Short position

  • Business
  • Saturday, 05 Nov 2016

KUALA LUMPUR, 13 Julai -- Bank Negara Malaysia mengumumkan mengurangkan kos pinjaman hari ini, dengan kadar faedah penanda aras utama atau Kadar Dasar Semalaman diturunkan daripada 3.25 peratus kepada 3.0 peratus.--fotoBERNAMA (2016) HAK CIPTA TERPELIHARA

Betting on a big name

OVER the week, smallish firm XOX Bhd said it was proposing to issue 250 million new ordinary shares of 10 sen per subscription share to Macquarie Bank Ltd, as part of a fund-raising exercise to boost expansion of its Voopee mobile application.

That’s about 42.03% of the existing issued and paid-up share capital of the company.

“This would allow XOX to preserve cash flow for reinvestment and/or operational purposes; and is an expeditious way of raising funds from the capital market as compared to other forms of fund raising such as a rights issue exercise,” the company said.

On the surface, this begs the question, why would a global bank buy into a small firm? A loss-making one at that.

Recall, in previous instances such as the case of Bursa Malaysia-listed Chinese firm Xinghe Holdings Bhd, the company also said at one point that it was proposing to grant 2.34 million call options to Macquarie Bank, which would allow the latter to subscribe up to 234 million new shares or about 10% in the vegetable oil maker and trader.

Details on that proposed deal are scanty now but based on the company’s latest annual report, Macquarie is not among its 30 largest shareholders. At last look, Xinghe shares were trading at three sen apiece.

Investors would do good to not merely chase big names that seemingly emerge in firms.

While it is not impossible for such firms to attract quality investors, sometimes the investments are done on behalf of individuals using the bank as the conduit. If that were the case, then the money is really coming from individuals and not the bank itself.

Sometimes, a good name is all it takes to attract the attention of retail investors looking for a “good” buy. What follows after that is anybody’s guess.

Better service from banks 

BANK Negara this week said it was considering publishing a financial service provider’s (FSP) customer service index so that consumers would be able to tell for themselves which financial institutions offer the best service to customers.

The idea is to allow customers to make an informed decision in choosing their bank of choice.

The FSP may sound a mouthful. However, what it means in a nutshell is a gauge on which bank offers the best customer experience.

Financials institutions should not be perturbed by the disclosure of the FSP.

As governor Datuk Muhammad Ibrahim said, the unveiling of the customer service index would drive the industry’s performance over time.

Armed with information compiled by the central bank, it certainly would be interesting to see if customers really depend on the index to choose their bank of choice.

This is because, more often than not, most ordinary customers tend to go to the bank that is nearest to their homes or work place.

As for corporate clients, the barometer is not merely customer service. Corporates go to banks which are more understanding of their financial predicament and that would be able to accommodate their needs.

In a nutshell, large corporate deals are mainly driven by personalised relationships.

Nevertheless, the central bank should as quickly as possible finalise and make public the index because niggling complaints about banks and their levels of service are nothing new.

The central bank reportedly handled 6,695 banking and insurance complaints last year, albeit a little less compared to 7,197 a year earlier.

It would be interesting to see if an index on customer service would make a difference in bringing down the numbers.

Buying more time

Reach Energy Bhd’s decision to adjourn its crucial EGM yesterday is reminiscent of what had happened back in March when Sona Petroleum Bhd’s shareholders reached the same conclusion at their EGM.

Both companies belong to that small group which are called special-purpose acquisition companies (SPACs), which, in turn, are subject to peculiar investor protection rules. While SPACs are meant to raise money and make acquisitions that eventually bring value to shareholders, the rules give shareholders the right to reject any deal proposed and get back their portion of cash from the company’s coffers.

This is why some yield investors pick up the shares in SPACs, hoping to make a small but assured return when the company calls for its EGM to decide on its qualifying acquisition or QA by rejecting the deal.

In the lead-up to the EGMs, it is believed that many deals are struck and blocks transacted by those wanting the transaction to go through. Most of the time, the objective is to buy out the yield seekers.

In the run-up to Reach Energy’s shareholder meeting, several blocks of shares changed hands in off-market deals, suggesting that the company was on track to see the deal through.

However, the EGM being postponed seems to suggest that there is more work to be done by the management of Reach Energy.

The next one month will probably see more intense negotiations or sweeteners being offered by the company to entice shareholders.

Ultimately, a good gauge to see if shareholders are going to vote through Reach Energy’s QA can be derived from the share price level of the company.

If Reach Energy’s share price edges towards the 76-sen level, which is the cash backing per share before the next shareholder meeting, it would be a clear sign that the deal is likely to go through.

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