MSWG Slams Genting Malaysia For Its RPT Land Deal!

On the Business Times:

• 'Genting Malaysia should have let minority shareholders decide'
  
  By Adeline Paul Raj Published: 2009/12/16
  
  Genting Malaysia bought two firms which own the 25-storey Wisma Genting and two parcels of land in Segambut for RM228.6 million from its parent, Genting Bhd
  
  Genting Malaysia Bhd (GenM) (4715) should have, in the spirit of good corporate governance, sought the approval of its minority shareholders for its latest related party transactions (RPTs), Minority Shareholder Watchdog Group (MSWG) said.
  
  GenM, a casino and hotel operator, told the stock exchange last Tuesday that it planned to buy two firms which own properties in Kuala Lumpur - the 25-storey Wisma Genting and two parcels of land in Segambut - for RM228.6 million from its parent, Genting Bhd. It has since completed the deals.
  
  It did not need to get the approval of shareholders or regulators for the purchases as the price did not exceed 5 per cent of its shareholder funds.
  
  However, MSWG believes that GenM, nevertheless, should have let its minority shareholders decide.
  
  "Given the dominant board structure, common major shareholders and common directors in related companies involved in the proposals and the absolute cash amounts involved, the proposed acquisitions ought to be put to non-interested shareholders for a vote by the minority shareholders of GenM even though the rules stipulate a higher threshold," MSWG chief executive officer Rita Benoy Bushon told Business Times.
  
  She voiced hopes that the regulators would look into RPTs of this nature and reduce the threshold level to, say, 2 per cent instead of the current 5 per cent, especially for deals not in the ordinary course of business.
  
  Industry sources said that it might be a good thing as the rule was a bit of a grey area in that it provided a loophole for some listed companies to undertake questionable RPTs.
  
  Still, the same sources said that lowering the threshold to get shareholders' approval for RPTs would be cumbersome, costly and lengthy for listed companies to get a deal through.
  
  In GenM's case, analysts believe that the price it paid for the two companies was fair. It ended up paying RM284 million in total as it also had to settle the two firms' debts to Genting.
  
  However, the purchases, done exactly a year after GenM's last RPT sent its stock tumbling, raised doubts, especially among dividend-hungry shareholders, as to how it would use its sizeable cash balance of RM5.2 billion.
  
  There was concern that there might be more RPTs in the pipeline. Going by listing rules, GenM can undertake more RPTs of up to RM214 million over the next 12 months without getting shareholder approval, an OSK Research analyst noted.
  
  MSWG also felt that GenM's disclosure about its latest RPTs could have been better. It would have been good if it had included an illustration of the effects of the proposed acquisitions on its net assets, earnings and dividends in the current and longer term, it said.
  
  Two days after GenM made its announcement about the RPTs to Bursa Malaysia, the regulator asked the company to release more information about how it derived the pricing.
  
  GenM furnished that information the next day, the same day it completed the transactions.

Well done MSWG!

Some investors do not forget about poor corporate governance. It takes away the issue of 'trust' in one's investment.

Put it this way. Investment usually takes a much longer time frame before one reaps the profit and during this 'longer' time frame, the investor would not like to see poor corporate governance issues involving RPT because they know each RPT (how could a transaction/deal make sense when the 'left hand' sells to the 'right hand') could cause the stock to get a hammering in the market. Now if one cannot 'trust' the company, then how could one have the guarantee of not enduring yet another RPT transaction from the company? And how many RPTs have we seen from Genting group recently? Did one forget the last one? And does a leopard ever lose its spots?

And seriously, Genting Malaysia, do show some respect to your minority shareholders!

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