10,000!

Crossed the 10,000 hit on my blog, and about the same number on http://www.asiasentinel.com/

For my blog, by far the most referrals came from:

http://www.whereiszemoola.blogspot.com/
http://malaysiafinance.blogspot.com/
http://ginsing70.blogspot.com/

A big thank you for these guys and to all the readers and to AsiaSentinel and blogger.com for giving me the opportunity.

I will continue trying to come up with more Corporate Governance cases, based on publicly available information. I can use the huge database from Ze Moolah's website, who is fighting the corporate misdeeds for such a long time. For me, people like him, P. Gunasegaram from The Star (previously The Edge) and a host of other bloggers and journalists are the real heroes, fighting for injustice in Malaysia, exposing the crooks.

More information will continue on the Maybulk/POSH saga, I owe the readers a clear explanation why this deal was so bad. One hint, if a company wants a huge amount of money, what is the first question you would ask? Exactly, but that question is not answered in the circular of 130 pages, the reason for the omission will be revealed. As usual in Malaysia, look for the information that is not given. But how is it possible that Bursa Malaysia and all the advisers and directors assigned to this deal approved the circular where this important piece of information was missing?

I hope that the CEO of Bursa Malaysia will come forward, explaining why he supported the POSH deal (he could have single handedly stopped it by voting against it and recommending Bank Pembangunan Malaysia to do the same) and how he deals with the clear conflict of interest in this matter by being the regulator dealing with the complaints on the circular. And why he dropped his Maybulk directorship from his C.V.

Bursa Malaysia, I think there is a lot more wrong with this "company" (it is a proper company and even listed, but I still can't believe that, it was a huge mistake).

The Bumi Armada saga will be highlighted: listing, delisting and relisting, a series of exercises where Minority Investors were not allowed to share in the growth of the company, and thus missed out on the unbelievable amount of more than RM 2,000,000,000.

Related Party Transactions and General Offers with "delisting threat", they will often feature for the simple reason that these are huge deals and Minority Investors have no realistic chance to fight them.

AirAsia won some Corporate Governance awards, in my opinion this company doesn't deserve them at all, explanations will be given.

My commitment: in this: full 100% support for the Minority Investors, let there be no doubt about that.

Conflict of Interest:
I only own shares in two Malaysian companies. The first is the closed-end fund iCapital, managed by Dr. Tan and trading at a discount to its Net Asset Value. The other might come as a huge surprise to my readers, it is MAS (Malaysian Airline System). No, not the share but the preferred one, MAS-PA, a bond like instrument that paid a few times interest and will be redeemed at full price if MAS is not bankrupt, which seems unlikely to me (even more unlikely now that Tony Fernandes is a shareholder). I will not buy any other Malaysian share, neither for my own account, my wife's or my company's. If I write that I hope that Minority Shareholders of say E&O or PMI get a better, more fair deal then that doesn't mean that I have bought the share or will do so, or that I recommend anybody to buy. I anyhow don't recommend anything, investors always should do their own homework and take full responsibility for their actions. I do invest myself, mostly in Singaporean and Hong Kong smallcap stocks, plus some large global companies. I also own some unit trusts / funds.

SC & BM: (perceived) Conflict of Interest?

Many people are still eagerly waiting for the verdict by the Securities Commission (SC) in the Sime Darby / E&O case, about which I have written before:

http://cgmalaysia.blogspot.com/2011/09/sime-darbys-e-bod-poses-policy-dilemma.html

http://cgmalaysia.blogspot.com/2011/09/sime-darbys-e-bid-poses-policy-dilemma.html

http://cgmalaysia.blogspot.com/2011/09/sime-darbys-e-bid-poses-policy-dilemma_14.html

http://cgmalaysia.blogspot.com/2011/09/updates-on-corporate-exercises.html

An important issue is the Chairman of the Securities Commission being married to the Chairman of E&O, giving rise to the possibility of (perceived) conflict of interest.

It is interesting to note that the Securities Commission makes a very clear statement on its website on this issue:

"Conflicts of Interests

An integral part of ethics and integrity is the avoidance of conflict of interest. In this regard, all SC staff and their immediate family members have the obligation to avoid putting themselves in situations of conflict where their personal interest is conflicted with the interest of the SC. A process on declaration of interest has been put in place within the SC to ensure that SC employees adhere to this requirement."

A case I have been very much involved with is the acquisition of 22% of POSH by Maybulk in November 2008 for about RM 800 million (mostly cash) during the worst global recession of the last 50 years.

I have made some initial comments here:

http://cgmalaysia.blogspot.com/2011/09/edge-maybulkposh-epic-kretam.html

This will be followed by a detailed write-up over many episodes on my blog of all that was wrong with the circular (which was a lot).

The deal was approved by all non-related Directors, one of them was Dato’ Tajuddin bin Atan who was President / Group Managing Director of Bank Pembangunan Malaysia Berhad (BP).

From Maybulk’s Annual Report 2008:

BP (itself wholly owned by the Ministry of Finance) owned 18% of the shares of Maybulk and with related parties of the PCL group not allowed to vote they had a very large, probably deciding vote.

Since Dato Tajuddin bin Atan voted in favour of the deal, we can safely assume that BP did the same. But Dato Tajuddin bin Atan was also a Director of Bursa Malaysia (BM), which causes a perceived conflict of interest, since the circular had to be approved by BM.

BM has a large Code of Ethics:

http://www.bursamalaysia.com/website/bm/about_us/downloads/BM_Code_Ethic.pdf

On May 1, 2009 Dato Tajuddin bin Atan resigned from Maybulk.

The Securities Commission had received from me over time many detailed complaints about the Maybulk/POSH case. It must be noted that these complaints are mostly dealing with the circular (which was of exceptional poor quality) and since BM had approved the circular they would also deal with my complaints (and hopefully of other angry minority shareholders of Maybulk). In general, I don’t put much trust in companies doing their own policing (the results are often very disappointing). I also believe it was wrong for Bursa Malaysia to turn into a private company, since the aim of companies is to make money while enforcement is not making money at all, in the contrary:

http://cgmalaysia.blogspot.com/2011/08/when-smoke-signals-are-right.html

On April 1, 2011 Dato Tajuddin bin Atan was appointed the current CEO of Bursa Malaysia (BM).

He lists many directorships, but interestingly not the one that is relevant to the Maybulk/POSH case, namely his directorship in Maybulk, exactly during the approval of the controversial deal.

In the organisational chart of BM he is directly above the Chief Regulatory Officer who is responsible for dealing with complaints.

BM is looking into complaints regarding the Maybulk/POSH deal while its CEO has approved this same deal in his previous job as director of Maybulk. 


And what would happen if the investigation leads to results that some form of legal action has to be taken against Directors of Maybulk, will the CEO of BM take action against himself?

Is there not a huge perceived Conflict of Interest here?

Again, similar to the Sime Darby / E&O case, Chairmen and CEO’s of institutions like BM and SC should not be in this awkward position. Other relevant parts of the Ethics Code of BM:

The full text can be found here:

http://www.bursamalaysia.com/website/bm/about_us/the_organisation/corporate_governance/code_ethics.html

My complaint has been stonewalled for a long, long time. The RPT was initially announced on September 15, 2008, interestingly enough the same day that Lehman Brothers went bankrupt, signalling the start of the global recession. That event would be highly relevant to the valuation used in the circular of the acquisition of POSH since all asset prices were dropping like stones since the demise of Lehman, something that was not once mentioned in the 130 page circular (it only mentioned "volatile" which means sharply fluctuating, in reality prices were simply plunging). 

I offered several times to come to the office of the Securities Commission for additional information about this case, offers that were not accepted. Rather strangely, one would assume that all information would be more than welcome.

Only after I wrote a very sharp, 14 page article (later replaced by a 29 page article), giving highly critical feedback on the Corporate Governance Blueprint 2011 and detailing the Maybulk/POSH deal (amongst others) was I invited to the SC’s office.

The meeting was held August 8, 2011 and I was finally allowed, after almost three years, to share my views with representatives of. Securities Commission and Bursa Malaysia. It was a rather one-sided affair with SC and BM hardly being able to bring in anything against the huge amount of critical issues that I brought up.

The investigation is still ongoing.

Bandar Raya: another RPT

It is a busy time for corporate Malaysia, one after the other Related Party Transaction (RPT) or General Offer (GO) with delisting threat. And why not, minority investors have hardly any chance to fight them. The authorities (Securities Commission and Bursa Malaysia) are only looking for form, not substance and are definetely not making any plans to improve the fighting chances for the minority investors. Who cares about them anyhow?

From the Business Times:
http://www.btimes.com.my/Current_News/BTIMES/articles/BDIVI/Article/index_html

"Bandar Raya Developments Bhd (BRDB)'s board of directors have accepted an offer from Ambang Sehati Sdn Bhd to acquire some of its assets and liabilities in a deal valued at RM914 million.

Upon completion of the deal, BRDB is also proposing to pay RM390.12 million or 80 sen a share as cash dividend to shareholders, upon receiving the cash from Ambang Sehati.

Early this month, the BRDB board hired CIMB Investment Bank to evaluate the deal.

Ambang Sehati is 26 per cent-controlled by BRDB's chairman Datuk Mohamed Moiz Jabir Mohamed Ali Moiz. Moiz also has an 18.8 per cent stake in BRDB.

"This was an unsolicited offer. We did receive offers from other parties before but there was nothing serious on the table. After weighing the offer from Ambang Sehati against what is happening in the market, we found it a very interesting deal," said BRDB's chief executive officer Datuk Jagan Sabapathy.

Speaking to newsmen after the close of the stock market yesterday, Jagan said the board's decision took into account the advice and opinion of its main adviser CIMB and independent adviser Public Investment Bank Bhd."

I am not aware that Public Investment Bank Bhd has actually made a recommendation, but may be it is in the making and it will be published soon. What should happen in this case is that other interested (foreign) parties will have a chance to bid for the properties. That would be a no-lose situation for the minority investors, on one side they are sure to get the best value for their money, on the other side they already have the offer from the majority investor.

Will the independent directors or the authorities force Bandar Raya to open up the offer for outside parties. I don't think so.

And lastly, as Ze Moola rightly asked in his blog: why all the hurry?

More about this deal:
http://whereiszemoola.blogspot.com/2011/09/and-ambang-sehati-is-rewarded-with-736.html

The Edge: Maybulk/POSH, EPIC, Kretam

In the Edge of September 19, 2011 a few interesting articles:

"POSH continues to be a thorn in Maybulk's side"

At a recent analyst briefing, Malaysian Bulk Carriers Bhd (Maybulk) CEO Kuok Khoon Kuan conceded that the company's 22.08% investment in associate company PACC Offshore Services Holdings Pte Ltd (POSH) was a disappointment. But while accepting the fact that POSH's performance was not as good as expected, he expressed optimism that the industry could have seen some of its worst times."

For the first time ever the management of Maybulk admits that the acquisition of POSH was a disappointment, I would call that a huge understatement. Related Party Transactions (RPT's) have a very bad name in Malaysia, but RPT's during economic crisis are even worse and this deal was no exception. An amount of more than RM 800 million cold hard cash from a Malaysian company was used to acquire a minority part of a much overvalued Singaporean company. The circular was as usual of very low quality, leaving out lots of important (and even essential) information, the valuation of the fleet was suspect (the valuer didn't support his own valuation anymore), the "independent" advice from KPMG was even worse. The Minority Shareholder Watchdog Group (MWSG) didn't want to fight this case for unknown reasons, very disappointing.

The deal went through after a heated EGM, I strongly suspect that funds like Bank Pembanguan Malaysia Berhad, EPF, PNB etc. voted in favor of the deal, as usual, since they alone could easily have blocked it.

I (a foreigner!) fought tooth and nail to stop this deal, but to no avail. I filed many well documented complaints with the Securities Commission (and implied to Bursa Malaysia who is responsible for the quality of the circulars). The case is still pending, almost three years have passed and still no action has been taken. That was one of the reasons for me to start this blog, the way genuine complaints are being stonewalled is simply unacceptable. If the intent is to actively discourage people from filing complaints, then the authorities are doing an excellent job.

I will write in detail about this deal in a few episodes. I still completely not understand how Maybulk, a company with an excellent trackrecord of highly regarded majority investor Robert Kuok, could force such a bad deal through. In an interview on September 9, 2011 Robert Kuok explicitly mentions how he always wanted to come up for the publics interest, not only his own. Were his lieutenants too eager, too sharp? Did the sugar deal with Tan Sri Syed Mokthar have to do with it? I have no idea, we probably will never know. But this deal was really, really bad and justice should be done, it is long overdue. Minority investors who held on to their Maybulk shares suffer up to this day, the share has underperformed the KLCI substantially and the dividend has been cut.


Fair compensation?
"shareholders who purchased EPIC shares after December 10, 2010, will not be entitled to the cash compensation. Is this fair, considering that the announcement that two Terengganu state entities had triggered an MGO for EPIC was only made on August 24 this year? That is a delay of more than eight months."

The above is about the cash compensation scheme where only shareholders can claim money who held the stock at December 10, 2010. It is an interesting dilemma.


PT's should be whiter than white
"Kretam's Holdings Bhd's recent acquisition of a piece of land in Sabah has rubbed some of its minority shareholders the wrong way. In the related party transaction, Kretam is acquiring, among others, Abedon Sdn Bhd, which owed the piece of land. Abedon and Kretam have a common shareholder in Datuk Lim Nyuk Sang, who is the CEO and controlled 55.63% of Kretam before the acquisition. The vendors received new Kretam shares and ICPS at an issue price of RM 2.30 each in exchange for the land valued at RM 413.2 million. The minorities contend that the exchange is lopsided as the deal imputed a much higher value for the piece of land than the value implied for Kretam's own landbank, based on RM 2.30 per share valuation.

RPT transactions are often onerous and to avoid suspicion, substantial shareholders would do well to ensure that such deals are whiter than white."


The problem with RPT's in Malaysia is that they are simply not white, they are black. The large majority that I have seen are plain bad, sometimes worse. There is a whole layer of protections for minorities (which seems to give ample protection), but in almost all cases they will all fail:

• Directors (especially Independent ones) should speak up, they don't
• The Independent Adviser should write an unbiased report, they don't
• Bursa Malaysia should insist on unbiased circular plus independent report, they don't
• PNB, EPF, LTAT, etc should vote against bad deals, they don't
• And after the deal has been done, the Securities Commission should act on complaints, they don't

This is going on for a very long time, and still nothing has changed. And in the last Corporate Governance Blueprint 2011 there is no word about how to give minority investors a fighting chance in these kind of corporate deals.