Frankly Speaking: June 21-27, 2010

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Investors beware, it’s scandal season againWhen it rains, it pours — scandals, that is. In a space of just several weeks, high-profile cases involving three companies have emerged — Kenmark Industrial Co, Linear Corp and Axis Inc — sparking renewed concerns over corporate governance and shareholder protection issues.The scandals have all the right ingredients for a movie, albeit a sad one for many minority shareholders.
At Linear, there was a RM1.67 billion “contract” from a Seychelles-based company to build a district cooling system for what was billed as the “biggest dome in the world”, in Perak. Linear’s shares quadrupled days after the announcement on Dec 29 last year, but tumbled after it was found that the company had transferred almost all its RM36 million cash reserves to the little-known promoters of the unheard-of project.
Meanwhile, Axis Inc, a PN17 company, said on June 9 that a whole lot of documents, including purchase and delivery orders, bank statements and cheque butts, some dating back to 2004, had gone missing, prompting it to make massive write-offs.
But none could beat Kenmark whose shares plunged over 90% in a matter of days after its managing director “disappeared”. Days later, he broke his silence and claimed he had been sick the previous week, and had been in and out of consciousness. Then, there was a “white knight” in Datuk Ishak Ismail, who stepped in “to help a friend”. But just over a week later, Ishak cashed out completely with handsome gains, leaving minority shareholders back in the lurch.
The Securities Commission has since acted strongly. In an unprecedented move, it obtained an injunction to restrain Ishak from dealing in the RM10.2 million in proceeds from the Kenmark sale. This is the first such case where the SC has acted to prevent dealings in the proceeds from a share sale. The SC has also ordered Ishak to furnish full and complete details of his assets in Malaysia and overseas.
The SC is investigating Linear as well. We applaud the SC’s swift moves. The irresponsible actions of a few bad apples have undermined the confidence of investors and banks in small companies, and destroyed millions in minority shareholders’ wealth. Those responsible must be dealt with swiftly, and harshly.

Syed Mokhtar should emulate Gates and Buffett Bill Gates, one of the richest men in the world, is well respected, not just for his success in founding Microsoft but also for his generosity, including setting up a charity foundation with his personal wealth. Warren Buffett has joined his friend Gates in the same philanthropic purpose. Perhaps Malaysian tycoon Tan Sri Syed Mokhtar Al-Bukhary should take a leaf from their book and donate his personal wealth to charity, including contributing to the Albukhary International University in Alor Setar. That should leave shareholders of public-listed companies linked to the tycoon, which forked out substantial sums as donations to the university founded by Yayasan Al’Bukhary, feeling much better.
Last week, the board of Tradewinds Plantations Bhd, a company linked to Syed Mokhtar, faced the wrath of shareholders at the company’s AGM as a result of the RM10 million contribution to the university. The board defended the donation, saying the sum was relatively small in contrast to the company’s aggregate profit of RM400 million over the past three financial years. Still, this is a huge lump sum in the eyes of minorities.
The episode could have been avoided if Tradewinds had declared dividends to shareholders. Being the major shareholder, Syed Mokhtar would receive the bulk of the dividends and no one would question his noble motives or what he does with his money.

Minorities 1, Olympia 0In an unprecedented move, Bursa Malaysia has directly intervened in the proposed disposal of a property by a public listed entity. It has put a spanner in Olympia Industries Bhd’s (OIB) bid to dispose of its flagship 31-storey Menara Olympia on Jalan Raja Chulan.
OIB announced last Friday that it had received a directive from Bursa to conduct a second valuation on Menara Olympia and the adjoining car park. The professional valuer will be appointed by Bursa. Meantime, Bursa has instructed OIB not to complete the sale of Dairy Maid Resort & Recreation Sdn Bhd (DMRR), which owns the building, without prior consultation with the regulator.On April 9, OIB announced that it would dispose of DMRR to Jelita Timur Sdn Bhd for RM202.65 million, comprising RM30.15 million cash and the assumption of RM172.5 million in debt. As highlighted in The Edge on June 7, a bone of contention was the building’s valuation, which priced the office space at about RM417.74 psf. This, according to OIB, was based on a valuation by property valuer Collier, Jordan Lee and Jaffar Sdn Bhd on Aug 6, 2008, and reaffirmed on Jan 25 this year.
Why was the valuation in January 2010 the same as at the height of the global crisis in August 2008? If OIB had wanted to make the most of the deal, why was no second opinion or competitive bidding sought? These were among the questions  minority shareholders asked then. Bursa’s latest moves will hopefully produce some answers.

This article appeared in Corporate page of The Edge Malaysia, Issue 811, June 21-27, 2010