Short Position

Gamble on warrantsTHE takeover offer for Karambunai Corp Bhd (KCB) has received positive response. The major shareholder, Tan Sri Dr Chen Lip Keong, received more than 92% acceptance, triggering the compulsory acquisition of the remaining shares.

Chen already has 79.28% when he launched the takeover of the remaining shares he did not own in the company, whose primary asset is 1,500 acres of sea-fronting land in Sabah, at RM0.11 each.

Hence, he received acceptance for another 12.72%, crossing the 90% threshold that allowed him to acquire the rest of the shares compulsorily. KCB shares will be suspended on Nov 12 and eventually delisted.

However, Chen’s offer for the KCB warrants at RM0.03 each received a meek response, with only an 83.3% acceptance level. Based on the annual report, there are just above one billion warrants issued. This means there are shareholders with 170 million warrants who did not accept Chen’s offer.

The 170 million warrants, if converted at 13 sen apiece, translate to about 2.5% of the enlarged capital of KCB. It is not much, but could be a problem for Chen if he has plans for KCB.

Interestingly, KCB warrants, which are trading at only one sen, saw active trading yesterday. It indicates that there are people who are prepared to buy an unlisted warrant.

Those picking up the warrants probably hold the view that Chen has bigger plans for KCB, and are prepared to hold on to the convertible instruments for the longer term.

The warrants expire in 2023. By forking out a mere one sen, those who are buying the warrants are taking a gamble on Chen’s future plans for KCB.

Ironically, Chen runs a large gaming operation in Cambodia under a company listed in Hong Kong.

Non-military man at the helm of Affin Bank

THE choice of Datuk Agil Natt as the new chairman of Affin Bank Bhd marks the entry of a non-military personnel to the helm of the Armed Forces Fund Board (LTAT)-controlled bank.

Can Agil bring change to the bank that’s not altogether a favourite amongst investors?

In the banking stock universe, Affin Bank has the lowest return on equity (ROE) at 5.6% as compared to its peers, which have ROEs ranging from 7.7% to 13%. Bank valuations are often tied to their returns, so it is not surprising that Affin Bank also trades at the lowest price-to-book ratio.

Agil replaces General Tan Sri Mohd Zahidi Zainuddin, who is currently LTAT chairman.

The bank and its holding company previously, Affin Holdings Bhd (before the collapse of its financial holding company structure), tended to see retired key Armed Forces personnel at the top and on their boards. These include people like Gen (R) Tan Sri Ismail Omar and former LTAT chief, Tan Sri Lodin Wok Kamaruddin.

Agil, 68, has vast experience in the areas of corporate banking and investment banking as well as Islamic finance. Those in the banking sector will recall Agil’s stint as managing director/CEO of Aseambankers Bhd - the entity that is now known as Maybank Investment Bank Bhd. He had also served as deputy president/executive director of Maybank.

Banking is increasingly becoming a challenging business. Banks like Affin, which are among the smaller ones, need all the good advice they can get to survive in an increasingly tough market. Not to mention the onslaught of financial technology or fintech, which is disrupting the way banking is being done.

A look at its 2018 annual report shows that other board members of Affin are mostly in their 60s and 70s. To bring in vigour, it may perhaps also want to consider bringing in the younger generation too.

Money moves

Liquidity is the lifeblood of the economy. It is one of the reasons we saw a huge lift in the asset values in the economy after quantitative easing was conducted by central banks around the world.

With money sloshing around, the idea is that it will find its way into the economy. When there is money abound, the decision then is whether to invest or lend.

It may not have come as a surprise when Bank Negara cut the Statutory Reserve Requirement (SRR) ratio from 3.50% to 3.00% effective Nov 16,2019 and the rationale behind it.

It said the decision to reduce the SRR was undertaken to maintain sufficient liquidity in the domestic financial system.

Bank Negara said the move will continue to support the efficient functioning of the domestic financial markets and facilitate effective liquidity management by the banking institutions.The SRR is an instrument to manage liquidity and it is the amount banks will need to keep as reserves. The lower the amount it keeps as backup will mean more money to be lent for the demands of the economy.

With loan growth trending downwards and the economy plateauing between 4% and 5%, it makes sense for the central bank to give the economy a jolt.

It also allows banks to take a little more risk in lending to the productive sectors of the economy.

With the economy stagnating and with the anchors the housing and construction sectors have in the economy – and with it huge linkages with economic growth – the prospects of more risk-taking will be welcomed.

But people should not correlate this decision with the move by Bank Negara to have a cash transaction limit of RM25,000. That is to combat illicit activity and get digital and traceable transactions going.

But the lowering of the SRR will be watched in the months ahead as to what it does to risk appetite in the country. With loan growth slowing and people feeling the economy is in a rut, the move is prudent in giving the economy a shot in the arm.

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