Tuesday, November 25, 2014

More than meet the eyes II

The first EGM for Prostasco is tomorrow, November 26th.

The majority will determine the outcome. However, the equity held by Managing Director, Dato Chong Ket Peng versus Tey Por Yee and Ooi Kock Aun will not determine which party will oust which party.

It depend much on which way the institutional shareholders sway. Most institutions would rather stay out of the fight but the likelihood is they will stay with management.

Shareholders are only interested in continuity despite the good run on the share prices from the oil and gas play. The truth will be the least of their concern. Which side is right in their claim does not matter.

The management or the new shareholders could be fleecing the company or someone else, but shareholders only care of their own. In the short term, that is all that matters.

However, in the long term, corruption, greed and dishonesty, and treachery will be the cancer that will surely destroy the company.

It is the duty of the fund managers of institutional investors to investigate and take the right stance. So far now, not much have been divulged by Chong.

Not Chong's first quarrel

According to the company website [see here], Protasco humble beginning started when Founders Dato' Ir Hasnur Rabiain Ismail and Dato' Ir Chong Ket Pen left JKR to secure a data collecton job from their previous employer in 1991.

They were securing various government jobs till opportunity to privatise the former JKR Training centre or Institut Kerja Raya Malaysia (IKRAM) came along in 1997. The rumour of JKR privatisation had been around long and was leaked by the late MGG Pillai [read here].

They are sure to be shortlisted due to the close working relationship of subsidairy Ikram and JKR in areas of quality control, education, research, etc. [Read the history of Ikram here]

In 2001, Protasco was incorporated to prepare for listing. That year, they got a 15-year federal road maintenance in Selangor and the east coast states of Peninsular Malaysia. By 2003, they went listing and the good story to tell investors was the 15-year Federal Road Maintenance concession for Sibu, Bintulu and Mukah in Sarawak. Ikram College of Technology was upgraded to Kuala Lumpur Infrastructure University College (KLIUC).

Prostasco business depended on their link with JKR. Not only are they sure to be listed in any bid, the complain among contractors is that Protasco gets contracts with the highest margins. Yet the MACC Chairman who is Protasco Chairman did not smell anything wrong there.

Business must be so good that greed may have brought out the worse of the two founders Hasnur and Chong. In 2012, Hasnur who was Executive Director and Deputy Chairman left and was replaced by another independent Director, Dato Ibrahim Mohd Nor. [Read on Hasnur here]

The detail is not known but Ibrahim whose is widely known as an associate of Tun Daim Zainuddin, may have step in to resolve the issues between them. Ibrahim was involved with Protasco since 2009 [read here].

The present boardroom tussle is not Chong's first corporate quarrel.

Tey cheat Chong?

It was around 2012 that the Tun Daim block was believed to be up for sale and Chong was given option to seek for friendly buyers to maintain control.

It was before the 2013 general election and there was no buyer for politically sensitive counter till Tey and Ooi was approached through banker in Singapore.

Option was expiring and they need somebody fast or other shareholder will come in. The deal could possibly that if Chong fail to buy him out, Tun Daim has the option to inject assets that would dilute Chong's shares.

However, Chong side of the story claim that Tey and Ooi had approached him. And he said he had lent him money for RM10 million. Sundaily report below refers:
Protasco MD : Tey and I were not business partners

Posted on 14 November 2014 - 05:37am

PETALING JAYA: Protasco Bhd's executive vice-chairman and group managing director Datuk Seri Chong Ket Pen has clarified that he and Tey Por Yee, an investor he is in dispute with, were not business partners.

"This is to clarify that I did not have prior business dealings or know of Tey Por Yee until December 2012, when he was interested to be a shareholder of Protasco," Chong said in a statement yesterday.

Chong said he viewed Tey to be a strategic investor that would be beneficial to Protasco and agreed to help organise and secure a short-term loan to complete Tey's purchase of Protasco shares in December 2012.

"I viewed him to be a strategic investor that would be beneficial to the company, and I agreed to help organise this loan for RM20 million," he said.

Chong reiterated that he lent Tey half of the loan through his personal company, RS Mahaniaga, via a short-term loan with a bank, and the other half via JF Apex through a margin financing facility in his own own name.

"These loans were secured by my own Protasco shares and my personal guarantee," Chong said.

He added that the RM10 million that Tey paid to RS Mahaniaga is repayment for the bank tranche of the loan. The RM10 million under JF Apex is still outstanding.
This was also to answer an accusation by Tey and Ooi that Chong had swindling money out of the company.

Chong cheat Protasco?

Few days earlier, Kinibiz had reported Tey making statement after filing for their defense. He revealed his side of the story:
Tey: Defence filed confirmed Chong took Protasco’s money 
9:07 PM - 10 Nov
by Xavier Kong

In response to the defence filed by Protasco Bhd’s managing director Chong Ket Pen earlier today, Protasco non-executive director Tey Por Yee calls that the defence filed confirms that Chong took Protasco’s money for his own benefit.

Tey noted that there was no proof of a loan agreement between Tey and RS Maha Niaga Sdn Bhd, a company owned by the senior management of Protasco.

“The allegation that I borrowed RM20 million from Chong and Maha Niaga is downright untrue and unsubstantiated. If it is true, Chong should provide the agreement to back his claims. The only loan that Chong has given is RM10 million and it was to Kingdom Seekers. We have a loan agreement drawn up and I will be happy to make it public to substantiate this,” said Tey.

Tey added that, under the terms of the loan agreement between Chong and Kingdom Seekers Ventures (Tey’s vehicle), the repayment of the loan is subject to the PT Anglo Slavic Utama deal going through, which meant that Kingdom Seekers was to return the RM10 million to Chong seven working days after the completion of the deal. In the loan agreement, Chong had allegedly agreed that Kingdom Seekers could appoint an executive director to the Protasco board of directors.

“There has been no demand or any reason for Kingdom Seekers to return the loan as Chong has not fulfilled the terms of the agreement,” Tey said, adding that, from the defence filed and served by his legal counsel, it was apparent that Chong had advanced RM10 million from Maha Niaga.

“In turn, Maha Niaga took a RM10 million short-term loan, with a 2-month repayment period from UOB. This short-term loan was secured using Protasco shares as collateral and with Chong’s personal guarantee,” continued Tey, noting that Chong’s confirmation of the receipt of the sum shows support for Tey’s statement that RM10 million of the RM16 million which Protasco’s subsidiaries paid for the bitumen and coal trading with Indonesia, flowed back to Maha Niaga as personal financial gain for Chong.

Tey then pointed out that Chong had needed to service the loan from UOB within two months, but could not ask for payment from Kingdom Seekers due to the PT ASU deal having fallen through.

“So he took money from Protasco’s bitumen and coal deal (with Indonesia) to the exact tune of RM10 million to cover this loan,” said Tey.

In response to the claim that Telecity Investments Limited was servicing his private loan to Chong, Tey noted that he does not own Telecity, nor is a director of the company.

“My involvement was to invest in Protasco, and introduced PT ASU to Protasco like anybody sometimes introduce contacts to each other. I am not involved in the day to day business of Protasco. As far I am aware, the oil field investment is a legitimate investment with proper due diligence conducted by the international firms of KPMG Singapore, Grant Thornton in Jakarta, and RISC Advisory (an oil and gas consultancy firm from Australia) which were engaged by Protasco,” said Tey.

At the end of the trading day, Protasco’s shares were last traded at RM1.79, up a sen.
O&G deal

Chong claimed that Tey and Ooi had misled them. He may have leaked information to Kinibiz in the following article:
Protasco’s ‘thrilling’ O&G adventure

Posted on 5:29 PM - 4 Feb by Khairie Hisyam    
Diversified outfit Protasco is revising the terms of its shares acquisition in oil and gas company PT Anglo Slavic Indonesia, but when Tiger delved into the details it found more questions than answers. Should shareholders not be informed of everything of consequence?

Hunting is an art. When the hunger isn’t debilitating, the lengthy prowls as Tiger stalks an unassuming kijang are delightful.

The long wait for the perfect time to pounce just heightens the anticipation of Tiger’s teeth sinking into flesh, a thrilling adventure just yearning for a satisfying end. And when that destined moment comes, it feels as though the stars are aligned and the jungle stands still as Tiger leaps to its kill, a culmination of patience and skill.

A perfect hunt is an art in itself, whether in Tiger’s jungle or the corporate landscape. Fresh from feasting after one such hunt, Tiger found another thrilling adventure to watch — Protasco’s attempt to get into the oil and gas scene.
Oh really?
Just before the Horse came galloping in last week, the diversified outfit announced that it had signed an amended sales and purchase agreement (SPA) for its proposed shares acquisition in PT Anglo Slavic Indonesia (PT ASI), which indirectly controls the rights to develop and produce oil and gas in the Kuala Simpang Timur Field (KST Field) in Aceh.

In the amended SPA, Protasco will be paying US$22 million (RM68.4 million) for 63% of PT ASI, which amounts to 78.75 million shares. This is a lower price from the original SPA inked in December 2012, which had Protasco paying US$55 million for 76% or 95 million PT ASI shares.

Accordingly, the profit guarantee that comes with the equity acquisition is amended too, from US$55 million over four years in the original SPA to US$22 million over four years in the amended version.

But this is rather strange, when Tiger thinks about it. In the amended SPA, the valuation of PT ASI amounts to roughly RM108.57 million. Yet the valuation in the original SPA would have put the company’s value at about RM233.56 million — slightly more than double the 2014 valuation.

So how did PT ASI drop in value so drastically within a short span of 13 months?

It’s like stalking a big wild boar, salivating at the prospect of a big meal, only to pounce and discover it was a tiny hare after all, barely enough to pick Tiger’s magnificent teeth with.

Thankfully we weren’t kept in too much suspense by Protasco, which explains that the amended purchase price was arrived at on a “willing buyer, willing seller” basis in view of a valuation of the shares by KPMG Singapore in a report dated Jan 20, 2014.

Hang on, though. If KPMG’s valuation puts the value of the shares at US$22 million, then how was the previous valuation figure of US$55 million derived?

In any case, Protasco saved some US$33 million here, thanks to a clause in the original SPA which allowed for renegotiations should an independent valuation find that the shares value was below US$50 million or beyond US$60 million. Paying the right price is good news for shareholders, isn’t it?

Although speaking of value, Tiger wonders about PT ASI’s true value. In its announcement Protasco noted that KPMG used a discounted cash flow approach in its valuation of the company, whose net assets stood at around RM31.4 million (roughly US$9.42 million) as at end May 2013.

That means PT ASI’s RM108.57 million valuation is slightly more than three times its net assets. Rather strange for a relatively small oil and gas outfit which has been recording losses for three consecutive years — 2010, 2011 and 2012.

Not to mention the dangers of using discounted cash flow in this valuation, of course. It is known that a small variance in inputs, especially discount rates, can change the resulting values greatly in using this method. There are many variables in the oil and gas business i.e. fluctuating prices, currency exchange rates, exploration success (or failures), the list goes on.

For one this deal means Protasco will extend a loan of US$5 million to PT ASI for exploration purposes, and exploration activities can easily take longer than expected and even incur extra costs.

Now that Tiger thinks about it, how much money will the other shareholder in PT ASI  provide to the company for exploration purposes? Is it on equal contribution terms?

If Tiger were holding Protasco shares, Tiger would wonder if enough due diligence had gone into this PT ASI acquisition deal. But maybe the management has some insight that escapes the rest of the jungle (in which case they should enlighten their shareholders at least).

Speaking on the management, Tiger was tipped that the original SPA, announced on Dec 28, 2012, came a bit more than two weeks after one Ooi Kock Aun was made a Protasco board member on Dec 10, 2012.

What is interesting here is that Ooi is the chief finance officer at publicly listed PT Inovisi Infracom Tbk, which is also involved in oil and gas among other things. In the amended SPA, 297.1 million shares in Infracom, worth US$30.3 million, is blocked as security to repay Protasco’s RM50 million deposit and purchase price if the amended SPA is terminated.

So whose shares are those and what is the relationship of the mystery shareholder with this PT ASI acquisition deal? Tiger doesn’t think a random investor would be so generous as to give a guarantee such as this unless there is direct involvement.

Another interesting highlight is that this guarantee was not in the original SPA. Is Infracom linked to the seller? If it is, then is Ooi, a Protasco board member, linked to the seller?

Oops, Tiger forgot. Tiger should mention here that the seller is PT Anglo Slavic Utama (PT ASU), which wholly owns PT ASI. In turn PT ASU is wholly owned by Anglo Slavic Petrogas, which is based in the British Virgin Islands.

So many unanswered questions makes for a thrilling adventure, but such suspense should be confined to the jungle and the cinema, not the financial markets. With the dearth of information shareholders do not even get their say in this deal since the total transaction sum comes to 24% of Protasco’s net assets, just shy of the regulatory 25% which would have required shareholder approval.

It is only right that Protasco’s management reassures shareholders by disclosing all relevant information to the deal before it progresses further.


Tiger Talk
In his allegations, Chong claimed that Tey and Ooi did not declare their interest.

He will have to divulge and proof the conflict of interest to the shareholders. Kinibiz article insinuate it is Ooi that pledge Infracom shares but it had been denied.

Even if Chong may be able to 'kick' the two out, he must present his proof or he will be faced with a huge lawsuit. Kinibiz and The Edge too. 

Chong all the way

The accusation that Tey and Ooi have hidden interest was covered in our previous posting here.

Tey and Ooi claimed none. So Chong will have to proof it tomorrow and Tan Sri Hadenan Jalil must allow Tey and Ooi to answer.

If no proof was presented, there is no basis to throw out Tey and Ooi. With both of them in, they can be the balancing voice for shareholders. Sometimes independent directors are not so independent.

Upon reading all the above reports, all seem to indicate Chong is much involved.
  • He allegedly help to organise RM20 million loan for JF Apex and RS Mahaniaga to Tey and Ooi but is not business partner to them. Why is that?
  • Tey alleged that Chong gave RM10 million loan to Kingdom Seekers.
  • Kinibiz alleged that Chong was involved and agreed to the original price of US$55 million in the first SPA and US$22 million in the amended SPA after due dilligence headed by his son.
  • It was Chong also that allegedly agreed to a profit guarantee provided by the vendor of PT ASU for US$22 million. The agreement will have to surface to shareholders.
Questions are:

Did Tey and Ooi misled Chong or Chong blaming Tey and Ooi?
Why did he cancelled the deal when he already put PT ASU in his annual report organisation structure and gave US$5 million loan to PT ASU for exploratory work?

The cancellation based on 3 years contract from Pertamina instead of 10 years is quite a dodgy excuse. Was there really a 3 years contract extension when the existing contract is still there?

With his money allegedly committed to complete the deal, why Chong refused to wait for more time till Indonesian presidential election is over by October?

Does it look like Chong screwed big time and now trying to play a blame game? Hasnur may have something to comment on Chong.

* Updated 7:28 PM


Anonymous said...

Chong will have to substantiate his accusations.

Thus far, it looks like it is him that has not declared his interest and exercise his fiduciary duties.

He may have screwed up on the oil and gas deal thus using their removal to cover-up and lay the blame on them.

All about Chong said...

Long and short, Chong seemed to be doing side deals.

He decided on the oil n gas deal. Before due dilligence, he made financial commitment when he claimed later as deal not complete.

After due d, he still commit to the oil and gas deal with an amended S and P agreement.

It is Chong that gave and got guarantee to ensure deal gets done.

The actual viability of the oil and gas venture should be ascertain realistically. Sense the 10 year extension not realistic too.

In the meanwhile, Chong should be removed.

My Say