Frankly Speaking

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‘Business as usual’ must stopAmong the reasons cited for the decline in foreign direct investment are that the Malaysian economy has lost out to its neighbours as a low-cost manufacturing centre, stronger growth prospects in the newly emerging economies including China and India, growing political uncertainty in the country and corruption that is becoming more serious.

Each of these reasons provide much room for debate. A further issue is policy and regulatory capture by politically-linked business interests. As a forum-cum-book launch on the financial crisis heard last week, the nexus between business and politics can result in public policy being influenced in ways that may not be in the public interest.

The point, made by Prof Terence Edmund Gomez of Universiti Malaya, is demonstrated by the privatisation policy, which continues to shape economic policy under the New Economic Model. Despite the repeated failure of the privatisation policy since the 1980s, he argues, national assets have been awarded to business interests, only to be rescued later at great cost to the public coffers.

The saga of Malaysia’s car manufacturing experiment that has been beset with stiff challenges for 27 years demonstrates these dangers. In comparison, the South Korean experience with Hyundai and Kia point the way for Malaysia to go. Crucially, the Korean car makers were made to meet tough financial performance benchmarks that forced them to compete in an open market.

Although it would be difficult to apportion blame for the country’s economic problems, we would not be doing ourselves a favour by taking the ‘business as usual’ route.
Too soon for a cash call? Multi Sports Holdings Ltd may have very good operational reasons for undertaking a rights issue nine months after listing on Bursa Malaysia, but is it doing right by its shareholders making one so soon after its IPO and when its share price is languishing?

The company has proposed a renounceable one-for-four rights issue of 90 million new shares at a price to be determined later. Multi Sports explained that it was seeking additional funds because it has received “larger than expected orders from its existing and new customers”. Proceeds from the rights issue will be used to accelerate its expansion plan, which was first announced in its IPO prospectus. The company would require an additional RM50.33 million to do so, the announcement said.

The question here is whether a cash call just nine months after its IPO seems a tad too early. Perhaps Multi Sports should look at other avenues of fund-raising, such as a bank loan or bond. It is not clear if either has been considered.

Multi Sports can tap its shareholders for funds; after all, this is why it listed. But shareholders may not be too happy to cough up more cash, particularly when their initial investment has yet to appreciate. But by renouncing their rights, shareholders will see their holdings dilute.

As at last Friday, Multi Sports’ share price languished at 41 sen apiece, less than half its IPO price of 89 sen per share last August. The company has posted three impressive financial quarters since listing, and a healthy dividend yield of 44%, based on a YTD dividend payout of 18 sen per share.Perhaps clearer guidelines on the timing between IPO and first rights issue are needed.
Why these companies?Last week, the government announced the award of three contracts to build and maintain three campuses and related structures for Universiti Teknologi Mara in Kuala Selangor, Tapah and Seremban for a 23-year tenure.

The contracts, to be funded on a private finance initiative (PFI) basis and valued at about RM900 million collectively, were awarded to Menang Corp (M) Bhd’s 71% unit Inovatif Mewah Sdn Bhd, TRIplc Bhd and Crest Builder Bhd.

While there has been much rhetoric on the need for transparency and governance by the government, the award of the three university contracts leaves unanswered questions about the selection criteria. Of the three, the award to Crest Builder seems the least perplexing because it is a mid-size contractor with a relatively good track record.

Menang, another winner (pardon the pun), has suffered losses in four of the last five financial years. It posted a meagre profit of RM3.6 million in FY2009. Menang is also a Practice Note (PN) 1 counter, having defaulted on payments of its redeemable convertible secured loan stocks owing to Pengurusan Danaharta Nasional Bhd and financial institutions.

Perhaps it would also be good to mention who controls the remaining 29% of Inovatif Mewah. A check with the Companies Commission of Malaysia reveals that Inovatif Mewah’s shareholders are Zainudin Koming and Noraini Abdullah, with no mention of Menang Corp, possibly because the shareholding structure has yet to be updated.

The directors of Inovatif Mewah, however, are Datuk Abdul Mokhtar Ahmad, the executive chairman of Menang, and Datuk Shun Leong Kwong, the managing director/CEO of Menang. Could Menang have been awarded the job if it had bid for the job through a wholly-owned unit?   What about TRIplc? To begin with, it is a PN17 company because it has negative shareholders’ funds. It has been in this quagmire  since 2008.
This article appeared in Corporate page of The Edge Malaysia, Issue 805, May 10-16, 2010