Friday, 17 October 2014

XOX: from bad to worse .....

I wrote before about XOX's corporate exercise to "massage" away its high accumulated losses. I will now give some more detail about this company, and its short but not so glorious past.

XOX is featured on Ze Moola's blog, which is often not a good sign, and this time it is no different.

In the last blog post we can see most of the directors smiling (except the person on the left) at the IPO ceremony at Bursa:

Not sure if the people who bought shares at the IPO price were also smiling, the board was distinctively red coloured, as can be seen on the right, not a single green number in sight.

The share plunged 35% on its first trading day, it must have been one of the worst performers of Bursa ever.

"Malaysian Shares" wrote two articles about the IPO, here and here.

Unfortunately for its shareholders, the share price has never recovered, in the contrary, it is now trading for RM 0.07, its lowest price ever:

XOX was a loss making company before its IPO, it is quite a surprise for me that it was allowed to be listed on Bursa. What probably helped was a rather optimistic (with hindsight) profit forecast that it issued in its IPO prospectus.

XOX was not able to hit the revenue and profit forecasts, it wasn't even close:

The above numbers are for the year up to 31 December 2011, while the company was listed on June 10, 2011 and knew already the numbers up to then. In other words, it only needed to forecast another seven months or so. And still it was able to overestimate its revenue by a factor 4, and instead of a forecasted PAT of RM 20 Million it booked a loss of RM 20 Million. Forecasting is probably not XOX's forte.

Over 2012 the company lost another RM 3.1 Million, over 2013 it lost RM 0.7 Million and over the first half of 2014 it lost another RM 1.2 Million. Not exactly shining numbers, and (partially) explaining the share graph.

To add insult to injury, on July 18, 2014 the company was reprimanded by Bursa for failing to take into account the necessary adjustments.

Which brings us to the present, and the multiple proposals that the company announced.

Apart from the earlier mentioned restructuring exercise, there are three other elements:

[1] A rights issue: this is considered to be a proper exercise to raise money, where all shareholders have the opportunity to participate (or to sell their rights if they don't want to do that).

[2] A huge large restricted issue. This is the kind of exercise that I don't like, since normal shareholders do not have the opportunity to participate.

[3] Establishment of a SIS (Share Issue Scheme) of up to 30% of the issued and paid-up capital for eligible directors and employees of XOX. My guess is that these directors and employees are substantially the same as before, in other words they were the same persons responsible for the disappointing results of the last three years, causing the share price to fall by 90%. Should they really be rewarded at this moment of time, at the expense of the minority investors? Would it not be better if the company first turns around, starts to book some decent profits causing its share price at least to equal its IPO price before the company even considers a Share Issue Scheme?

The total dilution can be seen in the following maximum scenario:

Current shareholders will have 166 Million shares after the share consolidation, and are entitled to the rights issue of shares and warrants, which will increase their shareholding (upon exercising of the warrants) to 498 million shares.

Holders of the proposed restricted issue will receive 190 million shares plus their rights issue and warrants, this might balloon to a total of 570 million shares.

Directors and employees might receive an additional 320 million shares.

In other words, current shareholders (who might include loyal shareholders who bought shares of XOX at its IPO price of RM 0.80), who inject further money to subscribe to the rights issue, and who inject even more money to exercise their warrants, will in total only receive 36% of the enlarged shares in the maximum scenario.

And almost all of the dilution due to the restricted issue and SIS will be done at a price that is only a small fraction of the RM 0.80 that shareholders paid at the IPO.

Is this the way the company wants to reward its loyal shareholders?

Note to the authorities: I am of the opinion that corporate exercises like the above should simply be outlawed. Restricted issues should be capped at a maximum of 10% (preferably even 5%) of the outstanding shares. The same should apply to SIS, ESOS and the like, please cap them at 10% (preferably at 5%).

Please take also note of David Webb's "Project Vampire".

Protasco's Puzzling Purchase (9)

Article in The Star: "Two Protasco non-exec directors deny allegations".

"Protasco Bhd non-executive directors Tey Por Yee and Ooi Kock Aun have denied all allegations made against them by the company and will file their defence at the end of this month."

“We have carried out our fiduciary and statutory duties to the best of our ability. We resolutely deny all these allegations. “The allegations are not true and not supported by facts. These will be made apparent when we file our defence at the end of this month, where proof will be furnished to back our defence.”

It was about time that they finally broke their silence. Hopefully we will see a healthy dose of transparency in this rather intriguing case, and the veil will be lifted on many aspects of this case. For instance, who was really behind PT Anglo Slavic Utama?

Wednesday, 15 October 2014

Jim Chanos: "The Biggest Short"

Great article by Steven Drobny about Jim Chanos, the well known short seller.

Chanos recommends his fund as an insurance, for all investors who have a sizeable "long" portfolio in shares. Chanos will do well when shares tank, and bad if shares rise. But from time to time there is an industry (for instance property developers) that is badly hit while the overall market rises, in those times both Chanos' fund (shorting that industry) and the overall index can rise.

I normally don't short particular shares (I do from time to time short an index, but only rarely), but even then Chanos' observations are interesting. The way to discover candidates to short is basically the same as the way to discover which shares to avoid like the plague.

Also, observations about China's economy and it's huge property bubble.

Tuesday, 14 October 2014

Kamdar: "It's a messy family affair" (3)

I wrote before about Kamdar: here and here. In some detail:

Assets : Amount due from Director / Other Receivables – RM8,842,306
Liability : Amount due to Shareholders –RM 8,763,089

.....while it looks like the asset and liability roughly cancel each other out, there might still be a problem for the Kamdar Group in collecting the amount due from Director.

It appears that the above "problem" might indeed become a reality, the company made the following announcement:

The Board of Directors of Kamdar Group (M) Berhad (“KGMB” or “the Company”) wishes to announce that the High Court of Kuala Lumpur on 3 October 2014 had issued a Writ of Summons together with Statement of Claims to Bipinchandra A/L Balvantrai, Jayesh R. Kamdar Rajnikant and Yap Kim Hong  and on 9 October 2014 Kamdar Sdn Bhd (“KSB” or “the Plaintiff”), a wholly owned subsidiary of KGMB, had served the same to the 3 Defendants via Messrs Amrit & Company, the solicitors of KSB to initiate proceedings to recover the alleged withdrawal of funds totalling RM8.7 million and to claim general, aggravated and exemplary damages, compound interest and such further and other relief as the court deems fit.