SC sues Stone Master executive (2)

Some updates in this case.

From The Edge: Stone Master deputy MD fails to strike out Securities Commission's civil suit

A few snippets:


Stone Master Corp Bhd deputy managing director Datin Chan Chui Mei failed in her application to strike out the Securities Commission's (SC) claims against her for allegedly causing wrongful loss to the company.

Following the decision by High Court Judge Datuk Has Zainah Mehat, the hearing of SC’s application for an injunction restraining her from dealing with monies in her bank account up to the amount of RM11.54 million, pending the disposal of the trial, is set for decision or clarification on March 20.  

In September 2016, SC obtained an ex-parte injunction against Chan.

Chan was charged under sections 179 and 317A (1) of the Capital Markets and Services Act 2007 (CMSA). She received RM11.54 million out of RM11.59 million meant to be paid by Stone Master to local representatives of 23 foreign companies, relating to the exclusive rights to market and promote their products in Malaysia and Singapore.

Section 179 of the CMSA prohibits a person from using any manipulative device for subscription, purchase or sale of any securities.

Under section 317A, a director or an officer of a listed corporation is prohibited from doing anything with the intention of causing wrongful loss to the listed corporation.

The SC wants Chan to pay the regulator the sum of RM11.54 million, which is to be held in trust for Stone Master, and for Chan to be barred from being a director of a public-listed company for a period of five years.

In addition, the SC is also seeking a civil penalty of RM1 million against Chan.

Despite facing the charges, Chan remains as Stone Master's deputy managing director.


That last sentence sounds very strange, of course the deputy MD should have been suspended immediately, at least temporarily. It seems to me that the other Directors of the company also have a responsibility in this matter.

Also, it seems surprising (given the seriousness of the allegations of the SC) that things have not yet moved to the criminal court, apart from the civil penalty sought by the SC.

Stone Master issued its Annual Report 2016.

If one would read the Chairman's statement, one would not get a very accurate picture of what is really going on with the company. For that one would have to dive into the notes that accompany the accounts.

Note 26 (page 107 contains numerous Related Party Transactions. For instance Starfield Capital, a company related to the deputy MD, made a loan to the company of RM 18 Million.

Note 32 (page 117) details significant events during and after the financial year, a whopping 27 pages packed with information, some of it simply astonishing. Amounts in the Billions of RM are mentioned, and this for a company with a current market cap of only RM 9 Million (and consistently losing money).

If anybody would like to jump into the action, based on those Billions mentioned, one should first read the following paragraph (the current share price of Stone Master is RM 0.10):

My question: was the original business model based on the Exclusive Agencies and mentioning those Billions of RM really ever viable?

Also the action by the Securities Commission and the current PN17 status are mentioned in the annual report. And on page 146 one can find the disclaimer of opinion by the auditor, another clear red flag.

Related Party Transactions, "a national sport in Asia"

I have often warned about Related Party Transactions (and its closely related cousin "Conflict of Interest"). Basically, these should be avoided by companies, and if they are unavoidable due to the nature of the business, they should be done in a very transparent and upfront manner.

In Malaysia, RPTs (and Conflict of Interest situations) are of course almost a way of life, many of the Corporate Governance abuse cases described in this blog handled about them.

GMT did recently some research regarding Hong Kong and Singapore companies.


Over 90% of all companies were engaged in some form of related party transactions in 2014. It makes us wonder if the remaining 7-8% simply forgot to declare them! These transactions averaged 7% of combined sales and expenses which is highly material to profit. A whopping 13% (46 companies) had related party transactions in excess of 20% of combined sales and expenses. However, of these, 31 were state owned enterprises (SOE) which clearly do a lot of business with other SOEs. Who knows whether they conduct business at market prices or in line with government policy? What we’re really interested in are those private companies with a large amount of related party transactions because that’s where minority shareholders are at greatest risk. That leaves us with just 15 companies which we list in alphabetic order below:

Some of GMTs findings (unfortunately the names of the companies are left out, I guess one has to subscribe to their services for that):

• Company 1: The largest related party balances of any company GLOBALLY, at US$6.2bn. It is paid interest income on amounts owed to it but doesn’t pay interest on amounts it owes. This boosted 2014 pre-tax profit by 20%.
• Company 2: Two CEOs have been sent to jail in the last decade.
• Company 3: Around 45% of expenses routed through two companies owned by the founder. One of these paid the founder an estimated US$22m in dividends over the past two financial years.
• Company 4: Building the world’s 5th tallest building in China, financed with a US dollar loan from a related party.
• Company 5: Over 35 pages of connected party transactions.

As a safeguard, RPTs have to be evaluated by the independent directors (INEDs), if the deals are properly done at arms length.

However, as David Webb put it: 

Once appointed by the board, the INEDs are re-elected by shareholders at the next annual general meeting, and thereafter by rotation (typically standing every three years, if they survive that long). Unfortunately, the controlling shareholders are allowed to vote in these elections, so they nearly always determine the outcome. Yes, the sheepdog is appointed by the flock, not by the shepherd. It is a clear absurdity that the controlling shareholders effectively appoint the people who are supposed to prevent them from abusing the company. This is shareholder democracy Hong Kong-style.

In fact, INEDs are often so closely allied to the executive directors that, if the company is taken over, the INEDs resign at the same time as the executive directors, and the new controlling shareholders will appoint new "independent" directors of their choice.

GMT concludes with "Now we’re working on the rest of Asia". I certainly hope they don't skip Malaysia, there will be lots of juicy material to be found.

Silverlake Axis down 24%, suspended, after damning report (2)

Silverlake Axis announced yesterday is quarterly earnings, like nothing has happened. Some more information can be found in this article in the Straits Times.

A bit unreal, since the company has not replied to the very serious allegations by "razor99". But may be the results were ready and planned, and it was considered to release the results anyhow, even though the anonymous report was not even mentioned once in the results.

In the Value Investors Club there is a member named "razor99" who has written a report before about possible fraud at Longtop Financial, allegations that proved to be right. In the introduction of the report on Silverlake Axis there is a reference made to this report. If this is indeed the same writer, then that would add to the credibility of the current report.

For those that have not found the time to read the whole report (it is rather heavy on accounting), a shorter version can be found here.

I have read the report several times, and have not been able to find errors in it. I have to admit, that I am not an expert on Silverlake Axis, I only started to follow the company more closely over the last few months after a tip of a friendly party.

Given that, some comments by me:

• The corporate structure is indeed horrific, and unexplainable so. Why does the group need so many subsidiaries, audited by so many different auditors, and even some in (notoriously non-transparent) BVI?
• The amount of RPTs (both revenue transactions and acquisitions) is very high (although recently less so).
• Transparency (in relation to the above) does seem to be a problem.

This is also determined by the Governance and Transparency Index of the NUS Business School, which put Silverlake Axis on the 507th place out of 639:

Why does a multi-billion company with a credible board of independent directors have such poor corporate governance standards, why did the board not insist on improvements? This is indeed a puzzle.

Another question is: why did SGX allow such a company to be listed in the first place? The company should have been forced to restructure pre-IPO, bringing under one umbrella all companies in the group with high RPTs.

On the other hand, the above considerations are red flags, but not really beyond the law.

In Section 5 undisclosed off-balance sheet debt is mentioned, with appendices 12-14 as proof. This allegation looks serious (at least to me), the company definitely needs to come with a good, concrete explanation here.

The report further suggests that because of this there might be more hidden loans. Silverlake Axis might want to give full transparency (beyond what is required) to show this is not the case, even in BVI registered related parties.

Section 6 gives an overview of the chairman cashing out (more than RM 1 Billion), and the minorities coughing up money (RM 555 Million). In itself there is nothing illegal about this.

This is however a very refreshing way to look at things, I hope analysts will follow this example, I suspect there are many other companies where the same has happened in the past. I hope to have time in the future to give some Bursa listed examples.

Section 7 gives a peer analysis. This is indeed quite disturbing for me, if the peers (as selected by Razor99) are typically for the industry, then this section does need some serious discussion by the company. The average salary for an employee is RM 111K, while the revenue per employee is RM 625K. With most revenue coming from project work and maintenance, these numbers do seem puzzling. A lot of the technology of Silverlake Axis even appears to be acquired, while spending little on R&D, not what one would expect from a top-notch technology company.

Section 8 about possible bribery is very disturbing, especially in the Malaysian context. But no conclusive evidence is given (which would anyhow have been impossible to do), although rumours have been going around for some time (I am aware of some of them, something I hardly ever hear).


SIAS announced a press release regarding the matter. It made a stunning comment:

"It is unfortunate that such an anonymous report can have an impact on the stock as it lacks credibility".

I honestly have no idea how anyone can be so sure. Also, why did the author make such a comment without going in any detail whatsoever?

"If the person or persons responsible for the report are found to be mischievous then the company must take prompt legal action and, if the facts indeed are found to be mischievous and misleading, SIAS calls also on the authorities to take police action."

Not one word what action should be taken if it turns out that (some of) the allegations turn out to be true.

"It is the small investors who always suffer the consequences."

Sorry, that is simply playing the gallery.

But what if the allegations are (substantially true)? Would this anonymous report not limit the damage, prevent more money from minority investors to be poured into the company while preventing the chairman of cashing out more money, and enabling the authorities to take action?

Also, it does give the independent directors a chance to improve things on corporate governance issues. Something that anyhow seems to be overdue.

"SIAS calls on all listed companies to be as transparent as possible to their shareholders to prevent such attacks from members of the online community who indulge in such attacks for personal gain. Companies must be prompt in responding to such attacks to ally the fears on the part of the investors and consequently avoid losses."

Finally something I agree with. But given that the company has been the target before, and its long listing history, has Silverlake Axis really been "as transparent as possible"? I strongly doubt it and NUS Business School seems to agree with that, placing the company in the last quartile of its CG list.

How this episode will play out, of course I don't know. It is a very high profile case, with lots of vested interest. The company has been recommended by many astute investors and its numbers did indeed appear very good. Will it turn out that the numbers were simply too good to be true? Time will tell.

Benalec: are reprimands and fines enough?

Article in The Star: "Benalec’s Leaw brothers reprimanded":


Bursa Malaysia has reprimanded Benalec Holings Bhd’s three Leaw brothers for breaching listing requirements and also fined them a total of RM250,000.

According to the stock exchange regulator, the directors failed to make immediate announcement, appoint an independent adviser and procure shareholders’ prior approval of the land disposals entered between Benalec’s subsidiary, Strategic Land Sdn Bhd (SLSB) with Sunshine 2000 Sdn Bhd (Sunshine 2000) and Seaside Synergy Sdn Bhd (Seaside Synergy) on Jan 18, 2012 and March 12, 2012.

 

On top of that, the land reclamation player also failed to appoint an independent adviser and procure shareholders’ prior approval of the Heads of Agreement announced on Dec 5, 2013 in relation to the rescission and cancellation of the land disposals.

 

The directors, who are also brothers, are Benalec managing director Datuk Leaw Seng Hai, former executive director Datuk Leaw Ah Chye and Datuk Leaw Tua Choon, who resigned on Dec 4, 2013.

Bursa announced some more detail:


Datuk Leaw Ah Chye and Datuk Leaw Tua Choon

Based on the evidence, the Purchasers (of the Land Disposals) were persons connected to (i.e. accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of) Datuk Leaw Ah Chye and Datuk Leaw Tua Choon by virtue of the control / influence of the 2 directors and the son of one of these directors had over the Purchasers as well as their involvement in the Purchasers.

Notwithstanding their interests in the Purchasers and the Land Disposals, Datuk Leaw Ah Chye and Datuk Leaw Tua Choon had:-

(a)    failed to declare their interests to the board of BENALEC and SLSB in accordance with paragraph 10.08(8) of the Main LR;
(b)   failed to ensure that BENALEC complied with paragraph 10.08 of the Main LR; and
(c)    concealed their interests in the Land Disposals from BENALEC and its board including persistent denial (including under oath) their interests despite being asked by the board after the complaint.

Further, Datuk Leaw Ah Chye had signed the directors’ resolutions of SLSB dated 18 January 2012 and 12 March 2012 authorising SLSB to enter into the Sunshine 2000 SPA and Seaside Synergy SPA respectively in contravention of paragraph 10.08(6) of the Main LR.

Dato’ Leaw Seng Hai

He was the Managing Director of BENALEC primarily in charge of the day to day management of the business and operations of the company including land disposals by BENALEC Group and had approved the Land Disposals on behalf of by SLSB.  He was also aware or should have been aware of the anomalies / unusual circumstances of the Land Disposals and the magnitude / materiality of the Land Disposals. Notwithstanding these, he had failed to undertake due enquiry and address these anomalies resulting in the breaches of the Main LR by BENALEC.   

More background can be found in this announcement:


An allegation was made in March 2013 by a complainant via email which was disseminated to various parties, including Bursa Securities, that two (2) land disposal transactions (concluded in January and March 2012 respectively) between a wholly-owned subsidiary of Benalec Holdings Berhad as vendor and two private companies as purchasers were related party transactions in that Datuk Leaw Tua Choon and Datuk Leaw Ah Chye were linked to the purchasing entities.


Related Party Transactions (RPTs) are often bad, many examples can be found in this blog. However, even worse are RPTs which are not earmarked as such.

Many cases however will go unnoticed. In that light, the chance to get caught is small. In the above case there was a tip off.

Given all the above (the severity of the breaches and the small chance of getting caught), is the punishment as meted out by Bursa really sufficient? I strongly doubt it.

Maybulk: large paperlosses on its investment in POSH (3)

Maybulk published its 2014 year report. Two excerpts, the first from the Chairman:

And from the CEO:

"Yielded satisfactory returns", "continues to contribute positively", that sounds all very good.

This is in rather stark contrast to what I wrote before (here and here) about the hundreds of millions of paper losses that Maybulk should book on its investments.

Was I wrong? Unfortunately, I was not.

"Hidden" deep in the report, somewhere in the notes on page 66 we find the following:

So Maybulk is indeed sitting on a huge paper loss of about RM 780 Million, according to market value!

However, while Buffett marks to market the Berkshire Hathaway accounts for 50 years, Maybulk decided not to write the investment down. Apparently they think they know things better than Buffett.

The reasoning can be found here:

Based on price-to-book ratio?

Firstly, they haven't bothered to substantiate the reasoning by numbers, what is the price-to-book, how are other companies in the same industry valued to their book value? Disappointing, since we are talking about a RM 780 Million difference, not exactly peanuts.

Secondly, POSH is indeed trading at a discount to it's book value, but only a discount of 30%. If we correct for that factor, then the valuation still doesn't even come close to the RM 1.3 Billion for which it is valued in the books.

Thirdly, POSH has USD 295 Million of intangibles on its balance sheet, due to take overs it made in the "goldilocks" period before the global financial crisis.

I think it is questionable that those intangibles should still remain on the books, branding wise (under the POSH name), asset wise (some ships have been sold, new ships have been bought) or employee wise (some will have moved on, new ones have been hired). I think the intangibles should have been written down to zero by now.

If POSH is indeed overstating its balance sheet (by not writing down its intangibles), then that will result in low ratio's of profitability (earnings compared to assets and equity), and that seems indeed to be the case:

Although 2014 was a difficult year for the industry, 2011 until 2013 were fine, and the ratio's should have been clearly higher. These are really low indicators, they might even be lower than the cost to borrow funds, which doesn't make sense. Why borrow money to buy assets that yield less than the interest rate to be paid?

In other words:

• POSH should write down its intangibles, which will decrease its book value
• Maybulk should impair it's investment in POSH, it should have marked to market it's investment.

Maybulk's year report is very disappointing in that is does not want to face reality, although it was expected:

"Will the 2014 year report give more information on this subject? I doubt it, but hope to stand corrected."

It is the first year report after the IPO of POSH, the first time an objective (market) value is available for it's huge investment.

Nowhere in the report is the decline in price of POSH quantified (for the benefit of the readers of this blog: it is 59% down compared to its IPO price). Nowhere in the management discussion it is mentioned that the market value of it's investment has occurred huge paper losses.

This is important, since the investment is for a large part held for 6.5 years, that is rather long.

But also, Maybulk could have sold the shares in POSH for a profit a bit more than one year ago, but it decided not to do that and even to add further to the position at the IPO price, which looks like a very expensive mistake.

What was started in 2008 through a RPT has led to a huge destruction of capital, at a moment when there was in fact a huge opportunity. Not many companies had the luxury to sit on top of RM 1 Billion cash in the middle of the global crisis. Now the company is sitting on a large paper loss while having a net debt position, and has cut it's dividend to a measly 1ct.

The AGM will be held on May 27, 2015.

AirAsia: perfect PR

"AirAsia looks to sell stake in loyalty programme"

"AirAsia denies sale of stake in loyalty programme"

Two announcements in the span of two days, twice in the news, for free.

And at the same time letting the world know about its loyalty program BIG, and how valuable that might be. If BIG is really that big as reported is of course not sure since no part is actually being sold to an independent outside investor (which would have given some base line valuation).

It can't get much better than that, AirAsia's PR engine again running full steam ahead.

The "timing" is also "convenient", with negative sentiment towards AirAsia X, which is trading "ex rights issue" at a price of only RM 0.28, a far cry from its IPO price.

The loyalty program and its recently established leasing company Asia Aviation Capital are two new members of the highly complicated Tune Air group.

This group has different shareholdings in a large group of subsidiary companies (some of them listed, others not), which depends one a huge volume of Related Party Transactions on a daily basis.

From a corporate governance point of view this is undesirable. I wrote about this before. Independent directors have to ensure that all transactions are done on a arms length basis. I have doubt this can be done, especially in the Malaysian context.

The solution, list the holding company and keep all subsidiaries 100% owned, is simple and from a CG point of view highly desirable.

But of course, this would be less "sexy", and one could only list the holding company once.

Goh Ban Huat: connecting the dots

Excellent detective work by Errol Oh in The Star: "From Casio King to King of Coincidences".

This in regard to the acquisition by Goh Ban Huat of 20% in Time Galerie (M) Sdn Bhd for RM 14 Million, as announced here and here.

The detailed work showing possible relationships is much too cumbersome for ordinary retail investors.

Unfortunately, because there are systems out there that would make things much more easy, for instance "Handshakes" and "Webb-site". Pity that Bursa is not making similar systems for retail investors.

Related Party Transactions (RPTs) have a horrific reputation in Malaysia, as detailed in many cases in this blog (and much more cases in "Where is Ze Moola") where minority investors often received the short end of the stick.

But there is one category even worse, RPTs that are dressed up as non-RPTs. With many big players registering their holdings under nominee accounts, in a country where conflict of interest is normal, surely this is happening many times per year.

Unfortunately, enforcement on this aspect is really weak, we hardly hear about relevant cases against major shareholders who do business deals with related parties and fail to report this.

This is very relevant, since RPTs have to follow much more stringent rules and guidelines than non-RPTs. Larger RPTs even require an independent adviser and have to be approved in EGMs where the related parties have to abstain.

That all doesn't mean that Goh Ban Huat's acquisition is a RPT. But it does mean that the regulators actively should look into this deal (and in many similar deals).

It also doesn't mean that it is bad for its shareholders, Time Galerie looks like a very decent, profitable company.

There is one part in the reply to Bursa's query though that I don't like, the comparison to similar transactions. It shows that the PE of Time Galerie (11.8) compares reasonable with five other deals done with listed companies.

However, unlisted companies are sold for much lower PE's, a PE of 5 is often considered reasonable, and a PE of 2 is not unheard of. Shares in unlisted companies are very illiquid, and the standard of the audits is much lower than those of listed companies, hence those companies are trading at a large discount to their listed rivals.

In an unrelated matter, an interesting story about how Robert Tan gained control over Goh Ban Huat can be found here, paragraph 4.3. And for readers who like to know more about Syed Mokhtar (about whom I have written many times in this blog), paragraph 4.2 seems to be interesting.

Liew Kee Sin: there is a conflict of interest

For the first time it seems that Liew Kee Sin has admitted that there is a clear conflict of interest in his business dealings.

In an article (page 18) in The Sun:

Liew was of course very much involved in property developer SP Setia, where troubles started about 3.5 years ago when PNB made an offer.

While still at SP Setia Liew was getting involved in another property developer, Eco World.

Later on Liew resigned from SP Setia, but still stayed on as chairman for the Battersea Project Holding in London.

And now Liew is involved in Eco World International Co. Ltd, which will also develop three large scale projects in London.

Liew allegedly said “There is conflict but I declare (to the authorities) and I’m transparent about it,” The Sun reported Liew as saying. “It is up to the shareholders (to decide).”

Not sure which shareholders he was specifically referring to, since he is involved in so many companies.

First and foremost this appears to be an issue that has to be handled by the boards of directors of all companies where Liew is involved.

The question is of course, how does Liew deal with all the inherent conflict of interest situations. For instance:

• If he receives a juicy project proposal, to which company will he refer this deal?
• If a very credible person in the industry reaches out to him for a job, which of his companies will he recommend?
• What will he do is he receives confidential information in a board meeting, which might also apply to any of the other companies he is connected?

All not exactly far fetched scenario's.

Every director has a fiduciary duty to act in the best interest of his company, how can one juggle this duty for so many companies (engaged in the same industry) at the same time?

One publication that has consistently been critical about this conflict of interest is Kinibiz. It's latest article (behind pay wall) in this matter can be found here. A previous 5-part series of articles can be found here, with the most important questions being asked here.

I am afraid I very much agree with the critical comments brought up in those articles.

Unfortunately, in the Malaysian context, this conflict of interest is not exactly unique, it occurs quite often. The many Related Party Transactions (and probably many more transactions that are related but not indicated as such, which is even worse) are a testament to that.

It has always been quite puzzling for me why founders in Malaysia not just focus their efforts on one single company, but seem to be involved in many companies, with large overlaps in business dealings.

"Pity the Protasco minorities"

Good article from Errol Oh in The Star: "Pity the Protasco minorities, 2 EGMs in 3 days", some snippets (emphasis mine):


This column has argued against the requisitionists’ opacity, and has pointed out that transparency and willingness to engage with minority shareholders will earn goodwill.

The recent developments at Protasco, which calls itself an infrastructure development provider, take us to the other extreme, and it’s equally troubling and frustrating. Here, the problem is not that the principal players are not saying anything. On the contrary, a lot of information is flowing out from both sides, directly and openly or otherwise, but there are so many allegations and counter-allegations of wrongdoings that the minority shareholders can’t be expected to make confident conclusions as to whom they should back.

Lawsuits have been initiated and the saga will probably drag on for many months at least. The EGMs are by no means the final battles, but they’re important because a board seat is a valuable vantage point.

The EGMs are lawful as long as they’re convened and conducted according to the Companies Act’s provisions and the company rules. However, there’s more happening now than those meetings. The brawl has spilled over into the media and the blogosphere, and one wonders how much of this fits the requirement for “full, accurate and timely disclosure”.

Also, there’s little indication that the regulators are at hand to prevent things from going too far. Bursa Malaysia and the Securities Commission may prefer the quiet and subtle way of delivering warnings and gathering facts, but they should also recognise that the unusual events at Protasco offer them a unique opportunity to draw the line between disclosure and negative campaigning. When there’s plenty of mudslinging going on, nobody walks away spotless.


I think this is one of those moments that the regulators and the independent directors of Protasco should step up their game. Sometimes working behind the scene is possible (and may be even preferable), but not in the above case. I think actually a lot of the problems could have been avoided if regulators and/or independent directors had been more active in the first quarter of 2013, almost two years ago. If they had asked the right questions and done independent research then a lot of information would have been gathered.

Please use Google and the keywords "protasco board tussle" to find the many blogs about this case.


"Executive editor Errol Oh is only sure that Chong and Tey can’t both be right."


Correct, and I don't even exclude the possibility that both sides are (at least to some extent) wrong.

The proposed acquisition was always announced as a "non related party transaction" even as recent as August 5, 2014 :

I strongly doubt that was the case.

AirAsia X facing turbulence?

Two articles about AirAsia X from The Straits Times respectively The Edge Markets:

• "AirAsia X facing trouble paying staff salaries"
• "AirAsia X flies into greater turbulence"

I wrote exactly two years ago a highly critical article "AirAsia X: IPO poses many questions", some snippets:

• AirAsia X is offering 790 million shares, rumoured to be priced around RM 1 per share. Almost 200 million of these shares are from existing shareholders, which seems strange, AirAsia X's balance sheet is weak and this company needs money, lots of it, so why not just issue new shares?
• I have blogged before about the huge amount of Related Party Transactions (RPTs) between AirAsia and AirAsia X...... From a CG point of view, this is (highly) undesirable.
• This huge amount of deferred tax assets was just enough to claim retained earnings of 35m. Still a very low amount, given the fact that 480m has been invested in the company over a six year period. Quite amazing that a company with such a poor track record would be allowed to be listed on Bursa Malaysia.
• A company in this state, urgently needing money should not strive for a sky-high valuation. The total number of shares currently is close to 1.8 Billion, in other word pre-IPO the company is valued at about RM 1.8 Billion. Shareholders equity is 518m, which includes 247m deferred tax assets. The offer therefore looks very stretched, both from an earnings point of view (operational losses, even after six years) and a balance sheet point of view (excl. deferred tax assets).

There were warning signals, for instance:

• It must also be noted that Virgin Group (Richard Branson) invested in AirAsia X in 2007, but did not participate in the subsequent rights issue in 2010, according to The Edge. Also, he sold his 10% of the company alledegledly for more than USD 21M, valuing the whole company at more than RM 650m.
• AirAsia had an option to increase its current shareholding in AirAsia X, but strangely enough it decided not to execute that option. Its shareholding of AirAsia X will therefore drop to only 12%, hardly meaningful and below the 20% needed to call AirAsia X its associate.
• Not only did the insiders sell shares at the IPO, they sold even more shares after the IPO.

The graph of the share price looks rather ugly:

Maybulk: large paperlosses on its investment in POSH

I have written many times about Maybulk and its investment (RPT) in POSH. Half a year ago POSH was (finally) listed on the SGX. Time to evaluate how things have worked out for Maybulk and POSH.

Each year Maybulk had booked profits on the acquisition, given that POSH is a 21% owned associate and POSH was making profits.

In Maybulk's last year report it is written:

Several analysts mentioned in 2013 that POSH's IPO would unlock the value for Maybulk's investment.

Given the above, what possibly could go wrong?

Actually quite a bit.

POSH's share has come down a lot, from its IPO price of S$ 1.15 to S$ 0.70, a 39% decrease in price.

On one side, the price of oil has come down, hitting all players in the oil & gas industry, either upstream or downstream. The more so, since many players in this industry have just recently invested in expansion.

On the other side, there are specific, negative, reasons for POSH, for instance:

• The problems in Mexico;
• The CFO has resigned, "to pursue other opportunities";
• The utilisation rates of its fleet seems to be dropping;
• A POSH vessel sunk, a tragic accident in which three employees died; Investor Central questioned the lack of transparency surrounding the event.

The current market cap for POSH is S$ 1.26 Billion, giving Maybulk's 21% holding a valuation of S$ 265 Million or RM 685M.

That is a far cry from the valuation in Maybulk's book of RM 1,225 Million, a difference of about RM 540 Million.

In other words, if Maybulk decided to mark its investment in POSH against the market price (which sounds pretty reasonable to me), then it has to account for a one-off loss of RM 540 Million.

Suddenly, the investment in POSH doesn't seem so "strategic" or "prudent" anymore. It simply sits on top of a huge paper loss, and that after six years.

Unfortunately for Maybulk's minority shareholders, it didn't have to be that way. Maybulk had an option to sell its shares in POSH for a 25% profit. An option it could have exercised less than one year ago. I wrote before about this issue and the disappointing way it was handled.

The current valuation of POSH also puts severe question marks towards Maybulk's acquisition itself and the price it paid for it, almost six years ago. An acquisition made in the midst of the worst global recession of the last 50 years. To make an investment in that climate, where basically everything was dirt cheap, and then to sit on a significant paper loss six years down the road sounds pretty bad.

On top of that, Maybulk has even increased its investment, by subscribing to additional shares at POSH's IPO, for which Maybulk went into debt. The huge cash position that it had six years ago being depleted due to the investment in its associate, a cash layout of more than RM 1 Billion.

The above might be a partial explanation (its existing business has also done quite disappointingly) why Maybulk's share has performed so poorly, both in the long term and over the last half year. Between 2007 and 2011 the share was often trading around RM 3, now it is only about half of that:

EPF not allowed to vote in RPT

Bursa has made its final decision, EPF is not allowed to vote in the CIMB-RHB Capital-MBSB deal. The reasons behind this can be found here:


EPF’s position is not the same as the other shareholders of RHB Capital premised on the
following:

(a) EPF’s controlling stakes in RHB Capital (41.5%) and MBSB (64.5%) place it in a position of significant influence in these companies;

(b) as the single largest shareholder of RHB Capital and MBSB and a major shareholder in CIMB Group, EPF may benefit from the transaction as a shareholder of MBSB and/or CIMB Group. As such, its overall position would differ from a party who is merely a shareholder of RHB Capital, especially given the differing terms and valuations applicable to the 3 affected companies; and

(c) EPF has prior knowledge of the Proposed Merger as it was notified by CIMB


I think that this decision is spot-on. I think that EPF should be able to block the whole deal if it thinks it is in their disadvantage.

But given that the EPF does indeed support the deal, it should not be able to push the deal through by being allowed to vote. This is after all a Related Party Transaction (RPT), and it is one of the Corporate Governance areas of great worry in Malaysia.

EPF has different percentages in each of the three companies, which means that it has a clear preference in the outcome: a relatively higher valuation for the company it has a large stake in, and vice versa.

If subsequently the minority investors shoot the proposal down, then may be it isn't that great anyhow.

Many corporate restructure exercises do disappoint, the outcome being less good than forecasted by the dealmakers who made the shiny PowerPoint presentations, showing all the synergy.

In reality, things are not that easy, cultural clashes of the employees of the different companies are quite common and economies of scale do not always work as expected.


To all Hindu readers: Happy Deepavali!

Independent directors: use different approach

I have highlighted several times the issue of independent directors, not speaking up for the minority investors (for instance in the case of related party transactions), not trying to unlock value in a company (for instance in the case of privatisation), not voting down (relatively) high wages for the management, etc.

Mak Yuen Teen wrote a letter to The Business Times (Singapore) "Independent directors: use different approach", which is also relevant in the Malaysian context. Some snippets:


.... The question I posed was in response to a discussion about the "nine-year" guideline on independent directors in the 2012 Code of Corporate Governance, under which the independence of directors should be subjected to a "particularly rigorous review" after nine years. In addition to the lack of clear guidance on how a "particularly rigorous review" is to be conducted, I was concerned about relying solely on the nominating committee or the board to determine if a director who has served beyond nine years should continue to be considered to be independent. This is because of the inherent conflict faced by the nominating committee and the board in this.

In fact, the nominating committee and the board are also conflicted in the initial and ongoing assessment of independence of directors, and in other issues such as recommending board appointments and re- election/retirement of directors. In the case of the latter issues, a check-and-balance is having shareholders vote on the election or re-election of directors.

In countries such as Malaysia and Hong Kong, the code of corporate governance recommends that the independence of directors should be subject to a separate shareholders' vote after nine years. If shareholders vote against the independence of the directors in this separate vote, then the company can still choose to retain the director as a non-executive director, but should not label him as an independent director. Alternatively, the board can just redesignate the director as a non-independent, non-executive director, without seeking a shareholders' vote.

At the forum, I had expressed doubt about whether such a shareholders' vote would be effective, if all shareholders get to vote on the continuing independence of the directors after nine years. After all, those who are familiar with our corporate landscape would know that there are many independent directors who have an inter-dependent relationship with controlling shareholders. If the vote is to be meaningful, then controlling shareholders should not vote.

David Webb said about this subject:


Another key issue in Asia is the lack of truly independent directors. "You have tycoons appointing their cronies and golf buddies as ‘independent directors'," notes Webb.

"There are very few really independent directors in Asia who are not tied to management or owners and who are willing to ask difficult questions," he says. "It is important that independent directors be elected by minority shareholders, with controlling shareholders forced to abstain from voting."

He adds that independent directors should be answerable to minority shareholders; so, if they fail to do a decent job, they can be quickly replaced.

Director interlocks and conflicts of interest

Excellent article by Eugene Kang in the Business Times (Singapore), even more important in the Malaysian business context, where situations like conflict of interest, related party transactions, holding shares under trustees, mixing politics and business etc. is all very common. Some snippets:


"Interlocks between firms in the same industry are referred to as horizontal interlocks. From a governance perspective, directors are required to discharge their duties and responsibilities as fiduciaries of their firms. However, an interlock between rival firms can create serious conflicts of interest if it prevents an interlocking director from exercising his objective judgement and discharging his fiduciary duties to both firms. In certain jurisdictions, horizontal interlocks attract anti-trust scrutiny. For instance, the Clayton Antitrust Act in the US currently prohibits, with certain exceptions, one person from serving as a director of two rival firms."


One prime example in the Malaysian context was the joining of forces between AirAsia and MAS and the huge conflict of interest that occurred, about which I wrote here and here.


"Vertical interlocks are formed between firms in a buyer-seller relationship. A director that represents a buyer owes a duty to secure the lowest possible price from the seller. Conversely, a director that represents a seller owes a duty to secure the highest possible price from the buyer. When the same director represents both firms, it is easy to see how a conflict of interest arises."


The Tune Group is a prime example of a network of both horizontal and vertical interlocks, owning a travel agency through which one can book an hotel room from Tune Hotels, can book an AirAsia X ticket, which is branded by and using a long list of other services from AirAsia (which itself has other daughter companies in Thailand and Indonesia), using Tune Insurance as the insurance company, etc.

One example how things can go horribly wrong is Metronic Global, about which I wrote several articles. Metronic  Global was basically a sub-contractor for a related party and had a huge amount of receivables from that party, which it still hasn't been able to receive after many years. Worrisome is that the current management hardly seems to do anything about it, although the amount of money involved is huge (more than RM 40 million). The investigative accountant report highlighted some very serious issues.

A similar situation of vertical interlock arises at Ranhill Energy, about which I wrote here.


The authorities (Securities Commission and Bursa Malaysia) should play a much more active role in these kind of cases. Conflict of interest was one of the primary reasons behind the huge destruction of capital in the Asian Crisis in 1997/98.

POSH, GOSH and the Mexican Mess

I have written several articles about POSH and its IPO, but not much about its problems in Mexico.

In short, POSH invested in a Joint Venture GOSH, which chartered eight vessels to a company named Oceanografia. This last company appears to be involved in a massive fraud.

A recent article by DealBook: "Citi Fires 11 More in Mexico Over Fraud"

"The fraud involving loans to Oceanografía — which depended on the government-owned oil company for nearly all of its business and has a well-known history of questionable finances — point to a potential weakness in controls. Whether Citigroup willfully ignored possible warning signs is the subject of an investigation by the F.B.I. and prosecutors from the United States attorney’s office in Manhattan.

The question at the heart of this case is why Citigroup ever did business with a company like Oceanografía. The company, which supplies marine engineering services to Pemex, Mexico’s government-owned oil monopoly, is known among Mexican investors as politically connected but financially troubled. Credit rating firms in the United States, corporate bond investors and Mexican lawmakers have raised concerns about Oceanografía.

In 2009, United States ratings firm Fitch warned about Oceanografía’s high leverage and poor cash flow generation. Fitch eventually withdrew its ratings because the company was not supplying enough information. In 2008, Standard & Poor’s noted that Mexico’s congress had investigated accusations of improper deals between Oceanografía and Pemex, though no wrongdoing was proved."


The same question can be asked to POSH, why did its joint venture GOSH do business with a company like Oceanografia? In SouthEast Asia POSH is playing a "home game", but in Mexico an "away game", is it possible that POSH went outside its comfort zone?

More information can be found in an article by Investor Central:

"Can POSH recover US$109.8m from its Mexican partner?"

Some important questions are asked:

1. Did GOSH make any other investment in the joint venture?

2. If Mexican bankers were not willing to lend money to GOSH, then why did POSH take the risk of lending?

3. What due diligence did it perform before extending the loan to GOSH? As security for the loan, it has share pledge agreements with the two Mexican shareholders of GOSH (representing 50 per cent interests in GOSH) and mortgages over the six vessels owned by GOSH.

4. What is the interest charged to GOSH for the remaining US$109.8 million?

5. Can it recover US$109.8 million from GOSH?


Another interesting article can be found on the site of a blogger who calls himself "Rolf Suey" and who seems to be very knowledgeable about the industry:

"IPO of POSH (Pacc Offshore Services Holdings)"


Yesterday POSH made an announcement to SGX that it has to write off a further USD 4.6 million, and about the legal proceedings.

On the Malaysian side, Maybulk has not yet announced how many shares of POSH it actually has bought at the IPO of POSH. The amount of money involved is large (around RM 200 million), and it is a Related Party Transaction, so one would have expected the company to keep its shareholders up to date.

Maybulk: IPO of POSH (6)

First of all a correction. On April 2, 2014 Maybulk issued its prospectus to acquire more shares in POSH. In it were the financial numbers of POSH for the year 2013.

On April 8, 2014 Maybulk announced a deviation in its audited accounts for 2013 due to a lower profit of POSH. I assumed therefore that the profit as given in the documents on April 2 had to be adjusted downwards, but it turned out that those were already adjusted. I have amended the relevant blog postings.

Remains the question why Maybulk waited until April 8 with announcing the profit deviation when they knew about the difference already at least on April 2.


The prospectus for POSH IPO has been issued and can be found here.

A (very) good review can be found here.

A few additional issues I like to mention:

[1] Maybulk was not the only company that subscribed to POSH shares in 2008, there was one other company named Singa Star Pte Ltd.

It turns out that the company did exercise the Put Option, contrary to Maybulk (USD 8.125 is exactly the original paid price of USD 6.50 + 25%):

Who will be right and who will be wrong? I guess we have to wait to see how things unfold.

[2] From the financial statements we can see the amount of Fixed Assets of POSH:

And the Depreciation:

The question is, why has the Fixed Assets in 2013 increased by 35% compared to 2012 while the depreciation has (slightly) decreased?

[3] POSH is aggressively increasing its fleet, but utilisation rates seem to be dropping since 2012, for every category:

[4] Another issue is the Joint Ventures:

The Joint Ventures have total assets of USD 720 million, but are still booking a loss for the year? Revenue as percentage of Total Assets looks rather low.


[5] The Related Party Transactions of POSH are huge (in USD '000):

[6] The Other Operating Income, detailed:

How recurring are these? Given the PAT for POSH over these years (respectively 26M, 54M and 73M), these amounts seem to be very meaningful.

Friday April 25, 2014 POSH will start trading.

Maybulk: IPO of POSH (3)

Maybulk issued a prospectus related to the proposal to subscribe to even more shares in POSH, maintaining more than 20% of its shareholding. It had to ask permission through an EGM since it is a Related Party Transaction.

The following text is rather cryptical:

If there are any related parties, why do they not simply mention them?

The following is presented in the prospectus:

But one party seems to be conspicuously missing: PPB Group also owns 14% of Maybulk.

Both PCL and PPB Group are widely believed to be linked to Robert Kuok, but this link is not established lately anymore, why not?

The IPO document of Maybulk in 2003 was very clear about this matter:

The issue if PPB Group is still controlled by the same person as PCL (KSL) is important in all CG matters, especially in dealing with POSH:

• What are the RPT's between PPB Group on one side and Maybulk and POSH on the other side (including their directors)?
• Was the PPB Group allowed to vote on matters regarding POSH at the EGM in 2008 and will it be allowed to vote on the EGM to be held April 17, 2014?

The announcement that the proposal to invest in POSH at Maybulk's EGM in 2008 was duly passed does not give any additional information, disappointing..

The correct way, in my opinion, would have been to vote per poll (one share one vote), and to announce the detailed voting results.

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:

1. The above Put option, the treatment of which I posed many questions;
2. The following irrevocable undertaking:

 

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: 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:

• 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]

Metronic Global: finally the Investigative Accountant Report released

Finally Metronic Global's summary of the Investigative Accountant Report by Ferrier Hodgson MH Sdn Bhd is released today. The report is regarding the long outstanding related party trade receivable of RM 47 million. A large sum of money for this struggling company.

The report was expected to be completed by June 2013, there is no mentioning of the reason for the large delay.

More information about these issues can be found here.

The players:

• MGB: Metronic Global Berhad
• MESB: Metronic Engineering Sdn Bhd, a fully owned subsidiary of the above
• ORPR: Outstanding Related Party Receivables of RM 47 million
• MHPSB: MH Projects Sdn Bhd, the company that owed this amount and who had two directors that were also directors of MGB (hence the related party transaction)
• EY, Ernst & Young, the auditor of MGB who until 2008 approved the accounts, in 2009 disclosed an "emphasis of matter", in 2010 qualified the accounts and in 2011 resigned as auditors
• IA: Investigative Accountant, Ferrier Hodgson MH Sdn Bhd
• CPC: Certificate of Practical Completion
• JKR: Jabatan Kerja Raya, issuer of the CPC for the Alor Setar Hospital

Some important paragraphs from the report:


6. It is noted that:

a) Despite MHPSB having received almost all the payments from JKR, it had only remitted approximately RM18.69 million to MESB during the Financial Years 2008 to 2010 with the balance of RM46.53 million remaining outstanding to date.
 
b) Notwithstanding Ernst & Young (“EY”)’s advice to the management to review the recoverability of the Outstanding Related Party Receivables (“ORPR”) on 28 February 2008, it appears that certain directors who have knowledge of the status of the progress claims and payments between JKR and MHPSB, have failed to disclose the said information to the Board, Audit Committee and EY for their assessment on the requirement of provision of doubtful on the ORPR.

The "certain directors" are not mentioned, but I assume they might be the ones mentioned here:

7. Based on the findings, it appears that the material and significant information on the payment status between MHPSB and JKR has not been conveyed to the audit committee and the full Board as well as EY to assess the recoverability of the ORPR and to enable timely efforts to be made to recover the ORPR. It also appears that the Board, at the material time, has not acted upon the audit committee’s suggestions for immediate action to be taken to recover the ORPR save for the Board’s instructions to obtain the Letter of Undertaking (“LOU”) and Deed of Assignment (“DOA”) which was subsequently disputed by MHPSB.

8. IA also note that the subsequent dispute by MHPSB and the representation by JKR on the outstanding amount due and payments to MHPSB have raised doubts on the veracity of the LOU and DOA provided by MHPSB in favour of MESB which have been adopted by the Board, audit committee and the external auditor to facilitate the assessment of the recoverability and the justification for the provision of doubtful debt on the ORPR.
 
9. IA advises that MESB seek legal advice on whether certain statutory offences may have been
committed and/or whether the relevant directors may have failed to act/discharge their duties as follows and if so, the potential legal action(s) to pursue against them including for the recovery of payments made or for loss resulting from such failure, if any:

a) The common law and statutory duty of directors to act with reasonable care, skill and diligence pursuant to Section 132(1A) of the Companies Act 1965;

b) Section 132(1) of the Companies Act 1965 to act for a proper purpose and in good faith in the best interest of the Company in the discharge of the duties of his office; and

c) Sections 367 and 369 of the Capital Markets and Services Act 2007 on the offences by bodies of persons and by employees and agents which includes directors who knowingly authorises or permits the making or furnishing of any false or misleading statement to Bursa Securities.

The company has not yet announced if it wants to seek legal advice, and is going to pursue the above matter vigorously. Apart from that, the authorities should also consider to take action.