Frankly Speaking

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A tale of two rights issuesLast week, Kencana Petroleum Bhd announced that it was proposing to undertake, among other things, a renounceable rights issue of 369 million rights shares at 50 sen each on the basis of two rights for every five shares held. The issue price represented a discount of 62% from the theoretical ex-all price of RM1.32 based on the five-day volume-weighted average market price of Kencana Petroleum up to Nov 10.

The rights issue is priced at a steep discount to the theoretical market price. But so what? All shareholders are given the right to subscribe for cheap shares in the company. There is no discrimination or preferential treatment given to any one segment of shareholders. This is in contrast with a proposal by Ho Hup Construction Bhd announced two weeks ago.

Ho Hup proposed a fundraising exercise to regularise its financial position, including a rights issue and a restricted issue. The rights issue is to be done after a capital reduction exercise reduces existing shareholders’ interest in the company to less than 50%, with the rest taken by selected investors in the restricted issue. This effectively means that the company will go into the hands of a new set of controlling shareholders.

The restricted issue will raise RM26.25 million whereas the rights issue will raise RM12.75 million. It is a given that Ho Hup needs a capital infusion to boost its shareholders’ fund, but couldn’t the company consider a bigger rights issue to allow existing shareholders a chance to continue to control and participate in the future of the company? Why must such a big allocation of shares be given to selected investors via a restricted issue? 

This is something that the management should consider if they require more funds. Priority should be given to existing shareholders if they require more money. Perhaps Ho Hup should take a leaf out of Kencana Petroleum‘s book.
Information is powerIt is distressing that the Selangor government has earned less than RM500,000 to date from a reforestation project that promised to generate RM800 million from timber, land leases and other royalties over 20 years, as pledged by former menteri besar Datuk Seri Mohamed Khir Toyo.

This information was revealed when current menteri besar Tan Sri Khalid Ibrahim declassified documents last Friday on joint-venture projects between the state agriculture development corporation and private companies from 2001 to 2007. The contracts, says Khalid, were lopsided in favour of private interests and brought the state little benefit.

If proof is needed that transparency encourages financial discipline, this episode provides an ample amount. Indeed, by this token, a democracy can only be called mature when official secrecy on public procurement and contracts is replaced with openness and accountability. For that to happen, a Freedom of Information Act would be just what the doctor ordered.

This point was driven home at a conference on freedom of information organised by Transparency International Malaysia and the Centre for Independent Journalism a week earlier. In a paper on India’s Right to Information (RTI) Act 2005, Prof M K Balachandran notes that prior to the enactment of that law, citizens were forced to move the courts every time they wanted access to information about the activities of public institutions.

Once the law was put in place, it made a world of difference. Public officials now had to account for their conduct. The success stories make an inspiring list: a tax refund pending for five years paid in a week, land compensation not paid for 18 years settled, corruption among local officials exposed, and essential commodities recovered from the black market, among others. In some cases, the mere mention of the word RTI was enough to produce results.
Look beyond labour issuesUnfortunately, it’s the same old issues involving domestic maids and the influx of workers — legal and illegal — from Indonesia that continues to hog the limelight during Indonesia’s President Susilo Bambang Yudhoyono’s visit to Malaysia last week.

Certainly, when a domestic maid is abused, it is of grave concern to all Malaysians. And the rise in the crime rate — supposedly due to the influx of foreign workers that is largely made up of Indonesians — is also a matter of importance.

But labour issues aside, there are many issues that ought to be explored. Rather than continuing to treat Indonesia primarily as a supplier of cheap labour, Malaysians should look at the market opportunities offered by Indonesia and come up with ways to tap into that market.

Indonesia’s economy, with a 230 million-strong population, is turning around under Susilo’s government, and is one of the few countries that will not go into recession this year.

Malaysian banks and local plantation giants have ventured into Indonesia. Now, even direct marketing companies are testing the waters there. But there seems to be a lack of “communication” in terms of exploring economic opportunities for the mutual benefit of both.

For instance, many see Indonesia as a competitor in certain product segments, and also in attracting foreign direct investments. In contrast, China is seen as a huge consumer market and many companies are looking to list their subsidiaries there.

It’s time to change the perception and look at Indonesia as fertile ground to expand operations instead of a country that merely supplies cheap labour.
This article appeared in Corporate page of The Edge Malaysia, Issue 781, Nov 16-22, 2009.