How To Expect Proper Governance With All These Conflict Of Interests?

Of course MSWG had questioned the Sime/E&O deal.

• Minority Shareholders Watchdog Group (MSWG) chief executive officer Rita Benoy Bushon had also questioned the deal and asked if there would be an MGO although the share purchase was below the 33 per cent threshold to trigger a mandatory buy.
  “Where does this leave the minority shareholders? Is it fair to them?
  “We believe that in the circumstances, the Securities Commission should investigate whether the other conditions for an MGO have been fulfilled,” Bushon wrote in The Star newspaper yesterday.

But here lies the problem.

Fair to which minority shareholder?

Because the problem is the conflict of interest between SC Chairman and and E&O chairman. They are related. Husband and wife.

And E&O chairman stake would still be considered a minority shareholder.

So if MSWG and SC calls it unfair to the minorities and forces Sime to do an MGO, what's the implication?

What if someone asked for whom did MSWG and SC fought the case for?

See the complication caused by this conflict of interest?

In my opinion, this conflict of interest must be stopped.

The local stock market cannot have A Securities Chairman whose husband is so actively involved in the stock markets.

Yesterday, blogger M.A.Wind blogs on SC & BM: (perceived) Conflict of Interest? 

Let me highlight this following issue from that posting.

• Conflicts of Interests
  
  An integral part of ethics and integrity is the avoidance of conflict of interest. In this regard, all SC staff and their immediate family members have the obligation to avoid putting themselves in situations of conflict where their personal interest is conflicted with the interest of the SC. A process on declaration of interest has been put in place within the SC to ensure that SC employees adhere to this requirement.

(Mind you that was taken from SC own website! http://www.sc.com.my/main.asp?pageid=980&menuid=983&newsid=&linkid=&type= )

!!!! Exactly!

Despite what was written, the Malaysian stock market have this messed up conflict of interest between SC Chairman and her husband!

Where's the integrity in the stock exchange if this was to continue on?


Consider one older incident.

Now, I have seen many privatisations deals in the market the past several years. Most of the time, the minorities shareholders attempt to stop the privatisations failed. There was this case where a privatisation attempt actually failed. Jan 2010: Be fair to minority shareholders

For me, despite what was written, it wasn't a clear case against the privatisation offer. And as mentioned, in the article, the offer carried a decent premium.

• On Jan 11, when the proposal was first mooted, that would have given entitled shareholders a chance to exit their investment at a premium of about 23% and 33% over the five-day and three-month volume-weighted average market price. Of course, the shares have since rallied in response to the news, and today, sit just short of the offer price

But thanks to MSWG, the minorities won. I was surprised.

And guess who is one of the minority shareholder in MBF Holdings? Datuk Azizan Abd Rahman!

How?

How would you want to interpret this?

And from a conflict of interest perspective, won't one question why MSWG fought so hard to stop the privatisation? And why didn't MSWG fought harder in many more clear cut cases where the minorities shareholders were clearly shortchanged?

And yes, sadly, that MBF Holdings case would have been one stellar victory for the minorities but the problem is that one of the minority is such a prominent figure, and one who is related to the Securities Commission.

How?

Isn't it all so disappointing?

What If Sime Is Forced To Do A MGO?

So much had been said about the shambolical Sime/E&O deal.So SC is reviewing the deal thoroughly. I could be wrong but that's something I don't see too often,

And yesterday Sime shares were spooked and Sime shares tumble on MGO worries.

Now let's think about it... I am not sure about you about I am certainly wondering about it. Ok, a MGO perhaps might be fair and it could benefit the minorities .... but then.....

Remember the Chairman? Yeah , And All The E&O Chairman Said Was 'He Was Not Aware .... '

Here's the so called transaction.

Changes in Director's Interest (S135) - Datuk Azizan Bin Abd Rahman

From that announcement he owns some 4,500,000 shares in E&O.

Just imagine... if Sime is forced to do the MGO.... errr.....

And then of course.... the conflict of interest .... the conflict of interest between SC Chairman and E&O Chairman....

Sigh.

Now this doesn't represent good corporate governance, does it?

And then...... what about the minority shareholders of Sime then? What would they be feeling if Sime is forced to make this MGO?

And All The E&O Chairman Said Was 'He Was Not Aware .... '

On Business Times:

• Zarinah steps aside in Sime-E&O review
  Published: 2011/09/13
  
  The reviews are being led by the two most senior commission members, Datuk Francis Tan and Datuk Gumuri Hussain
  
  Kuala Lumpur: The Securities Commission (SC) chairman, Tan Sri Zarinah Anwar, will not be involved in the regulator's review of a corporate deal to avoid a conflict of interest.
  
  The SC is examining if Sime Darby Bhd should make a general offer (GO) for the rest of Eastern & Oriental Bhd (E&O) after buying 30 per cent of the developer. It is also looking at all stock transactions by all parties.
  
  "In accordance with the SC's internal governance processes, the reviews are being led by the two most senior commission members, Datuk Francis Tan and Datuk Gumuri Hussain and the SC chairman had, from the onset, recused herself," an SC spokesperson said.
  
  On August 28 2011, Sime agreed to buy the stake from Datuk Terry Tham, Tan Sri Wan Azmi Wan Hamzah and Singapore's GK Goh Holdings.
  
  Zarinah's husband, Datuk Azizan Abd Rahman, the chairman of E&O, had bought E&O shares prior to the announcement.
  The SC was responding to questions from Business Times on whether Zarinah had issued an internal memo to her staff about the deal.
  
  The SC did not deny that such a memo was sent out.
  
  A copy of the internal memo obtained by Business Times also stated that Zarinah had briefed Prime Minister Datuk Seri Najib Razak on the matter.
  
  "You would have read in the papers and the blogs the criticism and allegations in respect of the purchase of E&O shares by Sime Darby. While this is a commercial decision made by Sime Darby, it does raise the issue of whether the transaction has takeover code implications and an MGO (mandatory general offer) should be carried out.
  
  "The second issue of course relates to my husband's purchase of shares in E&O. He has been the chairman and shareholder of E&O since 2002 and has purchased shares in the company since then.
  
  "The latest acquisition is just part of his normal acquisition, with all purchases made in the open and duly reported to Bursa. Naturally he had no knowledge of the Sime Darby purchase at the time as this is a sale by the major shareholders and the board was not told of the negotiations until later.
  
  "In any case, I have instructed that both the issue of the MGO and the acquisition of shares be thoroughly looked into. Given that I am conflicted, in accordance with our governance procedures, I have recused myself and have asked our two most senior commissioners, Datuk Francis and Datuk Gumuri, to lead the review of this case working together with Dr Nik and Datuk Ranjit," the memo said.
  
  "I have also briefed the Prime Minister who had expressed his understanding," she added.
  
  Datuk Francis Tan Leh Kiah is also the managing director (MD) of Azman Davidson & Co, advocates & solicitors, while Datuk Gumuri Hussain is SME Bank chairman.
  
  Datuk Dr Nik Ramlah Mahmood is the SC's MD and executive director for enforcement while Datuk Ranjit Ajit Singh is the MD and executive director in charge of market supervision.
  
  The Edge weekly, in its latest issue, quoted Sime Darby's president and group chief executive officer Datuk Mohd Bakke Salleh as saying that the deal was within the law.
  
  Sime Darby also wanted a 30 per cent stake mainly because it did not want to make a GO without the benefit of a due diligence.
  
  Datuk Azizan, meanwhile, said that he was not aware of the transaction between the three vendors and Sime Darby at the time.

( For reference: posted last friday: Featured posting: Sime Darby's E&O bid poses policy dilemma )

The most tacky issue in my opinion is that  Zarinah's husband, Datuk Azizan Abd Rahman, the chairman of E&O, had bought E&O shares prior to the announcement


The Chairman of E&O purchased shares just prior to the announcement?

And all he said he was not aware!!!!!!!!!?

That's it?

Are you satisfied?

Me?

I am not.

How could the husband of the SC Chairman holds position in any listed company?

How could this even happen?

How could the investing public trust that there's no conflict of interest at all?

How could the investing public believes in good corporate governance when the SC itself cannot keep its house in good order?

Something just got to give!

Featured posting: Sime Darby's E&O bid poses policy dilemma

Blogger M.A. Wind featured an article by writer Leslie Lopez written on the Straits Times: http://www.straitstimes.com/Money/Story/STIStory_711037.html

The opening line of the article:

• The plot tickens and all the attention is on the SC. With the Chairman of the SC being married to the Chairman of E&O, who bought shares of E&O just before the takeover by Sime Darby, making things even more intriguing. It is time for SC's next move, and everybody is watching.

WOW!

The Chairman of E&O BOUGHT shares before the takeover???

And he's married to Chairman of SC?

WOW!

Do read the rest of the posting Sime Darby's E&O bid poses policy dilemma

In another blog, the following was posted: GO or no GO, Zarinah and SC under scrutiny

MSWG Also Questions The Need For New LCCT!!

Posted the other day: Does Two LCT Makes Sense? and More On Sime Darby's Labu LCT Project.

Today on Business Times, MSWG also addresses this very same issue! MSWG questions need for new LCCT

• The Minority Shareholder Watchdog Group (MSWG) has questioned the benefits of the new low-cost carrier terminal (LCCT) in Labu, Negri Sembilan, proposed by Sime Darby Bhd and AirAsia Bhd.
  
  "Under the current depressed market conditions and likely difficult times ahead, initiatives led by the private sectors are most welcomed. Nonetheless, all key stakeholders must look at the broader picture to benefit the nation as a whole and the companies specifically," its new chief executive officer Rita Benoy Bushon said in a statement yesterday.
  
  She said while there may be persuasive arguments for Sime Darby and AirAsia to build a new LCCT, the watchdog group believes that an "orderly development and construction of airports and aviation infrastructure in the country must be given the utmost consideration to ensure optimisation of resources in line with the country's National Airport Masterplan".
  
  "(While) it is good to have competition, whether there is room for two LCCTs to be developed is debatable," she added.
  
  Bushon also questioned the funding arrangements and ownership of the proposed LCCT. These are important for shareholders to assess the impact on the companies' gearing and cash flow.
  
  "At MSWG, we believe in the board of directors' duty of making decisions to the best interest of their companies, shareholders and stakeholders.
  
  "We also believe that commercial viability, merits of competition and value-creation should be at the heart of any corporate decision," she added.
  
  MSWG believes that the proposed LCCT will hurt airport operator Malaysia Airports Holdings Bhd as it will cannibalise the existing capacity of KLIA given that AirAsia commands 16 per cent and 49 per cent of the international passenger and domestic passenger movements respectively at the airport.
  
  Last month, the Cabinet gave its consent for Sime Darby and AirAsia to proceed with the proposed LCCT on Sime Darby's 2,800ha in Labu. The two companies are now in preliminary discussions with the state and federal authorities.

Well done Rita!

Take AirAsia involvement posted in the other blog posting: More Capital Borrowing For AirAsia????

Bottom line is AirAsia is already buried way deep in debts but yet it wants to borrow more to involve in the building of the LCCT terminal.

Does it even make sense?

Is this how a business is run?

Is money really that cheap that one can borrow and borrow and borrow??????

Does Two LCCT Makes Sense?

Blogged the other day: More On Sime Darby's Labu LCCT Project.

I made the following set of comments.

• That's my point.
  
  Why can't they just make only one LCCT?
  
  To have two LCCT makes no sense at all.
  
  And to have one at Labu is even horrendous reasoning!
  
  Doesn't it defeats all logical reasoning for air travellers who seek lower air fares?
  
  How much would it take for these budget air travellers to travel to Labu to board their cheap flights? As it is, the airport at Sepang isn't too popular since it's already located so far from the city of KL. And now they want to make the LCCT at even a further location at Labu?
  
  Imagine if Labu is constructed... and nobody showed up? Not possible? Won't air travellers avoid Labu because of its location?

Aseambankers today came up with a research note on this issue.

Here is a screenshot of what they said.

More On Sime Darby's Labu LCT Project.

Blogged yesterday: So Many New LCT Terminals For Malaysia?

Fellow blogger Dali had written a piece also on Sime Darby, I No Longer Friend Sime Darby

• b) New Low Cost Terminal @ Labu - The new terminal, to be called "KLIA East @ Labu", will be built on a 2,800 hectare site (6,919 acres) in Negeri Sembilan under a private finance initiative, costing RM1.6 billion (US$461 million). Labu is between Nilai and Seremban. The project is to be undertaken jointly by Air Asia and Sime Darby.
  
  Firstly, simple planning will reveal that we need a phase 1, phase 2 and phase 3 for the current LCT to cope with organic growth and demand, not just by AA but other budget carriers... just zone off a piece of land 4-5x the current size and make sure expansion phases do not hinder current operations - why no planning, why the sudden need to have a new second LCT. If we had planned better in the first place, we would not have needed the second one so soon - I do not like to trash the authorities, but please la, this is planning and budgeting 101.
  
  Secondly, why suddenly Sime Darby is roped in? This is not Sime's expertise, especially when there is a more relevant body in Malaysia Airports Holding - what is the under-current, why do we pick and choose and allow ourselves to be lobbied into inefficiences. Apparently, Sime is involved because the new LCT will be an integral part of its proposed development plan for its Negeri Sembilan Vision City ("NSVC"). NSVC is part of the Company's Central Vision Valley ("CVV") property development project spanning Selangor and Negeri Sembilan.
  
  Now, lets hear what Malaysia Airports Holdings Bhd (MAHB) has just said " MAHB implied that it is more logical for the Low Cost Carrier Terminal (LCCT) to be at the Kuala Lumpur International Airport (KLIA)". In a statement today, the airport operator said it is now in a position to undertake the project with its own funds, thanks to the government’s approved restructuring plan. The National Airport Master Plan study, after considering several locations, has identified a site for the permanent LCCT at KLIA, MAHB said. The new LCCT location was selected as it would provide excellent connectivity for both landside and airside transfers for passengers as well as baggage. At least there is a National Airport Master Plan, why the need for so many LCTs, why can't MAHB be allowed to build a really big one next to KLIA, maybe the new LCT can have its own runway as we.

Well put!

I fully agree on this part.

• just zone off a piece of land 4-5x the current size and make sure expansion phases do not hinder current operations - why no planning, why the sudden need to have a new second LCT. If we had planned better in the first place, we would not have needed the second one so soon - I do not like to trash the authorities, but please la, this is planning and budgeting 101.

That's my point.

Why can't they just make only one LCT?

To have two LCT makes no sense at all.

And to have one at Labu is even horrendous reasoning!

Doesn't it defeats all logical reasoning for air travellers who seek lower air fares?

How much would it take for these budget air travellers to travel to Labu to board their cheap flights? As it is, the airport at Sepang isn't too popular since it's already located so far from the city of KL. And now they want to make the LCT at even a further location at Labu?

Imagine if Labu is constructed... and nobody showed up? Not possible? Won't air travellers avoid Labu because of its location?

Sime Darby says "There'll be No More!"

Another thing my Granny always taught me is to learn from those that are more successful than me!!

Learn their tricks and most important learn from their mistakes!

A couple years ago, this rich man (and surely one that is more successful than me (LOL!)) , Datuk Tan, mentioned the following in his book!

• “I am already thinking about writing a book containing my favourite jokes about business and life. A couple of them are already in Never Say I Assume! For example, in an explanation of my book title, it really ought to be Never Say I Ass-u-me! because when you assume anything in business you make an 'ass' out of 'u' and 'me.' Don’t assume that there is a market for a product. Do the necessary work in advance to find out. Make sure there are enough mice before building a better mousetrap.”

Can I learn from it?

Can I?

Sure can!

In the stock market, there are so many things one cannot simply ass-u-me!

This morning, I see that Sime Darby CEO made the following press statement.

• SIME Darby Bhd's chief executive officer Ahmad Zubir Murshid ruled out further writedowns from unregulated futures trading at the Malaysian palm oil producer after the firing of the company’s finance chief.
  
  Sime Darby said on June 10 it fired chief financial officer Razidan Ghazalli and a second executive after a RM120 million trading loss at a refining division. Traders at the Golden Jomalina Food Industries unit lost the money between October 2006 and August 2007, before Kuala Lumpur-based Sime Darby bought the business in November 2007.
  
  “There’ll be no more,” Ahmad Zubir said in an interview in Kuala Lumpur today at the World Economic Forum on East Asia. “I’m a very conservative guy.”
  
  Sime Darby, formed in 1910, merged with Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd in November last year to create a palm oil producer controlling about 8 per cent of global output. Golden Jomalina was owned by Golden Hope at the time of the losses.
  
  Traders broke internal rules at the unit and Sime Darby made provisions for the loss in the first half of the financial year, Ahmad Zubir said. - Bloomberg

Hmmm....

Last week the following article was posted on BTimes.

• Sime Darby’s RM120m loss: Trader goes missing
  
  By Zaidi Isham Ismail Published: 2008/06/12
  
  Company officials say the trader was one of 20 to 30 futures traders hired to sell Golden Hope’s premium crude palm oil in the open market to make higher profit
  
  SIME Darby Bhd’s RM120 million futures trading loss may have been the work of a single rogue trader who made the wrong bet and was poorly supervised.
  
  Existing and former company officials said the trader in question has since quit the company.
  
  Sime Darby has declined to comment on the matter. The trader could not be contacted.
  
  On Tuesday, Sime Darby fired two top executives after carrying out an inquiry into the trading losses at Golden Jomalina Food Industries, a subsidiary of Golden Hope Plantations Bhd.
  
  Golden Hope has since last year been merged with Kumpulan Guthrie Bhd and Sime Darby Bhd.
  
  Company officials said the trader was one of 20 to 30 futures traders employed by the company to sell Golden Hope’s premium crude palm oil (CPO) in the open market to make a higher profit.
  
  The company then buys standard quality CPO from the open market at a lower price so that it can make a better profit margin when used at its oleochemical division.
  
  That division processes CPO into value-added products like cooking oil, detergent and soap.
  
  This is a normal practice by almost all plantation companies in Malaysia to protect themselves from the vagaries of CPO’s fluctuating price.
  
  “However, he made a mistake by betting against the market since the end of 2006 by locking CPO’s selling prices at more than RM1,000 a tonne, thinking prices would go down.
  
  “Until August, however, CPO prices more than doubled and he tried to cover up the losses by counter trading but was unable to do so. As a result, the company accumulated trading losses right until the run-up to the merger late last year,” one of the officials said.
  
  Realising the loss, the rogue trader who has been a Golden Hope staff for 10 years, left without giving notice. Officials said attempts to locate him failed as the address listed in the company’s records turned out to be bogus.
  
  A former official said futures traders were poorly supervised.
  
  For instance, they did not have a limit that stopped them from trading when a certain level of loss was incurred

Hmm . the following statement in that article...

• This is a normal practice by almost all plantation companies in Malaysia to protect themselves from the vagaries of CPO’s fluctuating price.

Now I would ass-u-me, such trading still exist in Sime Darby, since these trading activities protects the planters from the fluctuating CPO prices.

Or am I making an ass out of me?

So what should I ass-u-me about Sime CEO Ahmad Zubir's "There'll be no more?"

No more trading or no more massive trading losses?

I am confused?

Macam mana ni?

Given what has happened, surely such a statement is not sufficient, yes?

So no more trading or no more massive trading losses?

And if it's no more massive trading losses, care to explain in detail how the trading activities will be supervised in the future to ensure that such an issue would happen no more?

By the way, last Thrusday, the following was published on Star Business.

• Thursday June 12, 2008
  Sime shines in transparency
  NEWS ANALYSIS
  By HANIM ADNAN
  
  SIME Darby Bhd is pushing the frontier to set higher standards in transparency and corporate governance via its stern action in sacking two senior executives said to be accountable for the RM120mil losses in futures trading at subsidiary Golden Jomalina Food Industries Sdn Bhd.
  
  The newly-merged entity is out to prove that no stones will be left unturned, especially pertaining to the irregularities in its highly-diversified operations.
  
  Most analysts viewed Sime Darby's action positively as the adoption of highest standards of governance was imperative for the protection and enhancement of stakeholders' value and the performance of the group.
  
  Kenanga Research, in its latest note, said: “The move clearly reflects the no-nonsense approach of Sime Darby in accountability of its senior management for their actions.”
  
  The brokerage is also maintaining a “buy” call on Sime Darby with a target price of RM12.90 as it expects the impact of the losses in futures trading to the group's 2008 earnings to be nil as provisions had been made earlier.
  
  Traders, meanwhile, want the Securities Commission to boost its regulatory powers and step up surveillance to curb speculation and prevent price manipulation by participants in the highly sensitive crude palm oil (CPO) futures market.
  
  The regulator must ensure market transparency by insisting on the publication of daily and weekly data showing the proportion of commercial, non-commercial and hedge funds participants to the public.
  
  “This is done in all US derivatives markets,” a trader said.
  
  Citing the losses at Golden Jomalina, he said: “I suspect a certain degree of speculation led the company to take short position to make quick profits but it backfired when the price of CPO continued to hit new all-time highs.”
  
  He said while most plantation companies took active derivatives position, they needed to draw the line on the importance of managing their risk exposure.
  
  The KPMG Forensic division tasked to undertake an investigative review on the trading losses at Golden Jomalina, however, declined to furnish the details of its audit report.
  
  Aseambankers, in its note yesterday, said: “We have cross-checked Sime's second-quarter (ended Jan 31) results and noted that RM71.6mil in losses at its downstream operation were accounted for in the first half.”
  
  The management then explained that the losses were due to higher feedstock costs and losses in its biodiesel division.
  
  For the nine months to March 31, the losses were subsequently reduced to RM22mil.
  
  “Hence, we believe that the RM120mil future trading losses may have been provided for in the first half.”
  
  Nevertheless, Aseambankers said, in the worst case scenario, if these losses were provided for in the fourth quarter, the net impact on its RM3.45bil net profit forecast for the financial year ending June 30 would be a mere 2.5%.
  
  More importantly, Sime Darby needs to address investors in detail at its upcoming briefing on how it can avert the occurrence of similar untoward incidents.
  
  Sime Darby fell 10 sen to RM9 yesterday, the lowest since June 5.

The following statement was most important in my opinion.

• The regulator must ensure market transparency by insisting on the publication of daily and weekly data showing the proportion of commercial, non-commercial and hedge funds participants to the public.

I'll give full marks to KPMG accountants for discovering this mess in Golden Hope and let me say this out loud, "If I was an investor in Golden Hope, there's no way I, the minority investor, would have discovered the potential risk in the trading activities and neither would I discover these losses!"

The following is the link to Golden Hope's last reported quarterly earnings, Quarterly rpt on consolidated results for the financial period ended 30/6/2007.

And here is the link to Sime Darby's latest quarterly earnings in May 2008, Quarterly rpt on consolidated results for the financial period ended 31/3/2008

Would the minority investor in you and I be able to spot these trading activities in both quarterly earnings report?

I simply would not be able too!