Frankly Speaking: Sep 13-19, 2010

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Affin’s U-turn a sign of the timesAffin Holdings Bhd called off plans to position its Islamic arm as a stand-alone unit under its holding company in the week of Sept 6. The banking group had received Bank Negara Malaysia’s nod to rationalise its banking businesses more than two years ago.

Affin explained to Bursa Malaysia that the same objective could be achieved without putting Affin Islamic directly under the parent company under a revised proposal.

Affin is certainly not the only company that prefers to position its Islamic bank under its commercial banking arm.

Among the nine local banks, only RHB Capital Bhd and AMMB Holdings Bhd have parked their Islamic banking operations in their holding companies. The rest have put their Islamic banking units under their conventional banking arms.

When the Islamic unit is placed under the conventional banking arm, the Islamic operation is not required to have a separate balance sheet from the commercial side. The Islamic operation also shares resources with its conventional arm when it comes to marketing its products.

At the same time, as these Islamic banking units are considered “stand-alone units” licensed under the Islamic Banking Act 1983, the holding companies can still enjoy tax savings. 

Hence, it is not surprising that local banks generally do not see much incentive in separating their Islamic and commercial banking units.

Affin’s about-turn is not unexpected considering the competitive banking landscape. Although Malaysia champions the pursuit of Islamic finance, the banking group obviously is looking at the practical side of things. The Islamic finance market is not big enough to accommodate all the existing players.

That is the reality.

What’s the hurry?K-Star Sports Ltd, the Chinese shoemaker listed on Bursa Malaysia three months ago, has been busy. In the week of Sept 6, it proposed a share split that will increase its number of shares from the present 88.8 million to 266.4 million.

As the company acknowledges, the share split does not add value. Nor will it have an adverse effect on existing shareholders.

The reason for undertaking it, according to the company, is to improve the liquidity and marketability of K-Star shares.

But splitting its shares does not change the fundamentals of the company. Nor does it enhance shareholder value. So, why is K-Star embarking on such an exercise so soon after its listing in June?

In terms of share price, the company has so far performed better than the rest of the Chinese shoemakers listed on Bursa. Listed at RM2.15 per share, K-Star managed to stay above its IPO price for several weeks. However, the other Chinese shoemakers saw their shares fall below their IPO price from the first day of trading.

But over time, just like the others, K-Star succumbed to negative sentiment towards the Chinese IPOs. Its share price closed at RM2.04 on Sept 8.

A share split or share consolidation exercise is not wrong. But it is not the norm for a company that has just been listed. Also, its share price performance does not warrant such an exercise.
Apart from a share split, K-Star has also hinted that it is looking at a dual listing, probably in Taiwan, to raise more funds. If a listing in Taiwan is possible, why did K-Star come to Malaysia in the first place?

Dangerous precedentIt becomes somewhat strange when a company proposes directors’ allowances in conjunction with the Hari Raya Aidilfitri celebrations.

Festivals are moments for all to catch up with family, to feast and to take a break from work. And they should remain just that. Directors’ remuneration should not be tied to festivities. This should be based solely on the performance of the company.

But TDM Bhd, a company under the Terengganu government, has called for an extraordinary general meeting to deliberate a resolution in respect of an allowance for directors in conjunction with the Hari Raya celebrations.

TDM, which derives its earnings mainly from the plantation sector, has been performing well, just like most other plantation companies. But it is not an outstanding performer in the industry compared with the likes of United Plantations Bhd.

So, why is a special meeting needed to reward directors in conjunction with Hari Raya? TDM is a listed company that has shareholders from all walks of life. Would it also call for a similar proposal during other festivities? It’s politics, stupid!It’s not surprising that Rating Agency Malaysia (RAM) and the Malaysian Rating Corp (Marc) downgraded the debt ratings of water players in the week of Sept 6.

Both agencies had sounded the warning bell more than a year ago as water treatment players were not being paid regularly by the main concessionaire Syarikat Bekalan Air Selangor Sdn Bhd (Syabas).

Syabas, the water distributor in Selangor and the Federal Territory, blames its inability to meet payments on the 37% tariff hike which was slated to commence last year but has not been implemented yet.

That’s because the state, under the control of Pakatan Rakyat, has opposed the tariff hike on the grounds that Syabas has not adhered to the terms of the concession agreement. It wants the Barisan Nasional-controlled federal government to tear up the agreement. But that’s not happening either.

Although there have been offers on the table from various players to take over all water assets in a consolidation exercise, it’s obvious that policitical considerations are a major stumbling block. That being the case, all parties should fasten their seat belts as it could be a long ride before the problem is resolved.

This article appeared in Corporate page, The Edge Malaysia, Issue 823, Sep 13-19, 2010