Saturday, 6 February 2016

INEDs approved by independent shareholders

Good article in the Business Times (Singapore) about the election and roles of INEDs (Independent Non-Executive Directors) by David Smith, head of corporate governance at Aberdeen Asset Management Asia.

Some snippets:


At present we allow the controlling shareholder to vote on the election of the individuals - the INEDs - charged with reviewing the performance of the executive. But how can an individual be expected to be independent from management if management are the controlling shareholder who recruited, nominated and elected that individual?

It is important that before we consider further amendments to the Listing Rules or Codes of Corporate Governance, which inevitably pile even more responsibilities onto INEDs, we should step back and consider a) the abuses we seek to prevent, and b) the mechanisms that we might wish to implement by which we can prevent such abuses.

.... INEDs are separately approved by both a) all shareholders and b) just independent shareholders.

.... where an individual does not pass the "independent vote", the board make representations as to why the individual is fit to be an independent director at the company. On certain transactions, those that did not pass the "independent vote" could be restricted from providing an opinion.

Friday, 5 February 2016

Shell Malaysia: shocker (2)

In addition to my previous posting on this subject, MSWG wrote this in their weekly newsletter:


Minority shareholders of Shell Refining were shocked with the proposed transaction by their majority shareholders, Shell Overseas, as reflected in complaint letters MSWG received.

The sale transaction to Malaysia Hengyuan is at an approximately RM1.80 per Sale Share. Although it is only 7 % discount to the latest net asset value of RM1.93 per share as at September 2015, it was a huge discount of 63.6% to the market price of RM4.94 as at 29 January 2016 prior to the release of the announcement.

For information, other substantial shareholders are EPF (15.71%), Amanah Saham Malaysia (11.09%) and other minority shareholders are KWAP (2.38%), PNB (1.12%), Khazanah Nasional (1.12%) and Others (17.58%) as per shareholders’ listing as at 30 April 2015.

The negative impact this transaction has on minority shareholders is already happening. Shell Refining shares have plunged from RM4.98 to RM3.68 on 29 January 2016 and would possibly drop further to the SPA price of approximately RM1.80 per share.

We urge the Board of Shell Refining look into the interest of minority shareholders in respect of this acquisition and the subsequent Mandatory General Offer which is expected to be triggered by the new major shareholder.

As for the major shareholder, no doubt the transaction is a private one, but one would expect that certain care and obligations to the existing minority shareholders by the majority considering that they had been with them for a long period of time. Thus, a longer time for more offers to come by so that transaction can be done at a more equitable level to minority shareholders.


Shell was queried by Bursa, and replied the following:


We refer to the query by Bursa Securities Malaysia Berhad dated 4 February 2016 where you have requested for additional information on the “other existing commitments” and “a long term offtake from Shell Refining Company” referred to in the press release issued by our major shareholder, Shell Overseas Holdings Limited (“SOHL”) on 1 February 2016. For your ease of reference, we have reproduced the relevant paragraph below:-

Shell Malaysia Trading will ensure security of supply to its retail and commercial customers in Malaysia and honour other existing commitments through an existing comprehensive supply strategy that includes a long term offtake from Shell Refining Company.

We would like to clarify that in respect of the abovementioned paragraph:-

a)        the phrase “other existing commitments” refers to the existing commitments of Shell Malaysia Trading Sdn Bhd in the course of its business, and is not referring to the existing commitments of Shell Refining Company (Federation of Malaya) Berhad (“SRC” or the “Company”);

b)       the phrase “a long term offtake from Shell Refining Company”, if taken in its full context (reproduced below), refers to an existing strategy which includes an existing long term offtake from SRC. In respect of the terms and conditions of the existing long term offtake between the Company and Shell Malaysia Trading Sdn Bhd, we wish to further clarify that the transaction is related party transaction which has been approved by the shareholders in general meeting. The said agreement is dated 15 October 1985 and shall continue to be in force until it has been terminated by either party, or if there is an event of default. The Board of Directors have not yet received any proposals for a new offtake agreement; and

d)       the Company has not received a take-over notice or offer document from the offeror which may contain further information.

As far as I can see there is no "c)", may be an oversight?

Many questions remain, at least with me. Why the low price, was it because of high future capital expenditure? Or is this may be a combined deal, is there something else going on that we are not aware of?

At the moment the share price of Shell is trading at around RM 3.50, a far cry from its price before the announcement of around RM 4.90. As mentioned by MSWG, this is indeed a very old listed company and some shareholders must have held on to the stock for a very long time. I think they deserve at least a better explanation.

XOX: from bad to worse ..... (3)

I wrote before about XOX:


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.




It looks like the Securities Commission was also not exactly "impressed" by XOX's forecast, and announced the following administrative actions: a reprimand for two executive directors of XOX and for AmInvest Bank as the principal adviser for the IPO of XOX.

Is a reprimand really enough, will it act as a future deterrent? I strongly doubt it.

Wednesday, 3 February 2016

Maybulks profit warning

Maybulk announced a profit warning:


The Company wishes to inform its shareholders and potential investors that the Company expects to record a substantial loss for the fourth quarter of 2015 (4Q2015) and the financial year ended 31 December 2015 (FY2015) mainly attributable to the following:-

(i)    Provision for onerous contracts
The dry bulk market continues to be weak and it is uncertain when the market will recover. The Group has reviewed its non-cancellable operating lease contracts for the chartered-in vessels and based on a preliminary assessment, the charter-in costs are higher than the current and likely market rates. Hence a provision for onerous contracts has to be made.

(ii)    Provision for impairment of investment in associate, PACC Offshore Services Holdings Ltd (POSH)
The current depressed state of crude oil prices has had an adverse impact on the global offshore marine industry in which POSH operates in. The Group carried out a preliminary assessment of its investment in POSH and is of the view that the fair value of the investment in POSH is likely to be lower than the carrying value and an impairment loss provision has to be made. While the amount of the impairment is yet to be determined, it is expected that this will have a significant adverse impact on the financial results of the Group for 4Q2015 and FY2015.


Today Maybulks share price fell by 10 cent (14%). That sounds logical given the above profit warning, but is in fact a bit strange:
  • The dry bulk index has fallen to new lows, that is public information, it is not a stretch of the imagination that it would lead to further losses for Maybulk, as it had done already for the first three quarters;
  • Maybulks associate POSH is a public traded company, the share price has fallen drastically since its IPO to a new low of SGD 0.29. Maybulk had announced already that it would consider impairing the investment, something that was in my opinion a long time overdue

I have been extremely negative about Maybulks investment in POSH since the moment it was announced in 2008. I fought it tooth and nail, to no avail, in the Malaysian context no surprise.

Unfortunately, it looks like I have been proven right in my assessment.

Investing ca. 800 million cold hard cash during the depth of the global recession in a related company with a negative NTA, but "magically" valued at billions of RM, and continuing to pile additional cash in that company just to be able to call it an associate is apparently not such a good idea after all.

Lesson learned for the minority investors of Maybulk, a very expensive lesson.

Apart from it being a bad investment, there is also a long list of corporate governance issues (some of them rather serious) regarding Maybulk and its acquisition of POSH.