Frankly Speaking: June 14-20, 2010

-A +A

Change the mindsetIt is astounding that the cabinet was contemplating last week the relocation of Parliament to Putrajaya, a day before Prime Minister Datuk Seri Najib Razak presented the transformational 10th Malaysia Plan (10MP) in the august House.
To put it plainly, the proposal to build a new parliament building at an estimated cost of RM800 million is very much at odds with the spirit of Najib’s maiden economic blueprint.
Specifically, the prime minister signalled a major shift in economic direction away from expenditure on hard infrastructure to skills development. This is reflected in the doubling of development funding dedicated to non-physical programmes in the 10MP compared with the previous plan.
Why then this penchant for construction projects on a grand scale? The idea is appalling on several counts. For one, there is no pressing reason to spend that amount on a new iconic building to house the legislature when the present one is quite functional and can be refurbished at a fraction of the cost.
Secondly, it would be perverse to be so free with public funds when the budget deficit has ballooned to 5.3% of GDP this year, and the government contends that it is exercising fiscal discipline. Moreover, the government cannot be very convincing about the need to reduce subsidies that cushion the cost of living for the average person when it is contemplating a big-ticket expenditure that is not a priority project.
Most of all, it illustrates that Najib may have a rather daunting task in selling the ideas behind the 10MP, New Economic Model and Government Transformation Programme to the people if his own cabinet is still operating in the business-as-usual mode of the past.
Could this be part of the reason the market barely responded to the 10MP announcement despite its impressive content?

What’s going on at Kumpulan Jetson?Intriguing shareholding changes are occurring at construction outfit Kumpulan Jetson Bhd, as parties affiliated to the Naza group upped their stakes above the 33% mark.
Privately held Superior Pavillion Sdn Bhd, the vehicle of brothers Sheikh Mohd Nasarudin and Sheikh Mohamad Faliq Sheikh Mohamad Nasimuddin Kamal (both from the Naza group) have a 28.9% stake or 17.5 million shares in the company. Kumpulan Jetson Provident Fund has another 3.4% stake or almost 2.1 million shares. This information  was based on the company’s annual report for FY2009, which lists the shareholdings as at April 23, 2010.
However, on April 27, Chow Chee Kin, a director of the company, acquired some 1.6 million shares or about 2.6% equity interest at RM2 per share. He acquired a further one million shares on May 10, also at RM2 per share, thus nudging his shareholding up to 2.6 million shares or almost 4.3%.Chow is an executive director at Kumpulan Jetson and was the group chief financial officer of Naza Motor Trading Sdn Bhd, and is an adviser to Kumpulan Jetson’s chairman and executive director Nasarudin and vice-chairman and executive director Faliq. All three were appointed together on Nov 30, 2009, after the brothers bought into Kumpulan Jetson and took control of the construction company.
Two issues come to the fore. First, isn’t there a “creeping rule” preventing directors from accumulating more than 2% equity interest within a six-month period?
Second, Chow and Superior Pavillion collectively have a 33.2% stake now, after the former’s acquisition spree.
This means that even if the equity held by Kumpulan Jetson Provident Fund is excluded, the controlling shareholders and parties acting in concert with them have accumulated more than 33% of the company. This would trigger a mandatory general offer.
Even if by some technicality a mandatory general offer is not triggered, as part of good corporate governance shouldn’t Kumpulan Jetson state that Chow and the Naza brothers are not acting in concert, and that Chow’s recent acquisitions are not part of the larger group’s?
It is to be hoped that there will be  some form of explanation from Kumpulan Jetson.   

LCL minorities left in the dark over selldownOn June 8, LCL Corp Bhd released its 2009 annual report. Those who bothered to look would have discovered that the executive chairman, founder and former largest shareholder Datuk Low Chin Meng no longer owns a single share, directly or indirectly, in the company as at April 30. Neither do the three remaining directors.
This gives the impression that the company is being run by professional managers. However, those who are familiar with LCL’s history would know that Low disposed of his shares as the company’s fortunes declined along with Dubai’s debt woes in 4Q2009.
In December last year, Low lost 16 million LCL shares, representing an 11.2% stake, which had been pledged to CIMB Islamic Bank Bhd as part of the security for a facility granted to the company.
But prior to the fallout in Dubai, Low had already been paring his stake in LCL. According to filings with Bursa Malaysia, in November 2009, Low reduced his stake by about 28 million shares, or 20%, for some RM16 million. Before the selldown, he was the single largest shareholder with slightly more than 30% equity interest in the interior fit-out company, which had entered the Dubai market with much fanfare.
However, it is not clear if Low’s disposal over the past year was the result of forced selling by lenders. The 2008 annual report revealed that large blocks of Low’s shares had been pledged to various financial institutions.
Nevertheless, Low and LCL’s management could have warned shareholders of the troubles looming. On Feb 23 this year, the company announced huge losses of over RM300 million for 4Q2009. Unfortunately, this is not a common practice in corporate Malaysia, unlike in the US where profit warnings by corporations is the norm.
So it was that in the LCL episode, minorities were left in the dark as major shareholders sold their shares while the company’s fortunes sank.

This article appeared in Corporate page of The Edge Malaysia, Issue 810, June 14-20, 2010