Underwriting fees for all?It seems out-of-sync that YTL Corp Bhd should get S$5.3 million of the S$8 million underwriting commission for Starhill Global REIT’s planned rights issue to raise S$337.3 million to pare debt and boost its war chest.Some S$3.7 million of the underwriting fees it will receive is for giving an undertaking to absorb an additional 48.4% of the rights shares beyond its portion. What’s in question is the S$1.6 million YTL will get for underwriting its own 26.6% entitlement to the rights issue. Is there any risk of YTL not taking up its own entitlement to the rights issue, considering it is the major shareholder and would have approved the proposal at board level?But the practice of underwriting 100% of a rights issue is not exclusive to Starhill Global REIT. CapitaCommerical Trust, which is also listed in Singapore, also had a fully underwritten rights issue where CapitaLand was entitled to a sub-underwriting fee. Both faced the same problem, which is that banks would only underwrite the rights issue if the major shareholder agreed to sub-underwrite the bulk of the rights issuance, citing “challenging market conditions”. Starhill Global REIT’s circular did not mention if Singapore regulators require 100% underwriting, which may just be the case. However, although market conditions are challenging, if there is a need to underwrite the major shareholders’ portion, doesn’t it imply that there is a risk of the major shareholder not being able to fulfil its obligations? But given that banks insist on a sub-underwriter, YTL Corp was indeed helping to ensure a successful rights issue by facilitating the underwriting by the lead managers and underwriters. A point to note is that the commission on underwriting YTL’s own entitlement was only 1.75%, smaller than the 2.25% for rights beyond its entitlement.It is also true that by committing to back 75% of the rights exercise, YTL is assuming material market risk and had forgone its ability to trade its rights entitlement. Still, would that justify receiving a fee to take up its own portion of the rights? Should every other minority shareholder who sends a letter of irrevocable undertaking also be entitled to the same fee?Try a rational approachIt is difficult to believe that in this day and age, we have government leaders who imagine that the people can be made to take preventive measures in a public health situation by giving an infection a culturally offensive name. Yet, this is the idea that Information, Communication and Culture Minister Datuk Seri Dr Rais Yatim promoted to the media last week.According to a Bernama report, he suggested that all media return to using the term “swine flu” instead of Influenza A (H1N1) “to ensure that the people realised the danger of the disease and to get the message across to them more accurately”.Such fear-mongering betrays a mindset that belongs to a pre-modern age when children were kept in line with stories of ghosts and goblins under the bed. Today, the minister might want to know, the public expects health advisories that clearly state the modes of transmission of the disease, simple information about risk groups and easy-to-follow steps for protecting themselves from infection.It is frankly worrisome that leaders who take to such inane methods are at the helm of the government and are supposed to be responsible for shaping the nation’s future. Transparency essentialJohn Master Industries Bhd (JMI) is rewriting local corporate history. The apparel maker has made an unprecedented move to sell its business via an open tender and the cash received from the asset sales will be returned to shareholders in the form of capital repayment after a capital reduction. This decision was made in view of the tough operating environment in the garment industry, and also because JMI shares are hardly traded on the local bourse. Upon completion of the asset sales, the company will be delisted from Bursa Malaysia.The proposed disposal will involve the en bloc sale of assets and liabilities. As at March 31, 2009, JMI’s assets include inter-company loans owing from its subsidiaries, amounting to RM130.98 million. Its key assets are mainly its brands, namely John Master and Schwarzenbach, and land in Ulu Langat.Considering that its substantial shareholders via its private vehicle Yoon Foong Garments Sdn Bhd have already indicated an interest in putting in a bid, the proposed open tender shows that the company’s management has been fair to the minority shareholders, since the interested shareholders could have privatised John Master directly. Nonetheless, the fairness of the deal hinges on the transparency of the bidding process. JMI has hired Ferrier Hodgson MH Sdn Bhd as the independent tender administrator to manage the open tender process. Upon completion of the exercise, the board will decide on the winning bid. Ideally, the details of all bids submitted, or at least the bidding price by the interested parties, should be revealed to the minority shareholders to ensure that the best offer is selected. Otherwise, the purpose of the open tender may be defeated. It will not be much different from the privatisation exercises in which minorities seldom get the full value of assets.
This article appeared in The Edge Malaysia, Issue 761, June 29-July 5, 2009