iCapial And Their Potential 12 Million Ringgit Paper Losss In Axiata

Blogged yesterday: iCapital's Investment In Axiata

Got two interesting comments from Kin Wing which I would like to highlight.

• Hi Moola,
  
  According to the ICAP internet subscription, it did recommend to buy 'TMI' at 24/4/2008 with price of 8.05 (or 8.50) if Im not mistaken. And subsequently it did an analysis report to rate TMI at a "Long Term Buy" at 4-July-2008 (at tat time TMI was dropping from 8 to 5.85).
  
  So last 2 weeks I wrote an email tat complained why Capital Dynamics (the company tat provide fund management service to ICAP n oso the ICAP magazine publisher) did not update TMI since its recommendation at 4-July-2008. Becuz the analyst should update his target company no more a quarter rite? Mb wat i wrote in the email seems not in a polite manner, so Capital Dynamics never reply my email's request to update TMI.
  
  So u guest wat, in ICAP internet subscription, there is no more TMI column which previously dated 24/4/2008 with a recommended price of 8.05 (or 8.50?). It could be becuz TMI has changed to be 'Axiata'. So when I further look at 'Axiata' column, it stated tat Capital Dynamics this shares at 24/4/2008 with a recommended price at 3.823...Wat!? So the recommended price has been revised from 8.05 (or 8.5) to be 3.823?
  
  There are 2 possibilities tat revising the price to 3.823. 1st possibility could be done purposely to lower the recommended price in order to cover their ass of making wrong investment. 2nd possibility could be tat ICAP has subscribed the right issue n average down the price...I think it could be the latter possibility. Anyhow, till today Capital Dynamic still no update to TMI but ICAP itself oredi buy the right issue...So i think im gonna write another lovely email to Capital Dynamics...XD
  
  Kin Wing

Oh my goodness!!!!

Now I am NOT a subscriber and if what you are saying is true, doesn't it appear that Capital Dynamics are fudging their recommended numbers on Axiata?????

How?

Any other iCapital subscribers got any comments?

And here is Kin Wing unanswered letter.

• Here is my complain email...XD
  
  Title: A Request to update TMI‏
  From: Kin Wing
  Sent: Wednesday, 25 Mar, 2009 11: 25 AM
  To: myaccount@icapital.biz
  
  Dear Sir/Madam,
  
  I am the i Capital's internet subscriber and am a shareowner of ICAP.
  
  i Capital's last mention about TMI and TM was at the same period, i.e. June of 2008 as I read them from the my previous subscription of the i Capital's printing version. And I was also informed during last year ICAP's AGM by the Capital Dynamics's Fund Manager, Mr. Tan Teng Boo, that ICAP has invested TMI.
  
  As far to my concern, however, only TM was updated for the last few quarters whereby TMI was quiet since last year June. Is this an indicator showing that TMI has been disposed by ICAP and thus it is not worth a time to make follow up for TMI? So the i Capital's magazine subscribers who might last time followed as per the ICAP's advice is left to make their own investment decision on TMI without referring to the i Capital's update?
  
  As you might notice that TMI's share price is going down sharply since the i Capital's recommendation due to the poor quarterly result as well as the announcement of right issue with a very low issue price which could harm the minority shareholders' benefit. I am concerned about this kind of progress that happened in TMI, so I feel very dissapointed that i Capital's does not act on this promptly by updating the subscribers with the TMI situation. Suppose every recommendation on a company's share should be updated quarterly?
  
  I appreciate you are taking your time to read this email and I hope my email will not be dumped like TMI without any response and update.
  
  Regards,
  Kin Wing

I fully agree with you.

For those that missed the earlier postings, here are the links again in order:

1. A Quick Look At iCapital's Quarterly Earnings,
2. iCapital.Biz Lack Of Disclosure In Their Quarterly Earnings,
3. iCapital.Biz Lack Of Disclosure In Their Quarterly Earnings II
4. iCapital.Biz Lack Of Disclosure In Their Quarterly Earnings III
5. A Quick Look At iCapital's Annual Report 2008

This is exactly why I made the comments on the lack of disclosure in iCapital's quarterly earnings.

iCapital's current exposure in Axiata was huge as disclosed in its most recent Annual Report.

They purchased some 2,200,000 shares in Axiata worth some 17.883 million. This should work to a cost of around 8.12 or so. Now with the share plunging to an incredible low of 2.50 (before Axiata went ex-date for its rights issue), surely from the minority shareholders of iCapital.biz would feel concerned.

It's only natural. For at 2.50, the 2,200,000 shares in Axiata would only be worth some 5.500 million. Which meant that IF iCapital was holding on to Axiata, its paper loss would be an insane 12.3 million.

How?

Should they have the right NOT to be concerned?

Without quarterly disclosure and with iCapital not replying to letters from shareholder like Kin Wing, what else can be done for the minority shareholder?

Do they have to wait till the next annual meeting to find out what action iCapital took with their investment in Axiata?

Did iCapital acknowledge their mistake in this investment by selling?

Is iCapital going to compound their mistake more by subscribing to more shares in Axiata via the rights issue?

How?

See why it's so important that a closed end fund like iCapital.biz fully disclose their investment holdings in each quarterly earnings?

ps: It's utterly shocking for me to read that Kin Wing's letter was unanswered. As a shareholder, Kin Wing fully deserves an answer from iCapital. Can iCapital understand that as a fund manager, it is actually working for Kin Wing? Without people like Kin Wing, would iCapital ever exist?

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Regarding the Target Price of 8.05 or 8.50 as mentioned by Kin Wing.

jitseng said...

• This is the adjusted price.Right 5@4 at 1.12.Do the calculation will able to get the price.

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Jasonred79 said...

• This fund manager... runs a hedge fund, very secretive in his methods, got a strong reputation of one of the best in his country... some people suspect some monkey business, but no investigations were done...
  
  No, not TTB, Bernie Madoff, actually.
  
  But, you can start to see cause for alarm, no?
  
  Personally, I would avoid Icap like the plague.

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WY said...

• I’m not an ICAP investor. I think this topic is interesting and worth discuss.
  My 2-cent-worth opinion:
  
  Change on TMI/Axiata recommended price:
  Same opinion as jitseng, could be the revised price due to rights issue. The revision on price and how they calculate should be mentioned in the old report.
  
  Calculation of loss based on 2.2M shares, 8.12 to 2.5:
  I guess this calculation is not the whole picture yet.
  I-Capital would have got the rights, either:
  1. sold it for some money,
  or
  2. pay 1.12, have the shares and earning paper profit on this part.
  Calculate the overall may show a better picture.
  
  Amount and frequency of disclosure:
  For company like ICAP, disclosure too much + too frequent makes them vulnerable to punters.
  Too frequent disclosure may also encourage over-emphasis on short term profit, trading mentality, rather than long term value investment.
  I wonder what should the frequency of disclosure be.
  I guess Berkshire Hathaway didn’t do too-detailed and too-frequent disclosure too.
  Mutual funds disclosure is even less detailed, but mutual funds disclose NAV.
  
  ICAP IR:
  Maybe they can do it in a more tactful way, rather than non-reply.
  
  Timeliness of company analysis:
  On timeliness, I think Kin Wing has a point.
  Report is recommended to be regular, at least quarterly; when significant event; issue final report and inform if coverage discontinued. However, I think probably there is no hard rule on that.
  
  Arbitrage:
  Another point is if investor thinks the market price is overvalued or anything fishy, he can sell ICAP. Buy back its component stock (provided he knows) for arbitrage, if he wants.
  The other way round, if ICAP ppls think ICAP is undervalued, it may buyback from market. Much like share buyback.
  
  Buyers beware, always.

WY,

On the issue of calculation of loss. I stated it in a very simplistic manner, which is to count iCapital's potential paper loss when Axiata traded around 2.50 before it went ex.

I would be assuming that iCapital still held the stock.

Which obviously I could be wrong if iCapital had sold.

And as you had said, this might not be the true picture for iCapital has so many options on what it could do.

And this EXACTLY is the problem. If one is a minority shareholder, how will they know what is happening with iCapital's mega paper losses in Axiata when iCapital does not disclose their equity portfolio in their quarterly earnings notes.

Does one have to wait till the next annual meeting to find out? Would that be too late?

Regarding comparing with Berkshire again. Sorry but I will be frank with you. I am annoyed when there is an issue with 'a', folks uses 'b' as a comparison to try to justify the issue. It's like if 'b' does it, why not 'a'.

In iCapital.Biz Lack Of Disclosure In Their Quarterly Earnings II. As posted in there.

Well let's try google. Try look for Berkshire's quarterly 13-F SEC filings.
Better still let me give you an example link: Some Insights from Berkshire's Latest 13-F Filing. Let me just highlight the first two lines.

• Berkshire Hathaway (brk.b.B) (brk.a.B) recently filed its quarterly 13-F statement with the Securities and Exchange Commission. The filing revealed few significant changes in the composition of the firm's equity portfolio in the fourth quarter of 2008.

Yes, Berkshire does file every quarter and under the 13-F statements, Berkshire does announce its equity portfolio for all too see. :)

So how?

Since Berkshire discloses their equity portfolio every quarter, why doesn't iCapital disclose like how Berkshire does?

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WY said...

• Thx for your insights.
  I understand more of your points now. I think requirement like quarterly Form 13F is what we need.
  
  By the way, for the part "sold it for some money", I mean "sales of the rights".
  
  There is indeed Form 13F.
  I used to check on Berkshire Hathaway’s website. I only know they have quarterly report (Form 10-Q) which doesn’t show much info on holdings. Annual report has holdings but a lot can be masked out by putting into “Others”.
  
  Thx for pointing out there is Form 13F. I just take a look at Form 13F description from SEC.
  http://www.sec.gov/answers/form13f.htm
  
  It is for institutional investment managers who exercise investment discretion over $100 million or more. It requires disclosure of the names of institutional investment managers, the names of the securities they manage and the class of securities, the CUSIP number, the number of shares owned, and the total market value of each security.
  
  I take a look at a typical Form 13F:
  http://www.sec.gov/Archives/edgar/data/750577/000103079809000053/hhc_13f-033109asci.txt
  
  I think requirement like Form 13F is what we need for listed investment stock like ICAP. However, I haven’t checked what it is like in M’sia’s SC regulations.
  
  Wonder whether ICAP is the only investment-type stock in Bursa.
  I think this loophole needs to be mended. A study on current SC regulations, then a suggestion of amendment is needed.
  
  Thx for the insightful reply.
  
  Just find out that my other points you may have replied in your other posts abt ICAP. Will read it slowly to understand your view

You are most welcomed. :)