Short Position - Money lending


In a rare move by any company, Hibiscus announced that managing director and major shareholder Kenneth Pereira (pic)declared his intention to participate in the book-building exercise that would see him put in between RM8mil and RM50mil of his own money to buy up to 50 million convertible redeemable preference shares. The board of Hibiscus, apart from Pereira, believes his offer was in the best interests of the company.

Why the penchant for money lending?

There seems to be a trend for companies to go into the money-lending business.

While it is fine for companies with a healthy balance sheet to venture into money lending, it is beguiling for an entity that is in a financially distressed position to go into money-lending activities.

Seacera Group Bhd, a company that is into trading of titles, personal protective equipment (PPE), construction and property development announced that it has obtained a money lending licence that would be valid for two years.

The businesses, the company said, would enhance its income stream and financial position.

Seacera has a history of boardroom battles.

It is also in the PN17 list of listed companies that need financial restructuring to fortify their balance sheets.

The best asset in its books is the 200ha (500 acres) of land in Semenyih that is touted to have good potential development.

But property development is in the doldrums now and unlikely to be a saviour for the company.

It has total debts of more than RM24mil and has over-drawn its cash position to the tune of RM10mil.

The company also has 38 legal suits that may impact its financial position.

There have been several boardroom fights for the control of the company but so far none has resulted in an outcome that would lift the company out of its present predicament.

Against such a bleak environment, why would the company want to lend money?

In recent months, there are several companies that have gone on the bandwagon of obtaining money-lending licences.

They include construction companies and even those providing e-wallet services.

Generally, money lending is only done by companies with excess cash and a business portfolio that does not require heavy capital expenditure.

A typical example are the gaming companies where money flows steadily and they have little capital requirements for it to be utilised.

But even gaming companies have stopped money lending activities as it can be abused. Magnum Bhd used to have a subsidiary in Hong Kong that was into money lending activities.

The parent company advanced money to the Hong Kong subsidiary but was unable to recover the advances.

Going against the tide?

This week’s announcement that Focus Dynamics Group Bhd has signed a heads of agreement (HOA) with Oversea Enterprise Bhd to expand internationally certainly raised some eyebrows.

In the announcement, Focus said the plan included opening eight new Oversea restaurants in global cities like New York, Las Vegas, London, Paris, Sydney, Shanghai, Hong Kong and Singapore. (See Page 9)While the Oversea brand name is relatively popular locally, why the expansion to foreign countries at this time when the food and beverage, tourism and hospitality sectors all around the world are taking possibly the biggest hit of their lifetime?

In New York for instance, there have been reports that restaurants – big and small – have had to shut down as people leave the city in droves, some for good amid massive job losses and closure of businesses.

With many country borders stay shut due to Covid-19, there is no way that tourists can be counted on as well to provide the business.

As it stands, no one really knows when a sustainable recovery will come through.

Surely this plan could be shelved until more clarity emerges?

Why now?

Focus has shot onto the radar of investors of late, being one of the best performing stocks with gains of over 300% since this year.

Its market value has consequently gained by many folds to RM5bil.

But its earnings remain small comparatively at just over RM2mil in its latest quarter.

Can it stomach such an expansion at a time when even the big boys are cutting costs and shipping out of the competitive business?

What edge does it have over the rest?

Putting your money where your mouth is

Fund-raising is in vogue among numerous listed companies on Bursa Malaysia.

Many have announced massive private placements with the intent of raising money during a time when bank lending or bond issuances of many financially stretched companies will see little appetite among banks and institutional investors.

One company that is no stranger to fund raising is Hibiscus Petroleum Bhd, which has over the years conducted many cash raising exercises where proceeds have been ploughed into growing its oil and gas operations.

There has been diverse opinion over how frequent those exercises have been but the latest move by the company to raise RM2bil offers some comfort to investors.

In a rare move by any company, Hibiscus announced that managing director and major shareholder Kenneth Pereira declared his intention to participate in the book-building exercise that would see him put in between RM8mil and RM50mil of his own money to buy up to 50 million convertible redeemable preference shares.

The board of Hibiscus, apart from Pereira, believes his offer was in the best interests of the company.

In a statement, it said the view of the board was that the allotment was expected to further strengthen the alignment of interests between the management and the shareholders of the company.

There have been instances of major shareholders pouring in their own money into a company in times of fund raising but in these uncertain times, Pereira’s offers is divergent from the norm when companies have been announcing huge placements in trying to raise cash.

The purposes of some of those companies are vague at best but in Hibiscus’ case, it has been steadfast in trying to grow its oil and gas business, with the latest being its completion of buying a 50% stake in an exploration permit in an oilfield that is adjacent to one that has produced more than one billion barrels of oil.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 18
Cxense type: free
User access status: 3
   

Did you find this article insightful?

Yes
No

100% readers found this article insightful

Next In Business News

Bursa recoups nearly all its losses as KLCI climbs above 1,600
UiTM Solar Power Dua plans RM100m green SRI Sukuk
Malaysia to charge Top Glove over worker accommodations, government says
Banks demonstrate resilient credit portfolios, S&P Ratings says
Quick take: Press Metal climbs to record, aluminium prices at two-year high
Malaysia records RM109.8b approved investments in Jan-Sept
Nikkei ends near 29-1/2-year high on vaccine, stimulus hopes
Singapore central bank urges prudence in property purchases
All EPF branches to open from Wednesday
Sime Darby divests three river ports in China for RM181.1m

Stories You'll Enjoy