TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
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Blumont, Asiasons Capital and Lion Gold have lost billions of dollars in market value this past week. Yet, they are still pressing ahead with ambitious growth plans, with Blumont even claiming it is on its way to becoming Asia's BHP Billiton. Should investors give them a second chance?
Frankie Ho, The Edge Magazine
14 October 2013
The morning of Oct 4, a Friday, started as ordinarily as any other for remisier TJimmy Ho. Seated in front of his trading screens and having taken orders from some clients, the retail broker at UOB Kay Hian was all set for the trading session to begin. But what took place shortly after the opening bell was anything but ordinary for him and many others in the Singapore market.
Shares of Blumont Group, Asiasons Capital and LionGold Corp – three counters that had enjoyed heady gains over the months – started plummeting on heavy volumes simultaneously. Dealers and remisiers in every braking house soon found themselves flooded with calls from affected clients asking what was going on. The uncertainty further fuelled the selling spree as clients gave instructions to promptly dispose of their holdings to avoid more losses.
Less than an hour into trading, the Singapore Exchange took the unusual step of suspending these counters, citing the need to safeguard investors' interests as the market might not be fully aware of the affairs of these companies. By then, the combined market value of Blumont, Asiasons and LionGold had already shrunk to $4.1 billion, from $9.3 billion at the end of the previous trading session, with the stocks down 56.4%, 61.5% and 42.1% respectively.
The suspension lasted for the rest of the day, but did nothing to calm the market. Remisiers and braking houses, which usually demand immediate full payment for unsettled positions once a stock is suspended, were particularly concerned that they might end up with huge losses if clients failed to pay up. "There was so much disquiet and unhappiness among remisiers and investors," recalls Ho, who is also president of the Society of Remisiers. "Remisiers and investors have suffered big time."
The Singapore unit of one Malaysian broking house was said to have been hit so hard that its senior management had to fly in from Kuala Lumpur to discuss a potential capital injection. The firm did not respond to queries from The Edge Singapore.
Traders and investors weren't the only ones who were spooked. Executives of the affected companies claimed they, too, were startled by the collapse of their share prices. "I was obviously shocked. Who wouldn't be?" relates LionGold CEO Nicholas Ng. James Hong, executive director at Blumont, says he had it worse. "Shocked probably cannot accurately describe the feeling."
SGX lifted the suspension on Oct 7, Monday, but not before declaring the stocks as designated securities, meaning short-selling and contra trading on the counters are prohibited. The last time SGX declared a stock a designated security was in 2008, when shares of Jade Technologies, now Cedar Strategic Holdings, crashed. That didn't stop the three counters from sinking further from the moment the trading session kicked off, as the market couldn't shake off concerns that something might have gone wrong in these companies. The SGX requirement for buyers of these stocks to pay cash upfront also depressed demand.
It was only on Wednesday, Oct 9, that the market seemed convinced the three stocks had hit rock bottom, with more determined buyers stepping back in. Shares of Blumont closed that day 46% higher at 19 cents, while those of Asiasons rose 38% to 16 cents. LionGold's stock ended lower, though, down 0.5% to 18.9 cents. "The stocks went down so much over such a short period, I would also want to buy for a punt if I could," says an institutional dealer, who has a client who lost about $3 million on some of these counters.
Stock manipulation?
In their initial replies to SGX's queries on why their shares crashed on Oct 4, all three companies pointed to a local braking house's trading curbs on their stocks as a potential cause. Asiasons, Blumont and Lion Gold were among at least 18 stocks that UOB Kay Hian had declared as designated securities, which cannot be traded online. Asiasons also attributed the selling it faced to rumours, which it said were false, that it was being investigated by the Monetary Authority of Singapore (MAS).
The explanations cut no ice with many investors and traders in the market, though. They pointed out that UOB Kay Hian's trading curbs on the various stocks had been in place for a number of days -and even weeks for some counters – before Oct 4. Moreover, other securities designated by the braking firm didn't suffer the same vicious sell-off experienced by Asiasons, Blumont and LionGold.
So, what happened? According to some traders, a Malaysian syndicate has been behind the trading of these three counters. "These people use others who are willing to fund them. They themselves don't normally surface in the public," says one of the traders.
Another trader says the key people in the syndicate, through proxies, would seek to push up the stock prices of these firms so that the companies themselves can better afford to fund their acquisitions or investments using scrip. "Most daily volumes of these counters are churned by their proxies to create liquidity so as to generate publicity in order to draw other traders and investors. Financial intermediaries would also be more willing to give them financing. This ramps up the stock and provides an exit for them. Those at the top of the pyramid definitely make money."
The way these traders explain it, the collapse of Asiasons, Blumont and LionGold in unison might be an indication of the whole manipulation operation having gone wrong. In fact, just before they crashed, the authorities had begun scrutinising the companies. On Oct 1, SGX asked Blumont to explain its stock price's eightfold increase, from 30 cents at the start of January to $2.45 last month, which pushed up its market value to $6.3 billion from $508 million.
As far as SGX was concerned, Blumont's investments in nine companies in the natural-resource industry since December 2012 were relatively small in value and would not have warranted such a sharp spike in its share price. Blumont, a loss-making diversified business group, has been seeking to become a dedicated owner and operator of assets in the mineral-resource and energy sector.
"The selldown in the past few days was partially because of the fear factor created by the exchange and UOB. And when there are rumours that a company is being investigated by the authorities, who's not afraid?" says a trader.
Is there an investigation going on? Which regulatory agency is looking into the matter? "SGX, as the frontline regulator, monitors the market to detect any unusual trading activities. Where there are possible breaches of the law, these cases would be referred to MAS and the relevant authorities," a central bank spokesman tells The Edge Singapore. "MAS, however, does not comment on specific cases."
On the face of it, there are clear links between the three companies. For starters, Blumont has small stakes in Asiasons and LionGold. It has been holding these stakes since 2003, when it was Adroit Innovations, which developed e-commerce platforms for businesses. Malaysian property group Clear Water Developments, co-founded by Dian Lee, is a substantial shareholder of Blumont, with a 7% stake. Lee is the wife of Asiasons managing director Jared Lim. Asiasons, meanwhile, owns 8.7% of Lion Gold.
These companies are also led by some prominent Malaysians and are connected through crossholdings with other Singapore-listed firms, including Innopac Holdings, ISR Capital, Ipco International and Magnus Energy, all of which also saw their own shares pull back in recent days, though none was suspended.
Asiasons' chairman and co-founder, Mohammed Azlan Hashim, sits on the board of Khazanah Nasional and is a former chairman of the Kuala Lumpur Stock Exchange, now Bursa Malaysia, and carmaker Proton Holdings. LionGold's chairman, Nik Ibrahim Kamil, is also chairman of diversified business group OCB Bhd and a board member of port operator Westport Holdings, which is slated to list in Malaysia on Oct 18. Another high-profile Malaysian on LionGold's board is Md Wira Dani Bin Abdul Daim, son of the controversial former Malaysian finance minister Daim Zainuddin.
Interestingly, some insiders had been selling just before the crash. On Oct 2, Malaysian banker and lawyer Ng Su Ling, who is an independent director at Blumont and LionGold, sold one million shares in Blumont for $2.38 million, or about $2.38 apiece, paring her stake in the diversified business group to 3.01% from 3.07%. She has since sold more Blumont shares and now owns less than 3%.
On Oct 4, Ng also disposed of 335,333 LionGold shares for $393,982, or about $1.17 apiece. That left her with a 0.77% stake in the gold miner. After another sale, on Oct 7, her stake in LionGold stands at 0.59%.
Several transactions involving Blumont chairman Neo Kim Hock were also made in the days leading up to the crash on Oct 4. According to SGX filings, four million rights shares belonging to Neo were sold for $9.2 million on Oct 2. Another 3.4 million rights shares were sold for $7.4 million the next day. The transactions were a result of forced selling by banks, but the reason for the sale was not disclosed.
What are the repercussions for Blumont, LionGold and Asiasons from the steep falls in their share prices? Can they recover? Or have these companies been mortally wounded?
Blumont presses ahead
Certainly, their ability to raise capital has been significantly impaired in the short term, putting their acquisition-led growth strategies at risk. On Oct 4, Blumont aborted a planned $145.9 million stock-funded takeover of Australia-listed coal miner Cokal, as the commercial terms of the deal have changed materially after its share price crashed. The decision was made on the same day Blumont announced the Cokal acquisition.
Still, four days after aborting the acquisition, Blumont said it would use its cash and proceeds from a recent rights issue to extend an US$8 million ($10 million) loan to Cokal to fund its development work in Indonesia.
Amid the turmoil in the market, Blumont has also brought in a new chairman. Alexander Molyneux, who lost his job as CEO of coal miner SouthGobi Resources last September, was named Blumont's chairman-designate on Oct 7. He has agreed to take a 5.2% stake in Blumont by buying shares from current chairman Neo and an unidentified investor at an indicative price of 40 cents apiece. The acquisition is expected to be completed by Nov 6. Neo will then become deputy chairman.
Molyneux says Blumont will press ahead with expanding the group's portfolio of resource assets. The depressed prices of commodities and listed commodity companies, he feels, offer plenty of opportunities for a company like Blumont.
"The strategy is not going to change. We are on our way to becoming Asia's BHP [Billiton]. I see this company as an owner of operating interests in steel supply-chain raw materials, coking coal and iron ore. If we were to invest in agricultural commodities, we would be very keen on potash and phosphate. [Blumont] is keen on oil and gas assets. It will have a global asset suite."
That said, he concedes that raising equity capital for additional investments or acquisitions may be tougher now, given Blumont's depressed share price. "All I can say for now is that everything we've already announced is doable. We now have to look at the pipeline and how to finance [the new investments]. The ambitions need to be tuned to financing capability."
Part of Molyneux's plans for Blumont also includes divesting its legacy businesses, comprising property investment and sterilisation for a wide range of items, including medical equipment, cosmetics and food products. "It doesn't hang with the BHP-style ambition. It won't be there forever. I will engage the board in a discussion on what their plans are for the business."
LionGold wants restrictions lifted
On his part, LionGold's Ng says his company's existing projects are generating enough cash to continue funding normal operations. Driving growth inorganically in the near term will be trickier, though, following the collapse of its shares. The group has been actively acquiring gold mining assets around the globe since 2011, paying for them using mostly LionGold shares or proceeds from equity-based cash calls.
Until recently, the stock has been among the best performers in the Singapore market over the last couple of years. But with LionGold's market value now less than $200 million, compared with more than $1.5 billion only a few weeks ago, the company will have to be more patient before it goes after its next target as it waits for its share price to recover. Already, it has had to give up plans to buy a stake in Minera IRL, a gold miner listed in Toronto, London and Lima. It first announced that it was in talks to invest in Minera on Oct 4.
The way Ng sees it, things aren't likely to get better for LionGold until its shares are allowed to trade normally. "With the exchange putting restrictions on the stock, who is going to buy? There will be only sellers, no buyers," he says.
"Hopefully, once the exchange lifts the restrictions, the share price will go back up. I've been pressing them, I've been begging, I've been scolding, I've been writing to [SGX] - enquiring about the lifting of the trading restrictions. Whatever I can do, I have done. The latest, according to my lawyer, is that they will be writing to me on the status very, very soon."
In the meantime, LionGold's battered valuations could well make the company a takeover target. "I just did a very rough calculation. Based on a share price of 20 cents, LionGold's enterprise value for its resources is US$20 an ounce. Compare that to our peers in Asia, excluding Australia, they are all trading above US$100 an ounce. So, we are way undervalued," Ng says.
"There's no expression of interest from anyone for a takeover. I have not seen any offers," he adds. "I've been receiving a lot of calls, but those are friendly calls from institutional investors saying they are still behind us."
"What happened with our share price has definitely affected our ability to add value to our business, but Black Elk recognises that we have not changed fundamentally," he adds. Black Elk, an upstream oil and gas exploration and production firm, will be Asiasons' second investment in a resource-based company, after LionGold, if the deal is successful. The planned investment in Black Elk was first announced in September.
Regulatory blowback?
Whatever lies ahead for Asiasons, Blumont and LionGold, the events of the past fortnight could well have far-reaching consequences for the market. On the one hand, there are now calls for more heavy-handed regulation. On Oct 8, the Securities Investors Association (Singapore) urged SGX to put in place circuit breakers immediately to help prevent wild price fluctuations.
Meanwhile, Ho of the Society of Remisiers wants some oversight in the way braking houses impose trading curbs on securities. While these firms sometimes curb trading to limit their exposure to potentially risky counters, doing so can spark sharp pullbacks in some stocks, especially if the braking house is a large one, he warns.
Ho has tried bringing up the issue to his own house, UOB Kay Hian, but was brushed off. "They simply said this was something they had the right to do and that they didn't want to expose themselves to too much risk," he says.
Now, with attention drawn to the issue following the collapse of share prices in Asiasons, Blumont and LionGold, Ho is taking the opportunity to press his case. "We are worried about what goes on behind the scenes, whether there's any short-selling activity beforehand," he says. "When a house is of a certain size, the impact of its curbs can be significant."
Some market players also say SGX ought to have been more proactive in preventing counters like Blumont and LionGold from becoming so inflated in the first place. "The exchange has been very far behind the curve. It should have been querying them way before the collapse happened," a dealer says. "Look at LionGold, a gold company. The price of gold fell US$50, US$100, but it didn't affect the share price, which continued to go up. The company placed out shares on a number of occasions and yet there was no dilution impact on the price."
Should SGX and MAS have done more? What exactly could they have done? Shouldn't investors be free to ascribe whatever value they want to securities? Shouldn't brokers and remisiers be allowed to protect themselves from excessive risk exposure? And shouldn't companies be allowed to raise money on the most attractive terms possible?
Molyneux, Blumont's incoming chairman, says it's not up to the company to tell investors how much it should be worth. "Shareholders set the value, not the company. I can't imagine a situation in my career where a company said, 'Shareholders, watch out. My value's too high.' I've never seen it before! When does a company comment on its own valuation? That's not the job of the company's board or its executives."
To justify the extraordinary action it has taken in the past week, SGX needs to get to the bottom of the reason shares in Asiasons, Blumont and LionGold crashed, and who was responsible for it.