Frankly Speaking: Nov 1-7, 2010

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Friends turned foes?There has been a surprising turn of events at Seloga Holdings Bhd. The company, said to be controlled by Tan Sri Halim Saad previously of the Renong Group, has received a letter from two of its shareholders seeking the removal of Datuk Samsudin Abu Hassan as director with immediate effect.
Usaha Citra Sdn Bhd and Zulkefli Zaidi, who together hold 21% of Seloga, have requested that the company call for an extraordinary general meeting to deliberate the resolution.
Ordinarily, such a proposal would not grab attention. But what’s interesting is that both Halim and Samsudin were among the coterie of young bumiputera entrepreneurs groomed by former finance minister Tun Daim Zainuddin to lead the bumiputera charge into the corporate world in the late 1980s and entire 1990s.
Samsudin, known as the man with the Midas touch, hogged the limelight during the 1993 stock market bull run. He was involved in several prominent mergers and acquisitions and all the stocks he “touched” saw a euphoric rise in price.
Halim was equally popular during the 1993 bull run. Renong, his flagship company, landed most of the large government construction jobs and he built an empire that had businesses cutting across all segments of the economy.
While the ouster of Samsudin from the board is being sought by Usaha Citra and Zulkefli, the company has seen the appointment of four new board members believed to be aligned to Halim. One of them is formerly from UEM Group and the other from HBN Management, the management company that did a splendid job in running the vast and diverse business of Renong.
From the look of things, it appears that not all is well between Samsudin and Halim at Seloga. Have the two friends who ruled the corporate world in the 1990s turned into corporate foes?

Lessons for young PLCsIn a report on Notion Vtec Bhd last Friday, CIMB Research says it is ceasing coverage on the HDD maker citing a lack of earnings visibility and limited access to management.
Research houses often initiate and drop coverage on listed companies — so there’s nothing new there. But in this case, having “limited access to management” does raise some eyebrows and leaves one wondering what it really means. Did Notion Vtec refuse to meet with the analyst? Did the company refuse to provide certain information?
CIMB ends its report saying, “We are dropping coverage on Notion Vtec and may revisit the stock once it manages to stabilise the start-up costs relating to the base plate manufacture and once management proves to be more accessible and more willing to divulge information.”
In the past, the management of Notion VTec has been better than others when it came to transparency and accessibility. So why the change now? Perhaps it now realises how ruthless the investment community can get if companies fail to deliver. But it should be noted that there are still at least half-a-dozen research houses covering it.
The HDD maker’s star starting rising last year as the investment community trained its spotlight on it, sending share prices higher and generating even more interest. Early this year, camera maker Nikon Corp Ltd emerged as a substantial shareholder after taking up 10% or 13.84 million shares in the precision component maker in a private placement exercise.
Then mid-year, Notion Vtec’s fortunes took a turn for the worse when its 3QFY2010 earnings fell 73% y-o-y on the back of initial start-up costs, weaker orders and quality issues for one of its HDD components. Downgrades soon followed.
Notion Vtec is a young company and this episode will surely serve as a lesson for it and other young companies not to pander too readily to demands from the investing community.  

Getting used to disclosure Sime Darby Bhd notched up a milestone last week by disclosing to shareholders its internal guidelines for approval of recurrent related party transactions. This marks a major step towards the level of transparency that is expected of a multinational corporation which is a government-linked company (GLC) as well.
The fact that Sime Darby is the second largest company in the country by market value makes its new disclosure regime a game-setting move for the rest of corporate Malaysia.
This is perhaps one of the better outcomes from the spate of bad news that has emerged from the conglomerate this year, including cost overruns and delays at its energy projects in Qatar and the Bakun dam in Sarawak. These debacles were among the reasons that its president and group CEO Datuk Seri Ahmad Zubir Murshid was asked to go on leave in May. On Aug 26, the group reported a pre-tax profit of RM1.7 billion for FY2010 but booked record provisions of RM2.1 billion for its energy and utilities division.
A forensic audit of the energy and utilities unit indicated irregularities and possible inappropriate conduct in four projects, the company said in an announcement filed with Bursa Malaysia in September.
It is regrettable that such disclosure requirements are the exception in Malaysia, when they should be the norm. These guidelines would be similar to those laid out under Khazanah Nasional Bhd’s Red Book on Procurement Guidelines and Practices, produced in 2006 to catalyse the transformation of GLCs. These guidelines are clearly being presented to the investment public now to dispel fears about the quality of governance in the diversified company. It is better late than never, of course.
To further boost public confidence, governance should be expanded to cover the full range of business operations — including timely project implementation, cost control, effective reporting systems and business process improvement — to deliver maximum value to shareholders. Of particular importance is capital spending — an area where some GLCs are quite reckless.

This article appeared in Corporate page of The Edge Malaysia, Issue 830, Nov 1-7, 2010