Perisai: Life Is Too Damn Good!

The following is taken from Star Biz: Perisai acquisition draws interest

• On Tuesday, Perisai said it was acquiring Garuda Energy (L) Ltd from Nagendran Nadarajah for a total of RM212mil, to be paid for in cash and shares. Nagendran will end up with 11% in Perisai, having just sold his 19% stake in Perisai to Singapore-listed Ezra Holdings Ltd a year ago at 48.5 sen a share for a total of RM64mil. It isn't clear why he is coming back into a company that he left not long ago. Nagendran declined to comment. More significantly, at the time of Nagendran's exit from Perisai last year, he had acquired Garuda from Perisai at only US$5mil. “On the face of it, the transaction does raise eyebrows over whether the valuation is fair and whether it is a related party transaction,” said an analyst....

So let me get this straight up.

Nagendran Nadarajah had sold his stake in Perisai for 64 million.

He bought Garuda from Perisai for US$5 million.

Apparently that was a year ago.

And now Perisai is buying back Garuda from Nagendran for a nice tidy price of US$70 million!!!

Ok, apparently Garuda is now slightly different.

From the edge, Nagendran returns to Perisai

• Garuda Energy owns a jack-up rig, namely Rubicone, which is being converted into a mobile offshore production unit (MOPU) and the makeover works are expected to be completed by May.

So it's gonna be a jac-up rig but... hey... makeover works are not even completed yet!

And yet Perisai is buying back Garuda for US$70 million!!!

In a news flash yesterday morning from the Edge (strange I can't find the url of the article but that article can be viewed here: http://my.news.yahoo.com/flash-rhb-research-raises-concerns-over-perisais-acquisition-20110329-181406-445.html )

• RHB Research said on Wednesday, March 30 that this was an unusual transaction which brings the former CEO back into the company, and more so given Perisai had sold Garuda to him in mid-2010 for just US$5 million cash. In early-2010, Garuda had acquired a jack-up rig for US$5m cash, which Perisai now appears to be targeting in this acquisition. Other than a change in name (from Hercules 191 to Rubicone) the rig is currently being converted into a MOPU. The rig has also been chartered out to Gryphon on a 2+1 year bareboat charter basis for US$25 million per annum. “We are concerned about the transaction and the new issue of shares, which will give Nagendran a 13.5% stake at a 20% discount to the current share price of 81 sen. “This will dilute current major shareholder Ezra Holdings' 19% stake to 17%. Moreover, we believe there is a corporate governance issue relating to the effective purchase of the asset at 14x premium to the original disposal price of the same asset,” it said.

WOW! A 20% discount!

Anyway... apparently ... the market is loving Perisai way too much! Let's fly up, up and awayyyyyyyyyyyyyy!

Here's the announcement on Bursa website on 9th April 2010. PERISAI PETROLEUM TEKNOLOGI BHD ("PERISAI" OR "THE COMPANY") SALE OF SHARES BY NAGENDRAN C. NADARAJAH OF ALL HIS DIRECT AND INDIRECT SHAREHOLDINGS IN THE COMPANY TO HCM LOGISTICS LIMITED

• The Board of Directors of Perisai wishes to announce that Mr. Nagendran C. Nadarajah, the Managing Director/Substantial Shareholder of the Company has entered into a Share Purchase Agreement dated 9 April 2010 with HCM Logistics Limited, a wholly-owned subsidiary of Ezra Holdings Limited, Singapore, for the sale of his entire direct and indirect shareholdings in the Company representing approximately 19% of the capital of the Company ("the Disposal"). The Disposal is expected to be completed on or before 7 May 2010. Save for above, none of the other directors and persons connected to them have any interest in aforesaid disposal. This announcement is dated 9 April 2010 .

Sold 9th April 2010....

And in regarding Garuda... a few months earlier, back in Dec 2009. From the Star Biz Perisai acquires jackup drilling rigs for rm34mil

• PETALING JAYA: Perisai Petroleum Teknologi Bhd has acquired two jackup drilling rigs for US$10mil (about RM34mil). In a filing with Bursa Malaysia, Perisai said its units Garuda Energy (L) Inc and Hummingbird Energy (L) Inc entered into a purchase and sale agreement with Cliffs Drilling Co and The Offshore Drilling Co for the acquisition. It said the acquisition would provide a platform to convert the rigs into mobile offshore production and storage units and to generate robust earnings by hiring them to oil and gas field owners. “The acquisition is synergistic to the evolved activities of Perisai to serve as a one-stop centre for its planned marginal field development and deepwater activities,” it said.

Garuda bought 2 jackup drilling rigs for US$10 million.

And that was Dec 2009.

And in 2010... how much did Perisai sold Garuda to Nagendran for? Answer? US$5 million!

ps: Life is simply too damn good and I think I am in the wrong freaking business!!!!!

--------------

Do see update on this posting: RHB Clarifies Its Statement On Perisai

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And The KFC Chicken Is Related!!

Sorry but I simply could not resist that title for this posting!

On the Edge: KFC buys another asset from JCorp

• KFC buys another asset from JCorp
  Written by Financial Daily
  Tuesday, 02 November 2010 12:20
  
  KUALA LUMPUR: KFC Holdings Bhd (KFC), via its wholly owned Ayamas Food Corp Sdn Bhd, has proposed to acquire four poultry broiler farms from companies under Johor Corp (JCorp) for RM1.11 million.
  
  This is the latest in the series of related party transactions (RPTs) between JCorp and KFC, with the value of the transactions in the last 12 months totalling RM30.8 million.
  
  In an announcement to Bursa Malaysia yesterday, KFC said that Ayamas proposed to acquire Southern Poultry Farming Sdn Bhd, Synergy Poultry Farming Sdn Bhd, Ventures Poultry Farm Sdn Bhd and Agrotech Farm Solutions Sdn Bhd from Johor Ventures Sdn Bhd and Johor Franchise Sdn Bhd — two wholly owned subsidiaries of JCorp.
  
  JCorp is the major shareholder of plantation group Kulim Bhd. The plantation group is the holding company of QSR Brands Bhd which, in turn, is a major shareholder of KFC.
  
  According to the announcement, Ayamas had built eight broiler farms on 400 acres of land in Kulai, Johor. An “intrapreneur scheme” was established where intrapeneurs are encouraged to participate and own the broiler houses in the farm. In total, the eight farms have a total of 16 broiler houses with a total capacity of 800,000 broilers per cycle.
  
  Ayamas currently manages over 90 contract farmers and two company-owned broiler farms in Negeri Sembilan and Johor, where seven farm intrapreneurs participate in managing the broiler houses.
  
  Four out of the seven intrapreneur farms are owned by JCorp’s Johor Franchise and Joor Ventures and the remaining three are owned by Ayamas. Ayamas has proposed to centralise and implement a corporate structure where all the farms will be managed by one company so as to enable it to reap the advantages of a single structure in managing cost.
  
  All the four farms started operations only last year and are still loss making. According to the announcement, the acquisition will not have any material effect on the earnings of KFC for the current year of operations.
  
  “Nevertheless, the acquisition is expected to contribute to the future earnings of KFC,” it stated.
  
  The RPTs between JCorp and money-spinner KFC have always drawn scrutiny. According to the announcement, in the past 12 months, the RPTs amounted to RM30.8 million with the biggest item being the purchase of KPJ Reit Bhd shares by KFC that amounted to RM20.87 million.
  
  
  This article appeared in The Edge Financial Daily, November 2, 2010

Ahem... the RPTs involved....!!!!!!!

Why so like this one?

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Shame On The 60.39% Who Voted For Genting Malaysia's UK Casino Purchase

On Star Biz: Genting M’sia gets nod for UK casino purchase

• Wednesday August 25, 2010
  Genting M’sia gets nod for UK casino purchase
  By FINTAN NG
  
  Shareholders approve the deal after initial misgivings
  
  KUALA LUMPUR: Shareholders of Genting Malaysia Bhd voted yesterday in favour of resolutions to acquire the British casino operations collectively known as Genting UK from Genting Singapore plc despite initial misgivings over the related party transaction nature of the deal.
  
  It is understood that shareholders mainly asked questions on the rationale for the acquisition and on profitability, as Britain is not seen as a growth market due to prevailing economic conditions and tougher operating conditions.
  
  “Shareholders wanted more clarification on the acquisition and whether it’ll be profitable,” a shareholder said, adding that HSBC Nominees and Cartaban Nominees called for a poll before the voting.
  
  The vote was 60.39% or 1.17 billion shares, for the acquisition, which was worth RM1.67bil. Genting Malaysia, the owner and operator of Resorts World Genting, is 47.33% owned by Genting Bhd, which also owns a 52% stake in Genting Singapore.
  
  The over-lapping shareholding among certain institutional shareholders in Genting Malaysia and Genting Singapore could have been a major catalyst in the way the voting turned out as it did. Blackrock Fund Advisors and Vanguard Group Inc were among those with stakes in both companies.
  
  Genting and its chairman cum chief executive officer Tan Sri Lim Kok Thay did not take part in the voting.
  
  An analyst with a foreign investment bank told StarBiz that the voting pattern showed that these shareholders preferred to see the British casino operations, which faced quite a few obstacles including higher taxes and a tougher operating environment, under Genting Malaysia.
  
  Analysts in recent reports said the British casino operations were a better fit for Genting Malaysia rather than for Genting Singapore.
  
  As for Genting Singapore, the analyst said this would look good for the company, which would be able to concentrate on the integrated resort business.
  
  Moreover, the gaming industry in Singapore was recently re-rated with Genting Singapore showing sterling results.
  
  A market observer noted that in a situation where there were overlapping institutional investors and better prospects in Singapore, it was “normal to make Genting Malaysia a sacrificial lamb to help Genting Singapore”.
  
  He added that based on the number of shares, it appeared that these institutional shareholders were quite active in voting.
  
  Meanwhile, Genting Malaysia deputy chairman Tun Mohd Haniff Omar said all proposals to expand the business were looked at based on merits by the company’s board, including those involving related party transactions.
  
  “We’ve this opportunity in Europe (with Genting UK), we hit the ground running with a going concern that is already cash flow positive following the remedial measures taken by Genting Singapore,” he said.

A terribly sad day for corporate Malaysia.

Quote: "Shareholders approve the deal after initial misgivings"

Well, lets be more accurate and state it boldly that 60.39% voted for the deal.

Which means some 39.6% voted against!!!!

Which means some 39.6% understands the utter nonsense in this RELATED PARTY TRANSACTION!

Yeah... Genting Malaysia's UN Fortunate Entry Into UK Casino Business

And this 2nd July 2010 news flash said it all...

• DJ MARKET TALK: Genting Singapore +1.7%; Fortunate UK Exit -Citi
  Dow Jones Newswires 02 Jul 2010 9:50am
  
  0150 GMT [Dow Jones] Genting Singapore (G13.SG) +1.7% at S$1.20 as proposed GBP340 million (S$688.8 million) sale of money-losing U.K. operations to sister company Genting Malaysia (4715.KU) fuels hopes for stronger earnings profile. While Genting Singapore will book FX translation loss of S$338 million this year, bottom-line excluding exceptional item expected to improve. "Considering that the U.K. gaming operating business remains very tough, we view this exit as an escape for Genting Singapore and we view it as fortunate in that there was a buyer in the market," says Citigroup; "it means Genting U.K. will no longer drag on the performance of Resorts World Sentosa." Still, keeps Sell call, S$0.65 target on valuation grounds. Orderbook quotes suggest minimal upside beyond S$1.23.

Fortunate that the buyer was related to Genting Singapore!

Fortunate that Genting Malaysia is buying a business which operates in a very tough business environment!

Good to be related, eh?

Good that the deal is voted through, eh?

ps: For the BRAVE 39.6%, you can still VOTE with your feet!

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Can Polling Solve Abusive Related Party Transactions?

One of the best investment advice regarding a corporate management was given by legendary investor Philip Fisher.

• The management of a company is always for closer to its assets than its shareholders. And without even breaking any laws, there are number of ways that the management can benefit themselves and their families at the expense of the minority shareholders, for example employing their relatives, buy-and-selling of properties between relatives at above market rates or the issuing common stock options.

Management benefiting themselves and their families at the expense of the minority shareholders. That means that the minority shareholders are considered OPM (Other People's Money) and they are there to be taken advantage off, they are there to be screwed!

And yes, buying-and-selling of properties between relatives or as they now calls it 'Related Party Transactions (RPT)'.

But before I continue, why is the management issue important? Why is the issue of trust in a management important?

Now if the company is not a traded entity or a stock, do you want to invest in a company which has a management or owner you do not trust? Would you buy a stock or enter a joint partnership in a company with someone that you do not trust completely?

Now I am pretty sure the answer is you WOULD NOT make such an investment because you would simple be afraid that your partner could find every possible way to benefit themselves and not you.

So why should it be any different when it comes to investing in stocks?

That's why I find it so strange that investors forgets about this issue when it comes to investing in stocks! I mean it's like telling the management, the owners, the major shareholders that it's perfectly ok that they take advantage of the minority shareholders and that they can embark on corporate exercises that will benefit themselves and not the minority shareholders.

Does it make sense?

No, it does not. Not for me and I would not prostitute myself in any such circumstances! Hell no! I would not allow the major shareholders to make a fool out of me and my money.

Now back to Related Party Transactions (RPT). What is this RPT?

This is a corporate transaction or a business deal between two parties that are related. What's wrong with such deals? Well since the deals are done within related parties, there is no way the minority shareholder can ascertain that both parties are not in collusion to seek monetary benefits for themselves and not for the minority shareholders. Yes, the interest of the minority shareholders are ignored. Simply put, the deal is aimed to benefit themselves at the expense of the minority shareholders.

Now if this wasn't a listed company, would you want to be a business partner? Do you want to be a business partner with a partner who constantly seeks ways to benefit himself/herself more than benefiting you?

I am sure again the answer is NO. So why should it be different with investing in a stock?

Past examples of RPT: Lion Diversified Acquisition of Subsidiary at RM61.55 million!, Flashback On Lion Diversified's RPT Transactions.

The recent Genting Malaysia RPTs. MSWG Slams Genting Malaysia For Its RPT Land Deal! and Genting Malaysia's UN Fortunate Entry Into UK Casino Business

The famous MMC-SAT saga!

MMC And Its Senai Airport Terminal Purchase! and More On MMC And Its Senai Airport Terminal Purchase!.

In regards to the MMC and SAT deal, MWSG did tried it best: MSWG Gains Vital First Victory In Its Battle Against MMC's Senai Airport Terminal Purchase but sadly it was not to be, Another Sad Day For Corporate Malaysia As MMC's Senai Airport Deal Is Approved!. Why? This was because minority shareholders were few in number when it came to the crucial voting time!

Yes, the minority shareholders did not come to vote and the deal that was clearly lopsided was approved! :(

Now on today's Business Times.

• 'Call for a poll when voting on related party transactions'
  
  By Adeline Paul Raj Published: 2010/08/10
  
  SHAREHOLDERS should insist on a poll when voting on related party transactions (RPTs), says an expert on the subject.
  
  A poll, rather than the usual show of hands, would be a fairer way of voting particularly when it comes to questionable RPTs, said Lee Kha Loon, the Asia Pacific head of the CFA Institute, a not-for-profit association of investment professionals.
  
  Shareholders don't realise how important a role they can potentially play in voting out "abusive" RPTs, he told reporters on the sidelines of the Financial Market RPT conference in Kuala Lumpur yesterday.
  
  "Malaysia is still voting by hand, but you can call for a vote by poll. You have to go in and demand for a vote by poll," he remarked.
  
  Lee was part of a task force that helped the OECD (Organisation for Economic Cooperation and Development) come up with a guide on fighting abusive RPTs.
  
  Stock market regulator Bursa Malaysia Bhd, which is seeking to enhance its listing rules, has included this matter in a consultation paper issued three weeks ago.
  
  "This issue of poll voting...we've not mandated it now but it's something which we will look into," its chief regulatory officer Selvarany Rasiah said after speaking at the conference.
  
  Investors need to be vigilant when RPTs are tabled for shareholder approval. Only non-interested shareholders can vote on such deals and, under present rules, they can request to vote by poll, she said.
  
  Selvarany pointed out, however, that RPTs, while prevalent in Asia given that there are many family-owned and state-owned companies, are not all bad.
  
  Some RPTs do not exploit minority shareholders and are actually beneficial to the companies involved, she said.
  
  Both Selvarany and Lee felt that Bursa had a regulatory framework that was comprehensive enough to safeguard investors from abusive RPTs.
  
  "Where there is non-compliance, we take enforcement action. We don't see any concerns with regard to abusive RPTs, as such," Selvarany said, when asked if RPTs deemed detrimental to minorities were on the rise in Malaysia.
  
  RPTs here need shareholder approval only when they breach at least 5 per cent of relevant ratios like the value of assets or shareholders funds.
  
  If they don't breach the 5 per cent threshold, then the company need only make a disclosure about the RPT, which Bursa will monitor.
  
  Entities that have undertaken RPTs in recent times that have come under close investor scrutiny include the Genting group.
  
  Genting Malaysia Bhd, a casino and hotel operator, late last year bought two firms which owned 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 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.
  
  The Minority Shareholder Watchdog Group, however, felt that it should have, under the spirit of good corporate governance, sought shareholder approval given the dominant board structure, common major shareholders and directors involved.

Sadly when it comes to POLLs and VOTEs, I am sceptical.

Yes, needless to say that as a minority shareholder, one should really use their common sense and vote against all these abusive RPTs because these transaction clearly benefited the owners and not the minority shareholders but sometimes our minority shareholders does not want to help their own self because they fail to show up during the crucial voting time.

So if I am forced to give my one worthless one sen advice, I would say avoid companies that have had a history of abusive RPTs!

Yes, we need to learn to forgo any opportunities in such stocks. Treat the companies as business and not stocks and avoid them like plague!

This way, one is guaranteed NOT to be disappointed with poor polling results, like in the case of MMC-SAT deal!

And yes, sadly, I do not think that polling can solve these abusive Related Party Transactions!

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Genting Malaysia's UN Fortunate Entry Into UK Casino Business

Genting Malaysia or Resorts World is slammed down again!

Why? Yet another Related Party Transactions (RPT) !!!!

On Star Business: Genting buys UK casino businesses for RM1.7b

• Genting Malaysia Bhd will acquire its Singapore affiliate’s casino businesses in Britain for £340mil (about RM1.67bil)...

Now for a RM 1.67 Billion transaction, I felt utterly disgusted that the news article did not mention how Genting Uk is faring as a business.

For the less savy investing public, what good is that article?

Here is the Bursa announcement: GENTING MALAYSIA BERHAD PROPOSED ACQUISITION OF GENTING SINGAPORE PLC’S CASINO BUSINESSES IN THE UNITED KINGDOM FOR A TOTAL CASH CONSIDERATION OF £340 MILLION.

Now if the investor opens the pdf file attached: Ann - 01072010.pdf

• On behalf of Genting Malaysia Berhad (“GENM”)’s Board of Directors (“Board”), we wish to announce that Genting Worldwide (UK) Limited (formerly known as Feste Limited) (“GWWUK”), a wholly-owned subsidiary of Genting Worldwide Limited which in turn is a wholly-owned subsidiary of GENM, has on 1 July 2010 entered into a conditional sale and purchase agreement (“SPA”) with Genting Singapore PLC (“GENS”) to acquire from GENS its100% equity interests in Nedby Limited (“Nedby”), Palomino Star Limited (“PSL”), Palomino World Limited (“PWL”) and Genting International Enterprises (Singapore) Pte Ltd (“GIESPL”) for a total cash consideration of £340 million (“Proposed Acquisition”).

Here is Nedby's proforma...

Genting Malaysia only supplies that info? Is that enough? Why no 2007 numbers? Why no 2008 numbers?

Anyway.. current 3 months of fy 2010... Nedby lost some £194 million. And has some £ 64.3 million in borrowings.

Here is PSL's proforma.

Not much losses.. no loans.

PWL...

• PWL and its subsidiary Palomino World (UK) Limited (“PWL Group”) have not commenced operations as at 31 March 2010. Based on the pro forma group accounts of the PWL Group as at 31 March 2010, the PWL Group has NA of £113,008 (based on the information provided by the management of GENS and is subject to the completion of the legal, financial and taxation due diligence audit and review by auditors).

And here is GIESPL

Barely profitable and GIESPL carris some £34.825 million in loans.

Which gives the total group bought by Genting Malaysia the following numbers...

In layman's term, Genting Malaysia bought from it's associate company, Genting Singapore, (yes, some call this as a related party transaction, where one company within a group, sells to another, or some would crudely say, 'left hand sell to right hand') its casino business in UK.

Sum to be paid? £340million.

What do shareholders of Genting Malaysia get in return?

Genting Uk, current 3 months of THIS fiscal year, is losing some £184.625mil and this company carries some £99 mil in borrowings!

Gee it would be nice if Star Business prints out this FINE detail of the transaction, yes?

So does it make sense?

Oh yeah... since it's related business, some would crudely call it a BAILOUT!

And best of it all, I saw the following news flash...

• DJ MARKET TALK: Genting Singapore +1.7%; Fortunate UK Exit -Citi
  Dow Jones Newswires 02 Jul 2010 9:50am
  
  0150 GMT [Dow Jones] Genting Singapore (G13.SG) +1.7% at S$1.20 as proposed GBP340 million (S$688.8 million) sale of money-losing U.K. operations to sister company Genting Malaysia (4715.KU) fuels hopes for stronger earnings profile. While Genting Singapore will book FX translation loss of S$338 million this year, bottom-line excluding exceptional item expected to improve. "Considering that the U.K. gaming operating business remains very tough, we view this exit as an escape for Genting Singapore and we view it as fortunate in that there was a buyer in the market," says Citigroup; "it means Genting U.K. will no longer drag on the performance of Resorts World Sentosa." Still, keeps Sell call, S$0.65 target on valuation grounds. Orderbook quotes suggest minimal upside beyond S$1.23. (frankie.ho@dowjones.com)

!!!!

Yup! Genting Singapore shares rose! And Genting Malaysia got hammered! And note the comments in red...

• "Considering that the U.K. gaming operating business remains very tough, we view this exit as an escape for Genting Singapore and we view it as fortunate in that there was a buyer in the market," says Citigroup; "it means Genting U.K. will no longer drag on the performance of Resorts World Sentosa."

How FORTUNATE!

The buyer is the related Genting Malaysia!

How FORTUNATE!

Need I say more?

Oh yeah, I must sress that since it's FORTUNATE for Genting Singapore... it surely means ... how UN FORTUNATE for Genting Malaysia!

And seriously, I do not feel sorry for the minority shareholders in Genting Malaysia.

Seriously I don't.

Look this related party transaction thing had been happening over and over and over again!

Posted Dec 2009. (Yeah... Dec 2009 and its now only Jul 2010 and Genting Malaysia has oops and done it all over again!) MSWG Slams Genting Malaysia For Its RPT Land Deal!

• 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!
  
  Blogged recently: Genting Malaysia Buys Properties From Genting Bhd

ps. back then.. the stock got hammered. Today, the stock got hammered again! Groundhog day?

ps: remember 2008? remember Walker Digital Gaming LLC (WDG) fisaco? (ps who owns WDG?)

ps: Buy Genting Malaysia because of it's massive cash war chest? Well, what good is such a war chest to the minority shareholder when the company keeps making such acquisitions?

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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!

Blogged recently: Genting Malaysia Buys Properties From Genting Bhd

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Lion Diversified's Stake In Lion Corp

Posted yesterday: Flashback On Lion Diversified's RPT Transactions

In which I highlighted one of the RPT.

• A wholly-owned subsidiary of the Company, Limpahjaya Sdn Bhd, has disposed of 66,666,667 ordinary shares of RM1.00 each in Megasteel Sdn Bhd ("Megasteel"), representing approximately 11.1% of the existing issued and paid-up share capital of Megasteel to Lion Diversified Holdings Berhad for a cash consideration of RM100,000,000.

On today's Financial Edge Daily: LDHB explains why it didn't consolidate Lion Corp's results

The following sentence caught my attention.

• In an announcement here today, LDHB said despite it holding a 59% stake in LCB, it has continued to treat LCB as an associated company, in accordance to Financial Reporting Standard 127.......................

So Lion Diversified (LDHB) owns a 59% stake in Lion Corp (LCB)....hmmm.... now isn't this a fine web when the 11.1% stake was sold by LCB to LDHB for 100 million!

Yeah... don't you simply love them RPTs?

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Flashback On Lion Diversified's RPT Transactions

With Lion Diversified is losing much money (see A Quick Look At Lion Corp And Lion Diversified's Earnings), I thought revisit some older postings on it.

One issue that stood out was the Related Party Transactions (RPT)!!

In the posting: Megasteel And Lion Corp And Lion Diversified

• A wholly-owned subsidiary of the Company, Limpahjaya Sdn Bhd, has disposed of 66,666,667 ordinary shares of RM1.00 each in Megasteel Sdn Bhd ("Megasteel"), representing approximately 11.1% of the existing issued and paid-up share capital of Megasteel to Lion Diversified Holdings Berhad for a cash consideration of RM100,000,000.

A related party transcation where Lion Diversified bought shares of Megasteel from Lion Corp for 100 million.

And what's wrong? Well Megasteel is in trouble! See How Deep A Trouble Is Megasteel In?

A 100 million related party transaction which did no favours for Lion Diversified!

In the posting: Detecting Companies' Malpractices

• “Avoid companies that have dabbled with related party transactions or have been involved in buying over family-related companies. The company may do it again. Sometimes a leopard doesn’t change its spots,” he says. (he = Choong Khuat Hock, Kumpulan Sentiasa Cemerlang head of stock research and partner)

Now did this leopard change its spots?

Well.. flashback June 2008, the following was blogged: Lion Diversified Acquisition of Subsidiary at RM61.55 million!

Here's the posting in full again.

----------------------------------------------------

Lion Diversified announced last night it was acquiring a subsidiary. In local lingo, it's a Kaki-Lang type of corporate exercise. Here is the temporary link to the announcement. ACQUISITION OF A SUBSIDIARY

• The Board of Directors of Lion Diversified Holdings Berhad ("LDHB" or the "Company") wishes to announce that LDH Trading Sdn Bhd, a wholly-owned subsidiary of the Company, had on 25 June 2008 completed the acquisition of the entire issued and paid-up capital comprising 3,000,000 ordinary shares of RM1.00 each in Banting Resources Sdn Bhd ("Banting Resources"), a company incorporated in Malaysia, for a total consideration of RM61.55 million ("Acquisition of Subsidiary"). Hence, Banting Resources became a wholly-owned subsidiary of the Company.
  
  Banting Resources, a company incorporated under the Companies Act, 1965 on 26 September 2006, is a property investment company with an authorised capital of RM10,000,000.00 comprising 10,000,000 ordinary shares of RM1.00 each and an issued and paid-up capital of RM3,000,000.00 comprising 3,000,000 ordinary shares of RM1.00 each.
  
  The Acquisition of Subsidiary is not expected to have a material impact on the earnings of the LDHB Group for the financial year ending 30 June 2008 and, on a proforma basis, is not expected to have a material impact on the audited consolidated balance sheet of LDHB as at 30 June 2007.

Here are some of my comments.

1. This is an acquisition which has been completed. It's not a proposal.

2. It's wholly owned subsidiary, LDH Trading Sdn Bhd bought the entire stake in, Banting Resources Sdn Bhd for a total consideration of RM61.55 million.

3. Rm61.55 million and this company doesn't even have the decency to show detailed information of this acquisition. Questions that I can think of.

• a. Is the purchase price fair or is it the purchase price exorbitantly high?
• b. What it the track record of Banting Resources?
• c. What kind of Balance Sheet does Banting Resources have? Is it highly in debt?
• d. What does Banting Resources do?
• e. Who are the exact shareholders in Banting Resources?

4. If you look at Lion Diversified historical announcements, why are they constant acquisition of subsidiary? I mean seriously, is Lion Diversified in the business of buying its own companies?

5. Here is the link to Lion Diversified last reported quarterly earnings. Quarterly rpt on consolidated results for the financial period ended 31/3/2008 (You will note some drastic increase in trade receivables - and did you see that LionD has investment in quoted securities totalling a massive 237 million?? Wonder what securities man!). In the Balance Sheet, Lion Diversified is noted to have 199.547 million in its piggy bank and with debts totalling 480.681 million. As it is, based on this purchase would cause Lion Diversified to be even more in debt.

Ah, but that's not all.

Let me highlight just a couple the many, many proposals that I saw in its historical announcements. Well there is one proposal where Lion Diversified is purchasing land in China for some 151 million.

And then there is their massive BLAST FURNACE IRON-MAKING FACILITY which is valued at 1.62 Billion!

Wasn't Lion Group a group of company which almost sank a decade ago due to overly aggressive expansion and massive borrowings?

5. Try google the exact phrase "Banting Resources" and see if you can get more info on this company.

How now brown cow?

Do you like what you see or are you simply disgusted?

----------------------------------------------------

Some of the comments posted:

The Great Game said...
If I am not mistaken, RPT needs no special approval from shareholders provided it is below the 5% threshold (NTA, Revenue and Profit).

Fair enough, ethically what Lion Diversified has done was not right. But it seemed like this RM61.5 million was not a material sum to Lion Diversified, so what's the catch here?

But hey, again Warren Buffet did use Berkshire's funds to purchase a private jet for his personal use (before he bought the aircraft leasing company), right?

In the last financial crisis, William Cheng was the second largest debtor in Msia, after Halim Saad/ Renong Group with some RM 20 billion.

He had earned a solid reputation after he repaid every single cents he owed. He is one of the very few, if not the only one who did not seek for a haircut from his lenders. He is a man of his words. It's hard to find corporate chieftain of his integrity now and then.

11:46 AM
Moola said...
Dear Great Game.

Many thanks for your views.

My main issue here is on Lion Diversified acquisition of a subsidiary done on a whopping rm61.5 million and the company showed no respect to their shareholders by not providing any financial details of Banting Resources.

This is an acquisition of a subsidiary.

LionD has simply got to show the justifications of this aquisition and the price involved!

What they have done here as you had admitted is simply not correct.

And I am simply baffled by your statement in regarding Warren Buffett into comparison.

Why the need to divert from the main issue?

12:27 PM
The Great Game said...
Dear Moola

Wow. Geeks. Your response is fast. I agree that Lion should, at the very least, publish more info on Banting Resources, although it is a fait accompli.

My point is that there's always a systematic exploitation of minority shareholders as long as this 5% -10%-15% threshold rules is still around. To me the key issue here is the materiality of this transaction, of which this 62 millon does not even trigger any of the threshold required by Bursa.

Now I re-read my previous comment,my WB exmaple is indeed quite baffling. Apologies on that score. I was just trying to make a point that there's nothing wrong to "short change" the shareholders as long as it is well within boundary and they still deliver the results. I am not saying this 62million is small, but in Lion's case, it is immaterial.

To one extreme, it's like saying I cant use my company car to drive my kids to school?

Frankly I have not been following on Lion Group (and now called Lion Diversified or who-know-what). But this dubious transaction (at 62 million) is a drop of the ocean compared RM 20 billion debt that Lion has resolved. That, of not running away from the 20 billion debt, to me, is the ultimate courage and integrity in Msia corporate world.

2:41 PM
Moola said...
Dear Great Game,

I was just trying to make a point that there's nothing wrong to "short change" the shareholders as long as it is well within boundary and they still deliver the results.

==>

I am truly disappointed.

How could it ever be NOTHING WRONG TO SHORT CHANGE???

A crime is a crime is a crime.

And less us not forget, this is a 62 million rip-off!!!!!!!!!

3:13 PM
TOTOMASTER said...
okok.. take it easy moo moo... let me go buy up 5% of liondiv n let me hantam them kau kau next time they do the same thing again...

hahaha...

9:45 PM
Moola said...
Dear Totomaster,

I am so baffled.

Care to share what's so funny?

Aren't you even disgusted at what's happening?

9:56 PM
The Great Game said...
No offence, I was just merely rambling on my thoughts. Apologies if you are offended by any of my comments.

With regards to your comment, I am a realist and I just couldn't find any other listed companies on KLSE who are not exploiting this 5% threshold rule. Unfortunately this is just the corporate world that we are living in (I wish I am wrong!).

Why is Lion allowed to complete this transaction without even notifying its shareholders? What's the legal protection/ remedy for the minority shareholders? What should be done to ensure these type of dodgy transactions do not happen in the future?

So to me, the bottom line is as long as the management keep delivering, they could (of course preferably not as it is ethically not correct) contemplating some curry-favour transactions.

Again, this is just my 2 cents. Please do not take it personal.

3:06 PM
Moola said...
Dear Great Game,

So to me, the bottom line is as long as the management keep delivering, they could (of course preferably not as it is ethically not correct) contemplating some curry-favour transactions.

==>

I am truly baffled at your reasoning.

That the company is required to perform as public listed company is a must.

That the company is already paid well as a listed company.

So what gives the company divine rights to such corportate exercises, where the company can acquire their OWN subsidiary for such a large sum of 62 million ringgit?

3:30 PM
The Great Game said...
Fair point. There is definitely no divine right for Lion to engage in this transaction ethically speaking; but neither are they prohibited to engage in this legally.

That the company is required to perform as public listed company is a must. -> Agreed, but in reality I think most businessman tend to think of the stock market as a place to 'cash out' or a ATM machine.

That the company is already paid well as a listed company. -> I supposed there's no limit to a man's greed.

I could be wrong, and I do not mean to incriminate. At the surface, this is a clear 62 million rip-off. But Msian businessman have a lot of ''lobbying'' to do. And these funds usually have to come from some dodgy transactions like this. This transaction could also simply just for personal pleasure of the major shareholders. We could never be sure of his motive.

Strangely enough, his means to whatever ends he might have is legally endorsed.

The key point i think we should recognise is that this transaction is not material enough to make a drastic impact to the company; otherwise it would be obliged under the listing rule to make all proper announcements, seek approvals, etc.

4:34 PM
Moola said...
Dear Great Game,

The key point i think we should recognise is that this transaction is not material enough to make a drastic impact to the company...

==>>

Huh?

I really am so baffled.

Your very first comment was "Fair enough, ethically what Lion Diversified has done was not right.."

But yet ... you are trying so hard to justify this transaction.

Not right equals wrong, yes?

And wrong is wrong is wrong.

4:51 PM
Seng said...
Interesting exchange.

My 2 sen worth.

1. Materiality.
We must be very careful when applying this "materiality" argument.

In a quick and dirty valuation of stocks, it is practical and good to ignore immaterial factors so as to be able to focus on the key issues.

But let's not confused this "materiality" argument with actual running of a company.

To say that "siphoning" 5% or 3% or even 1% of whatever measure is acceptable because it is not material is plain wrong.

Siphoning via legal means is morally wrong.

And shareholders - as owners of companies - want management who will always act in shareholder's best interest.

Period.

It is important we understand clearly the 2 completely different concepts of materiality.

2. The Reality.

Yes, there are some businessman who has no problems exploiting this loophole.

That is current reality.

Is that necessarily future reality?

Maybe. Maybe not.

Whether it continues in the future depends very much on whether we - as stakeholders - accept this behaviour or not.

I will put my foot down and say I don't accept it personally.

If every company management can "siphon" money off for personal gains, Bursa will be in trouble!

The argument that 1% is small and immaterial is irrelevant.

Keep doing 1% each week, and by the end of the year, 50% could have been gone!!!

3. This specific case.

I personally wouldn't say there is sufficient evidence of siphoning.

Instead, I think what we have is a situation of NOT having enough information.

And that alone is sufficient to create a strong level of distrust, based on his past records.

I don't deny he's done good things. But we cannot deny, he's done many shady things too.

And prudence suggests that we - as minority shareholders - should be very careful as investors.

Safer - me thinks - not to be an investor or a business partner that we cannot trust. After all, if you are a minority shareholder, do you think he cares about your best interest? If not, why be a long-term investor?

Seng.

Read more...

Finally, Something Is Done About Related Party Transactions (RPT)

Something to cheer for! :D

On Business Times: Investors to enjoy better protection under new listing rules

• INVESTORS will get better protection under new listing rules that will be put in place as part of plans to improve Malaysia's stock market.
  
  For related party transactions (RPTs), companies will have to tell their shareholders the opinion of their audit committee and directors. Essentially, the audit committee will have to say why the deal is good for the company.
  
  RPTs are normally deals that involve a common substantial shareholder. Such deals often raise concerns because they are often done at the expense of minority shareholders.
  
  Under the new rules, companies will also have to immediately announce if its independent adviser provides a different value for the deal and the reasons for the difference.
  
  "Investors must have a continuous flow of information," Selvarany Rasiah, chief regulatory officer of Bursa Malaysia, told a media briefing on Thursday.
  
  These changes come in the wake of recent high-profile deals that have raised corporate governance concerns in Malaysia. Last November, Resorts World Bhd said it would buy a tenth of a digital gaming company from a company linked to its chairman and chief executive Tan Sri Lim Kok Thay. That deal was worth RM250 million.
  
  Another deal involved MMC Corp Bhd buying airport owner and operator Senai Airport Terminal Services Sdn Bhd for RM1.7 billion.
  
  Bursa Malaysia will also cut short the time needed to suspend shares and for company insiders to announce their share transactions.
  
  It will now take only five market days from three months previously to suspend the stock of a company that fail to publish its accounts on time.
  
  Trading halts will also be cut to just one hour instead of one trading session currently.

Oh yes!!!!

RPT is totally unfair to the minority shareholders.

And more so when the RPT deal itself utterly made no sense.

And yes, the examples on Resorts World and MMC Corp totally highlight why RPT stinks!

Read more...

Another Sad Day For Corporate Malaysia As MMC's Senai Airport Deal Is Approved!

When you own shares in a listed company, there are issues that you can vote for.

If you see a listed company comes up with a proposal and you think it stinks so bad, it is your right to vote. And when you don't vote, these stinking deals will pass. It's so simple.

The very least you can do is attend the EGM and voice out why you think the deal is not fair to you, the minority shareholders. It is your right. It is your money.

And when you do not attend then most likely than not, these unfair deals would repeated over and over again.

And that is why the minority shareholders get the short end of the stick.

Unless you are the smarter ones and you had already voted with your feet!

Yesterday, it was voting day for MMC and it's rather absurd Senai Airport deal.

• MMC shareholders say Yes to Senai Airport deal
  
  By Adeline Paul Raj Published: 2009/03/21
  
  MMC Corp Bhd's (2194) shareholders approved its controversial plan to buy Senai Airport Terminal Services Sdn Bhd (SATS) for RM1.7 billion despite strong objection from minorities.
  
  At an extraordinary general meeting (EGM) yesterday, which dragged on for four hours, minority shareholders were vocal, making it clear they were against MMC paying such a hefty price in the related-party deal.
  
  MMC is owned by Tan Sri Syed Mokhtar Al-Bukhary, who is also a shareholder in SATS.
  
  "The minorities were very unhappy and almost wanted to stage a walkout. But we managed to tell them not to do so, and vote," said Minority Shareholder Watchdog Group (MSWG) chief executive officer Rita Benoy Bushon, who attended the EGM.
  
  Bushon said the MMC chairman had invoked his discretion to have a poll instead of a vote by hands and, in the end, 97 per cent voted in favour of the deal.
  
  This was because minority shareholders were few in number. The majority of the non-interested parties who could vote on the deal comprised institutional investors.
  
  MMC is to pay RM580 million for SATS' loss-making Senai Inter-national Airport and RM1.12 billion for land which will be developed as an "airport city".
  
  "I'm not against them buying SATS; it's just the price. It's a valuation argument, that's all," a minority shareholder said.
  
  He, and others, was irked that valuations were based on projected values rather than the current value.
  
  Some felt that MMC, which has some RM20 billion debt, should be preserving its cash now that the economy was slowing down. Others felt that it should wait for a better price.
  
  For MMC, the buy enables it to exploit SATS' potential to become a regional cargo and logistics hub.
  
  MMC chief executive officer Hasni Harun did not face the press yesterday, but in a statement reiterated that the SATS purchase was commercially viable and in the long-term interest of the group and stakeholders.
  
  "With this, MMC will own the only privatised airport in the country and it will create value to the group's transport and logistics business," he said.
  
  Asked if she was happy the deal would go through, Bushon replied: "I had expected that the board would have somehow looked at the valuation again."
  
  She said the board had given assurance, however, that it would be accountable for the purchase. The deal is expected to be accretive in two years.

Another sad day for corporate Malaysia.

Past postings:

• Hwang-DBS Advises MMC Shareholders To Vote For SATS Purchase??
• MMC And Its Senai Airport Terminal Purchase!
• More On MMC And Its Senai Airport Terminal Purchase!

Read more...

Hwang-DBS Advises MMC Shareholders To Vote For SATS Purchase???

Blogged previously: MMC And Its Senai Airport Terminal Purchase! and http://everything27.blogspot.com/2008/12/more-on-mmc-and-its-senai-airport.html

On today's Star Business: Hwang-DBS advises shareholders to vote for SATS purchase

• Wednesday March 11, 2009
  Hwang-DBS advises shareholders to vote for SATS purchase
  By YEOW POOI LING
  
  PETALING JAYA: Hwang-DBS Investment Bank has advised shareholders of MMC Corp Bhd to vote in favour of the company’s controversial proposal to buy Senai Airport Terminal Services Sdn Bhd (SATS).
  
  Last August, MMC proposed to buy SATS for RM1.95bil via issuance of shares but the offer was revised downwards in December to RM1.7bil, to be paid with internally-generated funds, disposal of assets and external loans.
  
  The exercise, however, has fallen under scrutiny due to the present economic climate and the nature of the transaction, which involved a common major shareholder and parties related to Tan Sri Syed Mokhtar Al-Bukhary.
  
  In a circular to shareholders last Friday, MMC attached a recommendation letter from independent adviser Hwang-DBS, which deemed the overall terms of the SATS acquisition as “fair and reasonable,” and not detrimental to the non-interested shareholders of MMC. “There are sufficient merits to the rationale of the proposed SATS acquisition and it is in the long-term interests of the company,” Hwang-DBS said.
  
  SATS operates the Senai International Airport in Johor and holds 100% of Enigma Harmoni Sdn Bhd (EHSB), which owns 1,098.1ha designated for development into Senai Airport City.
  
  The investment bank said SATS was envisaged to play a key role in the transport and logistics segment of MMC given the strategic location to become the country’s southern logistic hub.
  
  It added that the discount rate of 10% to 12% used by Ernst & Young to value the Senai International Airport operations was within range of the cost of equity of companies involved in airport business.
  
  The implied price per passenger of the Senai International Airport of RM395 was significantly lower than other airports’ average price of RM700 from 1986 to 2006, Hwang-DBS said.
  
  Based on the price consideration of RM1.12bil for EHSB and its adjusted net asset of between RM1.18bil and RM1.35bil as at June 30, 2008, it translates into price over net asset of 0.83 times to 0.95 times, which were within the range of its peers of 0.26 times to 1.67 times.
  
  Hwang-DBS also said the valuations of EHSB’s land by IPC Island Property Consultants Sdn Bhd and Knight Frank Ooi & Zaharin Sdn Bhd were within Ernst & Young’s adjusted valuation range.
  
  IPC estimated the land at RM2.2bil while Knight Frank valued it at close to RM2bil. Knight Frank’s appointment as the second valuer complied with the Minority Shareholders Watchdog Group’s request for an alternative opinion on the valuation.
  
  The proposed acquisition of SATS would lead to MMC’s earnings in the current fianancial year being negatively impacted by RM44.06mil, or earnings dilution of 1 sen per share, assuming that the acquisition was funded entirely by bank borrowings.
  
  However, it would contribute positively to the future prospects of the enlarged MMC group.
  
  “As the Senai International Airport is already operational, there is no financial commitment required from MMC to put the existing airport business on stream,” Hwang-DBS said.
  
  SATS has stayed in the red in the past five years due to additional capital expenditure, high operating costs and financing payments.
  
  For the six months ended Dec 31, its revenue fell 3% to RM12.8mil from the previous corresponding period while losses almost doubled to RM7.9mil year-on-year. This was due to lower revenues generated and higher depreciation charges arising from the revaluation of the lease of the airport land in 2008.
  
  The MMC board, however, has forecast SATS to report a profit after tax of RM93.3mil for the 14 months ending June 30, 2010 on the back of property and sublease contracts sales as well as the success of SATS’ application for a 100% investment tax allowance.

Implied price per passenger?????

Holy cow great yardstick!!

Let me loook back at the following list of issues highlighted on the local papers.

• Based on the announcement, MMC has undertaken to advance RM417.2 million which is owed by SATS to the vendors. The vendors in the deal are Semarak Sestu Sdn Bhd and Suria Kemboja Sdn Bhd which own SATS. Both companies are believed to be linked to MMC’s major shareholder Tan Sri Syed Mokhtar Albukhary....
• In the first place, does MMC need more land? Even if it does, why must the deal be done now, especially in cash? Is it necessary for MMC to undertake the deal at this juncture when asset prices are fast coming down?
• When will Senai Airport and the land around it contribute to the bottom line of MMC positively? Also, what is the true valuation of Senai Airport and land that comes together with it?
• The unaudited net tangible asset (NTA) of the SATS Group and loss after tax as of June 30, 2008 are RM295.5 million and RM24.8 million.
• The proposed purchase of the 2,718 acres for RM9.45 per square foot (sq ft) is also questionable.Based on previous reports, the land was acquired from Lee Rubber at less than RM3 per sq ft. Now it is sold for three times the amount transacted less than two years ago.
• Why does it need more long term assets?
• Without strong cash flow, MMC will be sitting with a lot of assets but no cash to develop them.

Let me try to understand hor.

On the back of global financial crisis that is bringing companies down to their knees, MMC wants to buy SATS, a company that is losing tons of money, in a CASH deal??? Cash??? Only rm1.7 Billion!!!! And yeah, SATS so happened to be owned by MMC boss also!!!!

And this is good for MMC shareholders???

And what's Hwang-DBS advice again?

In the Star Business article there is a chart.

Can you see all the years of loss making?

And 2010.. the incredible forecast is a profit of 93.3 million.

LOL!

Life is good.

Read more...

MSWG Gains Vital First Victory In Its Battle Against MMC's Senai Airport Terminal Purchase

Last December I pointed out that MMC was rightly sold down due to its incredible unjustifiable RPT transaction for Senai airpot. MMC And Its Senai Airport Terminal Purchase!

It made zero sense in my flawed opinion.

More On MMC And Its Senai Airport Terminal Purchase

Some of the points highlighted in the local papers which I agreed so much.

• Based on the announcement, MMC has undertaken to advance RM417.2 million which is owed by SATS to the vendors. The vendors in the deal are Semarak Sestu Sdn Bhd and Suria Kemboja Sdn Bhd which own SATS. Both companies are believed to be linked to MMC’s major shareholder Tan Sri Syed Mokhtar Albukhary....
• In the first place, does MMC need more land? Even if it does, why must the deal be done now, especially in cash? Is it necessary for MMC to undertake the deal at this juncture when asset prices are fast coming down?
• When will Senai Airport and the land around it contribute to the bottom line of MMC positively? Also, what is the true valuation of Senai Airport and land that comes together with it?
• The unaudited net tangible asset (NTA) of the SATS Group and loss after tax as of June 30, 2008 are RM295.5 million and RM24.8 million.
• The proposed purchase of the 2,718 acres for RM9.45 per square foot (sq ft) is also questionable.Based on previous reports, the land was acquired from Lee Rubber at less than RM3 per sq ft. Now it is sold for three times the amount transacted less than two years ago.
• Why does it need more long term assets?
• Without strong cash flow, MMC will be sitting with a lot of assets but no cash to develop them.

Yesterday on Star Business.

• Wednesday March 4, 2009
  MMC investors want second opinion on SATS deal
  By DANNY YAP
  
  KUALA LUMPUR: Minority institutional and retail investors of MMC Corp Bhd want a second independent valuation on the proposed acquisition by MMC of the entire stake in Senai Airport Terminal Services Sdn Bhd (SATS).
  
  They reached the decision after two separate meetings held yesterday with the Minority Shareholders Watchdog Group (MSWG).
  
  A number of the minority shareholders, both institutional and retail, present at the meetings had expressed their concerns to MSWG over the valuation process.
  
  The first valuation on SATS, valued by IPC Island Property Consultants Sdn Bhd, was tagged at RM2.229bil.
  
  However on Aug 4, 2008, MMC announced to the stock exchange that the SATS valuation would be RM1.95bil to be satisfied by the issuance of 696.4 million new MMC shares at RM2.80 per share.
  
  But on Dec 5, 2008, MMC told Bursa the company was prepared to acquire SATS for RM1.7bil and that payment would be made by cash in full, via internally generated funds and disposal of some assets as well as external borrowings.
  
  This prompted the stock exchange to query MMC on Dec 10 on the reason for the revised mode in acquiring SATs (from shares to cash) and also the fall in price.
  
  Minority shareholders at yesterday’s meetings said since the acquisition involved a hefty sum of money, they felt a second independent valuation of SATS was warranted to ensure an objective and fair market price.
  
  Moreover, SATS was still a loss-making entity, they said.
  
  The minority stakeholders also wanted to know in greater detail how the acquisition of SATs would benefit and enhance their interest, especially in terms of future dividends and the impact on MMC’s performance, going forward.
  
  “We are not against MMC’s acquisition of SATS so long as the purchase price is fair and is potentially yield-accretive but we need to be given sufficient knowlegde by the company to make an informed decision,” one shareholder said.
  MSWG chief excutive officer Rita Benoy Bushon said the meetings were held to enable institutional and retail investors to voice their concerns so that MSWG could relate their views to MMC’s management on Wednesday.
  
  “We will be seeing them (MMC management) tomorrow,” she said, adding that MSWG would be having more of such meetings in future with minority shareholders to benefit all stakeholders.
  
  Bushon said the meetings were also to educate minority shareholders on their rights as shareholders so that they could make an informed vote.
  
  MMC’s AGM could be in this month and an EGM for minority shareholders to vote on the SATS acquisition was expected before the AGM.
  
  It is believed that the proposed SATS acquisition would further increase MMC’s intangible assets and goodwill upon consolidation.
  
  Bushon said that since the SATS acquisition by MMC involved a related-party transaction, the minority shareholders’ votes were critical in the decision-making process.
  
  She said this was MSWG’s first meeting on such issues and that while the turnout was encouraging, it could have been better.
  
  “MSWG would like to see greater participation from retail and institutional investors in future meetings since they are financial custodians to many smaller investors.”

Great job Rita!

Great job MSWG!

And yes, I agree with what Rita is saying about participation.

In this MMC deal, the RPT nature of the Senai purchase made utter no sense in my flawed opinion. And if the minority shareholders wishes NOT to get the short end of the stick, they should participate in such events. It's their money, their rights and it makes only logical sense that the minority shareholders fight for what is just!

And on today's Business Times, there were some 'form' of positive development!

• MMC agrees in principle
  
  By Adeline Paul RajPublished: 2009/03/05
  
  MMC Corp Bhd (2194) has agreed in principle to get a second opinion on the value of its proposed acquisition of Senai Airport Terminal Services Sdn Bhd (SATS), says Minority Shareholder Watchdog Group (MSWG).
  
  "MMC has agreed in principle, subject to their board's approval, to obtain a second valuation by a reputable independent valuer to give comfort to the minority shareholders," MSWG chief executive officer Rita Benoy Bushon said after meeting with MMC's management yesterday.
  
  She said the board's approval was needed as it would be a costly exercise for MMC to appoint another valuer.
  
  If approved, the new valuation would take into consideration the current market situation.
  
  MMC's plan to buy the loss-making SATS for RM1.7 billion is controversial as it is a related-party transaction.
  
  Institutional and minority shareholders are worried as to whether MMC, a conglomerate owned by Tan Sri Syed Mokhtar Al-Bukhary, is paying a fair price for SATS, which is also owned by Syed Mokhtar.
  
  The first valuation, by IPC Island Property Consultants Sdn Bhd, tagged SATS at RM2.23 billion, but minorities argued that the sum did not reflect the current market situation and have been insisting on another independent valuation.
  
  MMC, meanwhile, said yesterday that it would address all concerns over the SATS deal in a circular to shareholders sometime this month.
  
  It is targeting to hold an extraordinary general meeting, at which shareholders can vote on the deal, by the end of the month.
  
  "All their concerns will be addressed in the circular, which has been submitted to Bursa Malaysia for approval," senior general manager of corporate services Azlan Shahrim told Business Times yesterday.
  
  The circular will provide sufficient information for shareholders to make an informed decision and determine whether the deal is earnings-accretive to MMC, Azlan said.
  
  MMC's management had an hour-long meeting with MSWG yesterday afternoon to discuss the SATS deal.
  
  MMC took note of MSWG's views, including concern, over the valuation process, Azlan added.
  
  According to Bushon, MMC had said that borrowings for the deal would be minimal and that the credit line was available.
  
  Minorities had been concerned that MMC's cash funds of RM3.8 billion would be reduced after the proposed acquisition. It already has large long-term borrowings of almost RM20 billion.

My fingers are crossed for a positive ending in this annoying RPT transaction in MMC.

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Detecting Companies' Malpractices

Excellent article posted on Star Business: How to detect companies' malpractices

• Saturday January 10, 2009
  
  How to detect companies' malpractices
  
  Investors have lost thousands and millions due to companies’ malpractices but there are ways to detect the warning signals
  
  Following the revelation of the shocking Bernard L. Madoff’s US$50bil Ponzi scheme, there has been much uproar over the US regulator’s incompetence in failing to uncover a swindle of such mammoth proportions.
  
  Madoff’s Ponzi scheme is possibly the largest financial fraud in US history. Questions have been raised as to how this could escape the eye of the Securities and Exchange Commission.
  
  Thousands of enraged investors have accused Maddoff of stealing their life savings.
  
  Here in Malaysia, while not of that magnitude or of the same nature, investors have found their investments dwindle due to significant accounting-related mishaps.
  
  Transmile Group Bhd, a once-upon-a-time darling, rattled investors by its accounting fraud. Then, there was optical disc producer Megan Media Holdings Bhd which incurred huge debts and losses over “massive collusive fraud”. When discovered in August 2007, Megan Media was grappling with losses and debts to the tune of over RM1bil.
  
  The dramatic exposure of Transmile came to light in mid-2007, when auditors discovered fake receivables sitting on Transmile’s books. From a market cap of RM3.89bil at its high of RM14.40 on Jan 3, 2007, the company has now been reduced to a dismal market cap of RM155.32mil.
  
  Since then, Transmile shareholders have collectively lost billions. Not surprisingly too, Transmile has been announcing losses in its quarterly earnings since.
  
  There were, however, some shrewd fund managers who managed to escape unscathed from the Transmile episode. Trusting his gut, a fund manager from a local firm sold his Transmile shares at the peak, just before the issue erupted. He tells how he was already feeling uneasy with management’s consistent evasiveness during analyst briefings.
  
  “Management was avoiding some of the questions we asked. They could not give me a straight answers,” says the fund manager.
  
  What are the signs?
  
  Investors who have been victims of fraud are probably angry and want retribution. Before that happens, maybe watching out for red flags would be more helpful.
  
  When choosing to invest in a stock, MIDF Amanah Asset Management Bhd chief executive officer Scott Lim says a key criteria is honesty in management.
  
  He is wary of companies, which during company visits, tell fund managers one thing but announce a different thing altogether. He believes the company should be totally transparent and try their best to explain their actions to all shareholders.
  
  “Whether the fund manager is a majority or small shareholder, they should have total access to information. If the company is beating around the bush, and not being direct in their answers, I think it is time to sell their shares,” he says.
  
  A fund manager who had the bad experience of being deceived by a second board Malaysian-listed company, says investors should be careful when management promises unrealistic returns.
  
  Looking at the character of captain of the company is also important. “If they are the sort who veils everything, very tight lipped, won’t give much information to analysts or shareholders, and are combative in nature, it’s time to be careful,” he says.
  
  He says another red flag is when companies are unable to articulate a clear strategy or are vague on how it gets its returns.
  
  Kumpulan Sentiasa Cemerlang head of stock research and partner, Choong Khuat Hock, admits that it is not easy to spot a fraudulent company, but there are a few signs one can watch out for. “I would still look at the balance sheet. If the company has a very high debt level, or has a business model that relies on a lot of capital expenditure to grow, then I would be wary,” he says.
  
  He adds that companies that are trying to boost their earnings to maintain their past track record, could also fall prey to fraud as there could be attempts to manipulate their books. “This was probably what happened to India’s Satyam group. They needed to increase earnings to meet analyst expectations,” he says.
  
  Recently, Satyam Computer Services Ltd chairman Ramalinga Raju resigned after saying he falsified accounts and assets. Raju unsuccessfully tried to sell two companies to Satyam last month in a final attempt to plug 50.4 billion rupees of “fictitious assets” on the company’s balance sheet.
  
  Choong also advises investors to invest in companies which possess a consistently good corporate governance track record.
  
  “Avoid companies that have dabbled with related party transactions or have been involved in buying over family-related companies. The company may do it again. Sometimes a leopard doesn’t change its spots,” he says.
  
  The local fund manager tells shareholders not to be complacent even when the captain behind the company appears to have a lot of integrity. “You have faith in the person. You see good profits and hence, may abandon common sense. But when the company guarantees a certain level of performance, be suspicious. Be very doubtful if his track record looks too good to be true, because it probably is,” he says.
  
  He adds that if the investment manager’s record seems remarkably steady over a long period of time, it ought to provoke scepticism. After all, markets fluctuate between good and bad times. If returns continue to be good despite market fluctuations, it doesn’t make sense.
  
  Like a Ponzi scheme, a pyramid scheme depends on keeping its volatility low, so that victims don’t start thinking of cashing in en masse. The moment that happens, the game is over, and shareholders get burnt.
  
  Nonetheless, there are many times too that shareholders fall for financial scams simply because of their own gullibility.
  
  This can be explained by the “irrational exuberance factor”. This is the tendency of humans to model their actions, especially when faced with affairs they don’t entirely comprehend, on the behavior of other humans.
  
  So, if a stock is deemed solid and full of potential by most fund managers, then the investment must be good and most people flock to buy the stock. Still, and as many bitter episodes have shown, it is no guarantee of capital preservation.
  

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More On MMC And Its Senai Airport Terminal Purchase!

Posted earlier: MMC And Its Senai Airport Terminal Purchase!

Just saw this article on TheEdgeDaily. It's excellent!

• 10-12-2008: Institutional shareholders should scrutinise Senai deal
  Commentary by M Shanmugam
  
  As the economy skids, companies are conserving cash to weather the storm ahead. Some have called off deals to buy property, and they included IOI Corp Bhd which in the process lost a deposit of RM73 million.
  
  On the other hand, others such as YTL Corp have splurged billions scooping up power generation and property assets in Singapore.
  
  MMC Corp, it appears, is following the YTL example by proposing to pay RM1.7 billion cash to acquire Senai Air Terminal Services Sdn Bhd (SATS), which holds Senai Airport and 2,718 acres of land around the Senai Airport.
  
  Based on the announcement, MMC has undertaken to advance RM417.2 million which is owed by SATS to the vendors. The vendors in the deal are Semarak Sestu Sdn Bhd and Suria Kemboja Sdn Bhd which own SATS. Both companies are believed to be linked to MMC’s major shareholder Tan Sri Syed Mokhtar Albukhary.
  
  Last week, MMC announced that the price tag for the airport and land had been reduced from RM1.95 billion to RM1.7 billion. With the reduction in price, the proposal is to be transacted in cash as opposed to shares previously.
  
  Irrespective of whether the deal is done in cash or shares, there is every reason for minorities to scrutinise the proposal.
  
  In the first place, does MMC need more land? Even if it does, why must the deal be done now, especially in cash? Is it necessary for MMC to undertake the deal at this juncture when asset prices are fast coming down?
  
  To be sure, YTL Corp splurged S$4.3 billion (RM10.33 billion) gobbling up assets in Singapore over the past one year. But then, MMC’s coffers are nowhere near YTL’s level. Also, the quality of assets that YTL has scooped up makes it likely that they will contribute to its earnings in the next one year or so.
  
  When will Senai Airport and the land around it contribute to the bottom line of MMC positively? Also, what is the true valuation of Senai Airport and land that comes together with it?
  
  Let’s take a look back. In 2003, Malaysia Airports Holdings Bhd (MAHB) sold the airport, which comprised a runway measuring 3.3km in length and one passenger terminal that is able to accommodate 2.5 million passengers per annum. The previous year, Senai handled 874,278 passengers, 28,759 aircraft movements and 3,849 tonnes of cargo.
  
  When MAHB sold the airport and its operations for RM80 million, the unaudited net book value of Senai Airport was RM76.8 million while the turnover and operational losses were RM8.8 million and RM300,000 respectively.
  
  According to MMC’s announcement, Senai Airport is situated on a 1,226-acre site, has a 3.5km runaway and nine aircraft parking bays, four of which are connected to the terminal.
  
  The unaudited net tangible asset (NTA) of the SATS Group and loss after tax as of June 30, 2008 are RM295.5 million and RM24.8 million. SATS has commenced the construction of an aero mall which will include a hotel, restaurants and entertainment facilities.
  
  The airport and its operations are now valued at RM580 million. On what basis has the value increased to RM580 million? Even if the work in progress on the aero mall is worth that much, does MMC need such assets?
  
  The proposed purchase of the 2,718 acres for RM9.45 per square foot (sq ft) is also questionable.
  
  Based on previous reports, the land was acquired from Lee Rubber at less than RM3 per sq ft. Now it is sold for three times the amount transacted less than two years ago. The status of the land has probably been converted from agriculture to industrial.
  
  But MMC does not need that piece of land, especially now. It is a long term development and MMC already has enough long term projects in its hands now. It has its hands full with the Port of Tanjong Pelepas and the Jizan Economic City in Saudi Arabia.
  
  Why does it need more long term assets?
  
  MMC used to be majority owned by Permodalan Nasional Bhd. It was an asset rich company and concentrated mainly on natural resources. Today it is majority controlled by Syed Mokhtar and its cash flow is mainly from Malakoff Bhd, an independent power producer (IPP).
  
  Both the port and Malakoff are operating in regulated environment where things can change and affect cash flow. The Senai Airport and the land around it is something that requires a lot of capital before it pays off. Without strong cash flow, MMC will be sitting with a lot of assets but no cash to develop them. Worse still, there will be no dividend pay-outs.
  
  If PNB and other institutional shareholders do not stop the deal, they only have themselves to blame.
  

Source: here


Oh, PNB do you see what the market is seeing?

Do you?

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