AirAsia X released its 3rd quarter 2017 results and the following press release.
One snippet:
“The Company did well operationally in 3Q17. However, the third quarter financial performance was set back by the one-off provision for doubtful debt of RM50.2 million. It is a necessary action that has to be taken as we move on from past management’s business decisions. With the observed booking trends, we are in line with expectations for a recovery in the 4Q17."
RM 50.2 Million is a lot of money, Air Asia X should give more details regarding this provision for the benefit of its shareholders. The AirAsia group loves to bring positive news to the media in a big way, but seems rather "hesitant" when the news is bad.
Also, blaming the past management is not exactly "elegant". Was the Board of Directors aware of the issue at hand? If yes, then they might also have to bare part of the brunt. If not, why were they not informed?
Showing posts with label lack of transparency. Show all posts
Showing posts with label lack of transparency. Show all posts
Friday, 24 November 2017
Saturday, 22 July 2017
FGV's lack of transparency
Good article in The Star: Why FGV should handle whistle blowers with care
Some snippets and some comments by me:
In fact, one of the reasons why the Employees Provident Fund (EPF), a stickler for corporate governance, disposed of its interest in FGV is because there was no separation of powers between the board and the major shareholders.
The provident fund, for instance, felt that the total remuneration package for the chairman, which was stated at RM2.67mil in the 2016 annual report, was seen as too high.
The powerful provident fund expressed its dissatisfaction on the way FGV was managed by disposing its shares. In fact EPF’s chief executive officer Datuk Shahril Ridza Ridzuan hardly completed a year as a board member of FGV.
I am sorry to say but I find this very disappointing from the EPF. By selling they even drove down the share price giving them an even lower price for the last shares they sold.
Could they not have done more? If they were unhappy about the Corporate Governance inside FGV then they could have voiced out their concerns, first internally, and when no adequate response has been issued, they can simply call for a press conference. Surely journalists from all major media outlets would show up and report on the issues. That would have forced the company to issue replies to some thorny issues and would have given some much needed transparency. Who knows, some M&As might have been prevented that way, for the benefit of almost all parties involved.
Only now, after Isa has been moved out of FGV does the board admit that the company lacked governance.
The problem with all the initiatives from Bursa and SC is that it looked like CG was good inside FGV. But FGV was simply ticking all the boxes.
"Real" CG is not about ticking boxes, but how the company handles itself for instance in cases of conflict of interest (rather common in Malaysia), transparency towards shareholders, major strategic decisions like M&A activities, etc.
The question is if FGV actually has improved its CG? From the announcements that have been made on the Bursa website I doubt it, I find hardly any relevant information on what has been going on the last few months, for instance nothing about:
He [Zakaria] should not be penalised for speaking out. Because this would render redundant all the governance structures and whistle blowing channels that are in place in FGV.
Exactly. Whistle blowing in Western countries is already difficult enough (many regret later on that they blew the whistle), doing the same in Malaysia (a country with the highest Power Distance Index in the world) is so much more difficult. We need to respect people who speak out based on conviction and proper information.
I hope to see a healthy dose of transparency in the near future, what was really going on the last few months, and a proper, honest evaluation of the controversial M&As FGV has done in the past. Several companies in Singapore (most notably SingPost and Singtel) have done so in similar situations (by an independent advisor under the guidance of the independent directors) and an extract of the final report has been forwarded to the SGX website. Will the same happen with FGV? We will wait and see.
Some snippets and some comments by me:
In fact, one of the reasons why the Employees Provident Fund (EPF), a stickler for corporate governance, disposed of its interest in FGV is because there was no separation of powers between the board and the major shareholders.
The provident fund, for instance, felt that the total remuneration package for the chairman, which was stated at RM2.67mil in the 2016 annual report, was seen as too high.
The powerful provident fund expressed its dissatisfaction on the way FGV was managed by disposing its shares. In fact EPF’s chief executive officer Datuk Shahril Ridza Ridzuan hardly completed a year as a board member of FGV.
I am sorry to say but I find this very disappointing from the EPF. By selling they even drove down the share price giving them an even lower price for the last shares they sold.
Could they not have done more? If they were unhappy about the Corporate Governance inside FGV then they could have voiced out their concerns, first internally, and when no adequate response has been issued, they can simply call for a press conference. Surely journalists from all major media outlets would show up and report on the issues. That would have forced the company to issue replies to some thorny issues and would have given some much needed transparency. Who knows, some M&As might have been prevented that way, for the benefit of almost all parties involved.
Only now, after Isa has been moved out of FGV does the board admit that the company lacked governance.
The problem with all the initiatives from Bursa and SC is that it looked like CG was good inside FGV. But FGV was simply ticking all the boxes.
"Real" CG is not about ticking boxes, but how the company handles itself for instance in cases of conflict of interest (rather common in Malaysia), transparency towards shareholders, major strategic decisions like M&A activities, etc.
The question is if FGV actually has improved its CG? From the announcements that have been made on the Bursa website I doubt it, I find hardly any relevant information on what has been going on the last few months, for instance nothing about:
- The work done by Idris Jala, let alone the contents of his report (probably only the major shareholder is privy to this information).
- The serious allegations by Zakaria (and others) regarding expensive, non-core acquisitions in the past
- The real reasons for the resignation of the previous Chairman and who the new chairman is (the last might have been an honest oversight though)
- The Edge Malaysia wrote a very good series of articles with lots of useful information (including interviews of the main persons involved), most of which was never revealed
He [Zakaria] should not be penalised for speaking out. Because this would render redundant all the governance structures and whistle blowing channels that are in place in FGV.
Exactly. Whistle blowing in Western countries is already difficult enough (many regret later on that they blew the whistle), doing the same in Malaysia (a country with the highest Power Distance Index in the world) is so much more difficult. We need to respect people who speak out based on conviction and proper information.
I hope to see a healthy dose of transparency in the near future, what was really going on the last few months, and a proper, honest evaluation of the controversial M&As FGV has done in the past. Several companies in Singapore (most notably SingPost and Singtel) have done so in similar situations (by an independent advisor under the guidance of the independent directors) and an extract of the final report has been forwarded to the SGX website. Will the same happen with FGV? We will wait and see.
Friday, 16 September 2016
EA Holdings: where is the transparency?
EA Holdings published its 2016 annual report. Results do not look good:
The loss is for a large part due to impairment of intangibles. But strangely enough, hardly any background information on this issue is given.
Apparently both the Board of Directors and the auditors are ok with that.
Are the regulators (Bursa, SC and AOB) also ok with it?
Surely the minority shareholders deserve a proper explanation.
The loss is for a large part due to impairment of intangibles. But strangely enough, hardly any background information on this issue is given.
Apparently both the Board of Directors and the auditors are ok with that.
Are the regulators (Bursa, SC and AOB) also ok with it?
Surely the minority shareholders deserve a proper explanation.
Monday, 23 May 2016
CIMB: which process shortcomings?
On April 18, 2016 CIMB announced:
".... that Dato’ Sri Nazir Razak will take a voluntary leave of absence from his positions as Chairman of CIMB Group and Director of CIMB Bank, with effect from close of business today till the completion of an ongoing Board review on the banking activities relating to his personal account".
In these kind of CG cases it is important that the independent directors step up their game, and show their independence. They have to tackle the issues at hand from all different directions in an unbiased way.
However, in this case it looks like they had made up their mind already. Before the board review had even started the senior independent director stated:
"... the members have always been convinced that he upholds the highest standards of corporate governance. While this decision [to take leave of absence] of his is contrary to the Board's wishes ..."
On May 18, 2016 CIMB announced:
Dato’ Sri Nazir Razak did not misuse his position as the Group Chief Executive at that time nor was there any inappropriate use of the bank’s resources.
That might have been the case, but first of all more details regarding this would have been welcome.
Secondly there are many other issues (legal, ethical, moral etc.) involved, but the announcement does not touch on those.
The announcement continues:
".... the detailed examinations conducted during the review identified some process shortcomings,"
Again, there is no explanation whatsoever what those "process shortcomings" are.
".... that Dato’ Sri Nazir Razak will take a voluntary leave of absence from his positions as Chairman of CIMB Group and Director of CIMB Bank, with effect from close of business today till the completion of an ongoing Board review on the banking activities relating to his personal account".
In these kind of CG cases it is important that the independent directors step up their game, and show their independence. They have to tackle the issues at hand from all different directions in an unbiased way.
However, in this case it looks like they had made up their mind already. Before the board review had even started the senior independent director stated:
"... the members have always been convinced that he upholds the highest standards of corporate governance. While this decision [to take leave of absence] of his is contrary to the Board's wishes ..."
On May 18, 2016 CIMB announced:
Dato’ Sri Nazir Razak did not misuse his position as the Group Chief Executive at that time nor was there any inappropriate use of the bank’s resources.
That might have been the case, but first of all more details regarding this would have been welcome.
Secondly there are many other issues (legal, ethical, moral etc.) involved, but the announcement does not touch on those.
The announcement continues:
".... the detailed examinations conducted during the review identified some process shortcomings,"
Again, there is no explanation whatsoever what those "process shortcomings" are.
Thursday, 21 May 2015
Bank Negara makes it difficult for 1MDB? (2)
I wrote before about this rather puzzling statement:
“The remaining US$1.103bil in 1MDB’s investment funds managed by Cayman (Islands) Monetary Authority has been redeemed and is kept in US currency at BSI Bank Ltd Singapore (BSI Singapore),” he said in a written reply to the Dewan Rakyat in response to a question raised by Petaling Jaya North MP Tony Pua.
“The decision to use a bank in Singapore is to facilitate transactions as Bank Negara Malaysia (BNM) regulations require approval by the bank for each transaction exceeding RM50mil,” wrote Najib, who is also the Prime Minister.
It didn't seem to make any sense at all. And when that is the case, often something else is going on.
This article in The Edge "1MDB has no cash after all" dropped a bombshell on the whole affair:
There is no cash after all in 1Malaysia Development Bhd’s (1MDB) Singapore bank account.
That was the shocking revelation by Prime Minister Datuk Seri Najib Razak (pic) yesterday in response to a parliamentary question asked by DAP lawmaker Tony Pua.
Pua asked whether Bank Negara Malaysia (BNM) had been informed by the authorities in Singapore that the bank statements of 1MDB and its subsidiary (Brazen Sky Ltd) at the Singapore account of Swiss bank BSI had been falsified and whether there was US$1.103 billion (RM3.99 billion) in cash in the account as previously stated.
“1MDB has explained that the redeemed investments of 1MDB [from the Cayman Islands] are in the form of assets in US dollars in a bank in Singapore for the purpose of balancing the liability of the company’s US dollar,” said Najib in his written reply to Pua.
Najib, who is also the finance minister, told Parliament in March that the cash redeemed from the funds that were kept in the Cayman Islands is now with BSI Singapore. In his written reply yesterday, he said the answer he gave in March is now “amended”.
Transparency of 1MDB has been simply horrific, any small listed company on Bursa would put 1MDB to shame. Even the tiniest of ACE-listed companies with assets that are less than 1/10,000th of the size of 1MDB needs to issue:
And all has to be done in a correct and timely fashion.
1MDB's website contains none of the above, except for some photo's of smiling children and a highly biased selection of news articles (conveniently leaving out any critical article).
1MDB urgently needs to increase it's transparency in a big way, the more so since it manages OPM (Other People's Money).
“The remaining US$1.103bil in 1MDB’s investment funds managed by Cayman (Islands) Monetary Authority has been redeemed and is kept in US currency at BSI Bank Ltd Singapore (BSI Singapore),” he said in a written reply to the Dewan Rakyat in response to a question raised by Petaling Jaya North MP Tony Pua.
“The decision to use a bank in Singapore is to facilitate transactions as Bank Negara Malaysia (BNM) regulations require approval by the bank for each transaction exceeding RM50mil,” wrote Najib, who is also the Prime Minister.
It didn't seem to make any sense at all. And when that is the case, often something else is going on.
This article in The Edge "1MDB has no cash after all" dropped a bombshell on the whole affair:
There is no cash after all in 1Malaysia Development Bhd’s (1MDB) Singapore bank account.
That was the shocking revelation by Prime Minister Datuk Seri Najib Razak (pic) yesterday in response to a parliamentary question asked by DAP lawmaker Tony Pua.
Pua asked whether Bank Negara Malaysia (BNM) had been informed by the authorities in Singapore that the bank statements of 1MDB and its subsidiary (Brazen Sky Ltd) at the Singapore account of Swiss bank BSI had been falsified and whether there was US$1.103 billion (RM3.99 billion) in cash in the account as previously stated.
“1MDB has explained that the redeemed investments of 1MDB [from the Cayman Islands] are in the form of assets in US dollars in a bank in Singapore for the purpose of balancing the liability of the company’s US dollar,” said Najib in his written reply to Pua.
Najib, who is also the finance minister, told Parliament in March that the cash redeemed from the funds that were kept in the Cayman Islands is now with BSI Singapore. In his written reply yesterday, he said the answer he gave in March is now “amended”.
Transparency of 1MDB has been simply horrific, any small listed company on Bursa would put 1MDB to shame. Even the tiniest of ACE-listed companies with assets that are less than 1/10,000th of the size of 1MDB needs to issue:
- quarterly statements (although unaudited)
- audited yearly statements, including the notes and lists of assets
- year reports, including statements by the Board of Directors
- announcements regarding any major issue
- a reply to queries of Bursa within one working day
And all has to be done in a correct and timely fashion.
1MDB's website contains none of the above, except for some photo's of smiling children and a highly biased selection of news articles (conveniently leaving out any critical article).
1MDB urgently needs to increase it's transparency in a big way, the more so since it manages OPM (Other People's Money).
Monday, 18 May 2015
1MDB accounts "are audited by an international firm" (2)
In the previous blog post on this subject I wrote about the pretty bad state of audits, even if performed by the "Big Four" companies.
But how would the situation be if an audit company is warned in detail about possible fraud or other financial irregularities, surely auditors will step up their game, zoom in on the situation at hand and give a proper report?
According to short seller Carson Block the answer is an astonishing "no".
In "Beware the false reassurance of corporate probes" (free registration might be required) published by the Financial Times he writes (some snippets):
When it comes to defending themselves against accusations of wrongdoing, management teams and their complacent boards follow a well-worn routine. Their immediate reaction is to issue a blanket denial and announce that an independent committee of directors will investigate the accusations. The committee duly appoints an independent law firm to oversee the investigation, and the consulting arm of a Big Four accountancy to pore over the books.
Too often, such investigations are worthless endeavours that lead to more pain for investors. Frequently, companies are exonerated by their boards but subsequently tumble into bankruptcy or announce earnings restatements or evidence of other serious problems.
Directors are not inclined to embarrass themselves by exposing serious problems that had long been under their noses. That would invite shareholder lawsuits, regulatory scrutiny and professional embarrassment.
Nor are they likely to relish the prospect of clashing with management when the chief executive is often the one who put them on the board in the first place. Board members may even be conspirators in the fraud. If they are based in China and have little connection to the US, they are unlikely to face prosecution.
Time and again, investigators report that they have found no evidence to support claims of wrongdoing. The question that investors need to ask themselves is: how hard did these investigators look for clues that might have revealed something was amiss?
The firms hired to support the probe are often given a deliberately narrow brief. For example, there might be tight restrictions on the investigators’ ability to investigate the sources of the company’s cash balances.
Fraudsters have repeatedly duped independent committees and their advisers by showing that they control large cash balances. Often, they do this by borrowing the funds. If directors make it impossible to detect such ruses by limiting investigators’ access to evidence, nobody knows; the entire process is shrouded by the cloak of attorney-client privilege.
Accounting firms are also rife with conflicts of interest. Their main line of work is auditing public companies. This makes them unwilling to heap embarrassment on management teams and boards. To do so would be bad for business.
That doesn't sound that promising. Block gives a concrete example:
In 2011, Sino-Forest Corporation, a China-based company listed on the Toronto Stock Exchange that Muddy Waters had accused of falsifying its revenue, spent approximately $50m on such an investigation, hiring PwC as a consultant. The result was a clean bill of health. In a press release announcing the completion of the investigation, the independent committee said the company was unequivocally “not the ‘near total fraud’ and ‘Ponzi scheme’ as alleged by Muddy Waters . . . Sino-Forest is a real company.”
Unfortunately, investors who bought Sino-Forest bonds following the committee report saw their prospects for recovery plunge when the company declared bankruptcy four months later.
The problem is not confined to emerging markets. In the US, numerous independent board investigations have issued clean bills of health, only to be proved wrong later on.
A report into wrongdoing at Enron, carried out by a law firm hired by the company, was later described as “a whitewash” by an Arthur Andersen investigator. When Global Crossing ordered an investigation into allegations levelled by a former employee, the report came back clean. Yet the company fell into bankruptcy and settled with the SEC over an accounting scandal.
The solution according to Block:
Boards that truly want transparency should stop hiring law firms to conduct these investigations in private and under legal privilege, and open their work to genuine scrutiny.
Hopefully 1MDB will follow this advice for increased transparency, it is long overdue.
But how would the situation be if an audit company is warned in detail about possible fraud or other financial irregularities, surely auditors will step up their game, zoom in on the situation at hand and give a proper report?
According to short seller Carson Block the answer is an astonishing "no".
In "Beware the false reassurance of corporate probes" (free registration might be required) published by the Financial Times he writes (some snippets):
When it comes to defending themselves against accusations of wrongdoing, management teams and their complacent boards follow a well-worn routine. Their immediate reaction is to issue a blanket denial and announce that an independent committee of directors will investigate the accusations. The committee duly appoints an independent law firm to oversee the investigation, and the consulting arm of a Big Four accountancy to pore over the books.
Too often, such investigations are worthless endeavours that lead to more pain for investors. Frequently, companies are exonerated by their boards but subsequently tumble into bankruptcy or announce earnings restatements or evidence of other serious problems.
Directors are not inclined to embarrass themselves by exposing serious problems that had long been under their noses. That would invite shareholder lawsuits, regulatory scrutiny and professional embarrassment.
Nor are they likely to relish the prospect of clashing with management when the chief executive is often the one who put them on the board in the first place. Board members may even be conspirators in the fraud. If they are based in China and have little connection to the US, they are unlikely to face prosecution.
Time and again, investigators report that they have found no evidence to support claims of wrongdoing. The question that investors need to ask themselves is: how hard did these investigators look for clues that might have revealed something was amiss?
The firms hired to support the probe are often given a deliberately narrow brief. For example, there might be tight restrictions on the investigators’ ability to investigate the sources of the company’s cash balances.
Fraudsters have repeatedly duped independent committees and their advisers by showing that they control large cash balances. Often, they do this by borrowing the funds. If directors make it impossible to detect such ruses by limiting investigators’ access to evidence, nobody knows; the entire process is shrouded by the cloak of attorney-client privilege.
Accounting firms are also rife with conflicts of interest. Their main line of work is auditing public companies. This makes them unwilling to heap embarrassment on management teams and boards. To do so would be bad for business.
That doesn't sound that promising. Block gives a concrete example:
In 2011, Sino-Forest Corporation, a China-based company listed on the Toronto Stock Exchange that Muddy Waters had accused of falsifying its revenue, spent approximately $50m on such an investigation, hiring PwC as a consultant. The result was a clean bill of health. In a press release announcing the completion of the investigation, the independent committee said the company was unequivocally “not the ‘near total fraud’ and ‘Ponzi scheme’ as alleged by Muddy Waters . . . Sino-Forest is a real company.”
Unfortunately, investors who bought Sino-Forest bonds following the committee report saw their prospects for recovery plunge when the company declared bankruptcy four months later.
The problem is not confined to emerging markets. In the US, numerous independent board investigations have issued clean bills of health, only to be proved wrong later on.
A report into wrongdoing at Enron, carried out by a law firm hired by the company, was later described as “a whitewash” by an Arthur Andersen investigator. When Global Crossing ordered an investigation into allegations levelled by a former employee, the report came back clean. Yet the company fell into bankruptcy and settled with the SEC over an accounting scandal.
The solution according to Block:
Boards that truly want transparency should stop hiring law firms to conduct these investigations in private and under legal privilege, and open their work to genuine scrutiny.
Hopefully 1MDB will follow this advice for increased transparency, it is long overdue.
Tuesday, 28 April 2015
Maxwell's puzzling acquisition (2)
I wrote before about Maxwell's puzzling acquisition of Lim Ying Ying Ltd.
The story received a new twist today, the company announced that the SPA has been terminated.
And now the good news (at least, for the vendors), they not only get their company back, they can retain the sum of HKD11,700,000.00 previously paid by Maxwell (HK). A case of having your cake and eating it.
No reason is given which is strange, to say the least.
The company states that it "is not expected to have any material effect on the net assets and earnings per share and gearing of the Group for the financial year ending 31 December 2015."
That is possible, several inter-company balances are written off, so may be they all cancel each other out. But I am sure that Maxwell's shareholders would like to see some more detail there.
The share price has performed very badly since its listing.
The story received a new twist today, the company announced that the SPA has been terminated.
And now the good news (at least, for the vendors), they not only get their company back, they can retain the sum of HKD11,700,000.00 previously paid by Maxwell (HK). A case of having your cake and eating it.
No reason is given which is strange, to say the least.
The company states that it "is not expected to have any material effect on the net assets and earnings per share and gearing of the Group for the financial year ending 31 December 2015."
That is possible, several inter-company balances are written off, so may be they all cancel each other out. But I am sure that Maxwell's shareholders would like to see some more detail there.
The share price has performed very badly since its listing.
Thursday, 9 April 2015
CMS and Corporate Governance (2)
I wrote before:
"I would recommend shareholders (major or small) of CMS to forward their questions regarding this deal to Bursa Malaysia, who can then (possibly including own questions they might have) issue an official query to CMS.
Those queries have to be answered within one working day, not until the sale and purchase is concluded. Let's see if CMS still will not make any further comment."
Bursa did indeed query CMS and CMS needed not one, not two, but three announcements to answer the queries (here, here and here).
The answer on the eighth question:
On behalf of the Board of Directors of CMSB, Kenanga Investment Bank Berhad wishes to provide clarification on the following statement in the press release:
"While CMSB understands that our major stakeholders will have many questions about this acquisition, we have no further comment to make until the sale and purchase is concluded, at which time we will make a further statement."
The above statement is meant to inform CMSB stakeholders that CMSB will make further necessary announcements once CMSB has completed the due diligence exercise and firmed up CMSB’s plans for Sacofa.
I would like to add: "except when the query comes from Bursa, then CMSB will respond in one working day".
Kinibiz also wrote about the above issue, but also from another dimension: that the deal might be good for CMS shareholders, and thus bad for the state government of Sarawak, the seller of the shares. Not only should CMS be more transparent, but also "It is imperative that the state government clear the air on whether Sacofa is being sold on the cheap or not before the deal is done.".
"I would recommend shareholders (major or small) of CMS to forward their questions regarding this deal to Bursa Malaysia, who can then (possibly including own questions they might have) issue an official query to CMS.
Those queries have to be answered within one working day, not until the sale and purchase is concluded. Let's see if CMS still will not make any further comment."
Bursa did indeed query CMS and CMS needed not one, not two, but three announcements to answer the queries (here, here and here).
The answer on the eighth question:
On behalf of the Board of Directors of CMSB, Kenanga Investment Bank Berhad wishes to provide clarification on the following statement in the press release:
"While CMSB understands that our major stakeholders will have many questions about this acquisition, we have no further comment to make until the sale and purchase is concluded, at which time we will make a further statement."
The above statement is meant to inform CMSB stakeholders that CMSB will make further necessary announcements once CMSB has completed the due diligence exercise and firmed up CMSB’s plans for Sacofa.
I would like to add: "except when the query comes from Bursa, then CMSB will respond in one working day".
Kinibiz also wrote about the above issue, but also from another dimension: that the deal might be good for CMS shareholders, and thus bad for the state government of Sarawak, the seller of the shares. Not only should CMS be more transparent, but also "It is imperative that the state government clear the air on whether Sacofa is being sold on the cheap or not before the deal is done.".
Friday, 3 April 2015
CMS and Corporate Governance
CMS announced a proposed acquisition of 50% of the shares of Sacofa for RM 187 Million.
An interesting comment was made by the managing director:
“While CMSB understands that our major stakeholders will have many questions about this acquisition, we have no further comment to make until the sale and purchase is concluded, at which time we will make a further statement.’’
That is a rather remarkable statement, from a corporate governance point of view. Even if investors have genuine questions regarding this deal, they will not be answered for the time being?
I would recommend shareholders (major or small) of CMS to forward their questions regarding this deal to Bursa Malaysia, who can then (possibly including own questions they might have) issue an official query to CMS.
Those queries have to be answered within one working day, not until the sale and purchase is concluded. Let's see if CMS still will not make any further comment.
An interesting comment was made by the managing director:
“While CMSB understands that our major stakeholders will have many questions about this acquisition, we have no further comment to make until the sale and purchase is concluded, at which time we will make a further statement.’’
That is a rather remarkable statement, from a corporate governance point of view. Even if investors have genuine questions regarding this deal, they will not be answered for the time being?
I would recommend shareholders (major or small) of CMS to forward their questions regarding this deal to Bursa Malaysia, who can then (possibly including own questions they might have) issue an official query to CMS.
Those queries have to be answered within one working day, not until the sale and purchase is concluded. Let's see if CMS still will not make any further comment.
Saturday, 28 March 2015
To Cliq or not to Cliq? (2)
Regarding my previous posting about this matter, it seems I wasn't the only person who had questions regarding Cliq's announcement.
Bursa queried the company with 8 highly relevant questions, which Cliq answered, some in a convincing way, some less so.
5. Justification in using the URALS oil prices forecast in the economic modelling, given that the price of oil has dropped substantially in the recent months
The oil price estimates included in the economic modelling was based on URALS oil price and the typical spread of Brent oil price to URALS oil price is about USD2 per barrel. In the middle of January 2015, there has been a reduction in Brent oil price to around USD47 per barrel and the Brent oil price has since recovered to around USD56 to USD59 per barrel in March 2015.
As a result from the current low global oil prices, AGR believes that the demand for energy resources from the industries will increase, and hence, in the opinion of AGR, this is expected to further spur oil prices for the next 5 to 6 years. In addition, political instability in the Middle East may also result in a reduction in global oil supply and this is expected to further support the recovery of global oil prices.
The price of Brent Oil over the last six months:
It shows quite a difference, the current price (USD 56.41) is about 20% lower than the one used in the first announcement (USD 70.90). Since there are fixed expenses the gross margin must therefore be much lower.
AGR believes that the oil price will rise in the next 5 to 6 years. That might happen, but still, the base price is 20% lower, which should have quite a large impact on the near future projections, and thus the DCF valuation.
7. The financial information as required under Paragraph 19(d)(ii) and (iii) of Part A and Paragraph 1 of Part H, Appendix 10A of the Main Market Listing Requirements of Bursa Securities
The financial information set out in Section 3 of the Announcement is for information purpose only and may not reflect the future financial performance of the SPV as the BTA entails the transfer of the Vendor’s assets (excluding liabilities, payables, cash and receivables) including Subsoil Use Contract, contractual obligations and certain existing employees to the SPV. As such, the SPV does not assume any prior liabilities arising from the Proposed Acquisition. In addition, the SPV has yet to be incorporated as at to date.
The disclosure of financial information of Karazhanbas Northern Field based on the financial statements of Phystech pursuant to Paragraph 19(d)(ii) and (iii) of Part A and Paragraph 1 of Part H, Appendix 10A of the Main Market Listing Requirements of Bursa Securities (i.e. profit before tax, profit after tax and minority interest, shareholders’ funds and total borrowings) may not be applicable in view that the Company is only acquiring the asset of Phystech.
That might be strictly speaking correct, but is still disappointing. The assets are generating financial numbers in the Profit & Loss and are valued in the Balance Sheet, and one would thus be interested in the full picture, not in some "selected financial information".
For instance:
Some of these will help in evaluating the assets to be acquired in the SPV, others are meant to form an opinion about the company that CLIQ will work together with (for instance its ability to keep its side of the bargain).
As mentioned before, a proper snapshot (past and current, balance sheet, profit & loss, description) of a company should not take more than a single page.
8. Financial information of Karazhanbas Northern Field based on the latest unaudited accounts for 2014
The financial information of Karazhanbas Northern Field based on the latest unaudited financial statements of Phystech for the FYE 31 December 2014 is not available at this juncture as the management of Phystech is in the midst of finalising the same.
That is disappointing, negotiations started in December 2014, that should give the company ample time to have the books ready by now.
Please note that The Edge wrote that "In 2013, Phystech recognised earnings before interest, taxation, depreciation and amortisation (Ebitda) of US$22.61 million.".
That is incorrect, it is unfortunately only RM 22.61 million.
Bursa queried the company with 8 highly relevant questions, which Cliq answered, some in a convincing way, some less so.
5. Justification in using the URALS oil prices forecast in the economic modelling, given that the price of oil has dropped substantially in the recent months
The oil price estimates included in the economic modelling was based on URALS oil price and the typical spread of Brent oil price to URALS oil price is about USD2 per barrel. In the middle of January 2015, there has been a reduction in Brent oil price to around USD47 per barrel and the Brent oil price has since recovered to around USD56 to USD59 per barrel in March 2015.
As a result from the current low global oil prices, AGR believes that the demand for energy resources from the industries will increase, and hence, in the opinion of AGR, this is expected to further spur oil prices for the next 5 to 6 years. In addition, political instability in the Middle East may also result in a reduction in global oil supply and this is expected to further support the recovery of global oil prices.
The price of Brent Oil over the last six months:
It shows quite a difference, the current price (USD 56.41) is about 20% lower than the one used in the first announcement (USD 70.90). Since there are fixed expenses the gross margin must therefore be much lower.
AGR believes that the oil price will rise in the next 5 to 6 years. That might happen, but still, the base price is 20% lower, which should have quite a large impact on the near future projections, and thus the DCF valuation.
7. The financial information as required under Paragraph 19(d)(ii) and (iii) of Part A and Paragraph 1 of Part H, Appendix 10A of the Main Market Listing Requirements of Bursa Securities
The financial information set out in Section 3 of the Announcement is for information purpose only and may not reflect the future financial performance of the SPV as the BTA entails the transfer of the Vendor’s assets (excluding liabilities, payables, cash and receivables) including Subsoil Use Contract, contractual obligations and certain existing employees to the SPV. As such, the SPV does not assume any prior liabilities arising from the Proposed Acquisition. In addition, the SPV has yet to be incorporated as at to date.
The disclosure of financial information of Karazhanbas Northern Field based on the financial statements of Phystech pursuant to Paragraph 19(d)(ii) and (iii) of Part A and Paragraph 1 of Part H, Appendix 10A of the Main Market Listing Requirements of Bursa Securities (i.e. profit before tax, profit after tax and minority interest, shareholders’ funds and total borrowings) may not be applicable in view that the Company is only acquiring the asset of Phystech.
That might be strictly speaking correct, but is still disappointing. The assets are generating financial numbers in the Profit & Loss and are valued in the Balance Sheet, and one would thus be interested in the full picture, not in some "selected financial information".
For instance:
- How much tax is the company currently paying?
- What is the current depreciation?
- At what value are the assets in the books?
- For how much money have they been acquired, and when?
- What is the current paid-up capital of the company?
- How much cash does it have?
Some of these will help in evaluating the assets to be acquired in the SPV, others are meant to form an opinion about the company that CLIQ will work together with (for instance its ability to keep its side of the bargain).
As mentioned before, a proper snapshot (past and current, balance sheet, profit & loss, description) of a company should not take more than a single page.
8. Financial information of Karazhanbas Northern Field based on the latest unaudited accounts for 2014
The financial information of Karazhanbas Northern Field based on the latest unaudited financial statements of Phystech for the FYE 31 December 2014 is not available at this juncture as the management of Phystech is in the midst of finalising the same.
That is disappointing, negotiations started in December 2014, that should give the company ample time to have the books ready by now.
Please note that The Edge wrote that "In 2013, Phystech recognised earnings before interest, taxation, depreciation and amortisation (Ebitda) of US$22.61 million.".
That is incorrect, it is unfortunately only RM 22.61 million.
Wednesday, 25 March 2015
To Cliq or not to Cliq?
Cliq Energy has finally announced its qualifying acquisition, an investment in an oil and gas company based in Kazakhstan.
Regular readers know I am not "exactly" a fan of DCF valuations. Unfortunately, it has been used in this case:
The price of oil that is used in the DCF model is the prevailing price in December 2014.
However, the price of oil has since drastically fallen:
I certainly hope that a new DCF will be calculated, based on the recent price of oil. It will give a much lower outcome, is my estimate. Hopefully the details of the DCF will be published, although I doubt that.
Cliq had a long time to come up with its proposal, so we can expect lots of financial numbers.
Unfortunately, it is very disappointing:
Some comments:
I have seen excellent formats provided by research houses where lots and lots of relevant data regarding a company is packed in one single page. Although the announcement of Cliq counts 26 full pages, relevant numbers are very scarce, lots of important (financial) information is left out.
We must hope that the official brochure to Cliq's shareholders will be of a much higher quality.
Regular readers know I am not "exactly" a fan of DCF valuations. Unfortunately, it has been used in this case:
The price of oil that is used in the DCF model is the prevailing price in December 2014.
However, the price of oil has since drastically fallen:
I certainly hope that a new DCF will be calculated, based on the recent price of oil. It will give a much lower outcome, is my estimate. Hopefully the details of the DCF will be published, although I doubt that.
Cliq had a long time to come up with its proposal, so we can expect lots of financial numbers.
Unfortunately, it is very disappointing:
Some comments:
- Not a single balance sheet number of Phystech;
- Some profit & loss numbers, however no PBT or PAT but the dreaded EBITDA (whenever they are presented, the earnings are much lower than the EBITDA number, we have to wait and see if that is also the case here);
- EBITDA for 2013 only RM 23 Million, does not really look exciting;
- Numbers are only up to December 2013 (15 months old), even tiny ACE-listed companies have already announced their (unaudited) December 2014 numbers a month ago, why can't Phystech give their unaudited numbers?
I have seen excellent formats provided by research houses where lots and lots of relevant data regarding a company is packed in one single page. Although the announcement of Cliq counts 26 full pages, relevant numbers are very scarce, lots of important (financial) information is left out.
We must hope that the official brochure to Cliq's shareholders will be of a much higher quality.
Friday, 13 March 2015
Markets also need negative viewpoints (2)
Quite good article by Reuters about companies being targeted by short sellers or negative reports, in particularly about Noble Group.
Not in the sensational "Short sellers cause havoc, causing huge losses to orphans and widows" kind of style that I (unfortunately) noticed several times in newspaper articles, but much more balanced.
"Noble's concession gives clout to maverick researchers"
Some snippets:
"Almost all of the investment research or opinions disseminated to the market fail to properly scrutinize listed companies. In fact, they are usually nothing more than a dressed up regurgitation of management drivel," Soren Aandahl, director of research at short-seller Glaucus Research, told Reuters.
Sell-side analysts - who recommend stocks to clients - often face a conflict of interest given the banks many work for seek advisory fees from the firms they analyze, Aandahl said.
Activist short-sellers such as Glaucus and company-watchers like Iceberg Research have stepped in to assume the role of corporate antagonists. Short-sellers sell borrowed shares, buy them back at lower prices and pocket the difference. To push a company's share price down, they bring to light, for instance, what they perceive as misleading accounting.
Not in the sensational "Short sellers cause havoc, causing huge losses to orphans and widows" kind of style that I (unfortunately) noticed several times in newspaper articles, but much more balanced.
"Noble's concession gives clout to maverick researchers"
Some snippets:
"Almost all of the investment research or opinions disseminated to the market fail to properly scrutinize listed companies. In fact, they are usually nothing more than a dressed up regurgitation of management drivel," Soren Aandahl, director of research at short-seller Glaucus Research, told Reuters.
Sell-side analysts - who recommend stocks to clients - often face a conflict of interest given the banks many work for seek advisory fees from the firms they analyze, Aandahl said.
Activist short-sellers such as Glaucus and company-watchers like Iceberg Research have stepped in to assume the role of corporate antagonists. Short-sellers sell borrowed shares, buy them back at lower prices and pocket the difference. To push a company's share price down, they bring to light, for instance, what they perceive as misleading accounting.
Monday, 19 January 2015
1MDB needs a new script
An article written by Anita Gabriel with this title appeared in The Business Times (Singapore) today, some snippets:
"Another thing that will serve the fund and its communication team well is to rid itself of the notion that all its critics have a political agenda.
That's undeservedly self righteous for a fund that has racheted up over RM40 Billion in debt, rolled over a RM2 billion debt three times over a year, switched auditors and bosses twice and is in the red to the tune of RM665 million in 2014."
I fully agree with this. Most likely it is in reference to (for instance) this article in The Malaysian Insider:
"1MDB’s critics politically driven, don’t know full facts, says new chief"
The seasoned investment banker said it was "quite clear" most of the allegations directed at the company had been driven more by "political rather than genuine business considerations", he told The Malaysian Insider in an email interview.
There have been many excellent articles about 1MDB by publications like Bloomberg, Reuters and The Business Times (Singapore). Surely these were not political driven.
Besides that, there were many other excellent articles from Malaysian publications like MalaysiaKini/KiniBiz and The Edge.
Everyone is interested in transparency, not in some sort of blame game.
Definitely not a good start by the new CEO of 1MDB, the remark about political motives.
Myself I am very interested in the funds 1MDB invested in (either currently or in the past). 1MDB has never been transparent about them, as far as I am aware.
According to this article:
"Australian firm Avestra Asset Management has been managing over US$2 billion of 1Malaysia Development Bhd's monies invested in several Cayman Islands funds."
Avestra was recently fined by the ASIC (the securities commission of Australia) for having committed six offences.
Controversial blogger "Dr Benway" wrote about this same issue (AG Financial) long before ASIC had fined the company (here, here and here). Please note that I can in no way guarantee the correctness of the postings by "Dr Benway".
Based on their own website it seemed that Avestra's business is run from a house or apartment on Australia's Gold Coast, which seems to be peculiar for an asset management company managing billions of RM:
The above seems puzzling. 1MDB should be transparent about the details of the funds it invested in, the rationale behind the decision, if it paid commissions (and if so, how much and to whom), the returns it received, the due diligence it had performed, etc.
Anita Gabriel recommends 1MDB to follow in the footsteps of Khazanah Nasional:
"It took Khazanah half its live span or ten years to turn its back on the secretive-style of investing which had previously drawn huge public outcry in the country
These days, the annual events where Khazanah provides some key indicators and updates on its investments are markedly more staid, relatively dull even; and that's a good thing. Transparency begets trust which begets credibility, all of which 1MDB is in deficit at this point."
"Another thing that will serve the fund and its communication team well is to rid itself of the notion that all its critics have a political agenda.
That's undeservedly self righteous for a fund that has racheted up over RM40 Billion in debt, rolled over a RM2 billion debt three times over a year, switched auditors and bosses twice and is in the red to the tune of RM665 million in 2014."
I fully agree with this. Most likely it is in reference to (for instance) this article in The Malaysian Insider:
"1MDB’s critics politically driven, don’t know full facts, says new chief"
The seasoned investment banker said it was "quite clear" most of the allegations directed at the company had been driven more by "political rather than genuine business considerations", he told The Malaysian Insider in an email interview.
There have been many excellent articles about 1MDB by publications like Bloomberg, Reuters and The Business Times (Singapore). Surely these were not political driven.
Besides that, there were many other excellent articles from Malaysian publications like MalaysiaKini/KiniBiz and The Edge.
Everyone is interested in transparency, not in some sort of blame game.
Definitely not a good start by the new CEO of 1MDB, the remark about political motives.
Myself I am very interested in the funds 1MDB invested in (either currently or in the past). 1MDB has never been transparent about them, as far as I am aware.
According to this article:
"Australian firm Avestra Asset Management has been managing over US$2 billion of 1Malaysia Development Bhd's monies invested in several Cayman Islands funds."
Avestra was recently fined by the ASIC (the securities commission of Australia) for having committed six offences.
Controversial blogger "Dr Benway" wrote about this same issue (AG Financial) long before ASIC had fined the company (here, here and here). Please note that I can in no way guarantee the correctness of the postings by "Dr Benway".
Based on their own website it seemed that Avestra's business is run from a house or apartment on Australia's Gold Coast, which seems to be peculiar for an asset management company managing billions of RM:
The above seems puzzling. 1MDB should be transparent about the details of the funds it invested in, the rationale behind the decision, if it paid commissions (and if so, how much and to whom), the returns it received, the due diligence it had performed, etc.
Anita Gabriel recommends 1MDB to follow in the footsteps of Khazanah Nasional:
"It took Khazanah half its live span or ten years to turn its back on the secretive-style of investing which had previously drawn huge public outcry in the country
These days, the annual events where Khazanah provides some key indicators and updates on its investments are markedly more staid, relatively dull even; and that's a good thing. Transparency begets trust which begets credibility, all of which 1MDB is in deficit at this point."
Friday, 28 November 2014
Protasco: Tey and Ooi are out
Yesterday the company announced:
.... that its solicitors attended court today for the hearing of the Company’s application to set aside the ex-parte injunction order that Global Capital Ltd and Kingdom Seekers Ventures Sdn Bhd obtained on 25 November 2014 against Dato’ Sri Chong Ket Pen and two others from exercising their voting rights on shares which they own directly or indirectly in the Company with respect to the resolutions to remove Tey Por Yee and Ooi Kock Aun as directors of the Company.
The Company wishes to inform that the ex-parte injunction order was set aside at 2.15pm today with an order of costs in favour of the Company and Dato’ Sri Chong and two others. By reason of the setting aside of the ex-parte order, the Extraordinary General Meeting which was adjourned to 3.00pm today proceeded as scheduled.
The shareholders voted overwhelmingly to remove Tey Por Yee and Ooi Kock Aun as directors of the Company with immediate effect.
In favour: 170,428,382 95.66%
Against: 7,728,200 4.34%
The result is not so much a surprise, although the majority is much larger than expected. Most likely because Tey (and associated parties) didn't vote since he walked out of the meeting.
The outcome of the second EGM should be pretty straightforward as well.
Now that this has been settled, Protasco can continue with its normal business.
In addition to that:
.... that its solicitors attended court today for the hearing of the Company’s application to set aside the ex-parte injunction order that Global Capital Ltd and Kingdom Seekers Ventures Sdn Bhd obtained on 25 November 2014 against Dato’ Sri Chong Ket Pen and two others from exercising their voting rights on shares which they own directly or indirectly in the Company with respect to the resolutions to remove Tey Por Yee and Ooi Kock Aun as directors of the Company.
The Company wishes to inform that the ex-parte injunction order was set aside at 2.15pm today with an order of costs in favour of the Company and Dato’ Sri Chong and two others. By reason of the setting aside of the ex-parte order, the Extraordinary General Meeting which was adjourned to 3.00pm today proceeded as scheduled.
The shareholders voted overwhelmingly to remove Tey Por Yee and Ooi Kock Aun as directors of the Company with immediate effect.
In favour: 170,428,382 95.66%
Against: 7,728,200 4.34%
The result is not so much a surprise, although the majority is much larger than expected. Most likely because Tey (and associated parties) didn't vote since he walked out of the meeting.
The outcome of the second EGM should be pretty straightforward as well.
Now that this has been settled, Protasco can continue with its normal business.
In addition to that:
- Attempts to recover the money spend, RM 85 Million;
- Damage control;
- An honest assessment of the remaining Board of Director members on the past two years;
- A huge improvement in its Corporate Governance standards, especially in transparency towards its shareholders.
The authorities have their work cut out for them, it appears that quite a few rules have been breached.
Wednesday, 26 November 2014
Protasco: messy, messier, messiest
Protasco announced yesterday its quarterly results.
In it a RM 85 Million impairment on its messy "adventure" in Indonesia. No word about the guarantee that was given in the form of shares in a listed Indonesian company, PT Inovisi Infracom TBK.
Pages 13, 14, 15 and 16 contain details regarding the many court cases that are on going.
Today Protasco announced that its first EGM (there will be two) was twice postponed.
It can't really get much worse than that.
Was the management warned? Yes, please check this posting where lots of critical questions were asked by the reporter of BFM (the almost two years old interview is still available) to the General Managing Director.
One question from that interview and my comment:
"The deal is subject to renewal of the concession, which will expire in 2014 (again, why the hurry, why not first renew the concession?)"
Someone informed me that the reason the whole deal did not go through was that the concession was only renewed for a short period (again, this information is not revealed by the company, as so many other details).
So again, why the hurry, why did Protasco not wait for the renewal details, why did it want to close the deal so quickly and transfer RM 50 Million to the vendor (details of which are still not revealed)? And why did it (much later) even increase the potential loss further to the current RM 85 Million?
Unworthy for a Bursa listed company, if one would ask me.
Where are the regulators?
In it a RM 85 Million impairment on its messy "adventure" in Indonesia. No word about the guarantee that was given in the form of shares in a listed Indonesian company, PT Inovisi Infracom TBK.
Pages 13, 14, 15 and 16 contain details regarding the many court cases that are on going.
Today Protasco announced that its first EGM (there will be two) was twice postponed.
It can't really get much worse than that.
Was the management warned? Yes, please check this posting where lots of critical questions were asked by the reporter of BFM (the almost two years old interview is still available) to the General Managing Director.
One question from that interview and my comment:
"The deal is subject to renewal of the concession, which will expire in 2014 (again, why the hurry, why not first renew the concession?)"
Someone informed me that the reason the whole deal did not go through was that the concession was only renewed for a short period (again, this information is not revealed by the company, as so many other details).
So again, why the hurry, why did Protasco not wait for the renewal details, why did it want to close the deal so quickly and transfer RM 50 Million to the vendor (details of which are still not revealed)? And why did it (much later) even increase the potential loss further to the current RM 85 Million?
Unworthy for a Bursa listed company, if one would ask me.
Where are the regulators?
Sunday, 23 November 2014
"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.
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.
Monday, 17 November 2014
Protasco: "Right to be heard"
Note: the blog "Right to be Heard" seems to be deleted.
I received an anonymous tip about a website with more information about Protasco's matters. The website can be found here.
Two interesting postings can be found which might contain original documents:
I can't vouch that these scans are from real documents, but it seems interesting enough to provide the links to these articles. Especially the first document, which contains a lot of new information, at least to me.
Even if the documents are real, there might be more documents, and some might even cancel the agreements in the above links. I am pretty sure that in due course more information will be revealed, by the parties involved.
For people who want to trade in Protasco shares: buyers and sellers beware.
I received an anonymous tip about a website with more information about Protasco's matters. The website can be found here.
Two interesting postings can be found which might contain original documents:
- Agreement 1, allegedly signed on November 3, 2012;
- Agreement 2, allegedly signed on June 28, 2013, the supplemental Sales and Purchase agreement.
I can't vouch that these scans are from real documents, but it seems interesting enough to provide the links to these articles. Especially the first document, which contains a lot of new information, at least to me.
Even if the documents are real, there might be more documents, and some might even cancel the agreements in the above links. I am pretty sure that in due course more information will be revealed, by the parties involved.
For people who want to trade in Protasco shares: buyers and sellers beware.
Saturday, 15 November 2014
Cutting accumulated losses through financial engineering (2)
I wrote before about this issue. I received two reactions that confirm my suspicion.
From "Anonymous":
Sadly, it is a global accounting treatment. Just google "accumulated losses write off", you can see lots of same treatment for this situation. Mitsubishi, Yamaha, United Bank of India and etc. I suppose this is a grey area in the accounting standards.
From "Avatar":
I'll be slightly more brief here. What you have illustrated above is a good example, so I'll use that simple one. I'll try to state the issues in a more simplistic manner.
1. A clean slate or forever blacklisted
To put it simply, just like a ex-convict that has been released and is looking for a job, is it fair to forever label him as an ex-convict when the prospective employer searches his records through some database?
Similarly, in this situation ~ the so-called accounting 'innovation' (it's not btw) goes along the same line of thinking. Since the company has made substantial losses, it weighs down on the mind of any future investors, same as the employer with the ex-convict. That's why most companies go down this route to wipe out the past bad track record, so to speak. In this time where first impressions count, I don't blame them.
2. The cat has flown the 'coop' so to speak
The accumulated losses is just a summary or 'report card' of all the bad decisions made by the company, so to speak. It doesn't really matter whether it's netted off against the share premium of share capital, as more importantly, the cash is already gone. You are right though, keeping it there, lets the investor see all the bad decisions that have accumulated throughout the years, but a good investor can always look at the losses throughout a 5 or 10 period anyways.
3. Companies Act 1965 and SC
There are some safeguards before companies are allowed to set off their losses against the share capital and premium, especially if they are listed on the Bursa. It's not a difficult thing, but there are some procedures to be followed, so it's on some whim and fancy. Probably it's pursuant to some restructuring and injection of new share capital and such.
As to your last question, YES! It's a perfectly legitimate technique though there are safeguards in the UK Companies Act to prevent share capital from being reduced in this manner, which was exported to the Commonwealth Countries such as Malaysia and Singapore.
Thanks for the two contributions, appreciated.
I guess we have to be careful and review the whole history of a company before we make a judgement. We actually even need the history of the larger subsidiaries, to be complete.
On a slightly related matter, I am completely puzzled why companies are getting away with publishing only their last few (often three) years of results in an IPO prospectus. A prospectus often contains hundreds and hundreds of pages, a lot of that information is not very useful.
Why not make one simple table with say the last ten years of results containing the most important numbers, like revenue, PBT, PAT and dividends? At most it would cover half a page, and it would likely be the most important information of the whole document. It would also exactly help in the cases described where accumulated losses are written off.
I have seen many instances where the last three years before the IPO showed net profits in a nicely rising pattern, like RM 20M, RM 40M, RM 60M and after the IPO the company hugely disappointed despite the injection of fresh money. Giving the numbers of the last 10 years might have shown a very different pattern than just the last three years.
From "Anonymous":
Sadly, it is a global accounting treatment. Just google "accumulated losses write off", you can see lots of same treatment for this situation. Mitsubishi, Yamaha, United Bank of India and etc. I suppose this is a grey area in the accounting standards.
From "Avatar":
I'll be slightly more brief here. What you have illustrated above is a good example, so I'll use that simple one. I'll try to state the issues in a more simplistic manner.
1. A clean slate or forever blacklisted
To put it simply, just like a ex-convict that has been released and is looking for a job, is it fair to forever label him as an ex-convict when the prospective employer searches his records through some database?
Similarly, in this situation ~ the so-called accounting 'innovation' (it's not btw) goes along the same line of thinking. Since the company has made substantial losses, it weighs down on the mind of any future investors, same as the employer with the ex-convict. That's why most companies go down this route to wipe out the past bad track record, so to speak. In this time where first impressions count, I don't blame them.
2. The cat has flown the 'coop' so to speak
The accumulated losses is just a summary or 'report card' of all the bad decisions made by the company, so to speak. It doesn't really matter whether it's netted off against the share premium of share capital, as more importantly, the cash is already gone. You are right though, keeping it there, lets the investor see all the bad decisions that have accumulated throughout the years, but a good investor can always look at the losses throughout a 5 or 10 period anyways.
3. Companies Act 1965 and SC
There are some safeguards before companies are allowed to set off their losses against the share capital and premium, especially if they are listed on the Bursa. It's not a difficult thing, but there are some procedures to be followed, so it's on some whim and fancy. Probably it's pursuant to some restructuring and injection of new share capital and such.
As to your last question, YES! It's a perfectly legitimate technique though there are safeguards in the UK Companies Act to prevent share capital from being reduced in this manner, which was exported to the Commonwealth Countries such as Malaysia and Singapore.
Thanks for the two contributions, appreciated.
I guess we have to be careful and review the whole history of a company before we make a judgement. We actually even need the history of the larger subsidiaries, to be complete.
On a slightly related matter, I am completely puzzled why companies are getting away with publishing only their last few (often three) years of results in an IPO prospectus. A prospectus often contains hundreds and hundreds of pages, a lot of that information is not very useful.
Why not make one simple table with say the last ten years of results containing the most important numbers, like revenue, PBT, PAT and dividends? At most it would cover half a page, and it would likely be the most important information of the whole document. It would also exactly help in the cases described where accumulated losses are written off.
I have seen many instances where the last three years before the IPO showed net profits in a nicely rising pattern, like RM 20M, RM 40M, RM 60M and after the IPO the company hugely disappointed despite the injection of fresh money. Giving the numbers of the last 10 years might have shown a very different pattern than just the last three years.
Tuesday, 11 November 2014
Protasco: where is the transparency?
The Edge, KiniBiz and The Star are actively writing about Protasco these days, and one can't blame them. There is a mud-slinging match going on between Tey and Chong, which is always good for some interesting news, that is what people like to read. Finally details (some unconfirmed) have been revealed in these articles, details that should have been revealed by Protasco itself a long time ago.
One important question in all of this is, which party is right?
But at least as important is the question: where is and was the transparency in all of this?
The deal in question started almost two years ago, and the official news as revealed by Protasco has been very, very limited, and most of it very much delayed.
January 2013 I wrote "Protasco's Puzzling Purchase" in which I asked the following questions:
Most of these questions are now, almost two years later, still never dealt with.
Soon shareholders have to vote in two subsequent EGMs on the directorship of Tey, Ooi and Chong.
But based on what information, if so much is still never revealed?
The winner in the on-going battle will be a bruised winner. And lots of doubt will continue as long as the air is not properly cleared.
The other directors (especially the independent ones) of Protasco also should evaluate the corporate governance standards of the company. A big improvement is urgently needed.
And then there is still another matter. How much of the money paid by Protasco can be recovered? Shares of Indonesia listed PT Inovisi Infracom Tbk were held in trust, but the share price has tanked recently.
Protasco has initiated legal proceedings to reclaim the money, but court cases in Malaysia (when appealed) can easily take ten years to conclude. And in this case two other countries are involved, Indonesia and the British Virgin Islands, making things much more difficult.
One important question in all of this is, which party is right?
But at least as important is the question: where is and was the transparency in all of this?
The deal in question started almost two years ago, and the official news as revealed by Protasco has been very, very limited, and most of it very much delayed.
January 2013 I wrote "Protasco's Puzzling Purchase" in which I asked the following questions:
- Protasco does not seem to have relevant experience in the notoriously difficult oil and gas industry, why does it want to take so much risk, especially in Indonesia with poor corporate governance?
- PT ASI is only a few months old: "PT ASI was incorporated in Indonesia on 6 September 2012 as a private limited company".
- PT ASI only has one director who hardly owns any shares. No background of this director is given.
- The vendor is 99% owned by Anglo Slavic Petrogas Ltd, a company registered in the British Virgin Islands, no background is given, a search on the internet returns nothing; who is behind this company, what is their track record?
- The company structure of PT ASI owning part of PT FAS owning PT Haseba is rather artificial, why is such a difficult construction chosen?
- Who are the minority shareholders of PT FAS and PT Haseba?
- On the signing of the S&P, Protasco will pay RM 50 million cash, why so much? This is about 30% of the total amount, much higher than normal in comparable deals.
- On November 1, 2012 PT ASI signed a S&P agreement to buy an additional 46% of PT FAS. What was the price paid for that stake? Why does Protasco not wait until this deal is panned out?
- ..... the production agreement will expire in 2014 (next year!) and it is not sure if PT Haseba is able to negotiate a new contract, and if so under what conditions. Why buy into a company with so much uncertainty?
- "The KST Field was founded in 1972 and operated by PT Pertamina Doh Nad Sumbangut until 1997. Thereafter, in 2004, Pertamina awarded PT Haseba a 10-year PMP Agreement for KST Field.". Why the gap of seven years? Also, this field seems to be pretty old, often yields are not that great in old fields. Why can't Protasco give some production numbers for KST Field?
- Why are no preliminary results for 2012 given? At least the half year numbers should be made available? And why are all the financial statements not audited?
- What are the results for PT FAS for the last three years?
Most of these questions are now, almost two years later, still never dealt with.
Soon shareholders have to vote in two subsequent EGMs on the directorship of Tey, Ooi and Chong.
But based on what information, if so much is still never revealed?
The winner in the on-going battle will be a bruised winner. And lots of doubt will continue as long as the air is not properly cleared.
The other directors (especially the independent ones) of Protasco also should evaluate the corporate governance standards of the company. A big improvement is urgently needed.
And then there is still another matter. How much of the money paid by Protasco can be recovered? Shares of Indonesia listed PT Inovisi Infracom Tbk were held in trust, but the share price has tanked recently.
Protasco has initiated legal proceedings to reclaim the money, but court cases in Malaysia (when appealed) can easily take ten years to conclude. And in this case two other countries are involved, Indonesia and the British Virgin Islands, making things much more difficult.
Friday, 30 August 2013
Protasco: how secure is the security?
Protasco announced today its 2nd quarter results.
Regarding the "Puzzling Purchase" no new information is given other than what was known already.
However, there is one important issue, Protasco has paid a huge cash deposit of RM 50 Million, for which it received a security (I have pointed out in the past that [a] the size of the deposit seems to be unusually large and [b] that it is rather strange that the cash itself is not held in trust).
In "A sliver of Information" I described the securities that are held in trust against the RM 50 million deposit: shares of PT Inovisi Infracom TBK, an Indonesian listed company.
The value of the securities as of April 26, 2013 was about RM 51.5 Million, a margin of safety of only 3%.
I wrote: "If that gives enough assurance to the shareholders of Protasco is up to them to decide. A small drop in value of the shares of PT Inovisi Infracom TBK or of the Indonesian Rupee and the collateral could be worth less than the RM 50 million deposit."
With the current turmoil in the emerging markets (both equities and currencies), it is timely to revisit this issue.
First of all regarding the currencies, I estimate that the Indonesian Rupiah fell about 3% versus the Malaysian Ringgit since April 2013. That takes already care of the small margin of safety.
But much more worrisome is the performance of the share of PT Inovisi Infracom TBK:
From a level of about 1,700 the share has tanked to about 1,000, a fall of more than 40%.
In other words, the security is completely not sufficient anymore to cover the RM 50 Million deposit, it probably covers about RM 30 million.
And on top of that, good luck to anybody who wants to sell a large block of Indonesian shares in the current market turmoil. Especially if the news gets out that Protasco would own a block of shares and it got stuck with them.
If the proposed deal does not go through (and because of the very high number of red flags that seems quite plausible to me) then Protasco might have a serious problem in getting back its money.
Given the lack of transparency in this deal that Protasco so far has shown it is not really a surprise it didn't report about the decreased value of the security, but I think it should have.
And I also think that the authorities (BM and/or SC) should act in this matter, they have been much too quiet so far. At the very minimum Protasco should have been forced to provide much more details regarding the deal, enabling the minority shareholders of Protasco to make an informed decision.
Regarding the "Puzzling Purchase" no new information is given other than what was known already.
However, there is one important issue, Protasco has paid a huge cash deposit of RM 50 Million, for which it received a security (I have pointed out in the past that [a] the size of the deposit seems to be unusually large and [b] that it is rather strange that the cash itself is not held in trust).
In "A sliver of Information" I described the securities that are held in trust against the RM 50 million deposit: shares of PT Inovisi Infracom TBK, an Indonesian listed company.
The value of the securities as of April 26, 2013 was about RM 51.5 Million, a margin of safety of only 3%.
I wrote: "If that gives enough assurance to the shareholders of Protasco is up to them to decide. A small drop in value of the shares of PT Inovisi Infracom TBK or of the Indonesian Rupee and the collateral could be worth less than the RM 50 million deposit."
With the current turmoil in the emerging markets (both equities and currencies), it is timely to revisit this issue.
First of all regarding the currencies, I estimate that the Indonesian Rupiah fell about 3% versus the Malaysian Ringgit since April 2013. That takes already care of the small margin of safety.
But much more worrisome is the performance of the share of PT Inovisi Infracom TBK:
From a level of about 1,700 the share has tanked to about 1,000, a fall of more than 40%.
In other words, the security is completely not sufficient anymore to cover the RM 50 Million deposit, it probably covers about RM 30 million.
And on top of that, good luck to anybody who wants to sell a large block of Indonesian shares in the current market turmoil. Especially if the news gets out that Protasco would own a block of shares and it got stuck with them.
If the proposed deal does not go through (and because of the very high number of red flags that seems quite plausible to me) then Protasco might have a serious problem in getting back its money.
Given the lack of transparency in this deal that Protasco so far has shown it is not really a surprise it didn't report about the decreased value of the security, but I think it should have.
And I also think that the authorities (BM and/or SC) should act in this matter, they have been much too quiet so far. At the very minimum Protasco should have been forced to provide much more details regarding the deal, enabling the minority shareholders of Protasco to make an informed decision.
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