Matang Holdings Bhd shareholders must beware asset-stripping exercise

Joint Media Conference Statement by Liew Chin Tong, Tan Hong Pin and Liow Cai Tung on 27 May in Johor Bahru

Matang Holdings Bhd shareholders must beware of MCA’s well-disguised asset-stripping exercise lest they fall victim

MCA must answer whether it is embarking on an asset-stripping exercise by exchanging hard-earned savings of ordinary MCA members and their friends to secure the financial position of its political elite and its cronies.

On 19 November 2012, MCA-linked Matang Holdings Bhd announced a reverse takeover (RTO) deal of electronics firm Scope Industries Bhd, which upon closer examination appears to be a lopsided scheme that favors Scope and will not be in the best interest of Matang’s shareholders, the majority of consist of Johor MCA members.

Many of the 19,984 shareholders in Matang Holdings Bhd are Johor MCA members and their friends who, in response to Johor MCA’s drive in 1981, parted with personal savings to purchase Matang shares at a high price. When purchasing Matang shares, these MCA members were made to sign a pre-printed form stating that they were giving interest-free loans to the Johor MCA Division concerned for the amount.

In effect, through these “interest free loans” from Johor MCA members, Matang Holdings managed to raise RM50 million as share capital. To date, it has not been revealed whether MCA ever repaid a single sen of these “interest free loans”.

Many of these shareholders have held on to their Matang shares for 30 years, only to be now exposed to a deal that jeopardizes them. Worse still, these small shareholders face an uphill battle to stop the RTO deal since they will likely be outvoted by Matang’s largest shareholder, Huaren Holdings, which is also MCA’s investment arm.

Huaren, which is wholly owned by MCA, has a 10.72% stake in Matang and this functions effectively as a controlling stake due to the large number of small shareholders in Matang. These small shareholders are also at a disadvantage since most are not English-speaking and hence will not read the notice for the Matang EGM on 31 May, when this RTO deal is expected to be passed.

Is this how MCA intends to repay its loyal supporters?

I have been reliably informed by Matang’s former Chief Financial Officer, Wong Pang Nam, that there are at least three ways in which the Matang-Scope RTO deal will hurt Matang’s shareholders:

Firstly, in this deal Matang’s key assets have been deliberately undervalued, including a freehold 1105.50 hectare oil palm estate with main road frontage which has been valued at RM107 million or approximately RM39,630 per acre. At this price it is impossible to find a seller in peninsular Malaysia.

Obtaining oil palm land at such a favorable (undervalued) price will be a windfall for Scope, considering that globally such land is considered scarce and Malaysia is reportedly left with 800,000 hectares of land suitable for further oil palm cultivation. The country is expected to run out of available oil palm land by 2015 or 2016.

In a press statement on 20 April 2013, the minority shareholders of Matang revealed the following:

  1. The Board of Directors of Matang has in disposing of the Matang landed assets including cash at a grossly undervalued amount of RM145,000,000.00 has acted in bad faith and has failed to discharge diligently their fiduciary duties to the shareholders.

  1. The value of RM145,000,000.00 is inclusive of cash held by Matang and to date the cash so held is more than RM25,000,000.00 which effectively means that the landed assets is disposed off at only RM120,000,000.00. A valuation done by Henry Butcher in July 2012 valued the landed assets at RM168,000,000.00. The difference in valuation alone is RM48,000,000.00. If the cash sum of RM25,000,000.00 is taken into consideration, the amount of difference is RM73,000,000.00. ”

Secondly, the RTO deal would offer Matang’s entire RM25 million cash holdings approximately in exchange for Scope Industries shares. Due to the value discrepancy between Matang and Scope, this exchange is not only unequal but appears to be siphoning Matang’s cash (which is the hard-earned savings of MCA members) in return for Scopes shares which are of lower value.

The Matang minority shareholders’ press statement on 20 April 2013, also revealed:

“ Value of Scope Industries Bhd Share

Scope’s audited FYE 30 June 2012

Matang’s audited FYE 30 June 2012

Earnings per share                                                       

0.21 sen

4.3 sen

Net Assets per share                                                       

  12 sen

118.9 sen

The value of RM0.25 as used by Scope to value its shares in exchange for Matang shares is at a Price Earnings Ratio of 119.0 times. The price used cannot be fundamentally supported and is grossly overvalued..In lay man terms it will take an investor 119 years to recover his original investment based on its current earnings.

As its net assets is only 12 sen, it is also not justifiable to value its shares at RM0.25 which is 2.1 time to its book value.

Scope will be highly dependent on Matang’s earnings to support its business for the forseable future. Matang shareholders is much better off not taking part in the business merger as Matang shareholders do not enjoy any synergy benefit but is actually contributing its profit to the enlarged group.”

Thirdly, the Scope shares issued to the Matang shareholders are subjected to a four year moratorium on the 580,000 new Scope shares to be issued to Matang shareholders. This means that Matang shareholders will only be able to sell their Scope shares over a period of four years, a gross unfairness that his been pointed out by MCA’s former deputy finance minister Donald Lim. Lim highlighted this issue in the press lately, threatening to oppose the RTO unless the moratorium was removed.

It should be noted that Scope is an ACE-market listed counter, which has lower listing requirements than the main board market.

Is the Matang-Scope RTO an asset-stripping scheme disguised as a “willing buyer willing seller” transaction between two MCA-linked companies? Lifting the veil of Scope Industries Bhd will reveal who is behind the deal and who will benefit from the RTO.

The beneficiaries of this RTO will certainly not be the almost 20,000 Johor MCA members who parted with their savings some 30 years ago to purchase Matang shares out of trust for the party.

Matang minority shareholders action group have appointed Messrs Lau Kok Guan Liana & Associates to act on their behalf to oppose the RTO deal. They have also publicly called for all existing Matang shareholders to be present and vote against the proposal during the EGM to be held on 31 May 2013 in Hotel Grand Paragon at 9.30am.

Matang shareholders should open their eyes to the facts behind the RTO and attend the EGM to vote so as not to be duped.

 

Liew Chin Tong is the Member of Parliament for Kluang

Tan Hong Pin is the State Assemblyman for Mengkibol

Liow Cai Tung is the State Assemblywoman for Johor Jaya

* 1) http://bibliotheca.limkitsiang.com/1981/06/23/matang-holdings-bhd-given-three-days-to-publicly-explain-whether-it-had-authorised-the-johore-mca-state-and-divisions-to-collect-some-50-million/

* 2) Press Statement by Matang minority shareholders dated 20 April 2013

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