I wrote several times about Ranhill Energy, here and here.
Today The Star published an article "Ranhill's utility businesses to anchor Symphony".
Some snippets:
Ranhill Group, whose oil and gas business contributed to its failed listing last year, will now be going to the market without that unit.
Ranhill’s planned reverse takeover (RTO) of Symphony House Bhd will have its water and power businesses that include a valuable water concession in Johor and operation of two power plants in Sabah.
When Ranhill first announced its intention of reversing its businesses into Symphony back in March, it comprised the utility divisions and the oil and gas portfolio.
But in late June, Ranhill said the RM800mil RTO would only include its water and power assets.
Recall that Ranhill had previously pursued an initial public offering (IPO) slated for July 31 last year but withdrew it after a non-disclosure breach relating to a suspension of a Petronas licence of an affiliate company in the oil and gas division.
Ranhill’s major shareholder Tan Sri Hamdan Mohamad was reprimanded and fined RM300,000, while the company that was to have been listed, Ranhill Energy and Resources Bhd was imposed a fine of RM200,000 by the Securities Commission (SC).
In an email reply to StarBizWeek, a Symphony spokesperson explains that the omission of Ranhill’s oil and gas division into the current RTO exercise was because the latter had slipped into the red in 2013.
“Ranhill WorleyParsons Sdn Bhd (RWorley) was excluded from the initial assets to be injected into the RTO as it made losses in 2013, and by virtue of this fact we decided not to include it into the RTO,” the spokesperson says.
RWorley is Ranhill’s main O&G asset specialising in engineering procurement and construction services. It is 51%-owned by Ranhill in a joint venture with WorleyParsons Ltd, Australia’s largest oil and gas engineering company. The Australian-listed WorleyParsons holds the balance 49% in company.
According to the Symphony spokesperson, the losses that RWorley incurred was attributed to work for Petronas Gas Bhd’s liquefied natural gas (LNG) regasification plant project in Malacca. In 2011, RWorley together with Muhibbah Engineering Bhd had undertaken the RM1.07bil contract for engineering, procurement, construction and commissioning (EPCC) of topside construction work for regasification plant.
Symphony did not reveal the amount of losses RWorley had made but says that “it has been fully accounted for in 2013.”
A fund manager said that while Ranhill’s oil and gas division was to provide a growth story for its listing, he understood why a decision was made not to include that in the listing now.
“A loss-making division in the RTO equation would not have been palatable. While an RTO is a fast track way for a public listing, it is still subject to approvals from the regulators,” says the fund manager.
"A loss-making division in the RTO equation would not have been palatable", I agree, but would a loss-making division in an IPO be palatable? This company was included in the IPO of Ranhill which was only cancelled at the very last moment.
The authorities really should look into this case, since there are quite a few corporate governance issues in this group.
Ranhill was a listed company before, this would be another example of a listing-delisting-relisting exercise, something I am not keen on, to put it mildly.
On another note, Symphony, the listed company which will be used for the RTO, has not exactly been a shining example of profitability. Its results of the last four years:
Year Revenue PATMI
2010 175m -22m
2011 186m -4m
2012 205m -38m
2013 52m -39m
Showing posts with label Ranhill Energy. Show all posts
Showing posts with label Ranhill Energy. Show all posts
Saturday, 12 July 2014
Monday, 9 June 2014
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.
"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.
Saturday, 7 December 2013
Ranhill Energy: is the fine really adequate? (2)
I wrote before about Ranhill Energy and the fines and reprimands that were handed out by the Securities Commission. Fast and good action, although I questioned the size of the fines, which appears to be extremely small compared to the size of the deal that was on the table.
According to this article in The Star "Ranhill Energy to retry IPO":
"Tan Sri Hamdan Mohamad is re-submitting the listing application of Ranhill Energy and Resources Bhd to the authorities in a second attempt at floating his water and power assets, sources said.
The move comes just after four months of Ranhill Energy’s initial public offering (IPO) being withdrawn, after it emerged that there had been a disclosure breach related to the suspension of the licences of its affiliate company, Perunding Ranhill Worley Sdn Bhd (PRW), by Petroliam Nasional Bhd for an indefinite period.
Subsequently, the Securities Commission (SC) imposed a fine of RM200,000 on the company, while Hamdan, who is Ranhill Energy’s substantial shareholder, was reprimanded and fined RM300,000 for the failure to disclose the licensing issue.
To recap, Ranhill Energy was supposed to list on Bursa Malaysia on July 31, with about 70% of its RM753mil IPO proceeds to be utilised for the repayment of borrowings. The SC instructed Ranhill Energy to postpone its IPO indefinitely on July 25 in view of the non-disclosure issue. On July 26, Ranhill Energy announced that it had terminated its IPO.
According to Ranhill Energy’s prospectus, it had debts of RM1.93bil and a gearing of 1.61 times as at the end of December 2012.
Investment bankers said that for the listing to be approved this time, Ranhill Energy would have to convince the authorities that the chief executive officer and its directors would not repeat the kind of mistakes they had made with regard to the disclosure of that contract.
They added that it could be an uphill task to garner sufficient investor interest in the company’s listing, considering the recent episode."
First of all, this is one of the articles citing unnamed "sources", we need to wait first for official conformation, to often these "rumours" turn out to be not true at all.
Secondly, it mentions "Ranhill Energy would have to convince the authorities that the chief executive officer and its directors would not repeat the kind of mistakes they had made with regard to the disclosure of that contract".
I think another, more important, matter on hand is that they have to convince the SC if it would be appropriate to apply for a listing so soon again. I actually strongly doubt that, I think it simply undermines the credibility of the market if a company can reapply for an IPO so soon after it made serious mistakes in disclosure. If that would be allowed, then the punishment as meted out by the SC definitely looks insufficient and doesn't act as a deterrent at all.
There is also another matter at hand, according to this article in The Star:
That means there is a large conflict of interest for Hamdan in dealing with PRW and Ranhill Energy. It would have been much better if PRW and Ranhill Energy would merge, to remove this conflict of interest situation.
A similar, unsatisfactory, situation happened in Metronic Global, which dealt with a company controlled by two directors, about which I wrote here. The additional problem there was that the receivables were "not able to receive", and that Metronic Global didn't seem to be very urgent in proceeding with that matter.
According to this article in The Star "Ranhill Energy to retry IPO":
"Tan Sri Hamdan Mohamad is re-submitting the listing application of Ranhill Energy and Resources Bhd to the authorities in a second attempt at floating his water and power assets, sources said.
The move comes just after four months of Ranhill Energy’s initial public offering (IPO) being withdrawn, after it emerged that there had been a disclosure breach related to the suspension of the licences of its affiliate company, Perunding Ranhill Worley Sdn Bhd (PRW), by Petroliam Nasional Bhd for an indefinite period.
Subsequently, the Securities Commission (SC) imposed a fine of RM200,000 on the company, while Hamdan, who is Ranhill Energy’s substantial shareholder, was reprimanded and fined RM300,000 for the failure to disclose the licensing issue.
To recap, Ranhill Energy was supposed to list on Bursa Malaysia on July 31, with about 70% of its RM753mil IPO proceeds to be utilised for the repayment of borrowings. The SC instructed Ranhill Energy to postpone its IPO indefinitely on July 25 in view of the non-disclosure issue. On July 26, Ranhill Energy announced that it had terminated its IPO.
According to Ranhill Energy’s prospectus, it had debts of RM1.93bil and a gearing of 1.61 times as at the end of December 2012.
Investment bankers said that for the listing to be approved this time, Ranhill Energy would have to convince the authorities that the chief executive officer and its directors would not repeat the kind of mistakes they had made with regard to the disclosure of that contract.
They added that it could be an uphill task to garner sufficient investor interest in the company’s listing, considering the recent episode."
First of all, this is one of the articles citing unnamed "sources", we need to wait first for official conformation, to often these "rumours" turn out to be not true at all.
Secondly, it mentions "Ranhill Energy would have to convince the authorities that the chief executive officer and its directors would not repeat the kind of mistakes they had made with regard to the disclosure of that contract".
I think another, more important, matter on hand is that they have to convince the SC if it would be appropriate to apply for a listing so soon again. I actually strongly doubt that, I think it simply undermines the credibility of the market if a company can reapply for an IPO so soon after it made serious mistakes in disclosure. If that would be allowed, then the punishment as meted out by the SC definitely looks insufficient and doesn't act as a deterrent at all.
There is also another matter at hand, according to this article in The Star:
- Perunding Ranhill Worley Sdn Bhd (PRW), a company controlled by Hamdan.
- Ranhill Energy relies on PRW for contracts secured from Petronas and that this contract represented a material contribution to Ranhill group’s revenue.
That means there is a large conflict of interest for Hamdan in dealing with PRW and Ranhill Energy. It would have been much better if PRW and Ranhill Energy would merge, to remove this conflict of interest situation.
A similar, unsatisfactory, situation happened in Metronic Global, which dealt with a company controlled by two directors, about which I wrote here. The additional problem there was that the receivables were "not able to receive", and that Metronic Global didn't seem to be very urgent in proceeding with that matter.
Saturday, 9 November 2013
Ranhill Energy: is the fine really adequate?
The Securities Commission announced the following:
"Securities Commission Malaysia (SC) has imposed a fine of RM200,000 on Ranhill Energy and Resources Berhad (Ranhill) and reprimanded and fined Tan Sri Hamdan Mohamad RM 300,000 for failure to disclose to SC material changes related to Ranhill’s listing.
Both Ranhill and Tan Sri Hamdan, Executive Director/President and Chief Executive of Ranhill, were found to have breached section 215(3) read with section 354(1) of the Capital Markets and Services Act 2007, for failing to immediately inform the SC of the suspension of the licence issued by Petroliam Nasional Berhad to Perunding Ranhill Worley Sdn Bhd (PRW), a company controlled by Tan Sri Hamdan. The notice of suspension was received on 17 July 2013.
Ranhill relies on PRW for contracts secured from PETRONAS. This contract represents a material contribution to Ranhill Group’s revenue. The suspension of the license is therefore deemed as a material change in circumstance as it poses potential adverse implications on Ranhill’s oil and gas business. Under the circumstances, Ranhill and Tan Sri Hamdan were required to immediately inform the SC of the material change in circumstance under section 215(3) of the CMSA as the earlier disclosures in the listing prospectus of Ranhill would no longer be considered accurate or reflective of prevailing circumstances, and possibly misleading.
In the disclosure of such material development in this case, time is of essence, given that the retail and institutional offering by Ranhill had closed, the date for the allotment of shares to successful applicants was approaching, and investors needed to be given the opportunity and time to re-evaluate their investment decision.
SC views timely and transparent disclosure of material information by companies and promoters seeking to raise funds via an IPO, as fundamental to ensuring trust and confidence in the capital market. Companies, promoters and advisers are reminded to exercise vigilance in this regard."
The Star writes about the same issue, some snippets:
A corporate lawyer explains: “It is not so much about the value of the contracts concerned. It is the fact that your licence was suspended or contract cancelled. That’s not necessarily the end of the world but it needs to be disclosed. Any reasonable investor would tell you that this is material information that impacts how he or she views and values the affected company. Non-disclosure therefore is more likely to assume that the offerors were looking to mislead investors.”
"The withdrawal of the listing has also caused other problems. The IPO was meant to raise RM750mil, out of which, Cheval Infrastructure Fund was to receive RM77mil for the shares it was selling. Cheval is acting on behalf of private equity firm Tael Management Co (Caymans) Ltd.
Ranhill Energy’s listing was supposed to be part of Cheval’s exit from the company. In 2011, Cheval together with Hamdan took Ranhill Bhd private at 90 sen per share. Cheval had wanted to pare down its stake in Ranhill Energy to 15.8% post-IPO, from 36.25% before the listing."
Ranhill Energy is another of those listing-delisting-relisting plays that happen much too often at Bursa Malaysia. Bursa should discourage this by invoking a new rule that delisted companies are not allowed to relist in the next, say, ten years.
Let's put things in context regarding the amounts involved:
"Securities Commission Malaysia (SC) has imposed a fine of RM200,000 on Ranhill Energy and Resources Berhad (Ranhill) and reprimanded and fined Tan Sri Hamdan Mohamad RM 300,000 for failure to disclose to SC material changes related to Ranhill’s listing.
Both Ranhill and Tan Sri Hamdan, Executive Director/President and Chief Executive of Ranhill, were found to have breached section 215(3) read with section 354(1) of the Capital Markets and Services Act 2007, for failing to immediately inform the SC of the suspension of the licence issued by Petroliam Nasional Berhad to Perunding Ranhill Worley Sdn Bhd (PRW), a company controlled by Tan Sri Hamdan. The notice of suspension was received on 17 July 2013.
Ranhill relies on PRW for contracts secured from PETRONAS. This contract represents a material contribution to Ranhill Group’s revenue. The suspension of the license is therefore deemed as a material change in circumstance as it poses potential adverse implications on Ranhill’s oil and gas business. Under the circumstances, Ranhill and Tan Sri Hamdan were required to immediately inform the SC of the material change in circumstance under section 215(3) of the CMSA as the earlier disclosures in the listing prospectus of Ranhill would no longer be considered accurate or reflective of prevailing circumstances, and possibly misleading.
In the disclosure of such material development in this case, time is of essence, given that the retail and institutional offering by Ranhill had closed, the date for the allotment of shares to successful applicants was approaching, and investors needed to be given the opportunity and time to re-evaluate their investment decision.
SC views timely and transparent disclosure of material information by companies and promoters seeking to raise funds via an IPO, as fundamental to ensuring trust and confidence in the capital market. Companies, promoters and advisers are reminded to exercise vigilance in this regard."
The Star writes about the same issue, some snippets:
A corporate lawyer explains: “It is not so much about the value of the contracts concerned. It is the fact that your licence was suspended or contract cancelled. That’s not necessarily the end of the world but it needs to be disclosed. Any reasonable investor would tell you that this is material information that impacts how he or she views and values the affected company. Non-disclosure therefore is more likely to assume that the offerors were looking to mislead investors.”
"The withdrawal of the listing has also caused other problems. The IPO was meant to raise RM750mil, out of which, Cheval Infrastructure Fund was to receive RM77mil for the shares it was selling. Cheval is acting on behalf of private equity firm Tael Management Co (Caymans) Ltd.
Ranhill Energy’s listing was supposed to be part of Cheval’s exit from the company. In 2011, Cheval together with Hamdan took Ranhill Bhd private at 90 sen per share. Cheval had wanted to pare down its stake in Ranhill Energy to 15.8% post-IPO, from 36.25% before the listing."
Ranhill Energy is another of those listing-delisting-relisting plays that happen much too often at Bursa Malaysia. Bursa should discourage this by invoking a new rule that delisted companies are not allowed to relist in the next, say, ten years.
Let's put things in context regarding the amounts involved:
- IPO Amount to be raised: RM 750 Million
- Total fine: RM 0.5 Million
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