Saturday, 30 April 2016

AirAsia: why not a rights issue instead of a PP?

AirAisa announced that its founders Tony Fernandes and Kamarudin propose to increase their shareholding in the company by buying 559 million new shares in the company through a private placement.

The Star wrote an article about the issues at hand: "Who is bigger – Tony or AirAsia?"

First of all, I have never been a fan of private placements, rights issues are so much more fair, giving all shareholders a chance to participate. And if they don't want to participate (for instance because they don't have money at that moment), they can still sell the rights in the open market.

The rationale given in the prospectus is as follows (first paragraph):

I don't think the reasons given are strong: both the underwriting and the successful completion should be no issue since the 559 million shares to the founders are apparently already underwritten.

Secondly, it is stated that the issuance "indicates the continued commitment" of the founders "by making further substantial investments".

This would suggest that the founders have been doing this for a long time, increasing their stake in AirAsia by investing in new shares.

However, exactly the opposite has been the case, the founders have been disposing shares for a long, long time, and in huge quantities, more than 600,000,000 shares in total.

At the IPO Tune Air sold 86 million existing shares:

After the IPO in their 2005 annual year report they owned 1,045 million shares (44.8%), which they sold down in the open market to 529 million shares (18.9%) currently. Large disposals were made in 2005 and 2006, 2011 and 2014. There is not a single year in which the founders actually increased their shareholding.

That bags the question, why after twelve years of heavy selling do the founders now suddenly  want to increase their shareholding in AirAsia? Surely the minority investors, who will get strongly diluted by the proposed private placement, deserve a proper explanation.

Lastly, there is the following, rather remarkable issue:

"..... why Tune Air, which is their holding company, is disposing its stake in the market at about RM2 prior to the AGM? It does not look good for them to get placement shares at RM1.84 when Tune Air is reducing its stake at RM2. To be fair, in announcements to Bursa Malaysia, Tune Air has stated that the shares disposed were in favour of Datuk Abdul Aziz Abu Bakar, who is one of the founders of AirAsia. "

I would suggest to replace the private placement by a rights issue of comparable size, to shore up the balance sheet.

And if the founders of AirAsia want to increase their stake, well, they can go ahead and buy the shares in the open market. If they can sell hundreds of millions of shares in the open market then surely they can also buy those quantities at the same venue.

Wednesday, 27 April 2016

Sona Petroleum: a clear vote

It does not often happen that a proposal by the management of a Bursa listed company gets voted against by 77.4% of the votes, but that is what happened to Sona Petroleum:

With time running out, it seems extremely unlikely that Sona can propose an acquisition which will be approved by the shareholders.

"Yield seekers" seem to be a threat to the promoters of SPACs, it is therefore the duty off the management of these vehicles to:

  • Propose a really good deal
  • Communicate this clearly to the shareholders

Not an easy task.

With the promoters looking (again?) at a possible large loss of money, SPACs will most likely lose their shine.

Friday, 22 April 2016

SIAS to take legal action (2)

Interesting follow up article in the Business Times (Singapore) by Michelle Quah:

"Are class actions good for investors and Singapore markets?"

My answer on that question is simply "Yes!".

The share markets (both in Singapore and Malaysia) are too much in favour of the majority shareholders, class actions will help to bring more balance to the equation.

In my home country (The Netherlands) the VEB ("Association of share holders", a not-for-profit organisation) has won many class action suits on behalf of the minority shareholders against large (mostly) Dutch companies, some of them in the top 500 of the world.

Here are some of the current actions (in Dutch):
  • Volkswagen
  • Fortis
  • Ahold
  • BP

And here of the past, succesful examples:
  • KPNQWest
  • Shell
  • Unilever
  • Fokker
  • Philips

Some of the reasons for the suits:
  • Misrepresentation
  • Unfair treatment of a certain class of shares versus another class
  • Unfair valuation at a merger or acquisition
  • Sensitive information was given too late or was leaked
  • Mismanagement and/or fraud

To participate one only needs to become member of the VEB, which costs 60 Euro per year and one will receive (beside the possibility to participate in class action suits) a few more benefits, like a monthly magazine, expert advice, etc. It is therefore no surprise that the VEB has 45.000 members (on a population of about 17 million).

Wednesday, 20 April 2016

10 Largest Malaysian IPOs

Below is a list of the ten largest IPOs in the last ten years on Bursa Malaysia.

                              == Market Cap ==
Company          IPO date      IPO       Now     Change
Petronas Chem   26/11/2010    42,480    53,600     26%
Maxis           19/11/2009    40,650    44,836     10%
IHH             25/07/2012    24,891    54,855    120%
Felda           28/06/2012    19,335     5,363    -72%
Astro           19/10/2012    15,592    15,199     -3%
Bumi Armada     21/07/2011    12,124     4,165    -66%
Westports       18/10/2013     9,037    14,356     59%
Malakoff        15/05/2015     9,000     8,400     -7%
UMW O&G         01/11/2013     6,702     2,000    -70%
AirAsia X       10/07/2013     2,963     1,452    -51%

Some comments:
  • 6 out of 10 companies are still below their IPO price, that is not impressive at all
  • if one would put the same amount of money in each stock, then one would have a loss of 5%
  • on average the companies IPO-ed about 3.5 years ago
  • for international investors, the RM is down by about 20% versus the USD since 3.5 years ago, so the results are much worse
  • the market cap off all 10 companies together has risen though, since their combined IPOs
  • it is mostly IHH saving the day, with EPF continuing to buy IHH shares aggressively even at a rich PE of around 60
  • Maxis, Astro, Bumi Armada and Malakoff are all "listed-delisted-relisted" cases, Bursa should really take decisive action to discourage this kind of financial engineering which comes at the expense of the minority shareholders, it is long overdue
  • quite a few resource related companies on the list, they have not fared well lately

There was once a time when companies were listed at single digit PEs supported by profit guarantees, the valuation was set by the authorities. Needless to say, there was a lot of interest by investors, and some IPOs were oversubscribed by 100 times.

Those days are over, companies nowadays set their own price, which is of course correct. New, "sexy" terms were introduced by financial engineers, like "cornerstone investors", "greenshoe options" and "stabilising manager".

But from the above data, it seems the IPO price is often quite rich these days, and not much upside (if any) is provided in exchange for the risk that IPO investors take.

Combined with my previous posting about poor earnings growth for the Top 30 companies (not surprisingly there is quite some overlap), things don't look that impressive.

Bursa can hold as many international roadshows as they want, but at the end of the day, it is the fundamentals and valuations that count. And they really have to improve.