Christmas Is Indeed Here for Litrak!

Read the following article: Windfall for Litrak shareholders

• SHAREHOLDERS of Lingkaran Trans Kota Holdings Bhd (Litrak) will get at least a RM462 million windfall under the company's capital repayment and dividend plans announced yesterday.
  
  Shareholders will be paid RM1 for every share they have, in the form of 93 sen cash under a capital repayment, and another seven sen in a single-tier interim dividend for the year ended March 2008.
  
  The 93 sen per share repayment - involving a payout of up to RM462 million - will be done via a reduction of the company's share capital and share premium.
  
  "(Consequently) the share capital and share premium account will be reduced by up to RM397.42 million and RM64.58 million respectively," Litrak said in a statement to Bursa Malaysia.
  
  Litrak said the capital repayment reflects its continuous effort to achieve an efficient capital structure and to reward its shareholders.
  
  "The proposal is expected to enhance the consolidated return on equity of the Litrak Group, which in turn is expected to have a positive impact on shareholders' value."
  
  However, the capital repayment will reduce its interest income.
  
  "Based on the average gross return on short-term deposits of three per cent per annum, the proposal is expected to result in a decrease of interest income by RM13.86 million per annum," it said.
  
  The exercise is expected to be completed by the third quarter of 2008.

Oh no!

Another sad day for corporate Malaysia!

I had blogged before on this issue: Incurring Debts to Return to Shareholders

Here are my reasonings again.

• In this example, one needs to look at the justifications of raising debts just to return to the shareholders.
  
  I am not saying that all debts are negative. Some debts are indeed productive if the company manages to use the debt as a means to finance capital expenditure exercises that creates the opportunity for the company to generate more returns in the future.
  
  However, not all debts are good. And the more debts issued by a firm, the higher the risk premium for the company.
  
  And in this case where debts is incurred to repay shareholders, these debts incurred does not generate any returns for the company for it is GIVEN back to the shareholders. And sooner rather later, these debts would have to be repaid, which means future profits generated by the company would have to be used to repay these debts and not forgetting the interest cost.
  
  Clearly this is but one sure insane and ludicrous manner to manage a company.

Which brings me to this other issue on Litrak's capital repayment. I blogged on this on March 18th 2008. See Litrak may return RM1 per share!

My grave concern was how come Aseambankers research team was bang on the money on this capital repayment issue?

• According to a research note by Aseambankers, Litrak has a total debt of RM819 million as at December 2007. Assuming the entire sukuk programme was drawn up, analysts estimated that Litrak would have a cash surplus of RM726 million, which could potentially be returned to shareholders.
  
  “However, we believe that the maximum surplus amount of RM726 million may not be returned to shareholders in full, with some to be kept for future investments. Ultimately, a capital repayment of at least RM1 per share (or RM492 million in total) is more likely,” it said

Embarking on a sukuk program to incur more debts and then to give a huge chunk back to its shareholders requires extreme imagination!

So why and how did Aseambankers come out with this incredible and insane suggestion in the first place?

Did they know?

Did they?

Sigh!

Another sad day for corporate Malaysia!

On one hand, I was overjoyed reading the case on Iris. However, this Litrak incident has taken everything away!

Sigh!