OilCorp, Ho Hup & EON Bank: Corporate Governance Works!

- relevant to F8, P1 and P7 and
...not forgetting our uncles & aunties who like to invest in Stock Market.

2 years ago, I have a wonderful time discussing with F8 students in a certain college in Petaling Jaya about the corporate governance dilemma. With Malaysia adopting the UK Combined Code governance, I am of the opinion that its superior to other countries governance particularry the Germans and Japanese.

I recall in that class mentioning that its 'fishy' for OilCorp directors to insist (over) valuation of Plant by RM10million. (See article on http://marcusong88.blogspot.com/2008/08/auditors-appointment-professional.html). Then the directors use Horwath AUditor to pit against the opinions of BTMH Auditors. As an investor, I tend to side the current Auditors - BTMH, as they have ethical advantage of being independent.

Why go against your auditors? Bear in mind, OilCorp Directors have an earlier accounting dispute on valuations. They relented by writing off RM20 million or so from CIS. A blow to shareholders but at least that is true and fair opinion. SHouldn't directors be focused on Corporate Strategy? Rather than accounting disputes?

Something got to cave in, and in this case, very likely the ill-informed sharholders who stayed invested. Worse off are the long term investors.

True enough, after 2 years, the current Directors integrity was really questionable and its lack of competence has noise dived Oilcorp Bhd to state of insolvency with Bursa Malaysia Exchange designating it with a PN17 status. Shares price of 2 years ago was at about RM2.00 pee share and now its at a fraction. Read the following article from the Governance Watchdog CEO. A good background knowledge for F8, P1 and P7 of the ACCA.

Other Companies with questionable governance:

Ho Hup Berhad Berhad
There are other similar OilCorp Bhd poor governance. The latest being Ho Hup Berhad. Information is powerful, ladies and gentlemen. IF you have uncles, aunties, cousins and friends invested in this company, tell them to bail out. The Board of Ho Hup is in a tussle which usually leads to the disadvantage of minority shareholders.

EON Bank Berhad
I will stay away from EON Bank Berhad too. TO recall, Hong Leong Boss, Tan Sri Quek Leng Chan, offered to purchase EON for RM9.42 Billion or RM7.10 per share. EON bank's major shareholders, Rin Kin Mei and Tan Sri Liong, who collectively controls 32% could with another 18.1% other shareholders vote to approve the sales. This means the remaining 49.9% minority shareholders are 'forced' to sell. This includes Primus Pacific Partners which "only" controls 20.2% at purchase cost price of RM9.55 per share is forced to sell too. Now that is unfair!

By the way, have a happy constructive holiday i.e. please do my assignments!


Article by CEO of Minority Shareholder Watchdog Group on Oil Corp Berhad:

Board needs to prevent another accounting issue

BARELY two years after its reported accounting issue, Oilcorp Bhd is once again in the limelight after announcing it had become an affected issuer under PN17 status.

News coverage of this nature has been both astonishing and depressing for shareholders and investors alike.

Financially, the company is in a difficult cash flow situation, which is attributable to its inability to collect outstanding large receivables on time.

On Sept 18, 2009, Oilcorp announced its default on an interest payment of RM1.6mil while two of its independent, non-executive directors resigned.

The situation has raised a myriad of concerns which the board needs to address fast and convincingly in the interest of all stakeholders.

From the time of its reported accounting issue and the delay by the board to publish its annual report for the year ended Dec 31, 2007, it is now perhaps time for the directors to assess the situation clearly and explain exactly what had gone wrong and to restore investor confidence as best they can.

The board’s announcement on Sept 23 does not provide sufficient information regarding the matter.

As at Dec 31, 2008, the group’s receivables stood at RM474.98mil (audited), of which about RM130.34mil was due from Plant Biofuels Corp Sdn Bhd and Optimis Teguh Sdn Bhd.

Oilcorp’s EGM on July 20 obtained shareholders’ approval for the proposed subscription of 2,211,166 new convertible preferred stocks of US$0.0001 each in Renewable Fuel Corp (RFC) at a proposed issue price of US$10 per preferred stock.

This will be be satisfied by conversion of the aggregate debts of about RM80mil, owed by RFC’s two principal subsidiaries, Plant Biofuels and Optimis Teguh.

RFC is expected to make its submission around this year for listing and trading of its shares.

It is not enough for shareholders just to know the progress of RFC’s submission at this juncture. What is required now is for the board to provide information on the status of collectibility of the group’s large receivables outstanding at RM489.68mil (unaudited) since the board’s announcement on Aug 27 of its second-quarterly results ended June 30.

It is worth noting that the share prices had plummeted from the closing price of 31.5 sen on Sept 18 to 19 sen on Sept 24 upon the announcement of the company’s default in loan interest payment, followed by its announcement of PN17 status.

The key word here in Oilcorp’s dilemma as an affected issuer under PN17 status is the need for transparency and accountability for disclosure of material information. This responsibility falls with the board, especially the audit committee.

But how will the audit committee function now when currently there is only one independent, non-executive director on the board after the resignation of its two other independent non-executive directors.

Given Oilcorp’s PN17 status, how soon will the board be able to regularise the company’s financial condition?

Within three months of the first announcement, the board has to announce whether its regularisation plan will result in a significant change in the company’s business direction or policy even though 12 months are given to submit this plan.

The board needs to consider sending out timely information to meet all these expectations. In a PN17 status, it is crucial for shareholders to know what the board is doing to address the problems faced by the company.

The directors would still have to uphold the principles that undergird rules to get things done right. This brings directors clearly to the central tenets of good corporate governance practice.

In fairness to shareholders and stakeholders, the board needs to assure trust, prevent a repeat of another accounting issue and avoid surprises to shareholders and investors.


Source:
● Rita Benoy Bushon, 2010, CEO of the Minority Shareholder Watchdog Group.