A rather negative story about Lotte Chemical Titan from Bloomberg.
Some snippets:
Lotte Group seemed to be getting back to business after a rough year of court battles, family feuds and strained relations with China.
Not so fast.
Believers in South Korea's fifth-largest conglomerate were hoping for a much-needed win with Lotte Chemical Titan Holding Bhd., the petrochemical unit that began trading in Malaysia Tuesday. Revival of the long-delayed 3.77 billion ringgit ($877 million) initial public offering, Malaysia's biggest since 2012, caps a period that has seen the group also take steps to settle family disputes and boost corporate debt sales.
But in the opposite of a typical IPO bump, shares of Lotte Chemical Titan fell below the opening price pretty much immediately -- and that was after the company cut the bottom of its price range to 6.50 ringgit a share, from 7.60 ringgit. By midday in Kuala Lumpur, the shares were down 2 percent.
Investors are right to bet against the newly listed company. The reason the Malaysian chemical maker cut its IPO price and trimmed the number of institutional shares has little to do with macro issues like equity demand and more to do with how Lotte missed a fundamental shift in the petrochemicals market.
While Lotte was hell-bent on getting the flotation done after taking the company private more than six years ago, it miscalculated in betting that the market would be willing to overlook the business's problems just because of a dearth of IPOs for large investors.
Back when Lotte took the unit private, the global economic recovery was driving strong demand for the raw materials used to make plastic and synthetic fibers used in everything from appliances to automobiles.
But as the years went on, Lotte Chemical did almost nothing to expand capacity -- unlike its global competitors -- despite having ample cash, according to Smartkarma analyst Toh Zhen Zhou.
In the absence of investment, revenue growth slowed. Lower prices for inputs such as oil have helped prop up profit but as the sales outlook for products like cars weakens, demand for Lotte's offerings has waned. Meanwhile, raw material prices have declined and overcapacity in China is further pressuring the industry.
Is this really the best Bursa can do, as alleged by Bloomberg, the largest IPO since 2012?
A foreign company, again going through the "listed-delisted-relisted scenario", and with the above history?
Where are the homegrown Malaysian companies with increasing (international) revenues, juicy margins, high ROE, making unique products protected by IP (intellectual Property)?
Showing posts with label IPO. Show all posts
Showing posts with label IPO. Show all posts
Tuesday, 11 July 2017
Saturday, 24 December 2016
EPF exits Felda
Article in The Edge: Felda Global falls 3.70% on EPF exit as shareholder, one snippet:
"Shares in Felda Global Ventures Holdings Bhd (FGV) fell 3.70% this morning after the Employees Provident Fund (EPF) said it no longer has any stake in FGV, as it assures members that the EPF practises high standards of corporate governance in its investments, with robust policies on risk control and asset allocation.
At 9.17am, FGV fell 6 sen to RM1.56 with 2.31 million shares traded.
"In line with these best practices, we have been closely monitoring the equity performance of FGV over the years and have gradually sold down our shareholding," the retirement fund said in a statement yesterday."
Now EPF said it sold all shares in FGV, which must have resulted in a loss of a several hundred million RM, apart from the opportunity cost.
Would this not be a good time for EPF to clarify why it invested in FGV in the first place, what changed along the years, if there were any corporate governance concerns regarding FGV, and if EPF actively tried to do something about those?
Sentences like "best practices" and "closely monitoring" don't add any information, that is simply boilerplate text.
This is a concrete case in which EPF most likely has lost a substantial amount of money. When an investment takes off, and generates a nice amount of profit EPF is entitled to boast about it, but if the opposite happens, surely its members deserve a proper explanation.
I wrote before about FGV.
"Shares in Felda Global Ventures Holdings Bhd (FGV) fell 3.70% this morning after the Employees Provident Fund (EPF) said it no longer has any stake in FGV, as it assures members that the EPF practises high standards of corporate governance in its investments, with robust policies on risk control and asset allocation.
At 9.17am, FGV fell 6 sen to RM1.56 with 2.31 million shares traded.
"In line with these best practices, we have been closely monitoring the equity performance of FGV over the years and have gradually sold down our shareholding," the retirement fund said in a statement yesterday."
Investing one's own money in shares is risky, and needs proper analysis.
Investing OPM (Other People's Money) requires more diligence and responsibility.
Investing in IPO's even more so, due to all the hype.
EPF invested OPM in FGV's shares during its IPO, even became "cornerstone investor". In February 2012 it owned 185 Million shares in FGV valued at about RM 1 Billion.
Now EPF said it sold all shares in FGV, which must have resulted in a loss of a several hundred million RM, apart from the opportunity cost.
Would this not be a good time for EPF to clarify why it invested in FGV in the first place, what changed along the years, if there were any corporate governance concerns regarding FGV, and if EPF actively tried to do something about those?
Sentences like "best practices" and "closely monitoring" don't add any information, that is simply boilerplate text.
This is a concrete case in which EPF most likely has lost a substantial amount of money. When an investment takes off, and generates a nice amount of profit EPF is entitled to boast about it, but if the opposite happens, surely its members deserve a proper explanation.
I wrote before about FGV.
Sunday, 8 May 2016
Why did Maybulk not take the "big bath"?
Maybulk released its 2015 annual report.
I have warned many times in this blog about the upcoming loss (for instance in 2014), in regards to the need to impair the valuation of its associate company, POSH (PACC Offshore Service Holdings).
A loss of almost RM 1.2 Billion due to many provisions, impairments, etc., surely Maybulk must have taken the big bath?
But surprisingly, this has not been the case at all. When we dive into the accompanying notes to the accounts, we find the following:
In other words, the valuation used is almost three times as high as the market value, a staggering RM 652 Million difference.
On a side note, one wonders, if the POSH shares are really so much more valuable than the market price suggests, why does Maybulk still purchase new vessels, why not buy additional POSH shares? It can immediately mark up the price in its books by a factor 2.85, for every RM 100 Million invested it can book a cool profit of RM 185 Million!
If however the full impairment was taken into account (I think a lot more realistic), then the loss for 2015 would have been more than RM 1.8 Billion.
The reasons for the relatively low impairment that was used can be found in the following paragraph:
I don't like DCF projections, have warned about its use many times in this blog. Basically, by tuning some parameters financial engineers can come up with about any valuation that they want. And that is often how DCF is used (or rather misused), especially in the Malaysian context.
Some considerations in this particular case:
The balance sheet took a hit because of the reported loss, but with a debt equity of 52%, things still look reasonable (left column 2015, right column 2011):
Suddenly the borrowings are larger then the shareholders equity, implying a debt/equity ratio of clearly more than 1.
The financial picture does not look solid:
Unbelievably, the minority shareholders did not even get a chance to vote about the put option.
I have warned many times in this blog about the upcoming loss (for instance in 2014), in regards to the need to impair the valuation of its associate company, POSH (PACC Offshore Service Holdings).
A loss of almost RM 1.2 Billion due to many provisions, impairments, etc., surely Maybulk must have taken the big bath?
But surprisingly, this has not been the case at all. When we dive into the accompanying notes to the accounts, we find the following:
In other words, the valuation used is almost three times as high as the market value, a staggering RM 652 Million difference.
On a side note, one wonders, if the POSH shares are really so much more valuable than the market price suggests, why does Maybulk still purchase new vessels, why not buy additional POSH shares? It can immediately mark up the price in its books by a factor 2.85, for every RM 100 Million invested it can book a cool profit of RM 185 Million!
If however the full impairment was taken into account (I think a lot more realistic), then the loss for 2015 would have been more than RM 1.8 Billion.
The reasons for the relatively low impairment that was used can be found in the following paragraph:
I don't like DCF projections, have warned about its use many times in this blog. Basically, by tuning some parameters financial engineers can come up with about any valuation that they want. And that is often how DCF is used (or rather misused), especially in the Malaysian context.
Some considerations in this particular case:
- The calculation itself is never given (as usual), so we can' t check its reasonableness. This is especially important in this case since DCF was used twice to calculate POSH's value (at the initial RPT and at the IPO), and both times the resulting valuation was hugely optimistic.
- The DCF valuation depends so much on the underlying assumptions, as shown above, one percent change in the discount rate will change the valuation RM 230 Million, a huge impact.
- The only cash that Maybulk gets from its investment in POSH is dividends, and they have been tiny over the last eight years, most of the years they did not receive a single cent, so how is it possible to come up with such a high valuation?
- And lastly, why did Maybulk change its method of valuation, from the unexplained price-to-book ratio in the previous year to DCF, why is no explanation given?
The balance sheet took a hit because of the reported loss, but with a debt equity of 52%, things still look reasonable (left column 2015, right column 2011):
However, if we adjust the numbers for the market value of the POSH shares, then the balance sheet looks like this:
Suddenly the borrowings are larger then the shareholders equity, implying a debt/equity ratio of clearly more than 1.
The financial picture does not look solid:
- Cash of only RM 140 Million
- Borrowings of RM 608 Million (of which RM 225 Million short term)
- Capital commitments of RM 410 Million
- Over 2015 the company booked an operating loss of RM 100 Million
- Its RM 1.1 Billion investment in POSH is hardly paying any dividend
And then taking into account that just 2.5 years ago Maybulk could have sold back its investment in POSH by exercising its put option for a profit of a few hundred million (not the current paper loss of RM 756 Million), generating more than 1 Billion extra cash, and without the need to invest a few hundred million for POSH's IPO shares.
In other words, instead of being a highly leveraged company in a weak financial position, Maybulk would be sitting comfortably on top of a huge cash pile. It could have given out RM 1 dividend per share (more than the current share price!) and would still have more cash and less borrowings than now.
Wednesday, 20 April 2016
10 Largest Malaysian IPOs
Below is a list of the ten largest IPOs in the last ten years on Bursa Malaysia.
== Market Cap ==
Company IPO date IPO Now Change
Petronas Chem 26/11/2010 42,480 53,600 26%
Maxis 19/11/2009 40,650 44,836 10%
IHH 25/07/2012 24,891 54,855 120%
Felda 28/06/2012 19,335 5,363 -72%
Astro 19/10/2012 15,592 15,199 -3%
Bumi Armada 21/07/2011 12,124 4,165 -66%
Westports 18/10/2013 9,037 14,356 59%
Malakoff 15/05/2015 9,000 8,400 -7%
UMW O&G 01/11/2013 6,702 2,000 -70%
AirAsia X 10/07/2013 2,963 1,452 -51%
Some comments:
== Market Cap ==
Company IPO date IPO Now Change
Petronas Chem 26/11/2010 42,480 53,600 26%
Maxis 19/11/2009 40,650 44,836 10%
IHH 25/07/2012 24,891 54,855 120%
Felda 28/06/2012 19,335 5,363 -72%
Astro 19/10/2012 15,592 15,199 -3%
Bumi Armada 21/07/2011 12,124 4,165 -66%
Westports 18/10/2013 9,037 14,356 59%
Malakoff 15/05/2015 9,000 8,400 -7%
UMW O&G 01/11/2013 6,702 2,000 -70%
AirAsia X 10/07/2013 2,963 1,452 -51%
Some comments:
- 6 out of 10 companies are still below their IPO price, that is not impressive at all
- if one would put the same amount of money in each stock, then one would have a loss of 5%
- on average the companies IPO-ed about 3.5 years ago
- for international investors, the RM is down by about 20% versus the USD since 3.5 years ago, so the results are much worse
- the market cap off all 10 companies together has risen though, since their combined IPOs
- it is mostly IHH saving the day, with EPF continuing to buy IHH shares aggressively even at a rich PE of around 60
- Maxis, Astro, Bumi Armada and Malakoff are all "listed-delisted-relisted" cases, Bursa should really take decisive action to discourage this kind of financial engineering which comes at the expense of the minority shareholders, it is long overdue
- quite a few resource related companies on the list, they have not fared well lately
There was once a time when companies were listed at single digit PEs supported by profit guarantees, the valuation was set by the authorities. Needless to say, there was a lot of interest by investors, and some IPOs were oversubscribed by 100 times.
Those days are over, companies nowadays set their own price, which is of course correct. New, "sexy" terms were introduced by financial engineers, like "cornerstone investors", "greenshoe options" and "stabilising manager".
But from the above data, it seems the IPO price is often quite rich these days, and not much upside (if any) is provided in exchange for the risk that IPO investors take.
Combined with my previous posting about poor earnings growth for the Top 30 companies (not surprisingly there is quite some overlap), things don't look that impressive.
Bursa can hold as many international roadshows as they want, but at the end of the day, it is the fundamentals and valuations that count. And they really have to improve.
Friday, 5 February 2016
XOX: from bad to worse ..... (3)
I wrote before about XOX:
XOX was a loss making company before its IPO, it is quite a surprise for me that it was allowed to be listed on Bursa. What probably helped was a rather optimistic (with hindsight) profit forecast that it issued in its IPO prospectus.
XOX was not able to hit the revenue and profit forecasts, it wasn't even close:
The above numbers are for the year up to 31 December 2011, while the company was listed on June 10, 2011 and knew already the numbers up to then. In other words, it only needed to forecast another seven months or so. And still it was able to overestimate its revenue by a factor 4, and instead of a forecasted PAT of RM 20 Million it booked a loss of RM 20 Million. Forecasting is probably not XOX's forte.
It looks like the Securities Commission was also not exactly "impressed" by XOX's forecast, and announced the following administrative actions: a reprimand for two executive directors of XOX and for AmInvest Bank as the principal adviser for the IPO of XOX.
Is a reprimand really enough, will it act as a future deterrent? I strongly doubt it.
XOX was a loss making company before its IPO, it is quite a surprise for me that it was allowed to be listed on Bursa. What probably helped was a rather optimistic (with hindsight) profit forecast that it issued in its IPO prospectus.
XOX was not able to hit the revenue and profit forecasts, it wasn't even close:
The above numbers are for the year up to 31 December 2011, while the company was listed on June 10, 2011 and knew already the numbers up to then. In other words, it only needed to forecast another seven months or so. And still it was able to overestimate its revenue by a factor 4, and instead of a forecasted PAT of RM 20 Million it booked a loss of RM 20 Million. Forecasting is probably not XOX's forte.
It looks like the Securities Commission was also not exactly "impressed" by XOX's forecast, and announced the following administrative actions: a reprimand for two executive directors of XOX and for AmInvest Bank as the principal adviser for the IPO of XOX.
Is a reprimand really enough, will it act as a future deterrent? I strongly doubt it.
Tuesday, 20 October 2015
IPOs leaning too heavily on cornerstones
From Reuters:
In construction, the cornerstone is an all-important component of a new building. In capital markets, it’s an investor that helps support the value of a company before its initial public offering. In Hong Kong, these cornerstones are bearing too much of the load and undermining the foundation of the local stock market.
In principle, there’s nothing wrong with companies pre-selling some shares to big investors ahead of an IPO. Fund managers ensure they get a decent allocation in return for agreeing not to sell for six months. For the listing company, the endorsement of a shrewd backer can help stimulate interest from smaller shareholders.
The practice in Hong Kong is spinning out of control, however. Big companies preparing to sell shares now routinely pledge half or more of them to friendly investors. Take China Huarong Asset Management, the state-owned “bad bank” that is seeking to raise between $2.3 billion and $2.5 billion. It already has commitments worth $1.6 billion from 10 investors, according to a term sheet describing the deal. That’s more than two-thirds of the total at the middle of the price range.
Huarong isn’t alone either. Cornerstone investors have pledged $1.1 billion to China Reinsurance, which is targeting up to $2 billion. Of the 28 Hong Kong listings that have raised more than $500 million since the beginning of 2013, the average allocation to cornerstone investors was 40 percent, according to Breakingviews calculations. Giving a small group of buyers such large slugs creates an overhang that weighs on the share price.
The cosy arrangement also undermines the whole concept of a public offering. Huarong’s biggest cornerstones are not professional money managers but developer Sino-Ocean Land and China’s State Grid, which is also backing China Re. When one state-backed Chinese company invests in another, getting the best available return on investment may not be the only consideration.
After a botched bailout of the stock market over the summer, the money-go-round in Hong Kong is another example of how state influence can distort public markets. Buildings may depend on the support of a cornerstone. Hong Kong’s exchange participants would do better to start chiseling away at them.
The above is also very relevant in the Malaysian context. Suddenly a few years ago the term "cornerstone investor" was introduced.
Another concept that also doesn't work is artificial holding up the price in the month after the IPO.
In construction, the cornerstone is an all-important component of a new building. In capital markets, it’s an investor that helps support the value of a company before its initial public offering. In Hong Kong, these cornerstones are bearing too much of the load and undermining the foundation of the local stock market.
In principle, there’s nothing wrong with companies pre-selling some shares to big investors ahead of an IPO. Fund managers ensure they get a decent allocation in return for agreeing not to sell for six months. For the listing company, the endorsement of a shrewd backer can help stimulate interest from smaller shareholders.
The practice in Hong Kong is spinning out of control, however. Big companies preparing to sell shares now routinely pledge half or more of them to friendly investors. Take China Huarong Asset Management, the state-owned “bad bank” that is seeking to raise between $2.3 billion and $2.5 billion. It already has commitments worth $1.6 billion from 10 investors, according to a term sheet describing the deal. That’s more than two-thirds of the total at the middle of the price range.
Huarong isn’t alone either. Cornerstone investors have pledged $1.1 billion to China Reinsurance, which is targeting up to $2 billion. Of the 28 Hong Kong listings that have raised more than $500 million since the beginning of 2013, the average allocation to cornerstone investors was 40 percent, according to Breakingviews calculations. Giving a small group of buyers such large slugs creates an overhang that weighs on the share price.
The cosy arrangement also undermines the whole concept of a public offering. Huarong’s biggest cornerstones are not professional money managers but developer Sino-Ocean Land and China’s State Grid, which is also backing China Re. When one state-backed Chinese company invests in another, getting the best available return on investment may not be the only consideration.
After a botched bailout of the stock market over the summer, the money-go-round in Hong Kong is another example of how state influence can distort public markets. Buildings may depend on the support of a cornerstone. Hong Kong’s exchange participants would do better to start chiseling away at them.
The above is also very relevant in the Malaysian context. Suddenly a few years ago the term "cornerstone investor" was introduced.
Another concept that also doesn't work is artificial holding up the price in the month after the IPO.
Wednesday, 27 May 2015
Icon Offshore: former CEO "to focus on personal matters"
The company announced today:
To put in "a bit more perspective" why the formed CEO might have opted not to be re-elected, please read:
"Icon Offshore: CEO and COO remanded".
Icon Offshore is listed less than one year ago, and now already the CEO is gone.
People who invested in the company when it was listed will be very disappointed.
The share is currently trading at RM 0.53, a far cry from its IPO price of RM 1.85.
To put in "a bit more perspective" why the formed CEO might have opted not to be re-elected, please read:
"Icon Offshore: CEO and COO remanded".
Icon Offshore is listed less than one year ago, and now already the CEO is gone.
People who invested in the company when it was listed will be very disappointed.
The share is currently trading at RM 0.53, a far cry from its IPO price of RM 1.85.
Friday, 6 February 2015
SGX issues
"Remisiers write to Tharman to resolve issues plaguing market"
Article in the Business Times (Singapore) of February 5, 2015.
Some snippets:
The issues raised and remedies proposed include separating Singapore Exchange's regulatory and commercial roles, raising the public portion of an IPO, restoring investors' trust in the local bourse, reviewing onerous rules for "high-risk" products, and listing of government-linked companies such as PSA and Changi Airports International to add breadth and depth to the market.
...some of the key recommendations contained in the letter were:
"SGX and SIAS respond to remisiers' grouses"
Some snippets:
SGX said: "We actively engage market participants, relevant stakeholders and the public prior to introducing any new initiatives to the marketplace through public consultations. Initiatives are then introduced after approval from our regulators." It mentioned the recent reduction of the board lot size from 1,000 to 100 as an example of the result of such a public consultation.
To me, reducing the lot size without reducing the cost doesn't make sense at all, I wrote before about this subject: "High cost for small transactions on Bursa".
On other fronts, Mr Gerald agreed that better rules for short selling disclosures and a review on regulations for sophisticated instruments are needed. He concurred, too, that the market should be given regular updates on on-going investigations and that the SGX's commercial and regulatory roles should be separated. Some of these are already under review, he said.
Another article from the Straits Times (February 6, 2015):
"Prospectuses should be in plain English"
Some snippets:
SINGAPORE'S financial regulator has rolled out a set of proposals aimed at fixing a problem that has long plagued the financial industry - bad writing.
The Monetary Authority of Singapore (MAS) wants issuers of financial products to write their prospectuses in plain English, not jargon-laden gibberish.
It is urging them to present information in a clear, concise and logical manner and avoid unnecessarily lengthy sentences.
A prospectus is meant to contain all the information investors and their advisers would need to make an informed investment decision about a financial product.
However, "in recent years, MAS has observed that prospectuses have grown in length and are often drafted in a technical, convoluted or legalistic manner", the regulator noted.
"As a result, even though prospectuses may contain comprehensive disclosures, investors often find them difficult to read and understand."
Many prospectuses are long and repetitive, include unnecessary or irrelevant details and use financial or technical jargon to conceal important information, the MAS added.
They also employ vague disclosures that may not be meaningful to investors, use convoluted descriptions or explanations and include lengthy and difficult-to-understand terms and conditions.
I completely agree with this, and have written several times about the long, hardly readable brochures of IPO listings on Bursa, for instance here.
Article in the Business Times (Singapore) of February 5, 2015.
Some snippets:
The issues raised and remedies proposed include separating Singapore Exchange's regulatory and commercial roles, raising the public portion of an IPO, restoring investors' trust in the local bourse, reviewing onerous rules for "high-risk" products, and listing of government-linked companies such as PSA and Changi Airports International to add breadth and depth to the market.
...some of the key recommendations contained in the letter were:
- issuing at least 25 per cent of shares in an IPO to the public; this would avoid the farce of initial public offerings turning into initial private offerings;
- better rules for short selling disclosure;
- rethinking regulations for sophisticated instruments;
- setting up truly independent committees when consulting the public on proposed policy changes;
- raising the quality bar for CPF Trustee stocks and lifting the limit for investment in equities from 35 to 80 per cent of the CPF Ordinary Account;
- transferring long-suspended stocks with governance issues to a high-risk third board with cash upfront trading;
- providing the market with regular updates on investigations such as the current probe into the October 2013 crash of LionGold, Blumont and Asiasons;
- separating SGX's regulatory and commercial roles.
I have written about quite a few of the above issues, for instance "Listing panel lacks investors", the lack of public shares in an IPO and separating regulatory and commercial roles of SGX (or Bursa for that matter).
The response came one day later:
"SGX and SIAS respond to remisiers' grouses"
Some snippets:
SGX said: "We actively engage market participants, relevant stakeholders and the public prior to introducing any new initiatives to the marketplace through public consultations. Initiatives are then introduced after approval from our regulators." It mentioned the recent reduction of the board lot size from 1,000 to 100 as an example of the result of such a public consultation.
To me, reducing the lot size without reducing the cost doesn't make sense at all, I wrote before about this subject: "High cost for small transactions on Bursa".
On other fronts, Mr Gerald agreed that better rules for short selling disclosures and a review on regulations for sophisticated instruments are needed. He concurred, too, that the market should be given regular updates on on-going investigations and that the SGX's commercial and regulatory roles should be separated. Some of these are already under review, he said.
Another article from the Straits Times (February 6, 2015):
"Prospectuses should be in plain English"
Some snippets:
SINGAPORE'S financial regulator has rolled out a set of proposals aimed at fixing a problem that has long plagued the financial industry - bad writing.
The Monetary Authority of Singapore (MAS) wants issuers of financial products to write their prospectuses in plain English, not jargon-laden gibberish.
It is urging them to present information in a clear, concise and logical manner and avoid unnecessarily lengthy sentences.
A prospectus is meant to contain all the information investors and their advisers would need to make an informed investment decision about a financial product.
However, "in recent years, MAS has observed that prospectuses have grown in length and are often drafted in a technical, convoluted or legalistic manner", the regulator noted.
"As a result, even though prospectuses may contain comprehensive disclosures, investors often find them difficult to read and understand."
Many prospectuses are long and repetitive, include unnecessary or irrelevant details and use financial or technical jargon to conceal important information, the MAS added.
They also employ vague disclosures that may not be meaningful to investors, use convoluted descriptions or explanations and include lengthy and difficult-to-understand terms and conditions.
I completely agree with this, and have written several times about the long, hardly readable brochures of IPO listings on Bursa, for instance here.
Thursday, 25 December 2014
"all the IPOs this year were making money for investors", really? (2)
According to an article in The Edge (December 22, 2014) named "A dreary year for listings" 14 companies IPO-ed in 2014 on Bursa.
Excluding Only World Group (which just listed) the results are:
That is not exactly a good score. Bearish sentiment on Bursa and in particular in the Oil & Gas industry have played an important role.
Icon Offshore was the worst performer, I wrote some cautious words about the company before.
Last year I wrote about an article in The Star, where the following quote was made:
"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."
That all IPO's made money in 2013 was simply not true.
And some of those listed companies did rather bad in 2014, for instance China Automobile Parts, AirAsia X, Sona Petroleum, Caring Pharmacy Group and UMW Oil & Gas.
But the advice to "ride the wave of Malaysia's IPO market" in 2014 also seems dubious, with hindsight, as the above results show.
Five years of booming share market have led to too much financial engineering, too much hot air being injected in soon to be listed companies, too much focus on the Oil & Gas industry.
Not surprisingly, things have come down to more realistic levels.
Wishing all readers Happy Holidays.
Excluding Only World Group (which just listed) the results are:
- 3 are in positive area
- 2 have the same price as the IPO
- 8 have gone down, some considerably
That is not exactly a good score. Bearish sentiment on Bursa and in particular in the Oil & Gas industry have played an important role.
Icon Offshore was the worst performer, I wrote some cautious words about the company before.
Last year I wrote about an article in The Star, where the following quote was made:
"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."
That all IPO's made money in 2013 was simply not true.
And some of those listed companies did rather bad in 2014, for instance China Automobile Parts, AirAsia X, Sona Petroleum, Caring Pharmacy Group and UMW Oil & Gas.
But the advice to "ride the wave of Malaysia's IPO market" in 2014 also seems dubious, with hindsight, as the above results show.
Five years of booming share market have led to too much financial engineering, too much hot air being injected in soon to be listed companies, too much focus on the Oil & Gas industry.
Not surprisingly, things have come down to more realistic levels.
Wishing all readers Happy Holidays.
Tuesday, 2 December 2014
Good articles (2)
When a prospectus becomes a doorstop (KiniBiz)
Recently, an 800-page prospectus found its way to tiger as well. Yes, 800 pages! Let that sink in for a moment. Do you feel the weight of 800 pages on your investing shoulders yet? Yes? Moving on.
In the spirit that the prospectus is similar to a scientific report, Tiger proposes a form of abstract, something short that covers everything the prospectus would cover, but without going into too much detail.
Maybe the prospectus could include an executive summary, maybe about 10 pages, 15 at most? Why not add forecasts in the executive summary, like the old times? With forecasts alongside the plan the company has in place for the proceeds raised from the listing, prospective investors can get a clearer view of what the company is offering, and in turn may be a better sell for the company.
Transparency, a plan, and recommendations from a few trusted local banks? That sounds like a recipe for a successful fund-raising to Tiger.
At the same time, the shorter (and lighter!) document would definitely be more palatable and more easily digested than 800 pages. By simplifying the document, companies are given the opportunity to present themselves to a barely tapped market of investors, due to the ease of reading of the summary.
Tycoons see their O&G investment value cut by almost half
With the oil and gas (O&G) sector being the hardest hit in the current market rout, tycoons who own significant stakes in these companies have seen a huge loss in their net worth.
These tycoons had collectively had their shareholding in these companies valued at some RM15.89bil when O&G stocks were trading at their highest prices. The fall in global crude oil prices and the plunge in the value of O&G stocks on Bursa Malaysia saw the value of their shareholding cut by almost half to some RM7.86bil yesterday.
What the article doesn't mention is that most of these tycoons have bought the companies at a much cheaper price and are thus still sitting on a handsome profit.
Quite different from the minority investors who bought these stocks recently (or at overpriced IPO prices) and are feeling the losses.
Bumi Armada is especially painful since the stock is not only trading way below its IPO price, but also below the price of its recent rights issue. Also, there seems to be persistent insider selling, even recently at these lower prices.
Somewhere in the (may be not so distant) future there must be a moment where it makes sense to start dabbling in these stocks. For the time being, catching a falling knife is not always the best thing to do.
Recently, an 800-page prospectus found its way to tiger as well. Yes, 800 pages! Let that sink in for a moment. Do you feel the weight of 800 pages on your investing shoulders yet? Yes? Moving on.
In the spirit that the prospectus is similar to a scientific report, Tiger proposes a form of abstract, something short that covers everything the prospectus would cover, but without going into too much detail.
Maybe the prospectus could include an executive summary, maybe about 10 pages, 15 at most? Why not add forecasts in the executive summary, like the old times? With forecasts alongside the plan the company has in place for the proceeds raised from the listing, prospective investors can get a clearer view of what the company is offering, and in turn may be a better sell for the company.
Transparency, a plan, and recommendations from a few trusted local banks? That sounds like a recipe for a successful fund-raising to Tiger.
At the same time, the shorter (and lighter!) document would definitely be more palatable and more easily digested than 800 pages. By simplifying the document, companies are given the opportunity to present themselves to a barely tapped market of investors, due to the ease of reading of the summary.
Tycoons see their O&G investment value cut by almost half
With the oil and gas (O&G) sector being the hardest hit in the current market rout, tycoons who own significant stakes in these companies have seen a huge loss in their net worth.
These tycoons had collectively had their shareholding in these companies valued at some RM15.89bil when O&G stocks were trading at their highest prices. The fall in global crude oil prices and the plunge in the value of O&G stocks on Bursa Malaysia saw the value of their shareholding cut by almost half to some RM7.86bil yesterday.
What the article doesn't mention is that most of these tycoons have bought the companies at a much cheaper price and are thus still sitting on a handsome profit.
Quite different from the minority investors who bought these stocks recently (or at overpriced IPO prices) and are feeling the losses.
Bumi Armada is especially painful since the stock is not only trading way below its IPO price, but also below the price of its recent rights issue. Also, there seems to be persistent insider selling, even recently at these lower prices.
Somewhere in the (may be not so distant) future there must be a moment where it makes sense to start dabbling in these stocks. For the time being, catching a falling knife is not always the best thing to do.
Friday, 17 October 2014
XOX: from bad to worse .....
I wrote before about XOX's corporate exercise to "massage" away its high accumulated losses. I will now give some more detail about this company, and its short but not so glorious past.
XOX is featured on Ze Moola's blog, which is often not a good sign, and this time it is no different.
In the last blog post we can see most of the directors smiling (except the person on the left) at the IPO ceremony at Bursa:
Not sure if the people who bought shares at the IPO price were also smiling, the board was distinctively red coloured, as can be seen on the right, not a single green number in sight.
The share plunged 35% on its first trading day, it must have been one of the worst performers of Bursa ever.
"Malaysian Shares" wrote two articles about the IPO, here and here.
Unfortunately for its shareholders, the share price has never recovered, in the contrary, it is now trading for RM 0.07, its lowest price ever:
XOX was a loss making company before its IPO, it is quite a surprise for me that it was allowed to be listed on Bursa. What probably helped was a rather optimistic (with hindsight) profit forecast that it issued in its IPO prospectus.
XOX was not able to hit the revenue and profit forecasts, it wasn't even close:
The above numbers are for the year up to 31 December 2011, while the company was listed on June 10, 2011 and knew already the numbers up to then. In other words, it only needed to forecast another seven months or so. And still it was able to overestimate its revenue by a factor 4, and instead of a forecasted PAT of RM 20 Million it booked a loss of RM 20 Million. Forecasting is probably not XOX's forte.
Over 2012 the company lost another RM 3.1 Million, over 2013 it lost RM 0.7 Million and over the first half of 2014 it lost another RM 1.2 Million. Not exactly shining numbers, and (partially) explaining the share graph.
To add insult to injury, on July 18, 2014 the company was reprimanded by Bursa for failing to take into account the necessary adjustments.
Which brings us to the present, and the multiple proposals that the company announced.
Apart from the earlier mentioned restructuring exercise, there are three other elements:
[1] A rights issue: this is considered to be a proper exercise to raise money, where all shareholders have the opportunity to participate (or to sell their rights if they don't want to do that).
[2] A huge large restricted issue. This is the kind of exercise that I don't like, since normal shareholders do not have the opportunity to participate.
[3] Establishment of a SIS (Share Issue Scheme) of up to 30% of the issued and paid-up capital for eligible directors and employees of XOX. My guess is that these directors and employees are substantially the same as before, in other words they were the same persons responsible for the disappointing results of the last three years, causing the share price to fall by 90%. Should they really be rewarded at this moment of time, at the expense of the minority investors? Would it not be better if the company first turns around, starts to book some decent profits causing its share price at least to equal its IPO price before the company even considers a Share Issue Scheme?
The total dilution can be seen in the following maximum scenario:
Current shareholders will have 166 Million shares after the share consolidation, and are entitled to the rights issue of shares and warrants, which will increase their shareholding (upon exercising of the warrants) to 498 million shares.
Holders of the proposed restricted issue will receive 190 million shares plus their rights issue and warrants, this might balloon to a total of 570 million shares.
Directors and employees might receive an additional 320 million shares.
In other words, current shareholders (who might include loyal shareholders who bought shares of XOX at its IPO price of RM 0.80), who inject further money to subscribe to the rights issue, and who inject even more money to exercise their warrants, will in total only receive 36% of the enlarged shares in the maximum scenario.
And almost all of the dilution due to the restricted issue and SIS will be done at a price that is only a small fraction of the RM 0.80 that shareholders paid at the IPO.
Is this the way the company wants to reward its loyal shareholders?
Note to the authorities: I am of the opinion that corporate exercises like the above should simply be outlawed. Restricted issues should be capped at a maximum of 10% (preferably even 5%) of the outstanding shares. The same should apply to SIS, ESOS and the like, please cap them at 10% (preferably at 5%).
Please take also note of David Webb's "Project Vampire".
XOX is featured on Ze Moola's blog, which is often not a good sign, and this time it is no different.
In the last blog post we can see most of the directors smiling (except the person on the left) at the IPO ceremony at Bursa:
Not sure if the people who bought shares at the IPO price were also smiling, the board was distinctively red coloured, as can be seen on the right, not a single green number in sight.
The share plunged 35% on its first trading day, it must have been one of the worst performers of Bursa ever.
"Malaysian Shares" wrote two articles about the IPO, here and here.
Unfortunately for its shareholders, the share price has never recovered, in the contrary, it is now trading for RM 0.07, its lowest price ever:
XOX was a loss making company before its IPO, it is quite a surprise for me that it was allowed to be listed on Bursa. What probably helped was a rather optimistic (with hindsight) profit forecast that it issued in its IPO prospectus.
XOX was not able to hit the revenue and profit forecasts, it wasn't even close:
The above numbers are for the year up to 31 December 2011, while the company was listed on June 10, 2011 and knew already the numbers up to then. In other words, it only needed to forecast another seven months or so. And still it was able to overestimate its revenue by a factor 4, and instead of a forecasted PAT of RM 20 Million it booked a loss of RM 20 Million. Forecasting is probably not XOX's forte.
Over 2012 the company lost another RM 3.1 Million, over 2013 it lost RM 0.7 Million and over the first half of 2014 it lost another RM 1.2 Million. Not exactly shining numbers, and (partially) explaining the share graph.
To add insult to injury, on July 18, 2014 the company was reprimanded by Bursa for failing to take into account the necessary adjustments.
Which brings us to the present, and the multiple proposals that the company announced.
Apart from the earlier mentioned restructuring exercise, there are three other elements:
[1] A rights issue: this is considered to be a proper exercise to raise money, where all shareholders have the opportunity to participate (or to sell their rights if they don't want to do that).
[2] A huge large restricted issue. This is the kind of exercise that I don't like, since normal shareholders do not have the opportunity to participate.
[3] Establishment of a SIS (Share Issue Scheme) of up to 30% of the issued and paid-up capital for eligible directors and employees of XOX. My guess is that these directors and employees are substantially the same as before, in other words they were the same persons responsible for the disappointing results of the last three years, causing the share price to fall by 90%. Should they really be rewarded at this moment of time, at the expense of the minority investors? Would it not be better if the company first turns around, starts to book some decent profits causing its share price at least to equal its IPO price before the company even considers a Share Issue Scheme?
The total dilution can be seen in the following maximum scenario:
Current shareholders will have 166 Million shares after the share consolidation, and are entitled to the rights issue of shares and warrants, which will increase their shareholding (upon exercising of the warrants) to 498 million shares.
Holders of the proposed restricted issue will receive 190 million shares plus their rights issue and warrants, this might balloon to a total of 570 million shares.
Directors and employees might receive an additional 320 million shares.
In other words, current shareholders (who might include loyal shareholders who bought shares of XOX at its IPO price of RM 0.80), who inject further money to subscribe to the rights issue, and who inject even more money to exercise their warrants, will in total only receive 36% of the enlarged shares in the maximum scenario.
And almost all of the dilution due to the restricted issue and SIS will be done at a price that is only a small fraction of the RM 0.80 that shareholders paid at the IPO.
Is this the way the company wants to reward its loyal shareholders?
Note to the authorities: I am of the opinion that corporate exercises like the above should simply be outlawed. Restricted issues should be capped at a maximum of 10% (preferably even 5%) of the outstanding shares. The same should apply to SIS, ESOS and the like, please cap them at 10% (preferably at 5%).
Please take also note of David Webb's "Project Vampire".
Friday, 10 October 2014
MOL Global down 35% at IPO
MOL Global among worst-performing IPOs ever
Malaysian e-payment company MOL Global produced one of the weakest US IPO debuts of all time, declining as much as 35% in its initial session even after reducing the size of the deal by as much as 40% and pricing the offering at the bottom end of the marketing range.
“If you are concerned about slowing growth in China what do you think is going to happen across the rest of Southeast Asia,” said one hedge fund source that participated in the deal.
“It was a case of first in, first out (in the aftermarket),” he said.
If MOL Global closes the session at current prices it would rank as one of the worst first-day performances on record for a US IPO.
One source close to the deal expressed concern that the company had an inflated view of its value in the wake of the highly successful Alibaba IPO, while a buyside source expressed concern that the book was low quality, including many orders from short-term focused investors.
MOL was targeting valuations of as high as 40-times 2015 earnings, deal sources said. That is far above above the 27.6- and 26.2-times multiples of Asian e-commerce companies Tencent and Baidu.
Above text is taken from IFRasia's website. MOL Global ended the day 35% below its IPO price.
Malaysian e-payment company MOL Global produced one of the weakest US IPO debuts of all time, declining as much as 35% in its initial session even after reducing the size of the deal by as much as 40% and pricing the offering at the bottom end of the marketing range.
“If you are concerned about slowing growth in China what do you think is going to happen across the rest of Southeast Asia,” said one hedge fund source that participated in the deal.
“It was a case of first in, first out (in the aftermarket),” he said.
If MOL Global closes the session at current prices it would rank as one of the worst first-day performances on record for a US IPO.
One source close to the deal expressed concern that the company had an inflated view of its value in the wake of the highly successful Alibaba IPO, while a buyside source expressed concern that the book was low quality, including many orders from short-term focused investors.
MOL was targeting valuations of as high as 40-times 2015 earnings, deal sources said. That is far above above the 27.6- and 26.2-times multiples of Asian e-commerce companies Tencent and Baidu.
Above text is taken from IFRasia's website. MOL Global ended the day 35% below its IPO price.
Saturday, 30 August 2014
Three articles
Three interesting, but not very positive articles, for the full text please click on the links.
Pump and Dump: How to Rig the Entire IPO Market with just $20 Million
How much does it cost to manipulate an entire market? Not much. And it’s getting cheaper!
It was leaked on Tuesday by “people with knowledge of that matter,” according to the Wall Street Journal, that VC firm Kleiner Perkins Caufield & Byers had decided in May to plow up to $20 million into message-app maker Snapchat, for a tiny portion of ownership. An undisclosed investor also committed some funds. The deal, which apparently hasn’t closed yet, would give Snapchat a valuation of $10 billion.
By strategically deploying less than $30 million, KPCB, and DST Global before it, have ratcheted up Snapchat’s valuation from $2 billion to $10 billion. With the stroke of a pen, in a deal negotiated behind closed doors, they have created an additional $8 billion in “wealth” that is now percolating through the minds of employees with stock options and through the books of the early investment funds.
Inflating Snapchat’s valuation by $8 billion with a few million dollars rigs the entire IPO market that depends on buzz and hype and folly to rationalize these blue-sky valuations. Unnamed people “knowledgeable in the matter” who leak these valuations to the Wall Street Journal are an integral part of the hype machine: It balloons the valuations of other startups. And it creates that “healthy” IPO market where money doesn’t matter, where revenues and profits are replaced by custom-fabricated metrics.
The Lawsuit That Could Legalize Pay-To-Play For Pension Fund Investments
Here’s a scenario to chew on:
An investment firm makes a campaign contribution to a city mayor. Later, the mayor appoints members to the city’s pension board. The pension board decides to hire the aforementioned investment firm to handle the pension fund’s investments.
Does something seem fishy about that situation?
The SEC says yes, and they have rules in place to prevent those “pay-to-play” scenarios.
But a recent lawsuit says no: investment managers should be able to donate money to whichever politicians they choose, even if those donations could present a conflict of interest down the line.
Detecting fraud a risk in China
It can be very risky to do things in China that are taken for granted in other countries.
Kun Huang, a Chinese-born Canadian citizen, is back in Vancouver after spending two years in a Chinese jail. His crime was contributing to research that led his employer to recommend short sales of Silvercorp Metals, a silver producer that is based in Canada but does its mining in China.
Mr Huang, now 37, returned to his native China in 2006 after graduating from the University of British Columbia with a degree in commerce. His parents immigrated to Vancouver in 1997, when he was 20 years old, and he became a Canadian citizen in 2002.
His job was to research Chinese companies, which were beginning to list on stock markets in the United States and Canada. He had been hired by Eos, a hedge fund run by Jon Carnes, a Canadian money manager, to “go through all the financial records in Chinese, talk to management and customers and suppliers,” he said in an interview.
At first, Eos looked for good stocks to buy, but Mr Carnes eventually gained a reputation for spotting Chinese frauds, which he publicised online under the name Alfred Little.
Mr Huang had worked on some of those reports but had no run-ins with the Chinese authorities until 2011. In June of that year, he was asked to look into Silvercorp. He said he found that some Silvercorp reports to the Chinese government showed its mines were not doing as well as they were in reports that the company issued in Canada.
He sent associates to the Ying Mine, Silvercorp’s largest operation, in Henan Province, about 500 miles southwest of Beijing. They filmed trucks leaving the mine with ore and picked up samples of the ore that fell off trucks.
In September, an Arthur Little report questioned whether Silvercorp had exaggerated the mine’s production. It said the samples it had picked up had substantially less silver in each ton of rock than the company claimed and that the volume of truck traffic was too light to account for all the ore Silvercorp said it had mined.
The company responded indignantly and demanded investigations into those who had attacked it.
Mr Huang was arrested on December 28 when he tried to fly to Hong Kong from Beijing. A police officer from Luoyang, the city closest to the mine, warned him that if he did not cooperate he could spend four or five years in jail. The officers questioning him took frequent calls – Mr Huang says he believes they were from Silvercorp officials – and then demanded such information as “the password to the Eos mail server”.
Within a few days, Mr Huang was released on bail, prohibited from leaving China. But that status ended abruptly in July 2012 after a column I [Floyd Norris] wrote for The New York Times appeared, quoting Mr Carnes as saying the Luoyang police “arrested, terrorised and forbid my researchers from communicating with me or performing any further research on Chinese companies”.
Mr Huang was rearrested, he told me, with police officers making clear that action was “directly in retaliation” for the column. He spent the next two years in the Luoyang detention centre, in a 300-square-foot cell that held as many as 34 other prisoners, according to a lawsuit Mr Huang filed this month against Silvercorp in Vancouver.
The previous articles about Silvercorp in The New York Times can be found here and here. A website by supporters of Mr Huang can be found here.
Pump and Dump: How to Rig the Entire IPO Market with just $20 Million
How much does it cost to manipulate an entire market? Not much. And it’s getting cheaper!
It was leaked on Tuesday by “people with knowledge of that matter,” according to the Wall Street Journal, that VC firm Kleiner Perkins Caufield & Byers had decided in May to plow up to $20 million into message-app maker Snapchat, for a tiny portion of ownership. An undisclosed investor also committed some funds. The deal, which apparently hasn’t closed yet, would give Snapchat a valuation of $10 billion.
By strategically deploying less than $30 million, KPCB, and DST Global before it, have ratcheted up Snapchat’s valuation from $2 billion to $10 billion. With the stroke of a pen, in a deal negotiated behind closed doors, they have created an additional $8 billion in “wealth” that is now percolating through the minds of employees with stock options and through the books of the early investment funds.
Inflating Snapchat’s valuation by $8 billion with a few million dollars rigs the entire IPO market that depends on buzz and hype and folly to rationalize these blue-sky valuations. Unnamed people “knowledgeable in the matter” who leak these valuations to the Wall Street Journal are an integral part of the hype machine: It balloons the valuations of other startups. And it creates that “healthy” IPO market where money doesn’t matter, where revenues and profits are replaced by custom-fabricated metrics.
The Lawsuit That Could Legalize Pay-To-Play For Pension Fund Investments
Here’s a scenario to chew on:
An investment firm makes a campaign contribution to a city mayor. Later, the mayor appoints members to the city’s pension board. The pension board decides to hire the aforementioned investment firm to handle the pension fund’s investments.
Does something seem fishy about that situation?
The SEC says yes, and they have rules in place to prevent those “pay-to-play” scenarios.
But a recent lawsuit says no: investment managers should be able to donate money to whichever politicians they choose, even if those donations could present a conflict of interest down the line.
Detecting fraud a risk in China
It can be very risky to do things in China that are taken for granted in other countries.
Kun Huang, a Chinese-born Canadian citizen, is back in Vancouver after spending two years in a Chinese jail. His crime was contributing to research that led his employer to recommend short sales of Silvercorp Metals, a silver producer that is based in Canada but does its mining in China.
Mr Huang, now 37, returned to his native China in 2006 after graduating from the University of British Columbia with a degree in commerce. His parents immigrated to Vancouver in 1997, when he was 20 years old, and he became a Canadian citizen in 2002.
His job was to research Chinese companies, which were beginning to list on stock markets in the United States and Canada. He had been hired by Eos, a hedge fund run by Jon Carnes, a Canadian money manager, to “go through all the financial records in Chinese, talk to management and customers and suppliers,” he said in an interview.
At first, Eos looked for good stocks to buy, but Mr Carnes eventually gained a reputation for spotting Chinese frauds, which he publicised online under the name Alfred Little.
Mr Huang had worked on some of those reports but had no run-ins with the Chinese authorities until 2011. In June of that year, he was asked to look into Silvercorp. He said he found that some Silvercorp reports to the Chinese government showed its mines were not doing as well as they were in reports that the company issued in Canada.
He sent associates to the Ying Mine, Silvercorp’s largest operation, in Henan Province, about 500 miles southwest of Beijing. They filmed trucks leaving the mine with ore and picked up samples of the ore that fell off trucks.
In September, an Arthur Little report questioned whether Silvercorp had exaggerated the mine’s production. It said the samples it had picked up had substantially less silver in each ton of rock than the company claimed and that the volume of truck traffic was too light to account for all the ore Silvercorp said it had mined.
The company responded indignantly and demanded investigations into those who had attacked it.
Mr Huang was arrested on December 28 when he tried to fly to Hong Kong from Beijing. A police officer from Luoyang, the city closest to the mine, warned him that if he did not cooperate he could spend four or five years in jail. The officers questioning him took frequent calls – Mr Huang says he believes they were from Silvercorp officials – and then demanded such information as “the password to the Eos mail server”.
Within a few days, Mr Huang was released on bail, prohibited from leaving China. But that status ended abruptly in July 2012 after a column I [Floyd Norris] wrote for The New York Times appeared, quoting Mr Carnes as saying the Luoyang police “arrested, terrorised and forbid my researchers from communicating with me or performing any further research on Chinese companies”.
Mr Huang was rearrested, he told me, with police officers making clear that action was “directly in retaliation” for the column. He spent the next two years in the Luoyang detention centre, in a 300-square-foot cell that held as many as 34 other prisoners, according to a lawsuit Mr Huang filed this month against Silvercorp in Vancouver.
The previous articles about Silvercorp in The New York Times can be found here and here. A website by supporters of Mr Huang can be found here.
Thursday, 12 June 2014
Focus Malaysia vs Icon Offshore
Icon Offshore issued a quite lengthy rebuttal on the Focus Malaysia article, about which I wrote here.
Icon Offshore also issued a letter of demand to the weekly magazine to retract its story, according to The Sun Daily.
The ball is now in Focus Malaysia's court. Tomorrow a new issue of its magazine will be published, will they counter Icon Offshores rebuttal?
Icon Offshore also issued a letter of demand to the weekly magazine to retract its story, according to The Sun Daily.
The ball is now in Focus Malaysia's court. Tomorrow a new issue of its magazine will be published, will they counter Icon Offshores rebuttal?
Monday, 9 June 2014
Focus Malaysia vs Icon Offshore
Focus Malaysia published a rather negative article about Icon Offshore, a company going for IPO very soon:
"A threat to one’s life, a police report, alleged irregularities and a cover-up all seem the ideal ingredients for an interesting movie script. Only in this case, they are believed to be actual events in the run-up to the listing of Icon Offshore Bhd, an Ekuiti Nasional Bhd-controlled (Ekuinas) company. According to sources, the company, which is scheduled to list its shares on June 25, has had to address these issues in recent months. Its prospectus was launched on May 30.While these issues are not expected to derail or delay the offshore support vessel OSV) provider’s listing debut, it does raise questions that all was not well in the company and whether these issues have since been addressed. Based on documents obtained by FocusM, a police report was lodged on Jan 15 by a Petronas Carigali Sdn Bhd senior official over threats to his life following his alleged discovery of several irregularities in Icon Offshore."
Icon Offshore announced today:
We have to wait how this story will evolve.
Regarding the IPO, I don't have much of an opinion, it looks rather pricey to me both versus the historic PE and its NTA. The "hot" story of Oil & Gas (and PETRONAS' future plans) seems to me to be overdone. All industry players keep on increasing their fleet (Bumi Armada just announced a huge rights issue), surely that can't go on for ever, and at one day might lead to increased competition and margin depression. The numbers from POSH (in the same industry as Icon Offshore) showed that its utilisation rates are dropping, that seems quite worrisome to me for the whole industry.
"A threat to one’s life, a police report, alleged irregularities and a cover-up all seem the ideal ingredients for an interesting movie script. Only in this case, they are believed to be actual events in the run-up to the listing of Icon Offshore Bhd, an Ekuiti Nasional Bhd-controlled (Ekuinas) company. According to sources, the company, which is scheduled to list its shares on June 25, has had to address these issues in recent months. Its prospectus was launched on May 30.While these issues are not expected to derail or delay the offshore support vessel OSV) provider’s listing debut, it does raise questions that all was not well in the company and whether these issues have since been addressed. Based on documents obtained by FocusM, a police report was lodged on Jan 15 by a Petronas Carigali Sdn Bhd senior official over threats to his life following his alleged discovery of several irregularities in Icon Offshore."
Icon Offshore announced today:
We have to wait how this story will evolve.
Regarding the IPO, I don't have much of an opinion, it looks rather pricey to me both versus the historic PE and its NTA. The "hot" story of Oil & Gas (and PETRONAS' future plans) seems to me to be overdone. All industry players keep on increasing their fleet (Bumi Armada just announced a huge rights issue), surely that can't go on for ever, and at one day might lead to increased competition and margin depression. The numbers from POSH (in the same industry as Icon Offshore) showed that its utilisation rates are dropping, that seems quite worrisome to me for the whole industry.
Tuesday, 8 April 2014
Maybulk: IPO of POSH (2)
There are two new developments regarding Maybulk which were announced today:
Maybulk announced a deviation in its profit over 2013 reducing its profit over 2013 by 11.5%:
Deviations in profits are quite rare, and this is definitely a red flag.
Secondly Maybulk announced its audited accounts. Of interest is the statement regarding the options, which includes the important Put Option:
This text is rather remarkable, "to initiate an IPO" is surely different from "to undertake an IPO"?
The text is also distinctively different from the text in the proposed subscription to POSH shares, as I wrote before:
I have written a lot about the deal in 2008, I find that the valuation of POSH was much too high, in other words Maybulk received much too little shares for its investment in POSH.
However, the news was not all bad, there were two important safeguards:
But November 2012 the following was announced:
So why were these instruments issued in 2012 at USD 4.00 per RCPS to all shareholders of POSH, a 38.5% discount to the USD 6.50 per share that Maybulk paid for them in 2008?
Is a RCPS not also a share, but then a special kind, having even more rights than a normal share, and at any time being convertible to an ordinary share?
The above irrevocable undertaking has been stated in 2008 for a clear reason, it was meant to protect Maybulk in that other parties would not be allowed to buy shares at a lower valuation than what Maybulk paid for the shares in 2008. In 2012 Maybulk was more or less "forced" to participate in the rights issue and invest even more money in POSH, otherwise it would be diluted at a low price. But that was exactly what the undertaking supposedly was meant to prevent.
Only one year later, the RCPS would indeed be converted to shares, one RCPS for one ordinary share.
[to be continued]
Maybulk announced a deviation in its profit over 2013 reducing its profit over 2013 by 11.5%:
Deviations in profits are quite rare, and this is definitely a red flag.
Secondly Maybulk announced its audited accounts. Of interest is the statement regarding the options, which includes the important Put Option:
This text is rather remarkable, "to initiate an IPO" is surely different from "to undertake an IPO"?
The text is also distinctively different from the text in the proposed subscription to POSH shares, as I wrote before:
I have written a lot about the deal in 2008, I find that the valuation of POSH was much too high, in other words Maybulk received much too little shares for its investment in POSH.
However, the news was not all bad, there were two important safeguards:
- The above Put option, the treatment of which I posed many questions;
- The following irrevocable undertaking:
So why were these instruments issued in 2012 at USD 4.00 per RCPS to all shareholders of POSH, a 38.5% discount to the USD 6.50 per share that Maybulk paid for them in 2008?
Is a RCPS not also a share, but then a special kind, having even more rights than a normal share, and at any time being convertible to an ordinary share?
The above irrevocable undertaking has been stated in 2008 for a clear reason, it was meant to protect Maybulk in that other parties would not be allowed to buy shares at a lower valuation than what Maybulk paid for the shares in 2008. In 2012 Maybulk was more or less "forced" to participate in the rights issue and invest even more money in POSH, otherwise it would be diluted at a low price. But that was exactly what the undertaking supposedly was meant to prevent.
Only one year later, the RCPS would indeed be converted to shares, one RCPS for one ordinary share.
[to be continued]
Sunday, 6 April 2014
Maybulk: IPO of POSH (1)
Finally, after 5.5 years waiting, POSH will go for an IPO at the SGX.
I have written many times about the Related Party Transaction whereby Maybulk bought 21% of POSH in 2008, especially:
Maybulk/POSH: What happened to the Cash?
Clarkson, the valuer who didn’t believe his own valuation
Maybulk/POSH: KPMG's "independent" advice
Maybulk: before and after POSH
To recap, Maybulk bought in December 2008 34M shares in POSH at a valuation of USD 6.50 per share, for a total of USD 221M, or RM 778M. POSH was valued pre-deal at USD 780M.
My take on this deal is that the valuation of POSH was much too high, the exact reasoning behind that can be found in the above links, but in a nutshell:
But the deal itself was not the only worrisome element, also the low quality of the prospectus.
Fast forward four years, November 2012 Maybulk invested even more money in POSH by subscribing to a rights issue of RCPS (Redeemable Convertible Preference Shares) at USD 4.00 per share.
Fast forward to April 2014. Maybulk finally announced that POSH will go for an IPO on the SGX, estimated to be at the end of this month.
Three announcements were made to Bursa Malaysia.
The IPO of POSH was supposed to happen within five years after Maybulk's acquisition, a rather long time frame. Why could that not be achieved? No reason whatsoever was given.
In 2008, Maybulk received a put option, if POSH was not able to go for an IPO within five years then Maybulk could exercise its put option and would receive USD 8.125 back per share, 25% more than they paid for in 2008.
This option is not exactly peanuts, the amount of money involved is USD 276M or RM 914M (Maybulk would still own the POSH shares converted from the RCPS).
I had hoped that the minority shareholders of Maybulk would be allowed to vote on this important issue, after being given a clear picture of the two alternatives, exercising the option or keeping the POSH shares. That was not to be the case:
It was just the three Independent Directors who "deliberated" over an issue close to RM one Billion hard cash? Is this actually correct from a legal point of view, do independent directors yield so much power that they can solely propose how to settle issues of such magnitude? I think it should have been decided in an EGM, after all shareholders have received proper information, enabling them to make an informed decision.
It is not even mentioned when the decision not to exercise the option was taken or why the shareholders of Maybulk were not immediately informed.
More importantly, no reason whatsoever is given for the decision, not even a single line, why?
From a Corporate Governance point of view, I find this completely unbelievable.
Also, it is not clear why the decision has been taken. At this moment it is still not yet sure at what price POSH will go for an IPO. At a high price (say USD 10 per share, clearly higher than the USD 8.125 Maybulk would receive if it exercised the option) it might indeed be wise not to exercise the option.
But at a low price (say USD 6.50 per share), why not exercise the put option and hand the money back to the shareholders of Maybulk in the form of a dividend? They can then decide for themselves where to invest the money in, they could even chose to buy POSH shares in the open market if they wish to do so.
The three Independent Directors who made the decision have been a very long time with Maybulk, one director almost 18 years, the other two more than 10 years. That is longer than the recommended maximum term of 9 years. According to the Guidelines of EPF, "their independency could be impaired by their long term participation". The EPF will vote against renewal of independent directors who are with a company for longer than nine years.
If these directors are important for Maybulk then they should be converted to non-independent directors, giving new independent directors a chance to have a fresh look at the issues at hand.
One independent director (Dato' Capt Ahmad Sufian) was actually a non-independent director of Maybulk before and is now also a director of the PPB Group, the third largest shareholder of Maybulk and also linked to the Kuok Group.
Another independent director of Maybulk (Tay Beng Chai) is MD of a law firm (Tay & Partners) that has Maybulk and Wilmar as clients, the Kuok Group even appears to be a significant client. Tay is also a Kuok Foundation scholar.
The question is, will this all have an influence on their independence? And, should the information regarding Tay be disclosed to the shareholders of Maybulk?
Maybulk is asked to pour even more money into POSH, after the first purchase in 2008 and the subsequent rights issue of RCPS. The money invested is already close to RM 1 Billion, clearly more than half of Maybulks shareholders equity which stands at roughly RM 1.7 Billion.
The reason given is that Maybulk will be able to equity account the profit of POSH.
There is nothing magically about equity accounting, it is not that if a company A owns 20.01% of company B that is actually receives 20.01% of the profit, and nothing if it owns only 19.99%. In both cases company A receives only the dividend that company B pays, pro rata to the shareholding. It is a bookkeeping manner with no impact to the actual cash flow.
Berkshire Hathaway has created enormous value for its shareholders by investing in listed companies, almost always below the 20% required for equity accounting. Buffet invented the "look-through earnings" to give a better picture of the earnings generated in a year. I can not recall any shareholder of Berkshire Hathaway ever insisting on Buffett to buy minimum holdings of 20% in listed companies so that the reported earnings look better.
[to be continued]
I have written many times about the Related Party Transaction whereby Maybulk bought 21% of POSH in 2008, especially:
Maybulk/POSH: What happened to the Cash?
Clarkson, the valuer who didn’t believe his own valuation
Maybulk/POSH: KPMG's "independent" advice
Maybulk: before and after POSH
To recap, Maybulk bought in December 2008 34M shares in POSH at a valuation of USD 6.50 per share, for a total of USD 221M, or RM 778M. POSH was valued pre-deal at USD 780M.
My take on this deal is that the valuation of POSH was much too high, the exact reasoning behind that can be found in the above links, but in a nutshell:
- POSH's Net Tangible Assets were minus USD 107M (in other words it had more debt than hard assets);
- POSH's Net Assets were USD 188M (including goodwill);
- POSH only existed a few years, with most of its purchases done a short while ago, when the economy was still booming;
- At the moment of the RPT, the severe global recession was raging, banks cut credit lines, asset prices were falling from the sky, companies were going bankrupt.
But the deal itself was not the only worrisome element, also the low quality of the prospectus.
Fast forward four years, November 2012 Maybulk invested even more money in POSH by subscribing to a rights issue of RCPS (Redeemable Convertible Preference Shares) at USD 4.00 per share.
Fast forward to April 2014. Maybulk finally announced that POSH will go for an IPO on the SGX, estimated to be at the end of this month.
Three announcements were made to Bursa Malaysia.
The IPO of POSH was supposed to happen within five years after Maybulk's acquisition, a rather long time frame. Why could that not be achieved? No reason whatsoever was given.
In 2008, Maybulk received a put option, if POSH was not able to go for an IPO within five years then Maybulk could exercise its put option and would receive USD 8.125 back per share, 25% more than they paid for in 2008.
This option is not exactly peanuts, the amount of money involved is USD 276M or RM 914M (Maybulk would still own the POSH shares converted from the RCPS).
I had hoped that the minority shareholders of Maybulk would be allowed to vote on this important issue, after being given a clear picture of the two alternatives, exercising the option or keeping the POSH shares. That was not to be the case:
It was just the three Independent Directors who "deliberated" over an issue close to RM one Billion hard cash? Is this actually correct from a legal point of view, do independent directors yield so much power that they can solely propose how to settle issues of such magnitude? I think it should have been decided in an EGM, after all shareholders have received proper information, enabling them to make an informed decision.
It is not even mentioned when the decision not to exercise the option was taken or why the shareholders of Maybulk were not immediately informed.
More importantly, no reason whatsoever is given for the decision, not even a single line, why?
From a Corporate Governance point of view, I find this completely unbelievable.
Also, it is not clear why the decision has been taken. At this moment it is still not yet sure at what price POSH will go for an IPO. At a high price (say USD 10 per share, clearly higher than the USD 8.125 Maybulk would receive if it exercised the option) it might indeed be wise not to exercise the option.
But at a low price (say USD 6.50 per share), why not exercise the put option and hand the money back to the shareholders of Maybulk in the form of a dividend? They can then decide for themselves where to invest the money in, they could even chose to buy POSH shares in the open market if they wish to do so.
The three Independent Directors who made the decision have been a very long time with Maybulk, one director almost 18 years, the other two more than 10 years. That is longer than the recommended maximum term of 9 years. According to the Guidelines of EPF, "their independency could be impaired by their long term participation". The EPF will vote against renewal of independent directors who are with a company for longer than nine years.
If these directors are important for Maybulk then they should be converted to non-independent directors, giving new independent directors a chance to have a fresh look at the issues at hand.
One independent director (Dato' Capt Ahmad Sufian) was actually a non-independent director of Maybulk before and is now also a director of the PPB Group, the third largest shareholder of Maybulk and also linked to the Kuok Group.
Another independent director of Maybulk (Tay Beng Chai) is MD of a law firm (Tay & Partners) that has Maybulk and Wilmar as clients, the Kuok Group even appears to be a significant client. Tay is also a Kuok Foundation scholar.
The question is, will this all have an influence on their independence? And, should the information regarding Tay be disclosed to the shareholders of Maybulk?
Maybulk is asked to pour even more money into POSH, after the first purchase in 2008 and the subsequent rights issue of RCPS. The money invested is already close to RM 1 Billion, clearly more than half of Maybulks shareholders equity which stands at roughly RM 1.7 Billion.
The reason given is that Maybulk will be able to equity account the profit of POSH.
There is nothing magically about equity accounting, it is not that if a company A owns 20.01% of company B that is actually receives 20.01% of the profit, and nothing if it owns only 19.99%. In both cases company A receives only the dividend that company B pays, pro rata to the shareholding. It is a bookkeeping manner with no impact to the actual cash flow.
Berkshire Hathaway has created enormous value for its shareholders by investing in listed companies, almost always below the 20% required for equity accounting. Buffet invented the "look-through earnings" to give a better picture of the earnings generated in a year. I can not recall any shareholder of Berkshire Hathaway ever insisting on Buffett to buy minimum holdings of 20% in listed companies so that the reported earnings look better.
[to be continued]
Friday, 3 January 2014
"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:
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.
"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.
Sunday, 1 December 2013
Masterskill: shocking loss and insufficient explanation
I wrote in my last posting about Masterskill:
"And 2013 will most likely be much worse than 2012.".
It looks like, unfortunately, that statement will be very true. The company announced its third quarter results:
The revenue compared to the third quarter of the 2012 is down a shocking 56%.
The Profit Before Tax was hit by a RM 88 million "impairment loss for goodwill and PPE".
The reasons for these can be found in the following paragraph:
"13. Review of Performance
For the third quarter ended 30 September 2013, Masterskill Education Group Berhad
(MEGB) recorded a revenue and loss before tax of approximately RM15.6 million and
RM104.4 million respectively. Revenue was 56% lower than last year’s quarter due to
lower student population as a result of graduating students and low intake numbers.
The higher loss before tax was largely due to provision for impairment loss on
goodwill and certain of the Group’s property, plant and equipment totalling RM88.2
million."
I think investors of Masterskill deserve a much more detailed explanation than the above:
The results of the last six years:
Year Revenue PAT
2008 203M 72M
2009 273M 97M
2010 316M 102M <=== IPO
2011 250M 38M
2012 149M -28M
2013 51M -135M (based on 9 months)
The worsening results of the company (both in revenue and profit), exactly after the IPO (when increased profits should be expected, due to the inflow of IPO funds) and the large write-off in the last quarter are very worrisome.
I hope that the authorities will consider starting a thorough investigation, if all the representations and warranties as submitted in the due diligence of the IPO and the financial accounts Pre-IPO were indeed correct.
On 31 Oct, 2013 the company announced that Dato' Sri Dr. Santhara Kumar A/L Ramanaidu [the founder, previously in charge and previously its largest shareholder]:
"has accomplished all the task assigned to him as a former Group Chief Executive Officer and Director and vacated the position for a woman board member to be appointed".
Apparently a rising share price was not one of the tasks assigned to him:
"And 2013 will most likely be much worse than 2012.".
It looks like, unfortunately, that statement will be very true. The company announced its third quarter results:
The revenue compared to the third quarter of the 2012 is down a shocking 56%.
The Profit Before Tax was hit by a RM 88 million "impairment loss for goodwill and PPE".
The reasons for these can be found in the following paragraph:
"13. Review of Performance
For the third quarter ended 30 September 2013, Masterskill Education Group Berhad
(MEGB) recorded a revenue and loss before tax of approximately RM15.6 million and
RM104.4 million respectively. Revenue was 56% lower than last year’s quarter due to
lower student population as a result of graduating students and low intake numbers.
The higher loss before tax was largely due to provision for impairment loss on
goodwill and certain of the Group’s property, plant and equipment totalling RM88.2
million."
I think investors of Masterskill deserve a much more detailed explanation than the above:
- Students graduating: that happens every year.
- The low intake numbers: the company should give some relevant background why numbers have come down so much.
- The (hopefully one-off) provision, there needs to be much more detail, what exactly is written down and why.
The results of the last six years:
Year Revenue PAT
2008 203M 72M
2009 273M 97M
2010 316M 102M <=== IPO
2011 250M 38M
2012 149M -28M
2013 51M -135M (based on 9 months)
The worsening results of the company (both in revenue and profit), exactly after the IPO (when increased profits should be expected, due to the inflow of IPO funds) and the large write-off in the last quarter are very worrisome.
I hope that the authorities will consider starting a thorough investigation, if all the representations and warranties as submitted in the due diligence of the IPO and the financial accounts Pre-IPO were indeed correct.
On 31 Oct, 2013 the company announced that Dato' Sri Dr. Santhara Kumar A/L Ramanaidu [the founder, previously in charge and previously its largest shareholder]:
"has accomplished all the task assigned to him as a former Group Chief Executive Officer and Director and vacated the position for a woman board member to be appointed".
Apparently a rising share price was not one of the tasks assigned to him:
Tuesday, 26 November 2013
7-Eleven IPO hits a snag? (2)
The Star published an article "More explanation needed to justify high 7-Eleven valuations" on its website. Some snippets:
"Disclosures surrounding the toppish valuation of Seven Convenience Bhd, the owner of 7-Eleven stores, is the reason why its planned flotation has hit a snag, banking sources said.
According to the sources, Seven Convenience’s listing application did not sufficiently explain the justification behind the increased value of the 7-Eleven business, following its privatisation back in 2006.
“In cases where companies have been privatised before and are then being brought back into the market (via an initial public offering or IPO), disclosure rules dictate that a very clear explanation needs to be given to justify the increased value of the asset,” said one banker, adding that a similar issue had arisen in last year’s listing of Astro Malaysia Holdings Bhd. The issuers had to provide additional disclosures to justify the much higher valuation they were looking to get from the second listing of Astro.
Astro had been taken private in 2010, only to be re-listed, minus its overseas assets, in January 2012 at a price of RM3 per share for its retail portion, which was at a lofty price-to-earnings ratio of 24 times.
It is understood that this disclosure was lacking in Seven Convenience’s IPO documents. Various reports on Monday stated that Tan Sri Vincent Tan’s US$700mil (RM2.17bil) IPO of Seven Convenience had either been rejected or deferred by the Securities Commission (SC).
One source told StarBiz that the owners were looking to float the company at a massive price earnings multiple of more than 30 times historical earnings.
However, sources added that this disclosure issue could be eventually resolved and predicted that Seven Convenience’s listing would be deferred to next March, possibly when it shows a new set of earnings that justifies its high valuation."
As far as I know, the above is not confirmed by the Securities Commission, who normally doesn't comment on on-going cases. However, the above explanation does sound plausible.
Regular readers of this blog might remember the IPO of Astro, especially this posting (pointing out that much relevant information was missing from the draft IPO prospectus, especially regarding the delisting exercise) and this posting (noticing a much improved IPO prospectus).
Other (rather negative) articles about Astro can be found here. I am still bearish on Astro, I don't think TV has a bright future versus the combination of internet and mobile devices.
"Disclosures surrounding the toppish valuation of Seven Convenience Bhd, the owner of 7-Eleven stores, is the reason why its planned flotation has hit a snag, banking sources said.
According to the sources, Seven Convenience’s listing application did not sufficiently explain the justification behind the increased value of the 7-Eleven business, following its privatisation back in 2006.
“In cases where companies have been privatised before and are then being brought back into the market (via an initial public offering or IPO), disclosure rules dictate that a very clear explanation needs to be given to justify the increased value of the asset,” said one banker, adding that a similar issue had arisen in last year’s listing of Astro Malaysia Holdings Bhd. The issuers had to provide additional disclosures to justify the much higher valuation they were looking to get from the second listing of Astro.
Astro had been taken private in 2010, only to be re-listed, minus its overseas assets, in January 2012 at a price of RM3 per share for its retail portion, which was at a lofty price-to-earnings ratio of 24 times.
It is understood that this disclosure was lacking in Seven Convenience’s IPO documents. Various reports on Monday stated that Tan Sri Vincent Tan’s US$700mil (RM2.17bil) IPO of Seven Convenience had either been rejected or deferred by the Securities Commission (SC).
One source told StarBiz that the owners were looking to float the company at a massive price earnings multiple of more than 30 times historical earnings.
However, sources added that this disclosure issue could be eventually resolved and predicted that Seven Convenience’s listing would be deferred to next March, possibly when it shows a new set of earnings that justifies its high valuation."
As far as I know, the above is not confirmed by the Securities Commission, who normally doesn't comment on on-going cases. However, the above explanation does sound plausible.
Regular readers of this blog might remember the IPO of Astro, especially this posting (pointing out that much relevant information was missing from the draft IPO prospectus, especially regarding the delisting exercise) and this posting (noticing a much improved IPO prospectus).
Other (rather negative) articles about Astro can be found here. I am still bearish on Astro, I don't think TV has a bright future versus the combination of internet and mobile devices.
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