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Invested in a cash rich company with no future?

Sunday, August 21, 2016

Reader says...
I attended an AGM recently. It was a China company. Basically, no one from the management attend. 

No Chairman, no CEO, no executive director. 

The only person there to conduct the meeting is a newly appointed independent director (2016). 

We were there to review financial period 2015, hence the director replied to most of the questions was that he was not with the company. 

The company secretary (representative from a secretarial services)  and auditor was present. Oops, by the way, the auditor has flagged in the annual report on going concern.

Can the meeting be held without anyone from the management to answer shareholders' queries? I tried to check the requirement online, but I can't find regarding who must attend. ACRA requirement only mentioned minimum number of members.

The accounts of the company raised a lot of questions on the flow of underlying cash. The company was cash rich (and still is till today). 

However, over the past 1-2 years, 85% debts has no chance to recover. The company even subsidized their partners (distributors) when they wind up the business. The reason provided by the auditor is to "maintain relationship".  

I wonder why a company would still want to keep relationship if the business partners did not even pay up in the first place. Besides that, the company "invested" 3 times of their 2014 profits in a strategic program. 

The AR stated paid 36 million to an academic professor for consulting work.

I checked with the independent director regarding several huge unjustified spending. 

He said that day to day operation is not covered within the scope of corporate governance.

I have sent an email and also called SGX personally. It seemed that everyone is pushing away. 

SGX asked me to contact share registrar, and shares registrar asked me to contact company secretary. 

I feel that SGX has done a bad job letting companies (mostly China companies) to public list in Singapore without due diligence. It does not speak of a first world standard. I wonder if shareholders of fraudulent companies can sue SGX for negligence. 

Imagine, how many retirees has invested their life saving to these mostly China companies.

Maybe I should check with MAS. A bad company, with no integrity listed in Singapore is no different from con man. 

MAS should set up stricter rules to protect the investment community.

Do you have any advise or info regarding above subject? 

Although I am vested in the company, and I know my action will lead to company suspension, but I would prefer to blow this up so that SGX can do a better job, exercise due diligence tracking companies in future. 

Of course, certain companies should not be listed in the first place. My only concern is that the other shareholders may be affected by my action.

Looking forward to your reply.

AK says...

There are so many red flags here and I think you know it too.

If we have invested in a company that is doing badly due to factors which are not within the control of the management but there is a chance of recovery, we can hope. 

If we have invested in a company that is doing badly due to a dishonest or incompetent management, then, I think there is no hope.

When I feel that there is no hope, I take whatever is left on the table and move on.

Best wishes,

Related post:
Where did I go wrong?


INVS 2.0 said...

Hi AK,

SB has announced a preference share offering of 1-to-10 units, to raise equity for its next acquisition. What is your view on this?

Personally, as a common shareholder, I prefer a rights issue over preference shares.

AK71 said...

Hi INVS 2.0,

This is a preferential offer (i.e. a rights issue), not preference shares. :)

I like buying a fairly priced building that generates a meaningful level of income which has visibility for many years to come. So, I am participating. :)

INVS 2.0 said...

Hi AK,

Ah.. thanks for the pointing out in the mistake. I saw the wrong thing. ;)

I am participating too. :)

AK71 said...

I shared this on FB:

1. Issue of 94,353,672 new units in Soilbuild REIT (1 new for every 10 existing).
2. Each unit is priced at 63 cents.
3. Initial annual rental of 2 Bukit Batok Street 23 is $8 million.
4. Will raise net proceeds $59.2 million.
5. Total acquisition cost about $100.5 million.

the boy who wants it all said...

Never seen any mandatory requirements for all directors to be present, but understand that the code of corporate governance paragraph 16.3 states as a guideline that "All directors should attend general meetings of shareholders. In particular, the Chairman of the Board and the respective Chairman of the AC, NC and RC should be present and available to address shareholders' queries at these meetings. The external auditors should also be present to address shareholders' queries about the conduct of audit and the preparation and content of the auditors' report."

talesteller said...

Hmm I'm worried about the occupancy of Bukit Batok Connection. According to DBS, back in June the occupancy was below 40%:

It's only been 2 months since then so I wonder how much occupancy can have improved. Also, will the acquisition still be DPU-accretive if occupancy doesn't improve? I can't see for myself since I invested through Stanchart and didn't receive the Circular they sent out.

Kevin said...

Hi AK and M,

It seems to me that the china company is laundering money or is just using the listed company status to bring money out of China.

I agree that the matter should be blown up in order for SGX to have proper checks and balances on companies listed on its exchange.

The best way to do it would be making it viral online whereby it is widely shared so that SGX will take action rather than giving template replies or transferring you back and forth to another party.

A good example is the bukit batok rats infestation problem. The authorities took immediate action when a video of the rats infestation went viral on the internet. Previous attempts on addressing the problem were unheard or rather heard but without follow-up action.

AK71 said...

Hi talesteller,

There is a 7 years Master Lease for the building. So, the REIT is buying the building as if it is 100% occupied for the next 7 years.

As the purchase is not 100% debt funded, it might not be DPU accretive.

AK71 said...

Hi Kevin,

I have avoided S-chips for many years.

Alamak, are you comparing S-chips with the rats in bukit batok? -.-"

Unknown said...

Hi AK, I am not sure why the most impt detail - the name of the stock, is left out. Is it censored? :)

AK71 said...

Hi Unknown,

Censored by the reader. :)

redponza said...

I am from HK where there are even more China companies listing here.
The story shared by AK is not new to HK investors.

I would comment that the China companies shared by AK is not that BAD already. I have even heard a case of a HK listed Chinese company conducting the shareholder meeting in remote places between China, Myanmar, Lao so investors cannot attend the meeting and vote for items in opposition of the current management.
In AK's sharing, at least the fellow investor got to attend the meeting and saw someone =.=


Kevin said...

Hi AK,

If left unchecked, it will breed like rats forming a rat kingdom like what happened in bukit batok. :P

AK71 said...

Hi Kevin,

It is impossible to analyse companies which cook their books. If we cannot trust the numbers they report, we have to chuck them in the bin.

The Middle Kingdom is a breeding ground for plenty of "rats", it seems.

Cory said...

Fraudulent company may get listed to take share holders money and "spend it". Launder money is new to me. Some shareholders are lucky if they don't raise rights for more money. Some people cannot chop fingers one. There will always be some people that will keep being milked.

AK71 said...

Reader says...
ASSI What is your comment on Yangzijiang, I had study the company and think it should be a good stock to buy but now the price is dropping daily.. please advise me should I buy more , wait or cut loss.. my average per shares is 94c.. Appreciate your input!

AK says...
I have not looked at S-chips in years. I don't know if I can trust their numbers and if I don't know that, I cannot analyse them. -.-"

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