Blast from the Past: Pan-Electric (3)

I wrote before about the Pan-Electric scandal, here and here.

I wrote before about the divorce battle of Khoo Kay Peng and Pauline Chai, here and here.

As expected in a bitter separation, lots of mud is being thrown at each other.

This blog usually doesn't focus on toilet seats nor about the number of shoes that one person has (Telegraph).

But another, more interesting revelation reveals a new link between the two above cases. From the Malaysian Insider website:

"Tycoon hubby sought Canadian citizenship to avoid arrest, ex-beauty queen claims".

Some snippets:


Billionaire Tan Sri Khoo Kay Peng had asked for a Canadian citizenship in the 1990s to avoid arrest by the Singaporean authorities, which was investigating a company belonging to him in the island state, his wife Pauline Chai told the High Court here today. Speaking during the couple’s highly publicised domicile trial here, the former Miss Malaysia claimed that Khoo had wanted to apply for permanent residency in Canada because the country had no extradition co-operation with Singapore. She said the tycoon had then feared for his life after some of his colleagues were arrested by the Singaporean authorities over allegations of mismanagement involving his company, Pan Electric Industries. “We had first stayed in Australia but when the Pan Electric fiasco (happened), two of his friends got investigated so we moved to Canada because they had no extradition laws there.

According to her affidavit that was sighted by Malay Mail Online, Khoo’s lawyers had first advised him and his family to move to Australia, where he, Chai and his children eventually settled down. But Chai claimed her husband fell into depression, as he was not certain if Australian laws could still prevent him from being extradited to Singapore.


This seems to be a new twist in the Pan-Electric case. What was known is the below information.

There are references in this newspaper clip from the Straits Times, some snippets:

A detailed article from The Ant Daily can be found here:

"The forgotten corporate high-flyer"

It appears that, due to the high-profile divorce case, the high-flyer is not that much forgotten anymore. If he likes that kind of attention is another matter.

The Pan-Electric case still seems to attract quite some attention, after all those years. And probably rightly so, it was the only case that brought the share markets of both Singapore and Malaysia to a halt for three days.

DailyMail: Chairman of MUI in divorce battle (2)

The Mail Online came out with another story about the divorce battle between Khoo Key Peng (who controls MUI and several other PanMalaysia companies like PMCorp and PMI) and  Pauline Chai.

The first round of mudslinging has started, for the details please click on the above link.

I have no idea which party will win, but as usual the lawyers will have a field day:

The case will see a battle between two of  Britain’s top divorce lawyers. Ayesha Vardag, known as the ‘diva of divorce’, is representing Miss Chai, while Fiona Shackleton, who has been nicknamed the ‘steel magnolia’ for her charm and determination, is acting for Dr Khoo.

Ahead of forthcoming preliminary hearings, Miss Vardag said: ‘This is the husband trying desperately to forum-shop [find a court which would give him the best result] himself out of English courts into Malaysia where Pauline has not lived since her youth and of which she is not even a citizen.

‘The English courts would share out the assets this couple built up over more than 40 years of marriage with five children on the basis of fairness. The Malaysian courts would give Pauline much less.’

"Dr Khoo, who is ranked the 36th richest man in Malaysia by US magazine Forbes, bought a 40 per cent stake in Laura Ashley in 1998."  

Most likely he bought this through one of his companies, MUI currently holds the shares, in other words Khoo owns a part of a company which owns a part of Laura Ashley.

"He also runs a global investment company, Malaysian United Industries."

Some would call it a global investment company, others would call it a penny stock, it usually trades around RM 0.20. The reason being that there is an unbelievable amount of shares outstanding, close to 3 Billion (but then again, compared to MAS that is peanuts, they just issued a rights issue of 13,368,624,960 ordinary shares).

Once the MUI group was the proud owner of MUI Bank, previously known as Kwong Lee Bank, now known as Hong Leong Bank. The whole stable of MUI/PM companies was hit very hard in the 1997/98 Asian crisis.

DailyMail: Chairman of MUI in divorce battle

The UK tabloid DailyMail reported the following:

Former Miss Malaysia could get £500m payout in Britain's biggest ever divorce settlement from multimillionaire husband

Pauline Chai, now 66, is divorcing Malaysian businessman Khoo Kay Peng Chairman of Malaysian United Industries has properties around the world The 74-year-old also owns a 40 per cent stake in Laura Ashley Divorce petition filed last month on grounds of 'unreasonable behaviour'

The 74-year-old also has a 40 per cent stake in Laura Ashley, which now has sales of £286 million a year, and is director of Corus Hotels Limited which owns ten hotels including the grand Corus Hyde Park Hotel.

Some more information at the website of The Times.

Certain assets are held by listed Malaysian companies (not by Khoo personally) in the MUI and Pan Malaysia stable (PMI and PMCorp), those companies also have liabilities and are owned by other shareholders.

One should therefore not count the value of the assets but of the shares of these companies, and the share prices of all these companies are languishing, they are all penny stocks.

There have been serious Corporate Governance concerns in all of them, as mentioned in this blog and much more in WhereIsZeMoola.

I therefore get the impression that the above amounts are widely overstated (at least as far as they relate to the assets in listed companies). Khoo Kay Peng is also not listed in the Top 13 of the richest Malaysians.

PMI: more questions than answers

PMI published its offer document for the take-over offer. To recap, the joint offerors, companies controlled by Khoo Kay Peng, offer RM 0.045 per PMI share, which must be one of the lowest offers ever recorded on Bursa Malaysia.

More information can be found here: http://cgmalaysia.blogspot.com/search/label/PMI

The offer document does not answer issues raised, and even adds some more. These kind of documents are supposed to deal with important issues, but in Malaysia they are very good in avoiding them.

[1] The main issue is that the offerors bought their shares from (primarily) the Hope Foundation, and that this price is used for the price offered to the minority investors. But the Hope Foundation seems to be connected to the offeror, there are many indications to be found on the internet, for instance in an article in "Malaysian Business", the previous name was even "MUI Foundation" and the shares it traded in where all connected to the offeror. But if this is indeed the case (and it seems to be very likely), then that means there is a huge conflict of interest, it would be in the interest of the joint offerors to make an offer as low as possible to the Hope Foundation, instead of an arms length offer. It would also explain why a large shareholder (Hope Foundation) would sell its shares for about the lowest price ever. Although this issue seems to be obvious, and the authorities are aware of it, it is never raised in the offer document, not even once. There is simply no mentioning at all of the Hope Foundation.

Here is a link from the website of Raja Petra, also about the Hope Foundation (I haven't been able to check the accuracy of the rather wild allegations though):

http://www.malaysia-today.net/mtcolumns/40479-tan-sri-dato-dr-khoo-kay-peng

[2] Investors who sold their PMI shares on August 24th or 25th for RM 0.040 will get half a cent extra per share, since the offer was already unconditional on August 24th. A pretty straight forward ruling, the announcement regarding the offer on August 26th was simply two days too late. The Securities Commission made this ruling on October 7th (good and fast action, I have to admit), PMI objected on October 10th (rather strange, it looks very clear that rules have been breached) and the SC overruled the objection. All correct, but why did the SC suddenly need 3.5 months to reach this conclusion, when their first ruling took less than two weeks? Because of this the whole process is hugely delayed. The impact will be very small, most trades on those two days were anyhow done at RM 0.045, investors have to reclaim their money if they made any on RM 0.040 and some will even have forgotten that they sold their shares those days. The total impact will be a few Thousand Ringgit at most. The delay by the SC is puzzling.

[3] The independent advisor will be Hwang-DBS. This company did another independent advice for the same offeror, more details can be found here:

http://cgmalaysia.blogspot.com/2011/09/muib-and-pmcorp-horrible-deal-from-past.html

In my opinion, both that Related Party Transaction between PMCorp and MUI and the independent report were the worst in Malaysia in the last 10 years, and that says a lot. Hwang-DBS is never punished in any way, shape or form (the authorities are aware about the horrific details of this deal but apparently are unwilling to take any action, for reasons only they know best). But to allow this same company to do another independent advice for the same major shareholder is pretty unbelievable.

[4] There is no mentioning at all in the document of the last Rights Issue by PMI and the projections done there. Interestingly, in that brochure PMI was projected to have losses in 2009, 2010 and 2011 (which is what happened), but to deliver profits from 2012 onwards. Why would shareholders accept a low offer just when profits are projected to kick in? At the very least there should be an update on these projections.

[5] There is no detailed discussion about the assets of PMI, mainly a building, a piece of land and shares in MUI: is there a way to unlock value, can or will they be revalued, etc.

[6] What is interesting (and this is almost completely ignored in the report) is that PMI is trading above the offer price, the last closing price is RM 0.06, 33% above the offer price. Since February 8, 2012 all transactions have been higher than the offered price.

It must be noted that quite a few breaches of rules by PMI have occurred (together with many Corporate Governance issues), but that so far nobody received even as much as a reprimand.

MUIB and PMCorp: a horrible deal from the past

"Ze Moola" attended me on a old corporate exercise from the MUIB stable. The "independent" report can be found here:

http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/afd99bbf47849e5848256f2b001970f4/$FILE/PMCorp-Circular.pdf

In short, Malayan United Industries Bhd. (MUIB) had borrowed RM 1,067,000,000 from related party Pan Malaysia Corporation (PMCorp), if would not or could not pay the amount back, a horrible and highly unsatisfactory situation for PMCorp shareholders.

The only thing MUIB could do is hive of some assets to PMCorp, but it decided to give the PMCorp shareholders shares in MUIB. Problem was that MUIB's shares were trading at only RM 0.185, that would mean that PMCorp were entitled to about 6 billion MUIB shares. Aparantly that was not what the Majority Shareholders of MUIB had in mind, therefore an ingenious scheme was designed. A pretty complicated one so that most Minority Investors would not be able to see through it. Instead of shares it would give ICULS, Irredeemable Convertible Unsecured Loan Stocks. These are Irredeemable, in other words they can not be redeemed for cash, you can (or will, there is no choice) somewhere in the future convert them 1:1 for MUI shares. They don't pay dividend like shares but interest, but even this would be paid in even more ICULS. This looks already bad for PMCorp shareholders, instead of cold hard cash they would get shares in a company that had been making huge losses over the last years. But what is simply amazing is the small number of ICULS they would receive, instead of the about 6 billion one would expect (RM 1,067 million divided by RM 0.185 = 5.8 Billion), they received less that 1.3 Billion ICULS. Minority Shareholders of PMCorp were thus hugely short changed, for more than RM 800 million.

The "independent" report from Hwang-DBS Securities Bhd. was of extremely low quality, I won't bother writing what was wrong with it (about everything), will just give their conclusion:

Let's check their arguments:

(i) The par value of MUIB shares: the par value has nothing to do with valuation. The fact that the NAV of a MUIB shares is way below the par value means it has accumulated huge losses, which is an indication of a badly managed company. By even suggesting the par value HWANG-DBS is simply deceiving Minority Investors.

(ii) The ICULS can only be converted to shares in the future: that is a disadvantage, not an advantage.

(iii) The future prospects of the MUIB group: the report was dated 12 Oct 2004, MUIB was thoroughly mismanaged, had lost Billions of RM, why would that suddenly improve? The results since then:

2004: RM -405 million
2005: RM -371 million
2006: RM -210 million
2007: RM +10 million
2008: RM -74 million
2009: RM +3 million
2010: RM +36 million

In total: losses of more than RM 1 Billion.

And what happened with the proposal and the circular? It was (as usual) approved by the authorities (Bursa Malaysia and/or Securities Commission), and neither the directors of PMCorp, MUIB or the "independent" advisor Hwang/DBS were ever punished in any way, shape or form.

Needless to say, the quality of the "independent" advice circulars in Malaysia has further gone down, 99% of them shamelessly support the Majority Shareholders, no matter how bad the deal is for the Minority Shareholders: "Whose bread I eat, his song I sing". And up to this very day, the authorities have not bothered to come down on the advisers.

Recommendation: Do away with the "independent" advice, it is hurting Minority Shareholder, not helping them.

MUIIND is currently trading at RM 0.21, the MUI ICULS are all trading at RM 0.17, PMCORP is at RM 0.09, PMIND at for RM 0.045 and PMCAP at for 0.085.

The renumeration for MUIB's Chairman and Chief Executive, Tan Sri Dato' Khoo Kay Peng, is more than RM 3.2 million a year.