Monday, 22 January 2018

Debt has always been an efficient tool?


One snippet:


"DEBT has always been an efficient tool for finance and investment and it comes to no surprise that the list of companies that have the largest amount of debt includes some of the largest companies on Bursa Malaysia."


That is a rather remarkable statement in itself. 

I would therefore like to add some counterweight:

"Debt has also always been an efficient tool to bancrupt a company in the fastest possible way".

There are worldwide many, many examples of companies that used too much debt and did not live to tell the tale.

One reason for the increased risk of bancruptcy is that earnings are simply too low (or even negative) to sustain the debt payments.

Another reason is that despite having reasonable earnings a company might run into cashflow problems.

The stable of enterprises of Khazanah might have more options to increase debt even more (through Khazanah), but that might not always lead to the desired outcome and even increase the problem. MAS might be one example in this category.

Also, easier debt from a GLF like Khazanah might give a company a possibly unfair advantage over its privately funded rivals.

An example of a heavily indebted company outside the Khazanah stable is 1MDB, a story that most likely will end very costly for the Malaysian taxpayers.

Wednesday, 13 December 2017

Maxwells Mysterious Marketing (5)

The company announced:


" .... Beijing Taojin Law Office had on 11 December 2017 tendered their resignation due to the difficulty faced by Beijing Taojin Law Office in conducting the due diligence in relation to the litigations investigation such as (i) the Courts had not been cooperative; and (ii) the number of court cases and the amounts claimed cannot be conclusively determined yet at this juncture.

In view of Beijing Taojin Law Office’s resignation, the subsidiaries of the Company, Jinjiang Zhenxing Shoes & Plastic Co. Ltd and Maxwell (Xiamen) Co. Ltd, have appointed Guangdong Kingbridge Law Firm in the People’s Republic of China, who are familiar with Guangdong and Fujian provinces area legal matters, to conduct special due diligence on the litigations investigations involving the subsidiary of MAXWELL.


Guangdong Kingbridge Law Firm will also conduct special due diligence on the cash deposits placed with the asset management company and Maxwell (Xiamen) Co. Ltd’s advertisement expenses.
The Company has requested Guangdong Kingbridge Law Firm to issue the special due diligence legal opinion report by middle of January 2018."



This is a case that is dragging on for more than two years. Shareholders should not expect to get the clarity that is very much needed suddenly in one month time.

Monday, 11 December 2017

Sapura Energy "eking out profits in the majority of quarters"?

Article in The Star "Blip for Sapura Energy", one snippet:


"The stock ..... has been eking out profits in the majority of quarters since the collapse of crude oil prices in late 2014 ......"


Strictly speaking, this is correct, the majority of the quarters were indeed positive.

But ..... overall the company has bled a lot of money over those same quarteres since the losses were much larger than the profits.

The exact amount of the losses over the last 11 quarters is RM 800,000,000.00.

That is a lot of money and that would describe the current situation of Sapura Energy much better than "eking out profits in the majority of quarters". Good journalists should perform this kind of checks to give a more balanced picture.

Other interesting facts that are not revealed in the article are the total amount of liabilities of Sapura Energy (RM 22 Billion) versus only RM 1.9 Billion cash, and the rather high rewards for the controlling shareholder while the company is bleeding money.

Thursday, 30 November 2017

Maxwell: what does Mdm Li know?

I have written several times about Maxwell International, not in a very positive way, to put it mildly.

The company announced its quarterly results and again the revenue was exactly RM 0.00.

Optimists will say that it can't get much worse than that.

According to the balance sheet, the asset value per share is RM 1.00, mostly backed by cash.

The share price is lingering around RM 0.02.

So apparently not many people believe the balance sheet. I can't blame them for that.

Mdm Li, President and major shareholder, disposed of 20 Million shares at a price of RM 0.02 each.

Does she not believe the balance sheet either? If the cash is real, then surely the company can distribute it to the shareholders, who would hugely gain from it. And Mdm Li, as the controlling shareholder, can set that process in motion.

So why does she sell her shares, what does she know?

This is one of several China based companies listed on Bursa where the regulators should have acted in a decisive manner a long time ago.