"Listing of IOI Properties rushed and ill-timed"

Article on the website of The Star: Listing of IOI Properties ‘rushed and ill-timed’:

"Minority shareholders claim listing of IOI Properties rushed and ill-timed".

Details follow, mostly from remisiers on behalf of their clients:

• "as most of them (their clients) were away for the holidays or had yet to receive the necessary documents by post"
• "While the application is downloadable from Bursa Malaysia’s website, a remisier said this put senior citizens at a disadvantage. “Many of them don’t have access to the Internet. It shows a lack of concern for shareholders,” he said."
• "Stockbrokers are not authorised to sign on behalf of clients. We can try to help one or two clients, but not if it involves thousands of ringgit"

Rita Benoy Bushon, Chief Executive Officer, Minority Shareholder Watchdog Group, is even more outspoken in "The Observer, Message from the CEO", dated 3 January 2014:


"Minority shareholders of IOI Corp Bhd have every right to feel disgruntled by the short space of time given to subscribe for their entitlement for shares of its soon-to-be-listed IOI Properties Bhd.
 
Although the Company has announced the book closing date of the ROS (Restricted Offer Shares) on 19 December 2013 which is at least 11 market days before the date of application according to the Main Market Listing Requirement, it nevertheless had only issued the prospectus on 26 Dec 2013, which is a mere five working days before 2 January 2014, if the public holidays and weekends are excluded.

IOI should have realised that by conducting this exercise over the vacation period, many people may be on leave, postal deliveries could also be delayed in this period, which also meant that many may not have received the necessary documents by post on time. (Thus the complaints are valid.)

The company should really have given minorities more time to subscribe for their entitlements.
 
We view this as especially serious since it has been the subject of criticism following its delisting in 2009 (being bought out at just 0.66 times NTA for a RM1.3 billion valuation).

We hope IOI Corp will further extend the closing period for the application (noting that they have already done so today by 4 days) and show their good faith to the current minority shareholders, who are expected to be keen to take advantage of the offer. The reason being, that each IOI Properties share at RM1.76 under the ROS comes at a 30% discount to the reference price of RM2.51. In addition, an even steeper 42.7% to IOI Properties’ pro forma net asset per share of RM3.07. Otherwise, it could be construed negatively by the public that the offer not taken by entitled shareholders (for reasons beyond them) would be given to other shareholders at the discretion of the Board, at a discount."


I have written before about this IPO: "The return of IOI Properties" and "IOI Prospectus, 1623 pages!".

The only good news I can bring is that the length of the IPO prospectus is indeed brought back to 750 pages, a reduction of almost 1000 pages, although for me, it is still much too long.

"all the IPOs this year were making money for investors", really?

Article from the website of The Star: "At least 9 IPOs worth RM18.14bil for 2014".

First of all a list of nine big IPO's in 2014. I have been sceptical about big IPO's, I think Bursa has been pushing this too much, it really should not be a target on itself. The target should be to bring good quality Malaysian companies to Bursa, at a reasonable price, leaving some money on the table for retail investors who might be willing to take the risk.

On the list:

• Two Iskandar developers, I am scared all the clever money has been made already, and the property market is way too hot and might already be cooling;
• 1MDB (floating its energy assets), I am critical of 1MDB due to the lack of transparency;
• Malakoff and IOI Properties, both playing the listing-delisting-relisting "game";
• 7-Eleven, the listing possibly will not go through, according to an article in The Edge today.

Further, the article mentions:

"Besides these IPOs, there is likely to be another group of companies coming to the market under the guidelines for special purpose acquisition companies, or SPACs, and business trusts."

I am highly sceptical of SPACs, and business trusts have performed badly (on average) in Singapore.

In other words, I am not very positive about the announced plans for future IPO's in Malaysia.

The article continues:

"RHB Investment Bank Bhd director and regional head of equity capital markets Gan Kim Khoon recently said that investors should ride on the wave of Malaysia’s IPO market, but only after doing their homework on the new entrants.

He noted that all the IPOs this year were making money for investors and said this trend was likely to continue next year, when speaking at a recent panel discussion on the prospects for next year’s equity market."

All the IPO's this year making money for investors? Surely that can't be true:

 

Further more statements like "investors should ride on the wave of Malaysia’s IPO market" and "this trend was likely to continue next year", I find those pretty dangerous statements given the high valuations and the bubble like conditions worldwide.

I have never bought a share for long-term investment at IPO price, the risk is pretty high: [1] often there is a lot of hot air injected in the company and [2] the quality of the audits is not up to the standard compared to when the company is properly listed.

I normally wait for at least two full years of audited results before I even consider investing in a listed company. Although I must have missed a few nice gains, I definitely also missed lots of misery.

I do agree though with the following statement: "but only after doing their homework on the new entrants".

IOI Prospectus, 1623 pages!

I wrote before about the delisting in 2008 and possible relisting of IOI Properties (IOIP), here and here.

It looks like the relisting of IOIP will indeed go through, the prospectus exposure can be found on the website of the Securities Commission.

I wrote before about making IPO documents readable, lamenting documents that contain around 600 pages.

I guess that the principal advisers of the IOIP listing don't agree with me, since the prospectus has a whopping 1,623 pages. Honestly, which prospective investor is going to read that?

With so many pages available, I do expect at least a very thorough discussion about the rather controversial delisting, and a proper comparison with the current valuation, something along the following lines:

• IOIP was delisted in 2008 at a valuation of ...., its Net Asset Value was ...., its Revalued Net Asset Value was .... and its (normalized) net earnings were ....
• Since then the amount of dividend that has been paid to the shareholders of IOIP was ....
• The amount raised by rights issues (if any) was .....
• The amount raised by loans was ....
• IOIP will be relisted at a valuation of ...., its Net Asset Value is ....., its Revalued Net Asset Value is .... and its (normalized) net earnings were .....

(With "normalized" I mean excluding one-off items)

The above will give a rough but simple estimate how the current valuation (at a moment when property prices have boomed and are appearing to be toppish, at least to me) compares to the one in 2008 (in the midst of the global recession, when property prices were falling).

Unfortunately, I could not find this essential information, nor anything comparable, although some snippets of information can be found.

In paragraph 4.1.2:

The first paragraph is extremely general, so general that it is basically worthless. If BM and/or SC let companies get away with such general descriptions, then it would save time and money to just leave away this kind of non-information.

The second paragraph implies that operations could not be expanded if the company had stayed listed. That is rather strange, IOI Corporation was firmly in charge of IOIP, so why exactly is the above true?

The third paragraph seems to indicate that, since 2008, earnings have increased by about 43% and its Net Assets by about 129%. Not bad, but very far away from numbers being mentioned in the order of an increase in valuation of 800%, like in the report mentioned by "Ze Moola": current valuation of about RM 9 Billion, versus a valuation of RM 1.3 Billion in 2008.

The company was at its delisting valued at a steep discount to its Net Asset Value, rather controversial, to say the least. We will have to wait for the exact price for which the shares will be relisted, but most likely it will be relisted at a steep premium to its current Net Asset Value.

Previous IOIP shareholders who sold out in 2008 will not be happy with the turn of events.

The return of IOI Properties

The following article is from The Star: "The return of IOI Properties".

Some excerpts:

• “People associate Lee Shin Cheng as a planter. They have forgotten that he is an equally good property developer as seen from IOI Properties' track record before its delisting.
• “IOI is the sort of company that big money and institutions will be attracted to,” says one fund manager who used to invest in IOI Properties.
• Prior to IOI Properties' delisting in 2009, it was the biggest property company in terms of profitability.
• Even now under parent IOI Corp, IOI Properties is the second largest company in terms of operating profitability after SP Setia Bhd. As of its financial year ended June 30, 2012, IOI Properties recorded an operating profit of RM506.3mil.
• “The listing of IOI Properties will certainly be interesting. It is one of the biggest property companies in Malaysia and now has a track record in China. As we all know, the China market is never easy to penetrate,” said Etiqa Insurance & Takaful Bhd's Head of Research Chris Eng.

This all sounds very good indeed, surely Malaysia would be proud to have this company listed on Bursa?

But this very same company was actually listed on the very same Bursa, only four years ago. And it was taken private at an extremely low valuation, in the midst of the global crisis.

"Where is Ze Moola" has written many times about this issue.

This is what Gerald Ambrose, fund manager of highly regarded Aberdeen Asset Management remarks:

• ...IOI Properties was an excellent property developer while IOI Corp Bhd was an outstanding upstream and downstream oil palm player.
• “For sure, the company has got the track record and excellent management skills. At Aberdeen, we are long term holders with an investment horizon of 8 to 10 years. We used to be a shareholder of IOI Properties before its privatisation in 2009.
• “We were very disappointed when we had to sell the stock because we considered the privatisation price of 0.66 times to its net tangible asset as greatly undervalued. We hope that this will not happen again,”

Here is the (rather shocking) share graph from Ze Moola's website:

Bursa Malaysia's stand in this matter:

At the AGM, a shareholder also asked what Bursa's role was following an  increasing trend of listed companies being taken private, wiping billions off the exchange. And after several years, these companies got relisted.

"When [privatisation and relisting of the same companies] happens, I think someone is making money but not us shareholders," remarked the shareholder.

To that question, Tajuddin responded: "Bursa has engaged with its stakeholders on this. The conclusion was that these corporate exercises were business decisions .

That sounds like a very unsatisfactory answer. Who were those "stakeholders", where they major shareholders, brokers, lawyers, financial advisers and the like, the usual mix of insiders who only profit from these exercises? Or did they also include retail investors and fund managers like Aberdeen, who are on the receiving end of the stick?

Bursa Malaysia should urgently look into the unfair advantage that majority shareholders have, using the "listing-delisting-relisting game" to book large profits at the expense of the minority investors. It is long overdue. To simply conclude that these are "business decisions" will not do.

Bursa needs to come with an answer on Ambrose's statement "We hope this will not happen again" with which we very much agree, not only regarding IOI Properties, but any listed company on Bursa.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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


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

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