Frankly Speaking

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A placement that’s not quite rightSomething is not right about ACE market-listed Focus Dynamics Technologies Bhd’s private placement of 16.1 million shares, or 11.92% of its issued share capital. On Jan 21, the company announced that the 16.1 million shares, which forms the second tranche of its private placement of 45.4 million shares, had been placed out at 12.5 sen each, a discount of 7.5% to the five-day volume-weighted average market price. The exercise raised around RM2 million.

Focus Dynamics then announced on Jan 27 that the new substantial shareholder of the 11.92% stake was one Foong Chee Oon. Subsequently, within five market days, Foong sold his stake on the open market and ceased to be a substantial shareholder, according to a filing to Bursa Malaysia on Feb 3.  

Focus Dynamics’ share price hit an intra-day high of 18.5 sen on Jan 25. Over the five days, its share price averaged 15.1 sen per share, which means Foong could have made an average of 2.6 sen per share, or as high as six sen a share. There’s nothing wrong in realising one’s investments but the manner in which it was done invites scrutiny.

After all, why bother taking up the shares only to sell them within five market days? Also to be noted is that the shares were placed at a discount.

And it does not end there. On Feb 5, Focus Dynamics announced that it was conducting another private placement exercise involving 18.2 million shares, representing 10% of the company’s issued and paid-up capital.

No mention was made of the remaining 14.3 million shares from the private placement of 45.4 million shares (of which 15 million had been placed out earlier in October 2009). 

In 2007, the company also conducted a private placement of 14.2 million shares, representing 10% of its enlarged issued and paid-up capital.

Focus Dynamics is involved in the business of providing energy efficient solutions, but from the spate of private placements it has been conducting, it may as well be in the business of placing out shares.  

Exuberance over LCL too early?Last week, troubled firm LCL Corp Bhd named the second largest interior and exterior contractor in the US, KHS&S, as a potential investor to help revive the company. LCL had announced that it would “discuss, deliberate and outline” the regularisation plan with KHS&S representatives.

KHS&S has been involved in the construction of major theme parks in the United States, including Disneyland, Universal Studios and Las Vegas MGM Studio, and has completed over 3,000 projects worldwide.

Despite the very limited details provided by LCL to the stock exchange, investors reacted positively, sending LCL shares 30% higher to 26 sen, the day after it announced the plan.

According to a KHS&S official, there was only a “single meeting” with LCL, adding that discussions were very “general”. The objective was to see where “mutually beneficial opportunities may exist”.

The official adds that KHS&S is also talking to other companies in Asia and in the Middle East and did not indicate if there would be a second round of meetings with LCL.

This means that LCL still has a long way to go before any deal comes to fruition.

What are its chances of roping in KHS&S as an investor, especially when the latter is also looking at other companies to invest in? Given such a tepid response from KHS&S, are investors reacting too early to the recent developments in LCL? Only LCL will be able to answer these questions.

Cheap money is not free moneyIf it is not enough that the government is spending almost RM20 billion to build an electrified double track from Padang Besar in Perlis to Gemas in Johor, there is now a proposal for a high-speed train from Johor Baru to Padang Besar.

The proposal is being dangled by a Malaysian company, MRail International Sdn Bhd, and China’s CNR Tangshan Railway Vehicle Co Ltd.

Officials from both companies have met Prime Minister Datuk Seri Najib Razak and former prime minister Tun Dr Mahathir Mohamad on the matter.

The proposal is to build a single track along the existing double track to accommodate standard-gauge trains that can travel at high speed. The existing double track caters for smaller metre-gauge trains.

MRail and CNR Tangshan are not well-known names. But what is enticing about their proposal is that the funding will come from the Chinese government.

Effectively, it will be cheap funding, similar to what the government received for kick-starting the second Penang Bridge project.

While the funding may be cheap, do we need so many railway tracks for a country where the most popular mode of transportation is the car? In fact, families usually use private vehicles for long-distance travel. Rarely do we see an entourage travelling by public transport these days.

Cheap funds from China should not be a reason to embark on projects that are likely to end up as white elephants. It is not that a high-speed train will never be needed in Malaysia. But in the next decade, we will certainly not see a big demand for such infrastructure.

At the end of the day, the funds are not free … only cheap. They have to be repaid!

This article appeared in Corporate page of The Edge Malaysia, Issue 792, Feb 8-14, 2010