KLSE Trading Notes
Palm Oil & Market Themes
Following on my comments that the Federal Reserve seems to have finished with its rate hikes, markets have yet to move ahead. While I am positive on the fundamentals, the timing effect is not there yet. July/August tend to be dull months as many investment pros will be on hols. As explained before, most will gather like a pack of wolves for a push in the final quarter. The setting looks good, we just need oil prices to behave till then, it needs to stay below US$80 pb for the last quarter bull to emerge.
As for KLSE trading activity, the palm oil rally has already been a bit overdone. Its a rally based on palm oil futures, and not a rally based on the biodiesel theme. Investors should be aware that bio diesel is not magic, and is not an avenue that allows for huge margins. Its just one additional sub-sector in the palm oil supply chain. You'd be just as profitable to be in oleochemicals, or producing specialty fats for cosmetics out of palm oil, etc. Of course, Malaysia and Indonesia have agreed to set aside a huge amount for biodiesel. It will create a substantive increase in real demand. The 12 mn MT CPO allocation will be a tad too much for biodiesel to stomach. 12mn MT equals to about 40% of each country's annual production. In all likelihood, only 5 mn MT will be taken up in 2007, this effectively translates to 16.6% of each country's annual CPO production. Now the figure does not look so threathening.
Having said that, organic growth from edible side will provide about 5% annual growth in demand. Add that, you get around 21% real consumption demand growth a year. IOI Corp has already gained more than 45% over the last 12 months. Golden Hope recorded a sluggish 30% over the same period, while KL Kepong notched nearly 60% gain over the last 12 months. Best performer was PPB Oil Palms with a better than 75% gain over the last 12 months. Compare that to the KLCI over the same period, you will have wonderful outperformance. Not that I am saying the sector's rally is finished but rather that the upside is limited. But also the sector won't collapse at all as the fundamentals governing the sector are pretty solid. Strong buys on any kind of dips due to external market shocks.
The shift to smaller and second tier palm oil plays look more exciting as these are solid companies also but just smaller and they have not been re-rated as highly as the big caps, now they are playing a bit of catch up. Probably another 15%-20% upside in store for them, I am referring to trading counters such as Kretam and TH Group. Forget the rest, too small.
As for the other theme play in cables and new Bakun revamped proposal - forget about it already. Its cumbersome and should not be allowed to proceed. Hate Leader, Eden, etc... trade at your own peril.
Malaysia's SC Cracking The Right Whip
The many complaints on the lack of quality in many of the IPOs over the past 3 years, in particular those destined for the Mesdaq Board, has finally resulted in some effective and constructive decision making on the part of the Securities Commission. There were 28 initial public offering (IPO) submissions rejected by the Securities Commission (SC) in the first half of 2006. The SC on July 31 published the reasons for its rejection of IPO submissions, expressing concerns on corporate governance issues and the applicants' failure to demonstrate business sustainability. A total of 20 of the rejections involved Mesdaq aspirants while two were vying for Main Board and six for Second Board listings.
The SC received 51 listing applications in the first half. They included four applications that were either withdrawn or returned, and one company deferred its IPO. Notably, seven of the Mesdaq applicants did not qualify as technology-based companies for a variety of reasons, which include absence of technology development and innovation, and high reliance on third parties for components and software tools. Also, a few companies' research and development capabilities were described as uncertain and that the investments were relatively low, indicating low technological barriers to entry into the industries. Some of the companies’ target markets were limited, raising concerns on sustainability of financial performance, growth prospects and the ability to compete. Others failed to exhibit characteristics of a high-growth company based on overall growth in revenue and profitability.
The two Main Board submissions were turned down as they were operating in highly competitive markets with minimum advantage, while the operation of one of them would not result in any new technology transfer to the country. The SC expressed concerns on the financial sustainability of one of them, as it was too dependent on limited contracts, while the other did not comply with the profit track record.
Of the six Second Board applications turned down, the common reasons included operating in highly competitive industries with minimum advantage, poor corporate governance issues and dependence on limited customers. The SC also cited sales restriction in the domestic market, design capabilities not being well demonstrated and products not being patented as reasons for rejection for some of the six.
The reasons cited are valid, and does not encorach into the actual "management or corporate strategy" sphere of the companies concerned. The danger here is the SC getting too vigilant in drawing the boundaries, as that could squeeze the hoop too narrow for companies to pass through. Overall A+ job by the SC so far. No point in having 100 new companies listed every year if 80% fail to garner genuine investors' interest. Better to have 50 good quality companies and having 80% of them performing well on merits (not via financial engineering or orchestration). At least now by setting clear parameters, merchant bankers would know how to better control the pre-selection process for IPO candidates. Some VCs may feel dismayed by SC's actions, but they are needed for the betterment of the market.
The many complaints on the lack of quality in many of the IPOs over the past 3 years, in particular those destined for the Mesdaq Board, has finally resulted in some effective and constructive decision making on the part of the Securities Commission. There were 28 initial public offering (IPO) submissions rejected by the Securities Commission (SC) in the first half of 2006. The SC on July 31 published the reasons for its rejection of IPO submissions, expressing concerns on corporate governance issues and the applicants' failure to demonstrate business sustainability. A total of 20 of the rejections involved Mesdaq aspirants while two were vying for Main Board and six for Second Board listings.
The SC received 51 listing applications in the first half. They included four applications that were either withdrawn or returned, and one company deferred its IPO. Notably, seven of the Mesdaq applicants did not qualify as technology-based companies for a variety of reasons, which include absence of technology development and innovation, and high reliance on third parties for components and software tools. Also, a few companies' research and development capabilities were described as uncertain and that the investments were relatively low, indicating low technological barriers to entry into the industries. Some of the companies’ target markets were limited, raising concerns on sustainability of financial performance, growth prospects and the ability to compete. Others failed to exhibit characteristics of a high-growth company based on overall growth in revenue and profitability.
The two Main Board submissions were turned down as they were operating in highly competitive markets with minimum advantage, while the operation of one of them would not result in any new technology transfer to the country. The SC expressed concerns on the financial sustainability of one of them, as it was too dependent on limited contracts, while the other did not comply with the profit track record.
Of the six Second Board applications turned down, the common reasons included operating in highly competitive industries with minimum advantage, poor corporate governance issues and dependence on limited customers. The SC also cited sales restriction in the domestic market, design capabilities not being well demonstrated and products not being patented as reasons for rejection for some of the six.
The reasons cited are valid, and does not encorach into the actual "management or corporate strategy" sphere of the companies concerned. The danger here is the SC getting too vigilant in drawing the boundaries, as that could squeeze the hoop too narrow for companies to pass through. Overall A+ job by the SC so far. No point in having 100 new companies listed every year if 80% fail to garner genuine investors' interest. Better to have 50 good quality companies and having 80% of them performing well on merits (not via financial engineering or orchestration). At least now by setting clear parameters, merchant bankers would know how to better control the pre-selection process for IPO candidates. Some VCs may feel dismayed by SC's actions, but they are needed for the betterment of the market.
Fed's Rate Hike Over?
Finally, Something That's Flaccid & Good
Despite the non-stop shelling between Lebanon-Israel, global equity markets have been able to shrug off the repercussions. That's largely due to the growing perception that Federal Reserve have temporarily finished with raising rates. The peaking of the rate hiking cycle is significant because something that has peaked can only go down. Reason #1 for the perception - the Fed's beige book report on regional economic activity showed that economic growth lessened around the U.S. in the past six weeks, while price pressures generally remained in check The report, one of many factors the Fed uses to determine monetary policy, would seem to give another reason to end rate hikes in the near future.
Consumer spending appears somewhat weaker, while strong factory and commercial lending activity suggests business spending may be compensating for it. On wages, a growing gap between highest- and lowest-paid employees was observed, and food retailers appear stronger than restaurants in some regions, suggesting more low-income customers are choosing to cook at home rather than eat out. The report led the dollar down the Euro and Asian currencies, on concerns for a weaker U.S. economy and lower interest rates in the near future.
However, that is just one part of the equation. Having been observing the Fed and Bernanke's testimony, it is obvious that the Fed pays unusually close attention to the housing side, though they would be loathed to admit that. The Census Bureau reported that sales of new homes fell 3% in June to 1.13 million units, and sharply revised down its estimate for May from 1.23 million units to 1.17 million units. Sales were down 11.3% in the Northeast, 7.9% in the Midwest and 6% in the South, but were up 8.2% in the West. Inventories of unsold homes at end-June hit a record 566,000 units, a 6.1 month supply at current sales rates, down from 6.4 in February.
The Commerce Department reported that new orders for durable goods exclusing defense and aircraft grew only 0.4% in June, sharply lower than May's 1.3% growth. Orders for defense capital goods were up 51.2% and aircraft orders rose 8.8%, so total durable orders rose 3.1%. The Labor Department reported that claims for unemployment benefits fell by 7,000 to 298,000 in the week ending July 22. Looks like the picture is setting the US equities for a mini bull run over the immediate future.
Finally, Something That's Flaccid & Good
Despite the non-stop shelling between Lebanon-Israel, global equity markets have been able to shrug off the repercussions. That's largely due to the growing perception that Federal Reserve have temporarily finished with raising rates. The peaking of the rate hiking cycle is significant because something that has peaked can only go down. Reason #1 for the perception - the Fed's beige book report on regional economic activity showed that economic growth lessened around the U.S. in the past six weeks, while price pressures generally remained in check The report, one of many factors the Fed uses to determine monetary policy, would seem to give another reason to end rate hikes in the near future.
Consumer spending appears somewhat weaker, while strong factory and commercial lending activity suggests business spending may be compensating for it. On wages, a growing gap between highest- and lowest-paid employees was observed, and food retailers appear stronger than restaurants in some regions, suggesting more low-income customers are choosing to cook at home rather than eat out. The report led the dollar down the Euro and Asian currencies, on concerns for a weaker U.S. economy and lower interest rates in the near future.
However, that is just one part of the equation. Having been observing the Fed and Bernanke's testimony, it is obvious that the Fed pays unusually close attention to the housing side, though they would be loathed to admit that. The Census Bureau reported that sales of new homes fell 3% in June to 1.13 million units, and sharply revised down its estimate for May from 1.23 million units to 1.17 million units. Sales were down 11.3% in the Northeast, 7.9% in the Midwest and 6% in the South, but were up 8.2% in the West. Inventories of unsold homes at end-June hit a record 566,000 units, a 6.1 month supply at current sales rates, down from 6.4 in February.
The Commerce Department reported that new orders for durable goods exclusing defense and aircraft grew only 0.4% in June, sharply lower than May's 1.3% growth. Orders for defense capital goods were up 51.2% and aircraft orders rose 8.8%, so total durable orders rose 3.1%. The Labor Department reported that claims for unemployment benefits fell by 7,000 to 298,000 in the week ending July 22. Looks like the picture is setting the US equities for a mini bull run over the immediate future.
Landmarks' RNAV & Sungei Wang REIT
This is not an attempt to further promote Landmarks but rather a clarification. The RNAV looks at the book value of assets and compare that to the independent valuation or closest to market valuation. Then we take the market values with the corresponding capital rates, deduct the book value to get the revaluation surplus. We then add the revaluation surplus to shareholders funds to get the RNAV.
Datai 33% - RM125m
Datai Hotel 33% - RM85m
Datai Golf Course 33% - RM7m
Datai Land 33% - RM35m
Andaman 100% - RM145m
Sungei Wang Plaza 100% - RM560m
Shangrila Hotel 27% - RM300m
Teknologi Tenaga Perlis 20% - RM225m
Landmarks Land 20% - RM35m
The assets under Landmarks are mainly good class assets and many are REIT-able. The company has stayed under the radar for a long time because the controlling shareholder was holding just 18% and did not have the financial muscle to get a bigger stake. The recent popularity of REIT makes a lot of sense to other predators to control Landmarks as they could unlock a lot of hidden values in the stock. It appears that there are now more than 2 parties keen to get control of the company, which bodes well for Landmarks and their minority shareholders.
The first step to unlocking is via the SungeiWang-Andaman REIT. Back in Sep 2005, the company proposed a SungeiWang REIT and that was shockingly rejected in Feb 2006 due to only one property and a low stakeholding in SWPlaza with no growth plans. A new REIT proposal was submitted in the same month. In April 2006, the new SW-Andaman REIT was approved. Last month the Securities Commission approved the disposal of SWP and Andaman. The REIT should list by October 2006. One can expect a cash dividend of 50 sen per Landmark share or get one free REIT for every two Landmarks shares held.
The next unlocking step could involve the attractive Shangrila Hotel shares. The company could distribute the shares to Landmarks' shareholders, which works out to be worth another RM0.64 per share, add that to the REIT's RM0.50, its looking good. But a caveat here, the Shangrila stake has largely be pledged as collateral for a RM185m RSS Bond, together with cash flow from datai's operations (hence the non-involvement of Datai in the SW-REIT proposal). Even so, any sale would go down to reducing debt substantially. Hence, it is more likely that the next asset sale will be its 20% stake in Teknologi Tenaga Perlis power plant, very easy to sell owing to the DCF predictability. The power plant stake should bring in RM225m or nearly another 50 sen in pure cash dividend.
Aside from the new shareholders in Zimulia, Killinghall (M) Bhd just announced that its chairman Syed YusofSyed Nasir has emerged as a substantial shareholder of property group Landmarks. An exchange circular quoted Syed as saying that he had bought 5.23 pct or 24.65 mln shares in Landmarks on the open market. ............ Let the games begin....
This is not an attempt to further promote Landmarks but rather a clarification. The RNAV looks at the book value of assets and compare that to the independent valuation or closest to market valuation. Then we take the market values with the corresponding capital rates, deduct the book value to get the revaluation surplus. We then add the revaluation surplus to shareholders funds to get the RNAV.
Datai 33% - RM125m
Datai Hotel 33% - RM85m
Datai Golf Course 33% - RM7m
Datai Land 33% - RM35m
Andaman 100% - RM145m
Sungei Wang Plaza 100% - RM560m
Shangrila Hotel 27% - RM300m
Teknologi Tenaga Perlis 20% - RM225m
Landmarks Land 20% - RM35m
The assets under Landmarks are mainly good class assets and many are REIT-able. The company has stayed under the radar for a long time because the controlling shareholder was holding just 18% and did not have the financial muscle to get a bigger stake. The recent popularity of REIT makes a lot of sense to other predators to control Landmarks as they could unlock a lot of hidden values in the stock. It appears that there are now more than 2 parties keen to get control of the company, which bodes well for Landmarks and their minority shareholders.
The first step to unlocking is via the SungeiWang-Andaman REIT. Back in Sep 2005, the company proposed a SungeiWang REIT and that was shockingly rejected in Feb 2006 due to only one property and a low stakeholding in SWPlaza with no growth plans. A new REIT proposal was submitted in the same month. In April 2006, the new SW-Andaman REIT was approved. Last month the Securities Commission approved the disposal of SWP and Andaman. The REIT should list by October 2006. One can expect a cash dividend of 50 sen per Landmark share or get one free REIT for every two Landmarks shares held.
The next unlocking step could involve the attractive Shangrila Hotel shares. The company could distribute the shares to Landmarks' shareholders, which works out to be worth another RM0.64 per share, add that to the REIT's RM0.50, its looking good. But a caveat here, the Shangrila stake has largely be pledged as collateral for a RM185m RSS Bond, together with cash flow from datai's operations (hence the non-involvement of Datai in the SW-REIT proposal). Even so, any sale would go down to reducing debt substantially. Hence, it is more likely that the next asset sale will be its 20% stake in Teknologi Tenaga Perlis power plant, very easy to sell owing to the DCF predictability. The power plant stake should bring in RM225m or nearly another 50 sen in pure cash dividend.
Aside from the new shareholders in Zimulia, Killinghall (M) Bhd just announced that its chairman Syed YusofSyed Nasir has emerged as a substantial shareholder of property group Landmarks. An exchange circular quoted Syed as saying that he had bought 5.23 pct or 24.65 mln shares in Landmarks on the open market. ............ Let the games begin....
Top Buys For 2006 #8 - Landmarks
While Tebrau is swaying sideways, the longer it does that, the more uncomfy I get. So better to look at other finds. Landmarks look interesting. The sale of Sungei Wang Plaza and the Andaman Hotel to Sungei Wang REIT should bring about a 50 sen capital repayment to shareholders. Or shareholders could swap one SW-REIT for every 2 Landmark shares. Deal scheduled for completion in October 2006. The net yield for the REIT is expected to be 4.8%. The structure of the deal and the available free float makes Landmark shares a prime target for hedge funds and yield based investors. The main uncertainty is the listing process of the REIT, which was scuppered by the SC earlier. This time around, green light is expected and should attract lots of funds into Landmarks.
All other stuff like room rates, blah blah on its Langkawi hotels and Shangrila are unecessary. The other probable deals to come after the REIT are:
1) sale of stake in Shangrila Hotels
2) sale of its 20% stake in power lant Teknologi Tenaga Perlis
The unlocking of values are very likely to move ahead swiftly because the old shareholders of Zimulia with 18.7% came in at RM1.30 and disposed the stake apparently above RM1.70. What's even more interesting to add to the trigger points is the rumoured entry of new shareholders. Zimulia is said to be sold to to Datuk Zakaria Abdul Hamid and Lee Tuck Fook for between RM1.70 to RM2.00. Another new player coming in is said to be Mark Wee from Sarawak gaming industry (son of Datuk Amar Wee Hood Teck). This is because 18.7% is nothing and you would need a strong partner to mop up more shares to control the company.
Just to spice things up, there are additional triggers in the shareholdings structure - which is open to a General Offer anytime; plus the inherent attractiveness of assets within Landmarks make for easy piecemeal sales. Probably the top two hotels in Langkawi / Malaysia are in Landmarks, The Datai and The Andaman. Its 26.6% stake in the well managed Shangrila Hotels will find Robert Kuok scrambling to buyback the stake from Landmarks should they sell - the last thing Robert wants is to see the stake in the hands of another stranger who could derail the hotel's brand building.
The SW-REIT should bring in a 50 sen special dividend, and the other two assets, if sold, could bring in another 50 sen in special dividend over the next 12 months. These are the kind of unlocking of values which will attract a lot of funds' attention, in particular, hedge funds. The trigger points are all there. For hedge funds, buying and holding the shares for 1.5 years would bring in probably close to RM1.00 in cash dividend plus upside potential in share price - should easily bring on a return of 30% a year compounded. An easy sales pitch.
The RNAV is RM2.40. As assets are being unlocked, we should find the share price trend closer to RNAV. RM2.00 should not be a problem by October/November.
Paid Up: 463.8 million shares
Current Price: RM1.63
52 week Hi-low: RM0.87 - RM1.64
Bloomberg Code: LMK MK
KLSE Code: 1643
Reuters Code: LMHS.KL
RNAV: RM2.40
Target Price: RM2.00 by October/Nov 2006
Actual Return: 22%
Annualised Return: 66%
While Tebrau is swaying sideways, the longer it does that, the more uncomfy I get. So better to look at other finds. Landmarks look interesting. The sale of Sungei Wang Plaza and the Andaman Hotel to Sungei Wang REIT should bring about a 50 sen capital repayment to shareholders. Or shareholders could swap one SW-REIT for every 2 Landmark shares. Deal scheduled for completion in October 2006. The net yield for the REIT is expected to be 4.8%. The structure of the deal and the available free float makes Landmark shares a prime target for hedge funds and yield based investors. The main uncertainty is the listing process of the REIT, which was scuppered by the SC earlier. This time around, green light is expected and should attract lots of funds into Landmarks.
All other stuff like room rates, blah blah on its Langkawi hotels and Shangrila are unecessary. The other probable deals to come after the REIT are:
1) sale of stake in Shangrila Hotels
2) sale of its 20% stake in power lant Teknologi Tenaga Perlis
The unlocking of values are very likely to move ahead swiftly because the old shareholders of Zimulia with 18.7% came in at RM1.30 and disposed the stake apparently above RM1.70. What's even more interesting to add to the trigger points is the rumoured entry of new shareholders. Zimulia is said to be sold to to Datuk Zakaria Abdul Hamid and Lee Tuck Fook for between RM1.70 to RM2.00. Another new player coming in is said to be Mark Wee from Sarawak gaming industry (son of Datuk Amar Wee Hood Teck). This is because 18.7% is nothing and you would need a strong partner to mop up more shares to control the company.
Just to spice things up, there are additional triggers in the shareholdings structure - which is open to a General Offer anytime; plus the inherent attractiveness of assets within Landmarks make for easy piecemeal sales. Probably the top two hotels in Langkawi / Malaysia are in Landmarks, The Datai and The Andaman. Its 26.6% stake in the well managed Shangrila Hotels will find Robert Kuok scrambling to buyback the stake from Landmarks should they sell - the last thing Robert wants is to see the stake in the hands of another stranger who could derail the hotel's brand building.
The SW-REIT should bring in a 50 sen special dividend, and the other two assets, if sold, could bring in another 50 sen in special dividend over the next 12 months. These are the kind of unlocking of values which will attract a lot of funds' attention, in particular, hedge funds. The trigger points are all there. For hedge funds, buying and holding the shares for 1.5 years would bring in probably close to RM1.00 in cash dividend plus upside potential in share price - should easily bring on a return of 30% a year compounded. An easy sales pitch.
The RNAV is RM2.40. As assets are being unlocked, we should find the share price trend closer to RNAV. RM2.00 should not be a problem by October/November.
Paid Up: 463.8 million shares
Current Price: RM1.63
52 week Hi-low: RM0.87 - RM1.64
Bloomberg Code: LMK MK
KLSE Code: 1643
Reuters Code: LMHS.KL
RNAV: RM2.40
Target Price: RM2.00 by October/Nov 2006
Actual Return: 22%
Annualised Return: 66%
Where Do You Go To, My Lovely?
Ten Bucks For Those Who Know The Song/Singer
Finally, something biting and worth reading from the New Straits Times. None other than the column by Brendan Pereira. Basically he wrote on the missing buggers who basically absconded after much trickery and illegal activities. Brendan's words in blue:
... judging by the Malaysian experience, there is little need to keep looking over your shoulder for the phalanx of advancing enforcement officials. All you need is a crooked mind, an insatiable hunger for ill-gotten gains and an escape route, and you are on your way to joining the exclusive club of Messrs Balbir Kaur, Teh Soon Seng, Datuk Patric Lim, Jennifer Tay, Michael Soosai, etc. They are members of the fugitives club. They are wanted for corruption, stock market manipulation, criminal breach of trust, attempting to defraud a stockbroking firm and cheating. At some point during the course of investigations, they bolted, changed their identities, altered their looks and switched their postcode. Anecdotal evidence suggests that they have embraced respectability and are leading comfortable lives in China, India, Australia and New Zealand. They believe that the severely-stretched police force and the Interpol have more important issues confronting them than some white collar criminals living it up abroad.Hard to fault their reasoning. They remain free, after all.
I got to thinking about the life of a fugitive while following the high-profile trial where RHB Capital Bhd and its two subsidiaries are suing RHB founder Tan Sri Abdul Rashid Hussain and five other former officials for RM1.43 billion over several alleged breaches and negligence. The plaintiffs allege that approvals given by Rashid and the other co-defendants to five borrowers for margin financing were "irregular, improper and wrongful". They also claim that the margin financing was secured by inadequate and highly volatile securities and there was no assessment done on the applicants’ credit worthiness. The RHB Group suffered RM500 million in losses stemming from margin financing facilities to these five individuals in 1997 for the purchase of Omega Holdings Bhd shares. The most prominent name of the five borrowers is lawyer Jennifer Tay. Judging by the case presented before the court, she was a key player in this scheme, and her husband, Surendran Palachandran, was her sidekick. The couple would have been key witnesses in the case. They could also have been serving time in Sungai Buloh for allegedly manipulating the purchase and sale of Omega Securities shares.But sometime in 1998, they got wind that the authorities were going to charge them in court and they fled the country. They stayed below the radar for a few years but have since been sighted in India and Australia. Officially, they are still on the wanted list here and are on the Interpol alert, but precious little is being done to bring them back to face charges here. The conspiracy theorists will argue that this reluctance has something to do with the fact that some political players and heavy hitters were involved in the shenanigans at Omega Securities. Maybe so.But what’s the excuse for not doing more to go after Balbir and Teh? Anecdotal evidence suggests that Balbir is either in Punjab or in New Zealand and bears little resemblance to the magistrate who was arrested in October 1987 by the Anti-Corruption Agency for allegedly accepting RM25,000 as an inducement to acquit three Indonesians facing charges under the Customs Act. She disappeared while on bail. Next year, she can celebrate 20 years on the run. Correction — she can celebrate 20 years of living outside Malaysia. Teh is a less famous member of the fugitive club. He was the managing director of Aokam Perdana, once the punter’s darling.Aokam rocketed to prominence in 1992, capturing the imagination of punters and institutional investors. Its share price, which traded listlessly at RM1 for most of the late 1980s and early 1990s, touched a high of RM31.50 at the height of the Kuala Lumpur Stock Exchange’s bull run in 1993. Teh, a graduate of the London School of Economics, gave many interviews at the height of Aokam’s popularity. In 1994, he was asked what he hoped to see his company achieve in 10 years."I am building it to become something like Georgio Pacific in the United States. Very big, regional and multi-product," he said. He apparently had to junk those ambitions in 1997 after several police reports on criminal breach of trust and misappropriation of funds totalling RM45 million were lodged. In the early days, there were reports that he was living a life of luxury in Shanghai. But after a while, the trickle of news about him dried up. These days, mention his name and this is the likely reponse: Teh who? Very few remember the businessman who used to have a retinue of 20 bodyguards and was the face of the bull run in the 1990s. Fugitives breathe easy when they reach this stage of life when their names no longer ring a bell, let alone invite derision. They know it’s a bellwether of the interest the authorities have in bringing them back to face justice. The evidence so far suggests that they are right. A real pity because the crimes allegedly committed by Balbir, Tay and gang are arguably more serious than the ones committed by the bunch of petty criminals who are paraded before magistrates and judges daily. The only difference: one group of criminals had the means to fly the coop.
I believe Teh Soon Seng is doing very well in Shanghai. In fact he used to even own horses by proxy, racing in Malaysia / Singapore. The pity is that there are probably 5 great stories for a non-fiction / movie / series - now if only we can nail them and get them to tell the stories.
Ten Bucks For Those Who Know The Song/Singer
Finally, something biting and worth reading from the New Straits Times. None other than the column by Brendan Pereira. Basically he wrote on the missing buggers who basically absconded after much trickery and illegal activities. Brendan's words in blue:
... judging by the Malaysian experience, there is little need to keep looking over your shoulder for the phalanx of advancing enforcement officials. All you need is a crooked mind, an insatiable hunger for ill-gotten gains and an escape route, and you are on your way to joining the exclusive club of Messrs Balbir Kaur, Teh Soon Seng, Datuk Patric Lim, Jennifer Tay, Michael Soosai, etc. They are members of the fugitives club. They are wanted for corruption, stock market manipulation, criminal breach of trust, attempting to defraud a stockbroking firm and cheating. At some point during the course of investigations, they bolted, changed their identities, altered their looks and switched their postcode. Anecdotal evidence suggests that they have embraced respectability and are leading comfortable lives in China, India, Australia and New Zealand. They believe that the severely-stretched police force and the Interpol have more important issues confronting them than some white collar criminals living it up abroad.Hard to fault their reasoning. They remain free, after all.
I got to thinking about the life of a fugitive while following the high-profile trial where RHB Capital Bhd and its two subsidiaries are suing RHB founder Tan Sri Abdul Rashid Hussain and five other former officials for RM1.43 billion over several alleged breaches and negligence. The plaintiffs allege that approvals given by Rashid and the other co-defendants to five borrowers for margin financing were "irregular, improper and wrongful". They also claim that the margin financing was secured by inadequate and highly volatile securities and there was no assessment done on the applicants’ credit worthiness. The RHB Group suffered RM500 million in losses stemming from margin financing facilities to these five individuals in 1997 for the purchase of Omega Holdings Bhd shares. The most prominent name of the five borrowers is lawyer Jennifer Tay. Judging by the case presented before the court, she was a key player in this scheme, and her husband, Surendran Palachandran, was her sidekick. The couple would have been key witnesses in the case. They could also have been serving time in Sungai Buloh for allegedly manipulating the purchase and sale of Omega Securities shares.But sometime in 1998, they got wind that the authorities were going to charge them in court and they fled the country. They stayed below the radar for a few years but have since been sighted in India and Australia. Officially, they are still on the wanted list here and are on the Interpol alert, but precious little is being done to bring them back to face charges here. The conspiracy theorists will argue that this reluctance has something to do with the fact that some political players and heavy hitters were involved in the shenanigans at Omega Securities. Maybe so.But what’s the excuse for not doing more to go after Balbir and Teh? Anecdotal evidence suggests that Balbir is either in Punjab or in New Zealand and bears little resemblance to the magistrate who was arrested in October 1987 by the Anti-Corruption Agency for allegedly accepting RM25,000 as an inducement to acquit three Indonesians facing charges under the Customs Act. She disappeared while on bail. Next year, she can celebrate 20 years on the run. Correction — she can celebrate 20 years of living outside Malaysia. Teh is a less famous member of the fugitive club. He was the managing director of Aokam Perdana, once the punter’s darling.Aokam rocketed to prominence in 1992, capturing the imagination of punters and institutional investors. Its share price, which traded listlessly at RM1 for most of the late 1980s and early 1990s, touched a high of RM31.50 at the height of the Kuala Lumpur Stock Exchange’s bull run in 1993. Teh, a graduate of the London School of Economics, gave many interviews at the height of Aokam’s popularity. In 1994, he was asked what he hoped to see his company achieve in 10 years."I am building it to become something like Georgio Pacific in the United States. Very big, regional and multi-product," he said. He apparently had to junk those ambitions in 1997 after several police reports on criminal breach of trust and misappropriation of funds totalling RM45 million were lodged. In the early days, there were reports that he was living a life of luxury in Shanghai. But after a while, the trickle of news about him dried up. These days, mention his name and this is the likely reponse: Teh who? Very few remember the businessman who used to have a retinue of 20 bodyguards and was the face of the bull run in the 1990s. Fugitives breathe easy when they reach this stage of life when their names no longer ring a bell, let alone invite derision. They know it’s a bellwether of the interest the authorities have in bringing them back to face justice. The evidence so far suggests that they are right. A real pity because the crimes allegedly committed by Balbir, Tay and gang are arguably more serious than the ones committed by the bunch of petty criminals who are paraded before magistrates and judges daily. The only difference: one group of criminals had the means to fly the coop.
I believe Teh Soon Seng is doing very well in Shanghai. In fact he used to even own horses by proxy, racing in Malaysia / Singapore. The pity is that there are probably 5 great stories for a non-fiction / movie / series - now if only we can nail them and get them to tell the stories.
The Private Equity Buyout Effect
Here Come The B.S.D.s
It is a significant deal, when Merrill Lynch paid one of their regular visits to HCA, the commercial American hospital company. Merrill Lynch had an audacious proposal: assembling a group of private investors to acquire the company for more than $US30 billion. The deal, including debt, is the largest leveraged buy-out ever, worth $US33 billion. Ignoring inflation, that eclipses the historic $US30.6 billion takeover of RJR Nabisco in 1989. The 89 episode was the subject material for the wildy successful book Barbarians At The Gate, easily one of my favourite books of all time. I guess the barbarians have returned again, only this time, the gates are more welcoming.
I have mentioned often that the funds raised by the private equity buyout firms over the last 12 months points to more bigger deals in order for the funds to perform. Private equity firms like Kohlberg Kravis Roberts, which came to fame in the RJR buyout, and others largely unknown outside Wall Street now possess more than $US2 trillion in buying power. In addition to KKR, the new brand names of finance are Bain Capital, Blackstone Group, Carlyle Group, and Texas Pacific Group. The companies they own include Hertz and Warner Music. The deal-making prowess of the big private equity firms means that they have become Wall Street's most important clients.
The buy-out spree is expected to run on. Some big public companies, fed up with scrutiny from investors and regulators, are now selling themselves to private equity firms. And private equity is increasingly able to take on bigger deals. Firms raised more than $US260 billion worldwide this year from big money managers like pension funds. Earlier this month Blackstone Group raised $US15.6 billion, creating the world's largest private equity fund. Private equity firms use the money they have raised and borrow more to buy businesses. The firms borrow against the value of the asset and its cash flow that they are acquiring, often allowing the firms to invest only a small sum of equity in a large transaction.
In the HCA deal the three private equity firms - Bain, KKR and Merrill Lynch's buy-out unit - and the Frist family are investing $US5.5 billion in cash. The rest of the $US33 billion price tag is being financed by debt, which the firms hope to pay down, like a mortgage payment, using HCA's income. Taking advantage of relatively cheap borrowing costs, private equity firms have gone on a worldwide shopping spree. Already this year private equity has bought well-known brands, worth more than $US347 billion, twice last year's pace. Private equity firms spent $US12.3 billion for Univision last month; $US22 billion for Kinder Morgan in May; as much as $US14 billion for General Motors' finance unit, GMAC, in April; and $US17.4 billion for Albertsons, the supermarket chain, in January.
The implications are manifold, but mostly good. We have currently listed US companies holding onto the largest cash balance in their books in history. We also have private equity with enormous booty to invest. The twain shall meet. There are sufficient big candidates to absorb the initial investments. It will have the effect of boosting valuation for similar companies in similar industries. It will create positive vibes for equity sentiment.
Here Come The B.S.D.s
It is a significant deal, when Merrill Lynch paid one of their regular visits to HCA, the commercial American hospital company. Merrill Lynch had an audacious proposal: assembling a group of private investors to acquire the company for more than $US30 billion. The deal, including debt, is the largest leveraged buy-out ever, worth $US33 billion. Ignoring inflation, that eclipses the historic $US30.6 billion takeover of RJR Nabisco in 1989. The 89 episode was the subject material for the wildy successful book Barbarians At The Gate, easily one of my favourite books of all time. I guess the barbarians have returned again, only this time, the gates are more welcoming.
I have mentioned often that the funds raised by the private equity buyout firms over the last 12 months points to more bigger deals in order for the funds to perform. Private equity firms like Kohlberg Kravis Roberts, which came to fame in the RJR buyout, and others largely unknown outside Wall Street now possess more than $US2 trillion in buying power. In addition to KKR, the new brand names of finance are Bain Capital, Blackstone Group, Carlyle Group, and Texas Pacific Group. The companies they own include Hertz and Warner Music. The deal-making prowess of the big private equity firms means that they have become Wall Street's most important clients.
The buy-out spree is expected to run on. Some big public companies, fed up with scrutiny from investors and regulators, are now selling themselves to private equity firms. And private equity is increasingly able to take on bigger deals. Firms raised more than $US260 billion worldwide this year from big money managers like pension funds. Earlier this month Blackstone Group raised $US15.6 billion, creating the world's largest private equity fund. Private equity firms use the money they have raised and borrow more to buy businesses. The firms borrow against the value of the asset and its cash flow that they are acquiring, often allowing the firms to invest only a small sum of equity in a large transaction.
In the HCA deal the three private equity firms - Bain, KKR and Merrill Lynch's buy-out unit - and the Frist family are investing $US5.5 billion in cash. The rest of the $US33 billion price tag is being financed by debt, which the firms hope to pay down, like a mortgage payment, using HCA's income. Taking advantage of relatively cheap borrowing costs, private equity firms have gone on a worldwide shopping spree. Already this year private equity has bought well-known brands, worth more than $US347 billion, twice last year's pace. Private equity firms spent $US12.3 billion for Univision last month; $US22 billion for Kinder Morgan in May; as much as $US14 billion for General Motors' finance unit, GMAC, in April; and $US17.4 billion for Albertsons, the supermarket chain, in January.
The implications are manifold, but mostly good. We have currently listed US companies holding onto the largest cash balance in their books in history. We also have private equity with enormous booty to invest. The twain shall meet. There are sufficient big candidates to absorb the initial investments. It will have the effect of boosting valuation for similar companies in similar industries. It will create positive vibes for equity sentiment.
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