Stay healthy and have a blessed and happy new year!!
Here's another of my favourite.....
Stay healthy and have a blessed and happy new year!!
Posted by Moolah at 11:13 AM
According to the UNKNOWN sources, a DEAL is BELIEVED to happen....
The share soars on the news.
Company denies the story. Share plunges.
Rinse... Wash... and REPEAT!
Yeah, babe.... nothing wrong here... just our local singing out these market sources songs.... and the market dances to the tune....
Very fun... and who knows.... who is making and who is losing money out of such spins.
Another day.... in our local stock market.
Check this out: Box-Pak awakened by possible takeover? (from the Edge Malaysia)
Here's the Edge Malaysia version:
Dear Bursa Malaysia and Securities Commission Boys And Gals,
You invited and you have actively promoted corporate governance recently. You have invited minority shareholders to file their complains against unscrupulous corporates. Yes, if you have a complain, send all your details in and your case will be heard. Yes, I would say kudos to you boys and gals for taking such an initiative. It gives us, the minority shareholders, hope.
However, sadly this morning, I have to ask 'what's the point of hearing without even listening'?
Why am I so disappointed?
I was well aware of my good friend's recent complaint and I was rather impressed that you boys and gals granted a hearing (Mind you, this was a case that happened some three FULL years ago!). But again, what's the point of hearing without even listening?
Rather sad, in my flawed opinion. So a hearing is granted but on the hearing itself, you boys and gals came prepared in a team but instead of trying to understand and listen to the major issues pointed out in the complaint, you boys and gals were rather eagerly prepared not to listen and instead were more focus on dismissing the case. So sad. Did you really understand what the complaint is all about and why the complaint is such importance? Ironically, the complaint focused on the very topic you boys and gals were actively promoting; ie CORPORATE GOVERNANCE!
I wondered the past couple of days thinking how Bursa Malaysia can attract more investors (esp foreign investors)? You invite foreign investors to invest and when they have a legitimate complain, you boys and gals were not really interested to listen.
And the sad outcome of this lopsided hearing?
You boys and gals won!
The complaint is now officially withdrawn!
Here's the letter written by M.A Wind (who is a foreign investor!!!! ): Withdrawal of complaints with SC & BM
On Business Times this morning:
Old articles to share... :)
Share Placements - Good or Bad?
Roger Tan & Don See, 21 Oct 2003
The number of share placements made by listed companies has grown in recent days. Yes, we are in a bull market and perhaps in the midst of a global economic recovery. With a recovery, there are more opportunities for businesses, deals and contracts. It makes a lot of sense for these companies to tap the equity markets to raise proceeds for further investment at this early stage. However, we believe not all that glitters are gold. We question the intention of some.
We are not planning to give names as we have no facts but a mere conjecture on our part. One of our investee company announced that it would be placing a huge amount of shares through a financial institution to raise funds. This placement will allow them to raise a few million Singapore dollars to expand their operations overseas.
This is bad news to us as it seems the management is hinting to us that their shares are overvalued. However, instead of a drop, the share price rose after the news! Ordinarily, we must be pleased but we do not accept facts as they are. We begin to hypothesis the possibilities. We swam through both conspiracy and financial theories and came to a single deduction.
We threw out conspiracy theory and instead focused on a signaling theory. For the rest of the article, we will explain why the hype over the recent issues can be attributed to signaling theory and the issues are nothing more than an "overvaluation" signal through the "Pecking Order" argument.
Revisiting Capital Structure Irrelevance
Proponents of placement share issues argue that shareholders should be happy that the management has raised new funds to expand and grow businesses. Whether these funds are raised through debts or equity is not the most important concern - the potential returns on these new investments are what matter most.
Miller and Modigliani's Proposition I (MM I) propose that the capital structure of the firm is irrelevant to the value of the firm under the perfect capital market assumptions. Financing methods will not influence firm value. It is the incremental value that these funds can achieve that is critical to the valuation issue. Investors who are buying up shares in these companies attest to this belief.
Altering the Perfect Capital Market Assumption - Information Asymmetry
Roger mentioned in his previous article "Explaining Perfect Capital Market - The Final Frontier" that the perfect capital market assumptions forms a starting point of an analysis. What happens when we change the perfect capital market assumption to that of information symmetry?
It is a reasonable assumption and expectation to say that insiders and managers hold a greater deal of information than non-insiders. They are in the best position to hold proprietary information knows exactly the number of contracts they are chasing or the amount of utility bills they have been paying. If they have such an immense amount of information on hand, we can safely assume that they know if the company shares are overvalued or undervalued. If the managers are rational, their next course of action would be to place out new shares.
What can the shareholders do then? Observe! Though shareholders do not have superior information like managers, shareholders can observe and track the actions of the managers. In the event of a share placement, it would be reasonable to infer that if managers start selling shares (new or old), that the firm must be overvalued.
What about the other side of the coin then? Say the managers do predict a significant upturn in the economy and that today is the most appropriate time to begin investing in new facilities, equipment and machineries, then raising equity is very justified indeed.
Managers do raise funds for good projects but to raise equity would be sending signals that shares are overvalued. To avoid that, managers therefore would try to fund projects with funds that attract the least "attention" - retained earnings. When such funds are insufficient they would then use debts and then finally equity. This order of source of funds is known as the "Pecking Order". Pecking order also explains why companies try to keep high level of "Financial slack".
At this point, we will like to highlight our assumption that the managers are investing in new projects and capital goods that will produce an incremental value. This is basic managerial finance. They will be committing a cardinal sin if they raise equity to invest in projects that are not incremental in value. We certainly hope they are not raising cash for the sake of investment or following the crowd like what many did during the technological hey days.
Coming back, if we base our assumption on information asymmetry and the pecking order theory, placement share issue, as a result, is nothing more than a signal from management that shares are overvalued.
Implications of Discount on Placement Share Issues
What about the discount on the placements shares? We observe that many placements are made at prices lower than the current market price. Herein, we believe management and the placement agent will argue that in order to place out a huge placement successfully, a discount to buyers is required to attract them. However, in our opinion we think shareholders could be short-changed in this instance. The discount is a cost to the company and the shareholders. The discount will effect a wealth transfer from current shareholders to new shareholders and the financial intermediaries .
Indirect wealth transfer happens when new shares are sold at a lower price than its fair value. If prices are a discount of future cash flows, this discount means that the new placement shareholders are receiving higher returns than the current shareholders. When no new investments are made, this higher return of the placement shareholders comes from the current shareholders. When new investments are made, placement shareholders enjoy higher risk premiums then the current shareholders even though both undertake the same risk.
Right Issues For Corporate Governance
Proponents argue that rights issue is less favorable then placement issue because of at least 3 reasons:
From my mailbox. Here's a joke to share....
Arriving in a hotel in KL Sentral he went to the bar and asked for a pint of draught Guinness. The barman nodded and said, "That will be one Ringgit please, Uncle Tony."
Somewhat taken aback, Uncle Tony replied, "That's very cheap," and handed over his money.
"Well, we try to stay ahead of the competition", said the barman. "And we are serving free pints every Wednesday evening from 6 until 8. We have the cheapest draught in Asia"
"That is remarkable value" Uncle Tony comments
"I see you don't seem to have a glass, so you'll probably need one of ours. That will be 3 Ringgit please."
Uncle Tony scowled, but paid up. He took his drink and walked towards a seat.
"Ah, you want to sit down?" said the barman. "That'll be an extra 2 Ringgit. You could have pre-book the seat, and it would have only cost you a Ringgit"
"I think you may to be too big for the seat sir, can I ask you to sit in this frame please"
Uncle Tony attempts to sit down but the frame is too small and when he can't squeeze in he complains "Nobody would fit in that little frame".
"I'm afraid if you can't fit in the frame you'll have to pay an extra surcharge of RM 4 for your seat sir"
Tony swore to himself, but paid up. "I see that you have brought your laptop with you" added the barman. "And since that wasn't pre-booked either, that will be another 3 Ringgit"
Uncle Tony was so annoyed that he walked back to the bar, slammed his drink on the counter, and yelled, "This is ridiculous, I want to speak to the manager".
"Ah, I see you want to use the counter," says the barman, "that will be 2 Ringgit please."
Uncle's face was red with rage.
"Do you know who I am?"
"Of course I do Uncle Tony"
"I've had enough, What sort of Hotel is this? I come in for a quiet drink and you treat me like this. I insist on speaking to a manager!"
"I will never use this bar again"
"OK Uncle , but remember, we are the only bar in Asia selling pints for one Ringgit... so that Now everyone can drink"
And the drama continues. On the Sunday yesterday: MAHB: AirAsia asked for bigger KLIA2
Good article posted on Business Times: