MSWG Slams Genting Malaysia For Its RPT Land Deal!

On the Business Times:

• 'Genting Malaysia should have let minority shareholders decide'
  
  By Adeline Paul Raj Published: 2009/12/16
  
  Genting Malaysia bought two firms which own the 25-storey Wisma Genting and two parcels of land in Segambut for RM228.6 million from its parent, Genting Bhd
  
  Genting Malaysia Bhd (GenM) (4715) should have, in the spirit of good corporate governance, sought the approval of its minority shareholders for its latest related party transactions (RPTs), Minority Shareholder Watchdog Group (MSWG) said.
  
  GenM, a casino and hotel operator, told the stock exchange last Tuesday that it planned to buy two firms which own properties in Kuala Lumpur - the 25-storey Wisma Genting and two parcels of land in Segambut - for RM228.6 million from its parent, Genting Bhd. It has since completed the deals.
  
  It did not need to get the approval of shareholders or regulators for the purchases as the price did not exceed 5 per cent of its shareholder funds.
  
  However, MSWG believes that GenM, nevertheless, should have let its minority shareholders decide.
  
  "Given the dominant board structure, common major shareholders and common directors in related companies involved in the proposals and the absolute cash amounts involved, the proposed acquisitions ought to be put to non-interested shareholders for a vote by the minority shareholders of GenM even though the rules stipulate a higher threshold," MSWG chief executive officer Rita Benoy Bushon told Business Times.
  
  She voiced hopes that the regulators would look into RPTs of this nature and reduce the threshold level to, say, 2 per cent instead of the current 5 per cent, especially for deals not in the ordinary course of business.
  
  Industry sources said that it might be a good thing as the rule was a bit of a grey area in that it provided a loophole for some listed companies to undertake questionable RPTs.
  
  Still, the same sources said that lowering the threshold to get shareholders' approval for RPTs would be cumbersome, costly and lengthy for listed companies to get a deal through.
  
  In GenM's case, analysts believe that the price it paid for the two companies was fair. It ended up paying RM284 million in total as it also had to settle the two firms' debts to Genting.
  
  However, the purchases, done exactly a year after GenM's last RPT sent its stock tumbling, raised doubts, especially among dividend-hungry shareholders, as to how it would use its sizeable cash balance of RM5.2 billion.
  
  There was concern that there might be more RPTs in the pipeline. Going by listing rules, GenM can undertake more RPTs of up to RM214 million over the next 12 months without getting shareholder approval, an OSK Research analyst noted.
  
  MSWG also felt that GenM's disclosure about its latest RPTs could have been better. It would have been good if it had included an illustration of the effects of the proposed acquisitions on its net assets, earnings and dividends in the current and longer term, it said.
  
  Two days after GenM made its announcement about the RPTs to Bursa Malaysia, the regulator asked the company to release more information about how it derived the pricing.
  
  GenM furnished that information the next day, the same day it completed the transactions.

Well done MSWG!

Some investors do not forget about poor corporate governance. It takes away the issue of 'trust' in one's investment.

Put it this way. Investment usually takes a much longer time frame before one reaps the profit and during this 'longer' time frame, the investor would not like to see poor corporate governance issues involving RPT because they know each RPT (how could a transaction/deal make sense when the 'left hand' sells to the 'right hand') could cause the stock to get a hammering in the market. Now if one cannot 'trust' the company, then how could one have the guarantee of not enduring yet another RPT transaction from the company? And how many RPTs have we seen from Genting group recently? Did one forget the last one? And does a leopard ever lose its spots?

And seriously, Genting Malaysia, do show some respect to your minority shareholders!

Blogged recently: Genting Malaysia Buys Properties From Genting Bhd

Update On Ingress

Ingress reported its earnings last night. Since I had recently blogged on Ingress, I have decided to do an update on it. ( Recent postings here: Ingress )

Here's the snap shot of their earnings.


And I was rather interested to look at its balance sheet given the recent fiasco where Ingress Fails To Make Sukuk Repayment, Stock Gets Slammed!

Firstly this was what the company said in its earnings notes.

• Performance Review for the Third Quarter of Financial Year 2010 (FY10)
  
  For the current quarter, the Group registered a profit before tax of RM8.1 million on a revenue of RM158.5 million in comparison to previous financial year corresponding quarter revenue of RM155.9 million and profit before tax of RM4.6 million.
  
  the Automotive Division (AD) recorded a profit before tax of RM8.7 million and revenue of RM141.0 million as against previous financial year corresponding quarter profit before tax of RM5.9 million and revenue of RM133.5 million.
  
  the Power Engineering and Projects Division (PEP Division) recorded a revenue of RM17.5 million and profit before tax of RM22,000 in comparison to previous financial year corresponding quarter revenue of RM22.4 million and loss before tax of RM0.8 million. Together with its associate companies, the overall PEP Division recorded profit before tax of RM0.3 million in comparison to previous financial year loss before tax of RM0.8 million.

Once again, the automotive division makes the money for Ingress and as stated several times before in the older postings (such as this one Regarding Ingress Corporation Again ), Ingress's Power Engineering sector (now called PEP, last time Ingress referred it as PER) simply isn't performing. Which is why I was rather amused at the fuss on Ingress when Ingress announced it "has clinched a RM61.9 million contract from Tenaga Nasional Bhd (TNB)". ( see posting Today's Hot Stock: Ingress Corporation )

The Sukuk issue (see page 18).

• On 17 June 2009, an Extraordinary General Meeting ("EGM") of the Sukukholders notice was issued to convene the EGM on 2 July 2009 to consider a resolution to extend the maturity date of the first tranche of the Sukuk due on 9 July 2009 to 9 January 2010 to enable the Company to formulate and finalise a comprehensive financial restructuring plan for the whole of the Ingress Group (the Resolution).
  
  On 2 July 2009 at the EGM of the Sukukholders, the above Resolution was duly passed.
  
  Since then, the Company has been in close negotiations with the Sukukholders over the terms of a restructuring plan.

Ok, they are in close negotiations but the 9th January 2010 deadline draws close. And as highlighted in the posting Ingress Fails To Make Sukuk Repayment, Stock Gets Slammed!

• Ingress Corporation Bhd is unable to deposit RM25 million, which is 50% of the Sukuk first principal repayment of RM50 million, which was due on April 9.

Let's see how much loans Ingress has.

And this is Ingress cash balance.


If you compare to the previous postings on 2 July 2009, Ingress: Where Is My Dearest UMA? , there's a slight improvement.

How?

There's positive turnaround in its earnings but then, there is still the sukuk issue. Would an investor betting on a 'turnaround' play on this stock, gets a nasty surprise when the sukuk repayment draws closer?

Trade Protectionism Issue Highlighted

Past postings:

• Would Current Trade Protectionism Issue Hinder Global Financial Recovery?
• Canada Continues Its Protest Against 'Buy American' Policy
• Buy Chinese Vs Buy American

On the Edge Financial Daily today, the trade protectionism issue is highlighted, Protectionism intensified in 2009

• GENEVA: Protectionist pressures have not relented despite signs of economic recovery in many countries in the second half of this year, a trade study said on Dec 14.
  
  The report by Global Trade Alert, a project of independent researchers, gives the lie to the pledge by the G20 leading economic powers to refrain from blocking trade in the crisis.
  
  It also contradicts the view of the World Trade Organisation (WTO) and other international bodies that the world has not relapsed into 1930s-style beggar-thy-neighbour protectionism.
  
  "For sure, protectionism hasn't yet reached the scale of the 1930s -- but water doesn't have to boil to scald," said Simon Evenett, professor of international trade at Switzerland's University of St Gallen and one of the project coordinators.
  
  Since its last report was published, just before the Pittsburgh G20 summit, Global Trade Alert has filed 183 new reports on government measures that looked at first sight as if they could affect international trade.
  
  Of these, 105 turned out on analysis to be beggar-thy-neighbour measures -- more than eight times the 12 trade-opening measures.
  
  The group said that since the first G20 Crisis Summit in November 2008, when the no protectionism pledge was made, governments have implemented 297 beggar-thy-neighbour measures -- more than one per working day and nearly six times as many as liberalising measures.
  
  The report says the number of measures announced but not yet implemented that could curb trade has risen to 188 in the last three months from 134.
  
  "The protectionism in the pipeline keeps growing -- there is no respite here. This protectionist overhang could limit the contribution of exports to economic recovery," it said.
  
  Since its last report in September, China has been hit by 47 more measures followed by the United States with 32.
  
  Analysis of the damage to trade done by measures shows that Russia -- not a member of the WTO -- is one of the five worst offenders, and China and Indonesia are among the 10 worst, as is the European Union if measures by its members are aggregated.
  
  Tariff increases account for only one in seven of discriminatory state measures in the crisis, with hard-to-quantify measures such as bailouts used increasingly in recent months, it said.
  
  The basic metals and basic chemicals sectors could be affected by over 30 pending measures which if implemented would see both overtaking the financial sector as the main one affected by crisis protectionism. -- Reuters

Is tis an issue that we could discount? Do we discount the possibility of this happening to our local companies?

Take this other posting How Now For Tong Herr? Tong Herr gave a profit warning because it was hit by a anti-dumping measure (nice term to used! so much for free trade eh?)

Positive News For LCL?

Here's an update to the posting How Now For LCL?

Now the news of Dubai $10 billion bailout saw some interesting movement from the stock yesterday afternoon. It provided a nice spring board for the stock.

This morning there was this news clip.

• Interior fit-out specialist LCL Corp (7177.KU) may extend its rebound to test 10-day moving average of 30 sen as concerns over the company's loan default may ease further following news Abu Dhabi provided $10 billion in financial aid to Dubai. Separately, LCL says in filing with stock exchange that block of 16 million shares (or 11.2% stake) owned by LCL founder and chairman Low Chin Meng was sold on Dec. 11 by CIMB, the bank in which Low pledged his shares to; Low ceases to be substantial shareholder of LCL after sale. "The Dubai news should continue to have positive impact on LCL on expectation of loan recovery," says dealer with local brokerage; news of LCL chairman's block sale already has market speculating about identity of buyer, which may emerge in coming weeks. Stock closed +4.5% at 23 sen yesterday.

Now that's rather interesting!

CIMB sold the chairman's shares that were pledged to the bank!

Yeah, Abu Dhabi news would create positive sentiment for the stock. LOL! Yeah, the stock could certainly move much higher. Me? I do not know. Stocks are unpredictable. Sometimes they move up, sometimes they move down. Other times, they do the crab dance!

Fundamentally (for all its worth) I would imagine that there are plenty of sceptics around.

Why?

LCL is LCL is LCL.

Who is LCL? Just a small listed company from Malaysia with some upaid bills. How much would LCL see of these bailout money?

And some question the time frame. Would LCL be repaid fast enough for it to cover its debts due? And how much would LCL be paid? Remember LCL had already defaulted some 72 million. Perhaps this bailout from Abu Dhabi comes a bit too late for LCL!

Could Greece Crisis Turn Deadly?

Here's an interesting write-up from one of the editorials by Ambrose Evans-Pritchard. It's one ediorial that I do follow. Greece defies Europe as EMU crisis turns deadly serious

• Greece defies Europe as EMU crisis turns deadly serious
  Euroland's revolt has begun. Greece has become the first country on the distressed fringes of Europe's monetary union to defy Brussels and reject the Dark Age leech-cure of wage deflation.
  
  By Ambrose Evans-Pritchard
  Published: 5:56PM GMT 13 Dec 2009
  
  While premier George Papandreou offered pro forma assurances at Friday's EU summit that Greece would not default on its €298bn (£268bn) debt, his words to reporters afterwards had a different flavour.
  
  "Salaried workers will not pay for this situation: we will not proceed with wage freezes or cuts. We did not come to power to tear down the social state," he said.
  
  Mr Papandreou has good reason to throw the gauntlet at Europe's feet. Greece is being told to adopt an IMF-style austerity package, without the devaluation so central to IMF plans. The prescription is ruinous and patently self-defeating. Public debt is already 113pc of GDP. The Commission says it will reach 125pc by late 2010. It may top 140pc by 2012.
  
  If Greece were to impose the draconian pay cuts under way in Ireland (5pc for lower state workers, rising to 20pc for bosses), it would deepen depression and cause tax revenues to collapse further. It is already too late for such crude policies. Greece is past the tipping point of a compound debt spiral.
  
  Ireland may just pull it off. It starts with lower debt. It has flexible labour markets, and has shown a Scandinavian discipline. Mr Papandreou faces circumstances more akin to those of Argentine leaders in 2001, when they tried to cut wages in the mistaken belief that ditching the dollar-peg would prove calamitous. Buenos Aires erupted in riots. The police lost control, killing 27 people. President De la Rua was rescued from the Casa Rosada by an air force helicopter. The peg collapsed, setting in train the biggest sovereign default in history.
  
  Economists waited for the sky to fall. It refused to do so. Argentina achieved Chinese growth for half a decade: 8.8pc in 2003, 9pc in 2004, 9.2pc in 2005, 8.5pc in 2006, and 8.7pc in 2007.
  
  London bankers were soon lining up to lend money (our pension funds?) to the Argentine state – despite the 70pc haircut suffered by earlier creditors.
  
  In theory, Greece could do the same: restore its currency, devalue, pass a law switching internal euro debt into drachmas, and "restructure" foreign contracts. This is the "kitchen-sink" option. Such action would allow Greece to break out of its death loop.
  
  Bondholders would scream, but then they should have delved deeper into the inner workings of EMU. RBS said the UK and Ireland have most exposure, with 23pc of Greek debt between them (mostly for global clients). The French hold 11pc, Italians 6pc.
  
  Remember, Athens holds the whip hand over Brussels, not the other way round. Greek exit from EMU would be dangerous. Quite apart from the instant contagion effects across Club Med and Eastern Europe, it would puncture the aura of manifest destiny that has driven EU integration for half a century.
  
  I don't wish to suggest that Mr Papandreou – an EU insider – is thinking in quite such terms. Full membership of the EU system is imperative for a country dangling off the bottom of Balkans, all too close to its Seljuk nemesis. But Mr Papandreou cannot comply with the EU's deflation diktat.
  
  No doubt, EU institutions will rustle up a rescue. RBS says action by the European Central Bank may be "days away". While the ECB may not bail out states, it may buy Greek bonds in the open market. EU states may club together to keep Greece afloat with loans for a while. That solves nothing. It increases Greece's debt, drawing out the agony. What Greece needs – unless it leaves EMU – is a permanent subsidy from the North. Spain and Portugal will need help too.
  
  The danger point for Greece will come when the Pfennig drops in Berlin that EMU divergence between North and South has widened to such a point that the system will break up unless: either Germany tolerates inflation of 4pc or 5pc to prevent Club Med tipping into debt deflation; or it pays welfare transfers to the South (not loans) equal to East German subsidies after reunification.
  
  Before we blame Greece for making a hash of the euro, let us not forget how we got here. EMU lured Club Med into a trap. Interest rates were too low for Greece, Portugal, Spain, and Ireland, causing them all to be engulfed in a destructive property and wage boom.
  
  The ECB was complicit. It breached its inflation and M3 money target repeatedly in order to nurse Germany through slump. ECB rates were 2pc until December 2005. This was poison for overheating Southern states.
  
  The deeper truth that few in Euroland are willing to discuss is that EMU is inherently dysfunctional – for Greece, for Germany, for everybody.
  
  

How Now For LCL?

Yeah, LCL used to be a darling stock. The stock gave many an investor a very rewarding investment if they had invested in the stock in 2005-2006. By 2007, they would have been in dreamland.

Hence, now the stock had plummeted to such low levels, naturally its understandable that there would be interest.

It's natural.

For no stocks go down forever and neither does it go up forever.

Hence, some are pondering if the sell down is perhaps overdone, which means this could be a heavenly opportunity.

Let's explore via these comments from the posting LCL Stock Gets Hit On Payment Default!

• solomon said...
  It teaches us the importance of biz concentration risk and country risk.
  
  However, I see values in the company with its good track records. Only timing and people fails her.
  
  The major shareholder could almost double its stake now with his previous stake paring. If the company can reschedule some of the loans, I think it can overcome the bad times.

Interesting comments.

Let me skip the first line for a moment and let me share my opinion on the second line. '.. the company with its good track records'.

Yes from fy 2005 to fy 2007, LCL showed a rather impressive growth, where its net earnings went from 8 million to 12 million to 21 million. ( I guess this is the good track record you are referring to and needless to say, the market was also extremely impressed with what they saw - despite some clear flaws in its financial fundamentally..)

It's impressive no doubt but..... let's look at one report back in 2007, in which K&N Kenanga initiated coverage on the stock. I do have a copy of that report. Here's a snip of the report.

First, the price of LCL back then on 11 June 2007. Notice the incredibly high price target from K&N. (IINM LCL had a one for 2 bonus issue in 2007)

Secondly, natually is Dubai. The small arrow.

• ....Their impressive capex has no doubt enabled them to secure large contracts where most of its competitors outsource their fabrication work. Its current orderbook is RM437m with 83% in Dubai.

Current order book worth rm437 million, with 83% in Dubai. And the title of the report, was 'Malaysia Middle East Success Story'. (come back to the 2007 order book 0f 437 million in a moment)

Would it not be correct to say that the success where LCL built its solid track record (some also argue that this track record is not solid enough because it's only 3 short years!) was from Dubai itself?

Now Dubai have come crashing down.

Would this not put a huge question mark over its good track record?

Thirdly, the receivables issue. (See this was an existing problem back in 2007!)

• Large trade receivables but good quality clients. Given the nature of the work process where a certain quantity is shipped together upon completion of fabrication in the factory, the amount of receivables is high. In addition, Kerzner International and Emaar Properties have payment period of 4 to 8 months upon presentation of bills. The 75% of the value of the shipment of fabricated IFO materials is billed upon delivery on site and the remaining 25% is billed when it has been installed. Payment default by clients is expected to be low.

I am sure that many can see instantly the questionable issues with the analysis made.

Kerzner International and Emaar Properties have payment period of 4 to 8 months!

Many would wonder if this is such a healthy business practice at all. How could a payment period of 4 to 8 months be considered as good quality clients???

And the last statement, 'payment default by clients is expected to be low'........ oops!

Lastly, a quick remark on how K&N valued the stock.

• Initiating with BUY and target price of RM7.48 using 8x PER on FY08 EPS of 93.5 sen.....

Here is fy 2006 Q4 earnings reported on Feb 2007. Quarterly rpt on consolidated results for the financial period ended 31/12/2006. LCL made 12.9 million for the year or an eps of around 32 sen.

Here is fy 2007 Q1 earnings reported on May 2007. Quarterly rpt on consolidated results for the financial period ended 31/3/2007. LCL made only 4.1 million or some 10 sen eps.

In June 2007, K&N values the stock based on the next year, fy 2008 earnings. It expects LCL to make some 38 million or a massive eps of 93.5 sen!!! Optimistic forecast?

Some sure say yes! And to give such an optimistic report given the fact the stock HAD already flown sky high (see small chart on K&N report) would be questionable, yes? (This is probably why we keep hearing that one generally would be better off if one avoids all these bullish reports)

And now we come back to the first issue. "It teaches us the importance of biz concentration risk and country risk."

Yes, business concentration risk and country risk should always be considered if one is an investor.

A business with a large single customer always carry a larger risk.

In an older posting, Understanding My Investment Risks, I wrote the following:

• For example, take the stock VADS. It was a stock market winner but I chose to ignore it because I simply could not comprehend the risk involved in investing in the stock. VADS is a stock in which its majority shareholder is also the main and only customer for the business. Such a model simply did not make sense to me. Hence, from an investing perspective, I had chosen to give it a pass.

Yeah, as a stock, VADS was a stock market winner. LOL! Seriously till this very day, I feel nothing for missing out. As an investor, I see no sense in investing in something which I did not understand.

Which exactly is the same for LCL.

For all its growth, its growth was based on a single country. Dubai, housing market was booming insanely, so was LCL. And needless to say, for LCL, it came with the risk of a single country with an existing issue of having a long payment period.

No doubt, the initial years were good. It gave LCL the early promise (the 'track' record') but it also saddled LCL with massive payment collection issue.

Would I say that 'Only timing and people fails her'?

In my flawed opinion, my answer is no.

The long payment period (4-8 months) was an existing issue and the fact that the bulk of LCL business came from Dubai. These were the two issues that the management knew from day one. And what about the Dubai itself. Surely, the management would have understand that nothing grows forever.

Back on Feb 2008, there was this interesting posting by Mish: Where is All The Oil Money Going?

The very first pix Dubai in 1990 (clickable link to the picture posted by Mish), the second showed Dubai in 2003. The subsequent pictures of Dubai from 2007 was simply astounding. Could Dubai actually support such an astounding growth as a city?

And LCL has gotten its hands smack right in the middle of it all.

Despite the payment issues, would it not be fair to say that it appeared that LCL adopted a no-risk-no-gain business policy?

Look at the end result today.

So did market timing and people fail her?

Me? I think, in my flawed opinion, the management should hold its hands up and admits that perhaps it should have done much better!

Lastly..

• The major shareholder could almost double its stake now with his previous stake paring. If the company can reschedule some of the loans, I think it can overcome the bad times.

What was his reasoning to dispose so much of his shareholdings in November 2009? Why? Now a month, later, in December, LCL has defaulted on RM72m loans. What if this was one of his reasoning that he disposed his shares? Given LCL balance sheet (as per LCL earnings notes in November (see posting Quick Look At LCL's Earnings)), LCL only had some 12.59 million in its piggy bank and with the known difficulties in collection of monies from Dubai, wasn't this one of the main reason he sold?

And if so, what's the implication to HIS minority shareholders?

Some probably invested in his company because of the faith in him. But doesn't it look as if he had abandoned ship?

Yeah, he could double his stake back NOW by buying back the shares.

But IF... I am a potential investor, do I like what had transpired? Would I have faith in him?

Ah, the rescheduling of the loans could be a breather for LCL but will the bankers do it?

As per CIMB report highlighted here, Affin Bank holds the huge of the loan, at some 69 million. Would Affin Bank show some good ole Christmas kindle spirits by allowing LCL to defer its loan repayments?

It's tough for me to answer this. I think Affin Bank has gotten its head wet in a rather difficult situation. These are the list of banks listed in CIMB report.

1. Affin Bank
2. Am Bank
3. Alliance Bank
4. Bank Islam Malaysia
5. Bank Muamalat Malaysia
6. CIMB Investment Bank
7. EXIM Bank
8. Kuwait Finance House (M)
9. Public Bank
10. Standard Chartered Bank (M)
11. Royal Bank of Scotland

(LOL! Did I read some articles claiming that our banks have no exposure to Dubai? Well, LCL has demonstrated that indirectly, many banks are exposed to Dubai!)

Now I do believe in miracles. I do, really. So I shall not be nasty and suggest that LCL has no chance at all. But assuming if LCL do get a lucky break from its bankers, where and when is LCL going to get money?

Look at the next snip from CIMB report. LCL has a massive 293 million loans maturing within the next 12 months! LCL has 12 months to pay back its bankers some 293 million. (CIMB do expects more default in payments!)

Where to get those money?

In the posting, More Comments On LCL, I highlighted LCL's receivables.

• Trade receivables - 221.436 million
  Amount due from customers for contract works - 154.107 million
  Amount due from related companies - 41.641 million

Amount due from related companies... 41.641 million???? Hmmm.... why so much? Since LCL in trouble, how come these related companies not paying back???

Receivables and amount due from customers equates to a massive 375.543 million.

Could LCL collect these money tp repay its bankers?

Sceptics answer most likely is that if LCL could have collected, they would not have defaulted that 72 million. The opportunist, would say, miracles do happen! (Give them a break, it's the holiday season!)

Oh.. some would also re-ask again, given all these that has happened, why did LCL Corp Bhd chief operating officer (COO) Michael Tan Jin Sun resign back in Oct 2009? Anything to do with all this mess? And why in November 2009, did the five non-executive directors resign? Four of these non-excutive directors resigned from the AUDIT committee. Anything smelly?

Now would you bet on it?

How?

Genting Malaysia Buys Properties From Genting Bhd

Yeah, it's a known fact that Genting Malaysia (Resorts World) is a cash rich company.

It's a known fact that most suggest buying Genting Malaysia for it's so-called cash-per-share yardstick.

Some don't like this yardstick.

I don't also.

Because this yardstick is not a fool proof investing strategy.

Why?

Because, ultimately the decision on how the company uses the cash in the company is beyond the say of the minority shareholders. For example, if the company decides to splash the cash at some questionable investments, we, the minority shareholders, can only make some noise over. And more often than not, it's just some empty tin cans making lots of noises.

Anyway, on the Edge Financial Daily Genting M'sia buying PROPERTIES from parent for RM228.64m!

• Genting M'sia buying properties from parent for RM228.64m
  Written by Joseph Chin
  Tuesday, 08 December 2009 19:30
  
  KUALA LUMPUR: Genting Malaysia Bhd (formerly RESORTS WORLD BHD []) has entered into two related party transactions with its parent GENTING BHD [] by proposing to buy two companies and their PROPERTIES [], for a total of RM228.64 million.
  
  Oakwood owns the 25-storey Wisma Genting in Kuala Lumpur while GHTP owns two parcels of land in Segambut, Kuala Lumpur.
  
  Genting Malaysia, as the largest single tenant, occupies eight floors and two basement levels in Wisma Genting for a total annual rental of RM3 million. The first acquisition will thus enable Genting Malaysia to reduce its annual rental expenses at the consolidated level.
  
  "In addition, Genting Malaysia will earn an annual rental income of approximately RM17.3 million from the other tenants of Wisma Genting, who will provide a source of sustained recurring income and long term value for the property," it said.
  
  As for the acquisition of the Segambut land, which Genting Malaysia is using as a storage area and depot for its buses and limousines, it will reduce its rental expenses at the consolidated level by about RM300,000 annually.
  
  "In addition, there is potential for the Segambut land to be developed and improved upon, either for Genting Malaysia’s use or for other future purposes," it said.

A related party transaction!!!

Don't you hate such transactions??!!

Buying property from its parent, which ultimately means, money going from left hand to right hand!

Does Genting Malayisa really needs to buy these properties at all???

And is Genting Bhd in dire need of funding that it needs to use such low inter-company sales agreement to raise funds???

More Disposal Of Assets Seen In LCL

In my last posting on LCL, More Comments On LCL, I mentioned the following..

• One has to consider how healthy LCL is with a cash balance of a mere 12.59 when LCL paid out some 18.748 million per quarter for its Financial Cost.
  
  And more of a concern too there were several disposal of properties mentioned.
  
  Given LCL's current financial position, some would be curious. Why the disposal?

On the Edge Financial Daily last night, LCL to sell sofa maker for RM1.14m

• LCL to sell sofa maker for RM1.14m
  Written by Yong Yen Nie
  Tuesday, 08 December 2009 23:00
  
  KUALA LUMPUR: LCL CORPORATION BHD [] has entered into a management buy-out agreement (MBO) with sofa maker Secret Sofa Sdn Bhd to dispose of the entire businesses and management of its unit LCL Cushion Sdn Bhd (LCLC) to the latter for RM1.14 million.
  
  LCL said its board had today entered into the MBO which would see the disposal of LCL's 80% stake in LCLC to Secret Sofa. Subsequently, Secret Sofa will take over the operations and management of LCLC and its unit LCL Sofa Creations Sdn Bhd (LCLS).
  
  LCL said the disposal was part of its strategies to streamlines the group's operations and business activities.
  
  "Secret (Sofa) shall take all profits and existing movable and immovable assets including but not limited to all stocks, materials, foam, machinery, tools, vehicles, and works under all projects of the company as at Aug 31, 2009 and shall assume all debts and liabilities incurred from Sept 1, 2009," LCL said.
  
  It added that the purchase price would be used to offset against the net amount owed to LCLC or LCLS by LCL's subsidiaries or associate companies as at Aug 31, 2009.
  
  "Any net amount owed to LCLC shall be considered as goodwill and result in an upward adjustment of consideration," LCL said.
  
  LCL said given that the original cost of investment in LCLC was RM438,000, the disposal in LCLC would result in a gain of RM698,404, based on the latest audited accounts of the group as at Dec 31, 2008. LCL said the disposal would be completed within four months.

Makes you really wonder, no?

Is this yet another indicator that not is well for LCL?