A Letter From A Truly Disappointed Ex Minority Shareholder Of Bumi Armada

Got reconnected and received a note from an old pal of mine. He had participated and given his feedback on Corporate Governance Blue Print 2011

There was this section on the Delisting of Bumi Armada (there's one on Maybulk too - maybe later) which I certainly feel should deserve more readership (and for those who are interested, his letter was send to some newspapers too)

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Delisting of Bumi Armada (Barmada):


In 2003 Barmada’s Minority Investors received a notice that there would be a GO for their shares, that the Majority Investors had no intention to continue with the listed status of the company, that no dividends might be paid, that rights issues might be necessary for further funding and that shares would be mandatory acquired. Please note that the GO in itself is good, but the company should not be allowed to use the delisting threat. This is the kind of deal Minority Investors are scared of, we invest for the long-term in good quality companies at a cheap price, and hate it when we are forced to sell, especially if the price is unbelievable cheap. In this case the offer was for only RM 7, with net earnings of RM 1 and growing nicely, an excellent balance sheet and one of the highest Return on Equity’s (more than 20%) of the whole BM. The offer price was horrific low by any standard, there was no premium, the share price had been clearly higher before at which price I (and other Minority Investors) had not sold my shares. The PE of about 7 compared with PE’s of 15 to 20 of similar, much lower quality companies, etc, etc, etc. The circular was as usual of very low quality, lots of important information was left out, lots of unimportant information was added. In this case the Majority Investors try to paint as bleak as possible picture of the company’s future (to try to convince the Minority Investors to sell at the low price), and they did an excellent job.

I filed a complaint with the SC, was asked to come to the office twice, but these talks turned out to be fruitless. I pointed at the following very important rules (emphasis is mine):

(a) that the shareholders and directors of an offeree and the market for the shares that are the subject of the take-over offer

(i) are aware of the identity of the acquirer and offeror;

(ii) have reasonable time in which to consider a take-over offer (A); and

(iii) are supplied with sufficient information (B) necessary to enable them to assess the merits of any take-over offer;

(b) that, so far as practicable, all shareholders of an offeree have equal opportunities to participate in benefits accruing from the take-over offer, including in the premium payable for control (C);

(c) that fair and equal treatment of all shareholders, in particular, minority shareholders (D), in relation to the take-over offer, merger or compulsory acquisition would be achieved; and

(d) in its response to, or making recommendations with respect to any take-over offer, merger or compulsory acquisition, the directors of the offeree and acquirer shall act in good faith (E) to observe the objects, and the manner in which they observe the objects, specified in this subsection,

and that minority shareholders are not subject to oppression or disadvantaged by the treatment and conduct of the directors (F) of the offeree or the acquirer.

[CMSA 2007, part 6, paragraph (5)]

My comments regarding the implementation of these rules in the Barmada case:

(A): the time to consider the take-over offer, to study the documents, to try to rally other Minority Investors, to contact the MSWG, to try to write articles for newspapers & magazines was extremely short and definitely nor reasonable, and the important “independent” report was send even much later to the Minority Investors, there was hardly any time to react on it.

(B): lots of important information was missing, like: What is the sales pipeline? What are the profit projections for the coming years? No recently audited P&L or BS was given, no proper reason for the delisting, etc, etc, etc.

(C): there was no premium at all let alone for control, the price was based on an artificial low price at which certain bondholders of Barmada’s parent company were prepared to sell.

(D): this rule, which is so clear and important is never ever used by SC/BM. It should however, in any case where there is doubt, and in the advantage of the Minority Investor.

(E): by cutting the dividend, not giving as reason for that and providing inadequate information directors clearly acted in bad faith, and breached the listing rules that explicitly require this information.

(F): again, it cannot get clearer than this rule, why is it never used by SC/BM?

I contacted the MSWG, was supposed to meet the CEO but only met two analysts who didn’t know anything about the case. Later there was supposed to be a meeting with other fund managers, but I never received an invitation. MSWG did not put up any fight at all, all extremely disappointing.

My complaints to SC and BM lasted a very, very long time, no information was ever given in the meantime, and finally both came to the same conclusion, nothing wrong had happened. First of all very strange given all the clear evidence I had given of the opposite, also SC/BM both didn’t want to point out the reasons for its decision. I was clearly stonewalled by both institutions, the standard technique that SC/BM uses in handling of Minority Investor complaints. I was warned before by my Malaysian friends, and as usual, they were right, although many had helped me to write my complaint to SC/BM.

Barmada has since relisted recently. After taking into account the bonus and rights issues, the current price corresponds to about RM 140 in 2003 terms, in other words a 20-fold increase in price, for each lot of 1,000 shares investors would not receive the paltry RM 7,000 but RM 140,000 (my friends, my wife and my company owned dozens of lots). The difference between the two amounts was pocketed by the Majority Investor. In the relisting exercise, it was important for the Majority Investor to paint a picture as rosy as possible, and needless to say, they did again an excellent job there. The contrast with the GO brochure of 2003 was very stark. SC/BM, who should look into this and assure that information is of the same level, turned their heads the other direction. The whole affair with the delisting in 2003, the reason why they wanted to delist, the horrible low delisted price (at current diluted amount of shares only RM 0.20), the pressure that was put on the Minority Investors, the way Minority Investors were treated in the past, all was conveniently left out of the relisting circular although the circular contained hundreds of pages.

I have filed another complaint about this matter to SC/BM, I expect to be stonewalled again, as usual, and am confident that no action will be taken again.

The total value of the shares that were forcefully acquired by the Majority Investor from the Minority Investors has increased by RM 2,500,000,000!

Another very black page of Malaysia’s CG book. 

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ps: due to the poor corporate governance, my pal will not invest in Malaysia stock market anymore.

ps: Here's the link to SC's website on Corporate Governance Blueprint 2011: http://www.sc.com.my/main.asp?pageid=1088&menuid=332&newsid=&linkid=&type=S

And as stated:

The SC welcomes feedback from all interested parties and the public on the Blueprint. All feedback can be emailed to CGblueprint@seccom.com.my by 15 September 2011 or provided in writing to:


CG Blueprint Team
Securities Commission Malaysia
3, Persiaran Bukit Kiara, Bukit Kiara
50490 Kuala Lumpur, Malaysia

ps:  Do read the blueprint documents on the link below - it's highly recommended!

http://www.sc.com.my/main.asp?pageid=1087&menuid=&newsid=&linkid=&type=