IN today’s world of information overload and the proliferation of social media, the search for accurate information is a challenge.
In the context of Malaysian listed companies, one seemingly solid source of information are filings that companies make with the stock exchange.
Such information is deemed to be in higher regard than say what is posted on investment sites and blogs, which tend to be more speculative. But last week, something peculiar took place – a listed company called Connectcounty Holdings Bhd decided to make a filing based on an unsubstantiated rumour posted on a finance blog.
More interesting was the fact that ConnectCounty’s filing did not deny the rumour that was contained in the speculative piece, namely that a company called S5 Systems Sdn Bhd was looking to do a reverse takeover (RTO) on ConnectCounty, which is an Ace Market-listed stock involved in the manufacturing of cable and wires.
In that filing, the company said that it is “in negotiations with the relevant party pertaining to the possible RTO exercise involving S5 Systems.” It added though that it has not signed any agreement on the matter and will make the necessary announcements “when there are further developments on this matter.” Beyond that, it is unclear what stage the negotiations are.
“Has a licensed financial institution already been hired to start working on S5 System’s RTO into ConnectCounty? Or is this based on something more flimsy, such as perhaps just a phone call by a representative from ConnectCounty to ask a representative from S5 Systems if they would like to consider injecting their company into ConnectCounty?, ” quips a fund manager when asked for his thoughts on this.
As background, S5 Systems is a company in the news and carries with it some level of investor interest as it is said to be in the running to secure perhaps the largest government IT contract called the National Integrated Immigration System (NIIS).
S5 Systems provides a range of services and solutions to government bodies and companies.
ConnectCounty shares have moved up from a low of 12 sen on June 1 to hit a high of 39 sen on June 15. Its shares closed at 32 sen yesterday, giving the stock a market cap of RM120mil.
Bursa Malaysia in replies to StarBizWeek’s query says that listed corporations are required to observe corporate disclosure policy under the exchange’s Listing Requirements (LR).
“This includes, among others, requiring the listed corporation to make a due enquiry and immediately publicly clarify, confirm or deny any rumours or reports, which it becomes aware of, whether true or false, that contains material information.
“Such rumour or report could be in any form and circulated by any means such as in a newspaper article, broker’s market report, by word of mouth or in any other publication, ” the regulator says.
In doing so, Bursa Malaysia adds that the listed corporation must provide sufficient facts to support the denial or to clarify any misleading aspects of the rumour.
“In the case of a rumour or report containing material information that is correct, a listed corporation must include an indication of the state of negotiations or corporate plans in the rumoured area.”
That said, the concern is that some public-listed companies (PLCs) may make such announcements to drive-up share prices, according to the Minority Shareholder Watch Group (MSWG) chief executive officer Devanesan Evanson.
From this context, this is why Bursa Malaysia recently reminded PLCs not to make “promotional disclosures” which are not factual. Such disclosures are not permitted under the LR, says Devanesan.
Coincidentally, last week, My EG Services Bhd announced it was acquiring 118 million shares, representing a 10% stake in S5 Holdings Inc (whose subsidiary is S5 Systems) from from Merrington Assets Limited (MAL).
MyEG is paying RM90mil for that block – valuing S5 at a massive RM900mil. To be satisfied via RM75mil in cash and RM15mil share issuance, MyEG hopes to complete the deal in third quarter 2020 after getting the necessary approvals from Bursa Malaysia and other relevant authorities.
Notably, this is the second RTO attempt by S5’s major shareholder.
In 2016, rubber products maker Goodway Integrated Industries Bhd – a loss-making company at that time – had proposed to acquire S5 for RM900mil. But some seven months later, the proposed acquisition by the company was withdrawn because of “the additional time that was needed to enhance the disclosures and provide the required information.”
It does look as if the regulator had sought additional information on S5 or the RTO exercise, which was not furnished in time.
Back to ConnectCounty, the company has been facing pressure on its bottom line because of low margins from its core business in the interconnect industry, which has presence in China, Singapore and the United States, besides Malaysia.
For the FY ended Dec 31,2019 (FY19), it made a net loss of RM7.32mil versus a net loss of RM9.46 in the previous year.
The company has been seeking to restructure its operations.
One diversification initiative is venturing into cybersecurity. The company said it explored the opportunity in collaboration with experienced partners and had begun the business with a small-scale activity in 2018 under Connect Security Solution Sdn Bhd.
Another is entry is into the film and music business. For this, it had set up a subsidiary called IBEX Pictures Entertainment Sdn Bhd to develop, finance and produce screenplay, film, soundtrack and other media, talent management and business of merchandising in March last year.
This came following the emergence of Nexus Creative (MAL) Sdn Bhd as a substantial shareholder of ConnectCounty, which acquired 100.48 million shares or a 30.5% stake in March 2019.
Nexus Creative is a production house specialising in content creation and is the vehicle of Peter Wong Pooi Fatt and his wife Lee Su Lin. On the other hand, ACE Credit (M) Sdn Bhd, which is part of the ACE group, ceased to be a substantial shareholder of ConnectCounty.
The development also saw the departure of two directors of the company and the appointment of Wong and Lee to the board.
But, in July 2019, Wong and Lee resigned from ConnectCounty’s board to pursue personal interests.
More recently, on Monday, Ang Chuang Juay, who is the company’s executive deputy chairman, ceased to be a substantial shareholder of the company after he pared down his shareholding to below the 5% threshold level, from the 5.67% he held as at end-March 2019.
Ang, a Singapore national, disposed of the shares between June 12 and June 15, exchange filings show.
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