ECM Libra will always be a chip on the shoulder for Khairy Jamaluddin. If Khairy is serious about giving a “Penerangan” this Saturday to UMNO members and hope to turn them into cyber warriors, he must explain with rational answer the mess of ECM Libra-Avenue Merger. This blog has written extensively on this ECM Libra-Avenue Merger and will not repeat itself. Just search on this blog using the keyword “ECM Libra”.
Since Khairy have used before and will use again Dato’ Shahril the PAC Chairman’s twisted press statement after last year’s sham PAC enquiry as fallback to absolve himself, its time to disclose details.
1. Function & Power of Securities Commission (SC)
One of the function of the SC, as mentioned in Part II Section 15 Para 1(i) of the Securities Commission Act 1993 (Act 498) (pg. 16), are below:
To suppress illegal, dishonourable and improper practices in dealings in securities and trading in future contracts, and the provision of investment advice or other services relating to securities or future contracts;To undertake its duties, Part II Section 16 of the Securities Commission Act 1993 (Act 498) (pg. 17), empowers the SC as narrated below:
The Commission shall have all such powers necessary for or in connection with, or reasonably incidental to, the performance of its functions under the securities laws.Any persons as defined under Part IV Division 1 Proposals in Relation to Securities Section 32B Para (1) of the Securities Commission Act 1993 (Act 498) (pg. 27) that below providing False or Misleading statements will be dealt severely:
(a) an applicant, any of its officers or associates;
(b) a financial adviser or an expert; or
(c) any other person,
The SC administers the SC Act 1993, Securities Industry Act, 1983, and other related Acts. The Bursa Malaysia (Bursa) falls under SC’s purview.
2. Shareholders’ Enquiries & Minority Interest
With respect to this Merger, shareholders wrote to all relevant authorities prior to the EGM alerting of the many discrepancies – SC, Bursa, EPU and Minister of Finance II; Board of Directors of Avenue; and Avenue’s Auditor.
NO RESPONSE was forthcoming. NO ACTION was taken and the EGM proceeded. Just prior to the first PAC, SC acknowledged all complaints. But monsths after the whole exercise is complete, the claim everythings is fien and dandy.
Why was there no attempt by SC and Bursa to address the issue to safeguard National interest and minority shareholders? The SC was authorised to suppress NOT ONLY illegal practices BUT ALSO when it is deemed and suspected as dishonourable and improper practices. Have touched at length on this, have we not?
3. Interested Party and Acting in Concert
In the Circular to Shareholders (cover page) by Avenue, the originator of this Merger is clearly Avenue Capital Resources Berhad (ACRB) and their subsidiary, Avenue Securities Sdn Bhd acted as Adviser to undertake submission to SC and discussion/negotiation with SC and ECM Libra Berhad (ECM). Thus, all the major shareholders are directly or indirectly Originator and interested party to see the Merger through.
The Circular in pg (ii) defined only the Trimvirate of major shareholders of ECM, namely Dato Kalimullah, Lim Kian Onn, and David Lim, are defined as acting in concert.
Since Management of ACRB are involved in the negotiation with ECM and all the major shareholders of Avenue are represented on the Board of Directors and are legally Management, they are deemed as interested party and are in concurrence with Parties Acting in Concert. Should they be parties acting in concert too and not independent?
4. EGM, Waiver, and Voters
The exchange of shares for Avenue shares by ECM resulted in holding 53% of Avenue and breached the 33% limit for a Mandatory General Offer (MGO). Since ECM would redistribute to shareholders of ECM, they requested Waiver from MGO under Whitewash Procedure in Practice Note 2.9.1 of the Malaysian Code of Takeovers and Mergers (pg. 14-17).
The requirements for exemptions - approval from Independent Shareholders; appointment of an Independent Adviser; Circular of Independent Advice; and prior consultation with SC - was technically done (but not necessarily met), except for the following:
(5)(b) (iii) interested parties have abstained from voting at that meeting; andPara (7) of the Whitewash Procedure defines interested parties as quoted below:
(7) For the purpose of sub-paragraph (5)(b)(iii), “interested parties” include the following persons:Thus, the SC allowed for two infringements, specifically:(a) the applicant for an Exemption under this Note and any person acting in concert with the applicant;
(b) the directors of the offeree if they have any significant holdings which they intend to retain and which they propose to use in the future in co-operation with the applicant and persons acting in concert with the applicants; or
(c) any person whose interest in the outcome of the voting may result in some relationship with the applicant and persons acting in concert with him other than as a holder of voting shares of the offeree.
1. According to Para (7)(c) of the Whitewash Procedure, Aroma Teraju Sdn Bhd and Pantai Holdings Berhad as interested parties.Since the Major Shareholders of Avenue are interested parties and also parties acting in concert (remember this not a takeover but a Merger), they are NOT Independent Shareholders? As a result of the non abstainance of the interested parties, Minority Shareholders that had a fighting chance were out voted at the EGM. Contrary to the news report of 99% favourable vote, the poll result was 60-70% against both resolutions.
2. People related to ECM Libra are interested parties and should not attend and vote in the EGM. One notably visible at the EGM was Mr. Lim Boon Soon, Chief Financial Officer of ECM who was capacity as a proxy.
5. Independent Advisers to Shareholders
The appointment of the Independent Advisers to shareholders was made in accordance with the Whitewash Procedure. The following are some questionable issues on the Adviser, K&N Kenanga Berhad:
a) The Independent Advice Circular to Shareholders dated and circularised on May 9th, 2006, less than the 14 days notice for the scheduled May 18th, 2006 EGM. This is a contravention with Section 145 Companies Act, 1965 (Act 125) to circularise documents related to the EGM together with the Meeting Notice.
b) In the Independent Advice Circular to Shareholders, they had wrongly advised shareholders with improper methodologies and justified unusual practices in the valuation of ECM and Avenue shares.
c) Avenue, as the Originator, has more intricate knowledge than the Independent Adviser. Why is it that the Board of Directors (comprise of Government representative) only recommend the Merger to their shareholders as "reasonable”, while the Independent Adviser could recommend as “fair and reasonable”? (Read pg. 26 and 36 of the Circular to Shareholders)
All these issues are questionable, dishonourable and improper practices. Any wrongful and misleading information by the Independent Advisers falls within the purview of the SC. Why didn’t the SC suppress and ignore the letters sent to them?
6. Securities Commission Presentation
In reference to the Presentation by SC at the Parlimentary PAC, many claims by SC are questionable.
a) In reference to pg. 3 on "Fakta Penggabungan", it is the practise to know the EPS (earning per share) and NTA (Net Tangible Asset) as major valuation indicator to derive PER (Price Earning Ratio) and PBR (Price to Book Value Ratio).
(i) What is the NTA of ACRB or Avenue and AICB before and after the merger vis-à-vis ECM? This is to get comparison value.
(ii) Bursa amended the announcement dated 27-12-2005 of ECM Financial Result (Reference No. EL-060224-52203) for 3rd Quarter ending 31-12-2005 with an amended announcement dated 3-3-2006 (Reference No. EL-060303-34447) to change the NTA per share of RM0.50 to Net Asset per share of RM1.34. This amendment gives an impression of a higher valuation indicator. Why was the 3-month amendment, which is not the practise, made?
b) In reference to pg. 9, 10 & 13 "Penilaian Avenue Capital Resource" and "Penilaian ECM Libra", the following are substantive issues:
i) “Modal Pasaran (ECM Libra)” is stated as RM459 mil. as at 17-1-2006 price fixed. Link this issue to market rigging of ECM shares and over inflated ECM shares value by RM130 mil. Why SC and Bursa made no actions?
ii) Page 10 quotes “Pada nilai proforma RM0.66 sesyer, jumlah balasan 442 juta syer ECM Libra Avenue bernilai RM291.7 juta”. This is also an injustice to ECM shareholders, to have their total shares with market valuation of RM459 mil. be shortchanged in value of ECM Libra- Avenue shares by RM167.3 mil.
iii) If it is claimed as compensating factor, look at these fact.
“Nilai pasaran” of ECM shares is about RM329 mil. instead of RM459 mil. vis-à-vis that of ACRB is RM598.5 mil. and AICB is RM257.6 mil.
NTA/NTA per share of ECM is about RM216.5 mil./50 sen per share against that of ACRB of RM703.0 mil./RM0.83 per share and pre-Merger AICB of RM388.9 mil./RM1.00 per share.
Latest Profit after Tax (PAT) of ECM for 31-3-2006 is RM24.9 mil. (unaudited) vis-à-vis that of ACRB for 31-1-06 is RM53.65 mil.
ECM showed a declining PAT from RM40.3 mil. for 31-3-2005 to RM24.9 mil. (unaudited) for 31-3-2006. ACRB showed rising PAT from RM24.4 mil. for 31-1-05 to RM53.65 mil. (unaudited) for 31-1-2006.
The stand of SC is to let the market and participants determine the pricing of securities. But, SC is not absolved from the responsibility to ensure issues of valuation are fair and equitable.
c) In reference to pg. 11 on "Rumusan", SC made the conclusion that it has met the stipulated requirements. However, the items below are disputable:
i) Item 2: “Avenue Capital Resources & ECM Libra akan mendapat manafaat”. But the immediate effect is that ACRB shareholders have a much more reduced value of ECMLA shares than that of ECM shareholders.
ii) Item 3: “Penasihat Bebas (K&N Kenanga Sdn Bhd) telah dilantik untuk menasihati pemegang minoriti”. But the Advisor acts as a rubber stamp to the interested party in justifying their action and did not highlight the discrepancies in the Merger that was detrimental to ACRB shareholders.
iii) Item 4: “Penilaian ke atas nilai ECM Libra dan syer balasan ECM Libra adalah munasabah”. As explained in para (b) above that the mechanism of valuation has either illegally derived elements or unfairly valued and exchange mechanism.
iv) Item 5: “Penggabungan tersebut adalah tertakluk kepada kelulusan pemegang saham kedua-dua syarikat” EGM at the level of ACRB was not conducted in accordance with requirements and spirit of the Company Act and Malaysian Code of Takeovers and Mergers.
d) There are also issues of Moratorium on and Window Period for Directors to undertake sales of shares.
i) Why were the Triumvirate allowed to buy and sell shares with Tan Sri Azman and Khairy within less than 2 months after the shares were refloated? Is there not a Moratorium?
ii) Are the sales by Directors Dato Kalimullah and David Lim and purchase by Lim Kian Onn within the Window Period for Directors to buy and sell shares?
7. Ministry of Finance Presentation
In reference to the Presentation by MoF at the Parlimentary PAC, the following answers are seek:
a) In reference to Pg. 9 of the Presentation by MoF on “Pelaburan MKD Dalam Avenue Capital”, there were few questionable claims:
i) Dividend is an investment income (like a rent), thus should not be considered in investment valuation calculation in pg. 9. The MoF used the closing price on August 22nd, 2006 of ECMLA and POS at RM0.615 and RM4.54 respectively to value of investment at RM196.1 mil and claim significant increment in value. But this is not a significant change to the RM193.9 million value as at 17-1-2006.
ii) What is the cost of Investment by MKD? And, has the costly Corporate Restructuring and Merger resulted in uncovering more value for a significant increase in value/investment? No! What is purpose to do a Corporate Exercise?
iii) Since clearly the exercise does not show an increase in value on paper and in the market, why did the Government choose to relinquish control to individuals?
b) In Pg. 10 of the Presentation by MoF on “Faedah Penggabungan”, the following are answers seeked:
i) In seeking to meet the RM500 million paid-up capital requirement, why is it that MoF did not consider looking at other options than ECM with a short track record and MoF lost control?
ii) Between the two companies, ACRB has a better advantage in terms of network of service. The increment of branch networking and its location to Avenue/ACRB by acquiring the branch network of ECM is not significant.
iii) Government has many other companies in its many stables of related Institutions seeking for Mergers. Why was it not its consolidation not considered?
iv) On the claim to export Financial Services, has ECM Libra Avenue have the achievement and potential of doing so? What has it achive thus far?
c) In Pg. 11 of the Presentation by MoF on “Penutup”, they concluded the deal based on iffy assumptions:
i) There is no lost in value to the Government shares in short term. It didn’t happen. The valuation approved by SC was estimating down Avenue shares and estimating up ECM shares. When the Government finally sold its shares at 80 sen within a short time, it is believed to be at loss.
ii) The government claim confident of investment appreciation in the long term. Has the relevant authorities gave an undertaking to guarantee the issuance of an Investment Banking license to ECM Libra Avenue Bhd? If not, why does Government commit to a major decision? IF the Government is confident, why did it sell?
iii) They justified that the EGM of both Avenue and ECM approved. Are they closing one eye to the fraudulent EGM of Avenue?
d) As of the Company announcement on 27-6-2006, the Board of Directors of ECMLA were:
1. Dato’ Kalimullah bin Masheerul Hassan - Chairman
2. Mr. Lim Kian Onn
3. Mr. David Chua Ming Huat
4. Datuk Kamarudin bin Md Ali - Independent Director
5. Dato' Othman bin Abdullah - Independent Director
6. En Mahadzir bin Azizan - Independent Director
7. Encik Ibrahim Mahaludin bin Puteh
8. Puan Eshah Meor Suleiman
Contrary to the Government claim that they did not lose control, they actually did and later sold the whole block to Tan Sri Azman and later redistribute it to other parties.
At that time, the Government has 15.4% interest as compared to the top 3 directors interest of 22%. Why was the Government only allocated 2 seats on the Board? Why are there 3 independent Directors represented on the Board of Directors, more than the Government representatives (if 2 are assumed)? Who has the power to select and submit to the Board of Directors the selection of CEO? Government or others?
8. Directors’ Fiduciary Duty and Conflict of Interest
a) Why did the Government voted in favour upon knowing the Merger results in the dilution of Government shares, loss in management control of its GLC to individual controlling ECM and acquirer acquired it without spending capital?
b) Why the Board of Directors of ACRB, the Originator, only recommend as “reasonable” but without “fair” over the usual practise for a “Fair and reasonable” recommendation?
c) Why is it that ACRB major shareholders did not vote for MGO to demand more value from the ECM party acquiring management control?
d) ACRB is a far superior company than ECM in paid-up capital, shareholders fund, asset, profitability, business volume, asset backing, earning, branch network, research, and rating. Pricing methodology other than market pricing would give better value for ACRB/AICB. Why was other pricing methodology, other than market pricing, not used?
e) Why did the Directors and Major Shareholders agree to the use of market price for valuations, when the market price for ECM Libra was visibly rigged during price fixing?
f) Why were the Directors and government shareholders allowed for the bloated valuation of ECM using Price to Book Value ratio (PBR) of 2 times? When the last page of the SC presentation to the PAC is refered and outliers like OSK, CIMB andArab Malaysian are excluded, ECM’s PBR should be at the maximum of 1 time!
g) The acquisition of 3% ECM Libra shares by Khairy Jamaluddin on December 28th, 2005 is close to the announced Merger with Avenue on January 19th, 2006. With his father-in-law as Minister of Finance and head of MoF Inc, this constitute Insider Trading offense!
h) And, is this not a Conflict of Interest? Do refer to Practice Note 4.1 Section 13 para (2) of the Malaysian Code of Takeovers and Mergers (pg. 29) as quoted below:
(2) there should always be disclosed any conflict of interest situation. A conflict of interest is deemed where:
(a) a director is common to the offeror and the offeree;
(b) a director has substantial interest in either the offeror or the offeree, or both, held either directly or indirectly;
(c) where cross-holdings of substantial interest occur between the offeror and the offeree; or
(d) a holder of voting shares has substantial interest in both the offeror and the offeree.
“Substantial interest” refers to a holding of more than 20% of the voting shares. Note: MOF Inc has more than 20% interest in Avenue. Khairy Jamaluddin is not a substantial shareholders of ECM but is in the management and has links with the Parties in Concert, namely; Dato Kalimullah, Lim Kian Onn and David Chua.
9. Resignation of Chairman and CEO of ACRB/Avenue
The Company announced the resignation of Tan Sri Samshuri bin Arshad, its Independent Non – Executive Chairman on March 22nd, 2006. He was appointed to the Board of Avenue on 20 October 1999 and subsequently became the Chairman on 19 November 2001. Tengku Zafrul, the Managing director was reported in the April 7th, 2006 edition of the Business Times, News Straits Times. He was said to have not renewed his contract that expired on April 6th, 2006.
a) Why did the two important office bearer of the Company resigned after the announcement of the Merger on January 19th, 2006 and before the May 18th, 2006 EGM?
b) Why did the MoF accepted their resignation, in view of two important Corporate Exercise namely; the Corporate Reorganisation plan and Merger with ECM Libra is on going concurrently?
c) Why did David Chua the key management personnel of ECM resigned? Who did he sell his shares to? As a Financial Institution, do the buyer have to be approved by MoF/SC?
10. Authority to approved the Merger at MoF
In the first session of the Parlimentary PAC, it was made known that the decision of the Merger is not done by the Minister of Finance or Minister of Finance II but officers of MoF.
a) Who is the officer?
b) Shouldn’t sales of GLC shares require due process at EPU or approval of Minister/ Cabinet?
c) Under what governmental practise or precedent was the approval made?
So Khairy, jawab first before trying to be Government spokesman.
The stench from the touch of his rotten hands in this deal is all over that it stinks beyond high heaven. If Khairy refused to answer, which his past history of cowardice act when facing confrontation will likely do, then his arrogant represents the psycho insecurity of the first berok, monyet and hantu with an Oxford degree.
How about other bloggers and comentators list their questions for this ghostly wunder-ape to answer for Saturday?