Friday, June 01, 2007


Transmile, Nasioncom: Good Or Bad For KLSE

One word, good. Two words, pretty good. I am not talking about the transgressions here. I am talking of the effects and perceptions. Institutional funds know that corporate shennanigans are ever-present when you have listed firms, stock markets and lotsa cash. Hence corporate shocks such as these two should never be regarded as shocks but as natural rotten apples in a barrel. You will have one or two bad ones in a barrel, we cannot be so naive as to think we can keep it totally clean. Corporate scandals are part and parcel of ALL markets. The effects and perceptions by investors are much more important.

If this was played out a few years ago, especially in the 90s, I can bet you that these events would have died a natural death after a while. Chances are nobody will be prosecuted. The swiftness in action by SC on Nasioncom is highly commendable, and a marked improvement in the rising professionalism in our regulatory bodies. The long drawn out affairs with Soh Chee Wen and Repco Lau, which resulted in xxxx-all are symptomatic of how corporate shennanigans are treated way back then.

The handling of Transmile could have been better by the SC and the Bursa, but still not too bad. The allowed trading period for Transmile during days when there is no concrete information was not good at all. Billions were wagered, won and lost based on hearsay, rumours and pure speculation. However, if the big guys were to stop trading for a very long time, some might question the validity of a long suspension - investors need to move in and out. Its a difficult balance but I'd rather the Bursa and SC suspend the stock, even for 2 or 3 weeks pending the results of the new audit, that would have been better, because we are talking about a material matter.

Despite all that, the transparency and openess, and SC being on top of matters over Transmile, constant urgings and finally the leadership to force the issue for the company to come out with even preliminary findings - was on balance good. Foreign investors would see these developments as a sign of better market regulation, better openess and transparency.

5 comments:

rask3 said...

Hi,

Well,well. If people are ever willing to pick up the tab for frauds and con men, I say, keep 'em coming.


Rask

Eddie said...

Technical Analysis on this stock had given early warning 18th July 2006 and the second warning on the 28th December 2006 on the emminent of this event. On these two dates, there are people who already know this news and been selling at way below the selling price of the day. Technical analysis guy calls it the 'pile driver'.

Seng said...

Dali,

Interesting article. Thanks. However, I have quite a different view on this issue.

In TRANMIL case, the root cause is not the police (SC, auditors, accounting standards), but the crooks. It might be a single crook, or acting as a team, but there should be a "Chief Crook". Whether this is the old CEO, CFO, or whoever (higher or lower ranking) is for the courts to decide. But there is definitely a Chief Crook in this saga, and as a community, we should never forget this fact.

In my opinion, the best thing for KLCI is a swift and just punishment for the Chief crook and his cronies. I don't think the US punishes the crooks of ENRON, WORLDCOM, TYCO, etc. enough. Malaysia has an equivalent here, which is to hand out DEATH sentence to serious drug traffickers into this country. If you believe that such large destruction of wealth by 1 or 2 individual (or Chief Crooks) is similarly serious, then, I think such crooks deserves to be punished to the fullest extent of the law.

If current law were to only hand out a 1 to 2 year jail sentence as a result of having large monies being able to buy the best lawyers and legal defence, then, this is a very sad day for Corporate Malaysia, and Malaysia as a whole in the long run. It basically sends the wrong message to the rest of Chief Crooks in this country, that it is acceptable to swindle billions / hundreds of millions, as the reward more than justify the risks.

I think the best thing that can come out from this saga, is to make an example of the Chief Crook. Punish him/her to send a serious message to the other 1,200+ Bursa listed companies' potential "Chief Crooks" so that they will not dare to instruct lower ranked employees to do the thing that they did. We don't need to waste thousands of people in the accounting, auditing, SC profession to try to figure out how to tighten existing rules and introduce hundreds of new rules here and there. Just punish the crooks, and I will tell you, we will see substantial and immediate improvement to the accounting practices in future.

In our community, leaders are entrusted with great responsibilities, and are accorded the highest respect. Leaders should lead by example. When one or two leaders do not lead by example, and abuse the trust, this is a very, very serious offence in my opinion.

A harsher punishment may / may not shake the KLCI in the short term, but those who have a clear conscience would have nothing to fear. I believe it will be much more beneficial to Malaysia in the longer term, and it will eliminate all the borderline practices that we are seeing right now. This single act I believe will be far more effective than having a dozen changes to SC policing, new auditing rules, new accounting rules, as the latter simply doesn't address the root cause of the problem.

To me, criminal activity should never be acceptable in any responsible and caring community.

Seng.

rask3 said...

Seng: Well said. Can't agree more. You remind me that rationality is paramount for long-term success in stock investment, although your comments veered to how crooks should be dealt with for the health of the stock market. My earlier comment was made tongue-in-cheek. XD


All the rules and courts in the world cannot protect investors, if they choose to be not risk averse.
For those contemplating purchase of shares in Transmile, thinking that it can't go any lower, remember that Enron went to zero. Enron investors lost more than their pants. I can see the following red flags, off the cuff, in the case of Transmile.


One: If it is true, according to earlier releases, that in fact the company lost hundreds of millions during the last two fiscal years, then the viability of the business as well as the company is in doubt.


Two: The presence of big wigs in the list of shareholders doesn't mean much. Even Warren Buffet couldn't turn around the bad businesses that he had invested in. He said: Turnarounds seldom turn.


Three: Who knows what other skeletons are hidden in Transmile's closet? If you see one cockroach in a house you can assume that there are more. XD


Four: Worst case scenario. What about the liquidation value of Transmile? What'll be left after all assets, including intangibles such as landing rights are sold and debts paid off? Will it be more than the current market value? If in doubt, tune in later, according to Peter Lynch.


I'm sure others can come up with more red flags. I've wondered why many fund managers around the world
don't perform well in stock investment. They have intelligence, investment knowledge, easy access to informatiion and yet they do a lousy job. It seems that while God can bless a person with intelligence he could still shortchange him in rationality.


The latest investment theory making it's rounds in China: If the price of a share of a company is less than the price of a kilo of pork, then the stock is a terrific bargain. How about that for rationality? Why pork and not beef or chicken? Is it because: Bears or bulls make money, but a pig doesn't?


Sorry for the long post.


Rask

Salvatore_Dali said...

Seng & Rask,

Well said, but I I believe my views have more similarities with yours just the angle is diff. I was getting at the improving prosecution and policing side. Look at Nasioncom, if it was 10 years ago, I think the charges would not be filed so soon. It appears before that the KLSE and SC NEEDED to have "permission" before landing the blow. Now I don't see that so much,... I hope I am right. The independence of these institutions are crucial.

We cannot run away from people who are intending to act criminally. I agree totally we need to the mete out proper sentences as deterrent. Look at Repco and Mr. Soh, not even slap on wrists, its not cricket!

We need proper sentences for the crime.