Wednesday, June 15, 2011

Is Wrong To Fault The Privatisation Of Bumi Armada?

From the posting Do You Want Bumi Armada's IPO?

  • ronnie said...

    ....... AK cannot be faulted for taking Bumi Armada private. The share was grossly undervalued. AK did not do anything illegal & unprincipled.

    This huge disparity in price & value will create tremendous opportunities for value investors & private equity funds....
I value your feedback an opinion but I would disagree.

'Cannot' be faulted? Don't fault the owner. It was not the owners fault that the stock is traded so low. It was the market. It was the disparity between value and price that caused this 'tremendous opportunity'.

Think about it for a moment.

What if .... whenever the disparity between value and price occurs in the stock market, all OWNERS decide to grab this 'tremendous opportunity' by profiting via privatisation offers?

And what if .... this is reality?

Stock goes undervalue, owner profits by privatising the stock.

And then ... when times are better, they relist back the stock but at a higher valuation?

Yes, what if this is the trend?

Stocks goes undervalue, privatise. Times are good, relist back at a higher price.

How? Isn't this what's happening in the case of Bumi Armada?

Where then is the integrity of the market place? What's the purpose of even having a market place? 
Would the market place have any investors left if all stock owners decides to be like this? Take advantage of the tremendous opportunity. Take the company private. Profit form it. Profit from it again by relisting the company later at a much higher price!

Do you want this to be norm of the market place?

I am very sorry but I strongly reject.

It's appalling and sickening to see owners taking advantage of every single opportunity to profit themselves.

And if it does happens, what's the point of having a stock market anymore?

That's wrong in my opinion. Yes, no matter how flawed my opinions are, this is simply wrong.

And who am I? I am one of the investing public and I know very well which side of the fence I am on. So whatever and whenever I write, it's clear I am very biased to the investing public point of view. I try to put myself in the shoes of the minority shareholders and in the case of privatisation of Bumi Armada or Barmada, I asked myself, are the minority shareholders compensated adequately or are they taken advantage by the owners?

Barmada or Bumi Armada, was grossly undervalued. For its fy 1998, Barmada was earning just some 28 million. By fy 2002, Barmada was earning some 63.4 million. The growth potential was incredible. It was clear. The growth was awesome.

But the company was taken private based on current earnings. Yes, the company was taken private ignoring all facts that the company possessed such an incredible growth potential.

I HAD valued the company to worth at least some rm 30.00 back in 2003.

But the company as taken private at rm 7.00.

Can I call this a fair deal for the minority shareholders?

And can I even use the phrase 'fair deal'?

Or perhaps the word ROB would have been more appropriate.

24 comments:

Mr ICICI said...

the way i look at it, minority investors want to make money, owners want to make money, we are all in the business to profit from one another. you win some and you lose some. i don't like AK, but this kinda situation can't be helped. our stock market is so s***, minority investors with no financial clout are always on the short end.

Moolah said...

Yeah.

Everyone wants to make money. So true.

However, I strongly feel, the minority shareholders ( the last I recall a shareholder is a shareholder and a shareholder is also a business partner) should be treated more fairly.

And perhaps the minority shareholders/investors should wise up themselves too!

Learning how to VOTE with their feet is very important.

And learning how to AVOID is also very important.

Mun Wai said...

When can we a see rule be put in place to ban delisted companies from relisting in the Exchange?

I also see the Company is now taking advantage of the new bunch of entrants (investors) for blood to fund capex and working capital (PV of capex + WC vs PV of future earnings). Price the company at multiple based on fwd earnings yet with the CEO telling boldly to all, upfront, that they are going to take more n more borrowings in the future, means buying into the company’s future liabilities (potential?) at inflated price? (Of course, one may argue that shareholders can exit at anytime if they don’t like to see debt mounting. But what would be the price then?)

With the IPO proceeds, what would be the effective funding cost of capex then? Wouldn’t it be dirt cheap ? Who enjoys the most benefits from this exercise? Minorities? (just kidding!)

Moolah said...

Mun Wai: How about the following 'idea'...

Allow delisting of a privatised company as it is. Don't change any rules.

However, if the said delisted company wants to be relisted, then it's only fair that our stock exchange makes that said company relist at a CHEAPER valuation!

!!!!

Yes, make it tougher to relist!

Otherwise, the stock exchange would look so silly like a revolving door only, where currently companies can list, delist and relist.

How?

Yeah.. it would be difficult. More so, since our stock exchange, Bursa Malaysia is a listed entity. And as a listed entity, the company is 'forced' to deliver 'more' earnings. And sadly for Bursa Malaysia, more listing means more business.

Sigh.

Mun Wai said...

Moo, like I mentioned some time back, Bursa is not a non-profit organisation. It has a compelling need to deliver and has its own shareholders to answer to.

My next query, how to balance between business decisions and regulatory role?

I see Bursa whacks DRs really teruk teruk, but why not the of questionable listed issuers?

William Wang said...

There are more than one reason why price is depressed and in many cases deliberately done with the intention of taking the company private. Not returning to shareholders, no matter how much the company is making, while family members crowded the board & drawing exorbitant salaries & perks. Untimely disclosure of company future plans & further acquisition. No valuation on company's asset for the passed 20 years. How can public support owners of such companies in Bursa? In fact, such owners should be questioned why the hell they want to list their company in the first place.

Moolah said...

Mun Wai: Yes! Why not?

Moolah said...

William: Good point also!

Big Sea said...

Legally AK did not do anything wrong. Ethically, I don't like what he is doing.

Imagine shareholders as partners in business. When the business is uncertain, we are considered partners. When the business is good, AK tries to get rid of us by exploiting the regulations.

Now that we understand his character, perhaps we can anticipate better his plan. Company that he wants to take private, most likely good prospect. Company that AK wants to list, expect some bumpy ride.

Moolah said...

Yes, legally it's not wrong to take a company private.

And I do like the point you made.

Imagine shareholders as partners in business. When the business is uncertain, we are considered partners. When the business is good, AK tries to get rid of us by exploiting the regulations.

ps: Shareholders are indeed business partners, yes?

Mun Wai said...

List the company when funds are desparately in need.Funding needs, why comes from own pocket. Take public money. Cost of equity lower than after tax cost of debt, no guarantee must distribute dividends. Got money, wait...controlling shareholder/director say keep for expansion.

Delist the company when it has run its course and prfitable. Why share profits with the jokers out there. Take it private, cheaply,. Just tell that the Market has not love it adequately, lack of attention. Owner enjoys all profits by himself, closed door.

"Crossed" river lift the bridge :/

Need money again, relist it. The Exchange allows and perhaps welcomes the idea.So do the investment bankers, brokers.

Then, repeat the same cycles all over again :)Make more people get excited !

Moolah said...

Wash and rinse. Repeat cycle.

Mun Wai said...

Hey Moo, you have more n more friends from the farm participate in this interactive opinion sharing :)

Fun!!!

ps: you have a Darling too, who affectionately calls you Moo Moo :)

Moolah said...

LOL!

Moo says the cow.

solomon said...

There is risk for the owner as well. Do you have failed example ie those who privatize and did not do well.

This could do good to balance the balls.

Just think that if you AK, would you do the same trick or pretend one is so greatly??

Moolah said...

Solomon: To be crude and rude... (sorry dude) ... why should WE CARE about OWNER'S risk?>>

As mentioned.. Quote: And who am I? I am one of the investing public and I know very well which side of the fence I am on. So whatever and whenever I write, it's clear I am very biased to the investing public point of view.

So sorry but I know where my SIDE of the fence is.

But I would be nice today and reply my best.

There is risk for the owner as well. Do you have failed example ie those who privatize and did not do well.

Hohoho.. if they privatise and not to do well... what can I say but serve them right?

But seriously... whether they are privatised or listed.. these owners need to manage themselves well.

Period.

Just think that if you AK, would you do the same trick or pretend one is so greatly??

If I were the OWNER of Barmada, I WOULD NEVER have done the privatisation.

When I list my company, I had invited the investing public to be my shareholders. My business partners.

So how could I be so unethical to take advantage of my co-business partners by privatising the company and short change my co-business partners by offering such a shameful privatision offer?

No, I WOULD NEVER DO THAT.

peng01 said...

What u think about syed mokhtar and robert quok sugar business before and after ?

Moolah said...

peng01: Sorry not following it at all.

Some stuff I would take into consideration is the current sugar prices. How justifiable and how sustainable are the current high sugar prices? Could one be investing on possible peak earnings?

Mun Wai said...

Would it wrong to say that IPO proceeds are bridging loans of a sort(albeit of a much longer duration than a real bridging loan), means when the company needs funding the most, IPO subscribers are the financing sources.

Once the profitable ventures eventually run their course smoothly and are self-contained, it is the time to kick the shareholders out.

Moolah said...

Mun Wai: But .... not all listed companies are bad. :)

Mun Wai said...

Yes, Moo. I acknowledge that. The quality of a listed entity depends very much on the one helming it, in my opinion.

Any move could well be the original game plan or ideas conceived as events progress, money conquers ethics( Now some cynics would probably ask : Hey, how much does ethic worth? Measured by per kilo, per gram or per job :))

Moo, I probably have said too much. Pardon me.

Moolah said...

I am actually not a fan of IPO investing.

Simple reasonings.

If owners don't benefit with their listing of their company, why bother?

If so, won't IPO priced to the advantage of the owners?

If so... why do I want to be at a disadvantage?

If the company is truly good, why don't I wait for the disparity between value and price before investing?

Waiting is part of investing isn't it?

KC said...

Dali-san

I have bought in Kzen @0.21 as per yr call on Monday , it is now 0.18, still worth to hold or should we trigger the stop loss button ?

Pls advice & tq.

Btw, I am still holding EAH @ cost of 0.52 also , I believe it should be a good hold for long term right ? coz I have confident on yr pick.

Mun Wai said...

Speculation vs value investing.

Exploitation creeps in where speculative behavior is perceived to prevail over logical thinking.