Out of the blue, we have a slew of corporate deals that have questionable aspects. A site which I have linked for over 2 months have done a very credible job in highlighting some. Bookmark it, the blogger is good. All that crap about corporate governance, the speeches at CG seminars, the meeting of suits at SC sponsored CG initiatives, ... and we get these thrown blatantly at us. ... And its not just companies we are talking about, the supposedly government funds, supposedly looking after our funds without fear or favour, I wonder what are they doing ... why we do not see more of them saying something, voting against certain dubious proposals ... do you guys have any teeth or you are just so glad to be promoted to these positions and somehow are then beholden to someone or some powers?
How you expect Malaysians not to be angry??!!
http://www.cgmalaysia.blogspot.com/
TUESDAY, 6 SEPTEMBER 2011
MUIB and PMCorp: a horrible deal from the past
"Ze Moola" attended me on a old corporate exercise from the MUIB stable. The "independent" report can be found here:
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/afd99bbf47849e5848256f2b001970f4/$FILE/PMCorp-Circular.pdf
In short, Malayan United Industries Bhd. (MUIB) had borrowed RM 1,067,000,000 from related party Pan Malaysia Corporation (PMCorp), if would not or could not pay the amount back, a horrible and highly unsatisfactory situation for PMCorp shareholders.
The only thing MUIB could do is hive of some assets to PMCorp, but it decided to give the PMCorp shareholders shares in MUIB. Problem was that MUIB's shares were trading at only RM 0.185, that would mean that PMCorp were entitled to about 6 billion MUIB shares. Aparantly that was not what the Majority Shareholders of MUIB had in mind, therefore an ingenious scheme was designed. A pretty complicated one so that most Minority Investors would not be able to see through it. Instead of shares it would give ICULS, Irredeemable Convertible Unsecured Loan Stocks. These are Irredeemable, in other words they can not be redeemed for cash, you can (or will, there is no choice) somewhere in the future convert them 1:1 for MUI shares. They don't pay dividend like shares but interest, but even this would be paid in even more ICULS. This looks already bad for PMCorp shareholders, instead of cold hard cash they would get shares in a company that had been making huge losses over the last years. But what is simply amazing is the small number of ICULS they would receive, instead of the about 6 billion one would expect (RM 1,067 million divided by RM 0.185 = 5.8 Billion), they received less that 1.3 Billion ICULS. Minority Shareholders of PMCorp were thus hugely short changed, for more than RM 800 million.
The "independent" report from Hwang-DBS Securities Bhd. was of extremely low quality, I won't bother writing what was wrong with it (about everything), will just give their conclusion:
Let's check their arguments:
(i) The par value of MUIB shares: the par value has nothing to do with valuation. The fact that the NAV of a MUIB shares is way below the par value means it has accumulated huge losses, which is an indication of a badly managed company. By even suggesting the par value HWANG-DBS is simply deceiving Minority Investors.
(ii) The ICULS can only be converted to shares in the future: that is a disadvantage, not an advantage.
(iii) The future prospects of the MUIB group: the report was dated 12 Oct 2004, MUIB was thoroughly mismanaged, had lost Billions of RM, why would that suddenly improve? The results since then:
2004: RM -405 million
2005: RM -371 million
2006: RM -210 million
2007: RM +10 million
2008: RM -74 million
2009: RM +3 million
2010: RM +36 million
In total: losses of more than RM 1 Billion.
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/7f04516f8098680348256c6f0017a6bf/afd99bbf47849e5848256f2b001970f4/$FILE/PMCorp-Circular.pdf
In short, Malayan United Industries Bhd. (MUIB) had borrowed RM 1,067,000,000 from related party Pan Malaysia Corporation (PMCorp), if would not or could not pay the amount back, a horrible and highly unsatisfactory situation for PMCorp shareholders.
The only thing MUIB could do is hive of some assets to PMCorp, but it decided to give the PMCorp shareholders shares in MUIB. Problem was that MUIB's shares were trading at only RM 0.185, that would mean that PMCorp were entitled to about 6 billion MUIB shares. Aparantly that was not what the Majority Shareholders of MUIB had in mind, therefore an ingenious scheme was designed. A pretty complicated one so that most Minority Investors would not be able to see through it. Instead of shares it would give ICULS, Irredeemable Convertible Unsecured Loan Stocks. These are Irredeemable, in other words they can not be redeemed for cash, you can (or will, there is no choice) somewhere in the future convert them 1:1 for MUI shares. They don't pay dividend like shares but interest, but even this would be paid in even more ICULS. This looks already bad for PMCorp shareholders, instead of cold hard cash they would get shares in a company that had been making huge losses over the last years. But what is simply amazing is the small number of ICULS they would receive, instead of the about 6 billion one would expect (RM 1,067 million divided by RM 0.185 = 5.8 Billion), they received less that 1.3 Billion ICULS. Minority Shareholders of PMCorp were thus hugely short changed, for more than RM 800 million.
The "independent" report from Hwang-DBS Securities Bhd. was of extremely low quality, I won't bother writing what was wrong with it (about everything), will just give their conclusion:
(i) The par value of MUIB shares: the par value has nothing to do with valuation. The fact that the NAV of a MUIB shares is way below the par value means it has accumulated huge losses, which is an indication of a badly managed company. By even suggesting the par value HWANG-DBS is simply deceiving Minority Investors.
(ii) The ICULS can only be converted to shares in the future: that is a disadvantage, not an advantage.
(iii) The future prospects of the MUIB group: the report was dated 12 Oct 2004, MUIB was thoroughly mismanaged, had lost Billions of RM, why would that suddenly improve? The results since then:
2004: RM -405 million
2005: RM -371 million
2006: RM -210 million
2007: RM +10 million
2008: RM -74 million
2009: RM +3 million
2010: RM +36 million
In total: losses of more than RM 1 Billion.
And what happened with the proposal and the circular? It was (as usual) approved by the authorities (Bursa Malaysia and/or Securities Commission), and neither the directors of PMCorp, MUIB or the "independent" advisor Hwang/DBS were ever punished in any way, shape or form.
Needless to say, the quality of the "independent" advice circulars in Malaysia has further gone down, 99% of them shamelessly support the Majority Shareholders, no matter how bad the deal is for the Minority Shareholders: "Whose bread I eat, his song I sing". And up to this very day, the authorities have not bothered to come down on the advisers.
Recommendation: Do away with the "independent" advice, it is hurting Minority Shareholder, not helping them.
MUIIND is currently trading at RM 0.21, the MUI ICULS are all trading at RM 0.17, PMCORP is at RM 0.09, PMIND at for RM 0.045 and PMCAP at for 0.085.
The renumeration for MUIB's Chairman and Chief Executive, Tan Sri Dato' Khoo Kay Peng, is more than RM 3.2 million a year.
THURSDAY, 8 SEPTEMBER 2011
MMC, RPT's and its Major Shareholder
Ze Moola looking back at one of the largest (and in my opinion worst) Related Party Transactions, MMC taking over Senai Airport in the depth of the worst global recession of the last 50 years for RM 1,700,000,000 cold hard cash:
http://whereiszemoola.blogspot.com/2011/09/look-back-again-on-mmc-purchase-of.html
"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."
Let me guess who voted in favour:
MSWG did fight this case, they tried their best. What do we read at the MSWG's website?
http://www.mswg.org.my/project/mswg/media/2009/03/02/165112-629.pdf
We are talking about an acquisition for RM 1,700,000,000 and they have "some other work commitment".
Funds like EPF, PNB, ValueCap, etc, etc, etc, I have hardly ever seen them oppose a bad corporate exercise. They had the power, they had the votes to block these horrible RPT's, but almost always they did chose to toe the line. My impression is that they were pressured to do so, or they perceived they were pressured. By doing so, they have done an unbelievable disservice, to their own accountholders, to the other Minority Investors and to Malaysia in general. They had the chance, they could have been vocal, they could have rallied the Minority Investors, they chose not to do so, they chose to toe the line, again and again and again.
My recommendation: they should simply not vote anymore, let the small shareholders vote plus the normal unit trust fund managers (the first put their money where their mouth is, the latter want to have a good long term track record). I am sure that this deal would then not have gone through.
http://whereiszemoola.blogspot.com/2011/09/look-back-again-on-mmc-purchase-of.html
"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."
Let me guess who voted in favour:
MSWG did fight this case, they tried their best. What do we read at the MSWG's website?
http://www.mswg.org.my/project/mswg/media/2009/03/02/165112-629.pdf
We are talking about an acquisition for RM 1,700,000,000 and they have "some other work commitment".
Funds like EPF, PNB, ValueCap, etc, etc, etc, I have hardly ever seen them oppose a bad corporate exercise. They had the power, they had the votes to block these horrible RPT's, but almost always they did chose to toe the line. My impression is that they were pressured to do so, or they perceived they were pressured. By doing so, they have done an unbelievable disservice, to their own accountholders, to the other Minority Investors and to Malaysia in general. They had the chance, they could have been vocal, they could have rallied the Minority Investors, they chose not to do so, they chose to toe the line, again and again and again.
My recommendation: they should simply not vote anymore, let the small shareholders vote plus the normal unit trust fund managers (the first put their money where their mouth is, the latter want to have a good long term track record). I am sure that this deal would then not have gone through.
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