that it is China's largest scrap metal recycler was a "lie" and that "many of the company's key financial and operational metrics deviate so significantly from other scrap metal recyclers that its reported performance defies credibility".
"Those which act responsibly like Glaucus by providing full disclosure can complement regulatory efforts and should be viewed as an important component of the governance framework."
[5] Everything was going nicely with MISC, minority investors rejected the low offer from PETRONAS (a nice and rather rare victory for shareholder activism in Malaysia) and the share recovered to a price that was higher than the offer price (again, indicating that the offer was really not sufficient). But things have changed quickly, PETRONAS wants to ship the liquid gas themselves. With PETRONAS controlling MISC (whose main source of input is the transport of liquid gas), a clear conflict of interest situation will be created. I hope that PETRONAS will reconsider their plans, this new development doesn't sound like a good idea at all. KiniBiz's "Tiger" asked the following pertinent questions:
• Is it Petronas’ intention to deliberately undermine MISC’s prospects so that the price can be depressed for another future takeover offer by Petronas?
• If it is, is it the right way for Petronas to behave as a national oil corporation which has or should have high standards of corporate governance?
• Is this what we can expect from Petronas in terms of its other listed subsidiaries — go to the market, get investors, try and privatise for a low price and if that fails, deliberately sabotage that listed company so as to mount another takeover on it?
• Is this an act of vengeance that the misguided management is trying to impose on minority shareholders for rejecting the offer, even if the move will ultimately undermine and perhaps even destroy its very own subsidiary?
[6] My article "Maemode: accurate predictions by Ze Moola, but why did nobody notice?" received quite a lot of web traffic. I uncovered some more issues and hope to revisit this subject in the future in more detail.
[7] There has been speculation in the press of an IPO of POSH Semco, a subsidiary of POSH in which Maybulk has invested close to RM 1 Billion. I don't like to react on speculation (which has been proven so often to be wrong), I just like to point out that POSH itself (the mother company of POSH Semco) was supposed to be listed within 5 years, a term that will expire before the end of this year. Also, there is still a put option by Maybulk to sell back their stake in POSH at a premium of 25% to their purchase price. I have written many times about the extremely pricey purchase of POSH by Maybulk during the depth of the global crisis, especially regarding the questionable valuation report and the biased independent report. I hope that the minority investors are given the right to decide if the put option will be exercised or not, and that the majority investors will abstain from voting, although I doubt this will actually happen.
[8] And lastly some good news reports KiniBiz, which can be seen as another victory for shareholder activism in Malaysia:
"Final ‘voluntary termination’ payments were issued today in a media conference called by the management company of the beleaguered Country Heights Grower Scheme.....
Today’s payment by the management company of the scheme, Plentiful Gold-Class to CIMB Commerce Trustee comprised a 90% capital refund of RM182.9 million, unclaimed monies with regard to the first 10% capital refund and a goodwill payment of RM25 million by Lee Kim Yew, the founder and head of the Country Heights Grower Scheme."
[1] Article about Claire Barnes and the Apollo fund managed by her, one of the best performing funds in Asia. Warren Buffett often warned investors in Berkshire Hathaway that the performance of the previous years would not be able to sustain. This humility is typical of good fund managers and Claire Barnes is no exception, she explains the stellar performance of her fund for a good part on the initial years which coincided with the Asian crisis, when some unbelievable bargains were available. Peter Lynch was a successful fund manager for Fidelity, but he was very much disappointed once he found out that investors on average had actually lost money in his fund. The reason was that much more money was invested when the index had gone up a lot, and money was withdrawn when the index had gone down a lot. The Apollo Fund has closed on occasions, when Claire Barnes had problems finding value. This seems to make perfect sense.
[2] Article about AirAsia X CEO Azran Osman Rani and his entrepreneurial background. Great story, also touching on his twitter against racism. I have issues with Corporate Governance in both AirAsia and AirAsia X and have written several times about them, but I do admire the people who run these businesses.
[3] Article about BFM 89.9 founder and CEO Malek Ali and his entrepreneurial journey, another great story. However, also a less great paragraph, Malek was summoned to Malaysia's Communications & Multimedia Commission (MCMC) where he had to explain why his radiostation invited someone from the Economist Intelligence Unit (EIU) to discuss its Global Democracy Index. More about this index can be found here and here. Malaysia was classified as a "flawed democracy", which is less bad than it sounds, it means Malaysia is in the 2nd category out of 4, and ranked 71st out of 167 countries. Apparently the results from the EIU were deemed to be not favourable enough for the powers that be, hence the need to call Malek, a very worrisome development.
[4] Article in The Business Times about the important role that short sellers play in governance, highlighting the case of China Metals Recycling (CMR), which is the latest China company to come under official scrutiny amid allegations involving inflated accounts:
"What's interesting from a markets and governance perspective is that the allegations about CMR's finances first surfaced in January when US short-selling firm Glaucus Research Group published a report recommending a "strong sell" because, among various reasons, CMR's claim (on its website) that it is China's largest scrap metal recycler was a "lie" and that "many of the company's key financial and operational metrics deviate so significantly from other scrap metal recyclers that its reported performance defies credibility".
"Those which act responsibly like Glaucus by providing full disclosure can complement regulatory efforts and should be viewed as an important component of the governance framework."
[5] Everything was going nicely with MISC, minority investors rejected the low offer from PETRONAS (a nice and rather rare victory for shareholder activism in Malaysia) and the share recovered to a price that was higher than the offer price (again, indicating that the offer was really not sufficient). But things have changed quickly, PETRONAS wants to ship the liquid gas themselves. With PETRONAS controlling MISC (whose main source of input is the transport of liquid gas), a clear conflict of interest situation will be created. I hope that PETRONAS will reconsider their plans, this new development doesn't sound like a good idea at all. KiniBiz's "Tiger" asked the following pertinent questions:
• Is it Petronas’ intention to deliberately undermine MISC’s prospects so that the price can be depressed for another future takeover offer by Petronas?
• If it is, is it the right way for Petronas to behave as a national oil corporation which has or should have high standards of corporate governance?
• Is this what we can expect from Petronas in terms of its other listed subsidiaries — go to the market, get investors, try and privatise for a low price and if that fails, deliberately sabotage that listed company so as to mount another takeover on it?
• Is this an act of vengeance that the misguided management is trying to impose on minority shareholders for rejecting the offer, even if the move will ultimately undermine and perhaps even destroy its very own subsidiary?
[6] My article "Maemode: accurate predictions by Ze Moola, but why did nobody notice?" received quite a lot of web traffic. I uncovered some more issues and hope to revisit this subject in the future in more detail.
[7] There has been speculation in the press of an IPO of POSH Semco, a subsidiary of POSH in which Maybulk has invested close to RM 1 Billion. I don't like to react on speculation (which has been proven so often to be wrong), I just like to point out that POSH itself (the mother company of POSH Semco) was supposed to be listed within 5 years, a term that will expire before the end of this year. Also, there is still a put option by Maybulk to sell back their stake in POSH at a premium of 25% to their purchase price. I have written many times about the extremely pricey purchase of POSH by Maybulk during the depth of the global crisis, especially regarding the questionable valuation report and the biased independent report. I hope that the minority investors are given the right to decide if the put option will be exercised or not, and that the majority investors will abstain from voting, although I doubt this will actually happen.
[8] And lastly some good news reports KiniBiz, which can be seen as another victory for shareholder activism in Malaysia:
"Final ‘voluntary termination’ payments were issued today in a media conference called by the management company of the beleaguered Country Heights Grower Scheme.....
Today’s payment by the management company of the scheme, Plentiful Gold-Class to CIMB Commerce Trustee comprised a 90% capital refund of RM182.9 million, unclaimed monies with regard to the first 10% capital refund and a goodwill payment of RM25 million by Lee Kim Yew, the founder and head of the Country Heights Grower Scheme."
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