A pattern of turbulence

  • Opinion
  • Saturday, 04 Jul 2015

Why does Larry Tey invest in companies that diversify and then hit instability?

A STRANGE thing happened at Ire-tex Corp Bhd on Monday, when it had an annual general meeting (AGM) in Penang. The manufacturer of packaging materials surprisingly announced that co-founder and group managing director Datuk Donald Yap Tatt Keat had stepped down. Ire-Tex said he had retired by rotation at the AGM and had not sought re-election.

The company’s Articles of Association require at least one-third of its board to retire at an AGM. The directors take turns doing this, each retiring at least once every three years but is then eligible for re-election. Yap had previously retired at the June 2013 AGM. He then offered himself for re-election and was promptly voted back into the board.

Yap spoke to reporters after the AGM on Monday but said nothing about leaving Ire-Tex. Later that day, the company said he was returning as the MD.

The explanation sauntered in three days later. According to the Ire-Tex board, Yap, who has been with the group for 20 years, had “expressed his intention for early retirement” and had wanted to do so immediately after the AGM. That was why he didn’t seek re-election.

“However, due to concerns raised by key stakeholders, namely bankers, customers and suppliers, to Yap’s unexpected early retirement, the board of directors had persuaded him to defer his retirement plans,” said the company.

“Consequently, in the best interest of the company, Yap had accepted his re-appointment as MD in the board meeting held immediately after the AGM. As such, he will remain in the board until a succession plan is put in place.”

Anoher thing peculiar about the AGM was an apparently late decision by independent director Collin Goonting not to seek re-election. In the AGM notice published on May 28, one of the resolutions was on Goonting’s retirement by rotation and his eligibility for re-election.

The Ire-Tex board said the lawyer notified the company “prior to the AGM” that he didn’t want another term as director. Therefore, the resolution on his re-election was withdrawn during the AGM.

But Ire-Tex isn’t the only company to recently have curious boardroom changes after an AGM.

WINTONI GROUP BHD held its latest AGM on June 26. Seven resolutions were tabled but the majority of the shareholders at the meeting approved only two – the ones on the directors’ fees and the reappointment of the auditors.

The four directors who were up for re-election didn’t get enough votes and the company, a provider of automation systems, subsequently announced their retirement. It didn’t end there though.

On the same day, all four were appointed to the board and they assumed their previous roles. Retired lieutenant general Datuk Khairuddin Mat Yusof returned as non-executive chairman. Soo Tee Wei was reinstated as executive director. Mohd Sopiyan Mohd Rashdi and Ansari Abdullah continue as independent directors and members of the audit and nomination committees. It’s as if the AGM outcome was a mere blip.

What’s interesting is that Ire-Tex and Wintoni have at least two personalities in common. Soo is an executive director of both companies. In fact, at Ire-Tex, he was redesignated from independent director to executive director after the AGM on Monday.

But perhaps the most significant overlapping factor is Datuk Larry Tey Por Yee. He has a 28% stake in Ire-Tex and was its executive director between May 2014 and February this year. He became executive chairman of Wintoni in June 2013 but in March this year, he was redesignated as executive director, a position he still holds. His shareholding in Wintoni (then known as WinSun Technologies Bhd) exceeded the substantial level of 5% in May 2013, but he now owns only 4.5%.

Soon after Tey emerged at these two companies, each of them announced a proposal to go into a new business area through acquisition.

Also, both companies’ 2014 accounts come with qualified audit reports. Ire-Tex’s auditors say they couldn’t be sure about the validity and existence of RM5mil sales by an Ire-Tex subsidiary to two related parties. As for Wintoni, the auditors qualified their opinion because they had yet to see for themselves the company’s computer equipment, valued at RM3.7mil, which are in the United States.

The similarities between Ire-Tex and Wintoni draw attention to Tey as an investor because in the past couple of years, he has surfaced as a substantial shareholder in several listed companies: Ire-Tex, Wintoni, PROTASCO BHD, ASDION BHD and Malaysia Pacific Corp Bhd.

We often talk about investors with the Midas touch, people who have the knack for putting money in assets that yield handsome rewards. Tey, a technopreneur who co-founded Nexgram Holdings Bhd, may indeed profit from betting on these listed companies, but somehow they all go through rough times, with the exception of Asdion. Does he have internal radar that pulls him to corporate vessels sailing into storms?

Of course, other than the very public boardroom tussle at Protasco Bhd last year, there’s no indication that these trouble are linked to him.

Nevertheless, it’s worthwhile identifying the pattern that can be discerned from studying the companies’ announcements:

Asdion Bhd

Tey’s first appearance: Became substantial shareholder on July 2, 2013.

Diversification plans:

> Announced on Sept 2, 2013, software and ICT services company Asdion to go into property investment and development via a joint venture with a Protasco subsidiary.

> Announced on Jan 30 this year, Asdion to buy 51% of logistics company for RM6mil.

> Announced on Feb 12 this year, Asdion to pay RM6mil to be part of joint venture to develop land in Selangor.

Signs of turbulence: None

Ire-Tex Corp Bhd

Tey’s first appearance: Became substantial shareholder on May 16, 2013.

Diversification plan: Announced on Nov 18, 2013, Ire-Tex to buy two industrial automation companies for RM24.6mil.

Signs of turbulence:

> Auditors issued qualified opinion on 2014 financial statements.

> Investigative accountant appointed on June 10 this year to review certain transactions

> Group MD resigned following June 29 AGM but later agreed to stay on.

Malaysian Pacific Corp Bhd

Tey’s first appearance: Became substantial shareholder on July 18, 2014.

Diversification plan: None

Signs of turbulence: This property company’s problems had begun before Tey came into the picture. The auditors expressed a disclaimer opinion on the accounts for the year ended June 2014. That led to a PN17 classification in November last year. Tey was among four directors who did not seek re-election at the AGM in December last year.

Protasco Bhd

Tey’s first appearance: Became substantial shareholder on Nov 26, 2012.

Diversification plan: Announced on Dec 28, 2012, integrated engineering and infrastructure company Protasco to buy 76% of an Indonesian oil and gas company.

Signs of turbulence: Last year, Tey and Protasco executive vice chairman and group MD Datuk Seri Chong Ket Pen were locked in a fierce battle for control. Chong prevailed but Tey remains a substantial shareholder and they have sued each other.

Wintoni Group Bhd

Tey’s first appearance: Became substantial shareholder on May 28, 2013.

Diversification plans:

> Announced on May 29, 2013, Wintoni to buy a mobile application company for RM14.5mil.

> Announced on June 23, 2015, Wintoni to buy 60% of ICT services company for RM5.4mil.

Signs of turbulence:

> In March 2015, Bursa Malaysia advised investors to exercise caution when trading Wintoni shares and warrants.

> Auditors issued qualified opinion on 2014 financial statements.

> Four directors not re-elected in recent AGM but reappointed the same day.

Executive editor Errol Oh thinks that if directors rejected by shareholders at an AGM can be be re-appointed on the same day, then we must be overestimating shareholder power.

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