Unhappy Goldis Minority Shareholder

lim hwa has left a new comment on your post "Investment Adviser: Just Who Are You Advising For?...":

I refer to the recent announcement by Goldis Berhad on 8 May 2013 for the capital distribution of IGB shares. From the first reading of the announcement, it seems the proposal is really to reward the shareholders of Goldis. However, with further understanding of the proposal, the proposal seems to me just another way of taking the value from the minority shareholders.

In my humble opinion, to put the unlisted share as an alternate option to cash to MI is as good as forcing the MI to have no option but just have to take up the cash option. My rationale is that one of the key objectives of us investing in stock markets / listed shares as compared other investments is due to liquidity. As the proposal is to distribute the unlisted shares, then such proposal is defeating the our objective.

To simplify it, assuming a listed co only owns a very profitable subsidiary (say with NTA of RM100 mil). The major shareholders then propose the similar structure to all the shareholders whereby the profitable subsidiary to be transferred to a non-listed company at say RM50 mil. Thereafter, all the shareholders will be given the options to choose (i) the unlisted shares or (ii) cash value per listed share which will be substantially undervalue as the valuation for the transfer is only half of the NTA.

Eventually, the major shareholders will own 100%/ majority of the unlisted company cuz i presume majority of the MI will not opt for unlisted shares due to liquidity.

With this, the major shareholders are essentially privatise the jewel of the listed company at a cheap valuation in the expense of the MIs' value.

I see the above illustration happens to GOLDIS now.

May I have your view on this case i.e. GOLDIS just to make sure MIs' are well protected before the same structure to be replicated for the next many more coming proposals if this first kind of proposal is successfully completed.

Red Flag Raised At HB Global Cash Balances!

Since I had been posting a lot about China based companies listed in our stock exchange, I was watching HB Global.

HB Global's stock was plunging when it said publicly it was delaying its audited accounts ( http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=237501&Itemid=79 )!!!!

Last night HB Global made the following announcement: http://www.bursamalaysia.com/market/listed-companies/company-announcements/1280081

• The Board of Directors of HB Global Limited (formerly known as Sozo Global Limited) (“HB” or “the Company”) wishes to announce that the Company’s External Auditors, Messrs. Paul Wan & Co had expressed an audit disclaimer opinion in the Company's latest audited financial statements for the financial year ended 31 December 2012, as follows:-
  “Basis for Disclaimer of Opinion
  Included in the Group’s balance sheet as at 31 December 2012 is bank balance amounting to RMB 249,633,611. In the course of our audit, we were not able to satisfactorily and independently substantiate the bank balance of the subsidiary company.  In addition we were not able to receive reliable independent confirmations on majority of the trade receivables and trade payables that were circularised; these balances represented 56% of trade receivables and 48% of trade payables as at 31st December 2012.  These brought into question the proper accounting for bank balances, trade receivables and trade payables and the corresponding transactions in the Group for the year ended 31 December 2012 and the completeness of transactions recorded in the Group’s accounting records.
  Disclaimer of Opinion
  Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for our audit opinion.  Accordingly, we do not express an opinion on the financial statements.”
  This announcement is dated 7 May 2013. 

WOW!

NOT able to satisfactorily and independently substantiate the BANK BALANCE of the subsidiary company?

Aha!

Red flag raised!

Remember the past postings on the China based stocks? So What's The Problem With China Based Companies?

The media kept on highlighting that these China based stocks were so cash rich.

I challenged that statement and I showed with a real example on how a director of a China based stock sold shares BELOW the cash per share value and for that stock, we saw the company's cash balances was said to be at 894.674 million. So much cash but the company earns only 3.416 million in interests. Does it make sense?

Let's look at the last reported quarterly earnings from HB Global. http://www.bursamalaysia.com/market/listed-companies/company-announcements/1214805

The balance sheet shows the following...

Oh yeah... cash balances were said to be at 124.725 million. HB Global 'as per'  its balance sheet is cash rich!

Now if you look at the cash flow statement below, the interest received is only 1.018 million!!!!!

 Huh?

Exactly!!!

HB Global said it holds cash balances of over 124 million but it only receives 1 million in interests!!!!

Does it make sense to have so much money and not generate any bank interest for all these cash?

Now HB Global auditors is questioning the cash balances!!!!

How?

Next time you hear someone talks about cash rich China based stocks, tell them to have a look at HB Global!!!!!

And yeah... currently there are 9 China based stocks listed here and our dear old Bursa Malaysia wants to have more such listings!!!!!

Sigh!

So What's The Probelm With China Based Companies?

I was reading the following article: http://biz.thestar.com.my/news/story.asp?file=/2013/5/4/business/13030734&sec=business

In light of the recent posting, Do You Want More China Based Companies To Be Listed Here?, the first few passages caught my attention...

• THERE are currently nine China-based companies listed in Malaysia and you'll be hard pressed to find one that is trading above their initial public offering (IPO) price.
  
  Of course, some did trade above their IPO price soon after they were listed but none proved sustainable.
  
  It's somewhat perplexing that they are not. These companies are cash-rich, have profits that grow year-on-year and almost, if not, all are trading at huge discounts to their net cash per share.
  
  Sure, not all of their businesses are terribly sexy. Most are shoe manufacturers but given the growing population and income levels the world over, there remains growth potential.
  
  So, what is the problem?

Yeah what's their problem?

First thing first.

"you'll be hard pressed to find one that is trading above their initial public offering (IPO) price.".. When I posted Do You Want More China Based Companies To Be Listed Here?, on the average, these China based companies were starring at 63% losses since their IPO listing. And the losses increased since ALL of these China based stocks declined further since then.

Two of the big losers were HB Global and CSL, with HB Global plummeting some 24% yesterday when it announced it's delaying its audited accounts! ( http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=237501&Itemid=79 )!!!!

CSL closed at 26 sen yesterday. (IPO Price 95 sen!!!!! )

The Star Business article talked about these stocks trading at huge discounts to their net cash per share.

Let's look at CSL quarterly earnings report: Quarterly rpt on consolidated results for the financial period ended 31/12/2012 

Have a look at the pdf file attached to that Bursa webpage.

From the balance sheet, we can see that CSL is cash rich!

 CSL says it has some 894.674 million in its piggy bank!

That's a lot of cash!

Super cash rich since CSL does not have any borrowings.

But the market is selling CSL at 26 sen only!!!!

26 sen... which means CSL market capital is worth 323.117 million!

Holy cow!

I'm sure you will ask is the market out of whack selling CSL at 26 sen!!!!!

With a market capital of 323.117 million, it means the market is valuing CSL way below its 894.674 million.

With 1,242.760 million shares, CSL's cash per stated in its Feb quarterly earnings is 72 sen!

Yes, you heard me, cash per share is worth some 72 sen.
Market valuing the shares at only 26 sen.

How can the share be worth so little compared to the company's cash????

Won't the owners be better off taking the company private?

Correct?

If the cash per share is REALLY worth 72 sen and the share is trading at 26 sen, surely the owners would buy these shares like crazy, yes?

But this did not happen!!!

Instead on 23 March, less than one month after this earnings report was released, one of the directors, Chan Fung @ Kwan Wing Yin, decided to dispose shares at 60 sen!!!!!

Huh!!!!

Yes sir!

Company's cash per share were worth 72 sen.
Company's director disposes shares at 60 sen!!!

How????

Makes sense?

Time to look at the cash flow.

Looking at the cash flow statement is useful because the interest income is stated there.

Think about it. For a company like CSL, it says it has 894 million in its piggy bank. A lot of money, yes? Surely the company would deposit a bulk of the money to earn some interest right?

CSL's interest received showed only 3.416 million.

Huh?

So low?

CSL has 894.674 million cash and CSL only receives 3.416 million in interests!!!!

WHAT'S HAPPENING?

What is CSL doing with its 894.674 million????

(ps: How about CSL allow me to manage their 894.674 million cash and I pay them 6 million in interest!! )

Why is CSL getting so little in interest???

 Well, what's the possible answers?

Is CSL putting any of the money into fixed deposits account?
If no, why?
If no, what is CSL doing with all these money?
If yes, why so little in interest?

How? What's the problem with these China based companies?

Would you trust the NET CASH PER SHARE of this China based company? ( Feel free to do a similar research on other China based companies.)
 

How now?

They say share cheap because share is trading below net cash per share. But company director is selling their share below the net cash per share. Company earns extremely low interest.

DARE you invest in such company???

 ps: When CSL was newly listed it was a darling stock. With an IPO of 95 sen, CSL managed to fly to a high of 1.93 sen within one month from its listing! See chart below.

 Here's the chart almost a year later.

 

Time's Almost Up For MaeMode

One of the stocks I blogged many times before is