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 issu...
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Chan Yi Wen
10 March 2015
The massive collapse in Sino Construction’s shares once again highlights the dangers of punting on fast-rising “concept” plays.
Last week, Sino Construction - a civil engineering and construction company that is in the process of transforming into an energy conglomerate - took a huge hit, with its shares losing some 76 per cent of their value within just two days. When the dust finally settled at the end of week, it closed trading at around 6.3 Singapore cents on Friday, a pale shadow of its price of 28 cents a week earlier. On Monday, Sino Construction plunged another 14.29 per cent, closing at 5.4 cents.
What precipitated this fall is still speculation and some were quick to pin the “Blumont” label on the company.
Blumont has become the byword for all that is wrong with the frothy and speculative penny stock end of the market where prices are pushed to stratospheric highs on pure liquidity and speculation, and little else. It was Blumont and a bunch of “related stocks” which sparked the infamous penny stock crash of October 2013 from which the market has yet to fully recover. Investigations are still ongoing into possible wrong-doings, with key players and directors of some of these companies under scrutiny - some with passports impounded.
But, to date, there has been no suggestion of this in Sino Construction’s case.
If the news trickling into the market is anything to go by, this was a case of fund-raising plans gone wrong.
Sino Construction had embarked on an ambitious plan to transform from a plain-Jane construction business to a somewhat more exciting - and potentially higher growth - energy play.
The company was seizing opportunities in a bear market by aggressively acquiring coal assets, diversifying from its beleaguered core construction business. In just 2014 alone, it had locked in three new coal deals: a full takeover bid for Sydney-listed Guildford Coal; a 52 per cent stake in Jems Exploration; and a 51 per cent interest in Signet Coking Coal International.
In February this year, Sino Construction’s management also announced plans for a renewable power generation business to capitalise on favourable electrical tariff rates in developed markets such as South Korea and Japan.
But to fulfil its ambitions, the company needed to raise funds. And the amount and ability of companies to raise funds is often loosely tied to the strength and performance of the stock price - especially in the case of equity-linked fund raisings. In Sino Construction’s case, its stock price traced upwards as the market bought into its story about transitioning into an energy play. The stock price doubled, then tripled over a period of almost a year, albeit on steady and moderate volumes.
Then it all unwound last week, in spectacular fashion.
The emerging story (or theory) is that the company was unable to secure the kind of cornerstone investors for its equity-linked bonds that it had hoped for. This prompted one or two of its bigger shareholders to bail out. That set off a cascading effect of margin calls on others who had piled into the stock. In quick succession, the company had become merely a shadow of its former self, with three-quarters of its market value wiped out within two trading days.
But other factors might also be at play.
The sell-off came at the heels of the company’s unexpected profit warning, a month-long extension to its financial results release, and the resignation of several of the company’s directors, leaving sole executive director Drew Madacsi - who had just joined the company three weeks earlier - at the helm.
On Feb 17, Sino Construction also announced its decision not to follow through on its takeover bid for Sydney-listed Guildford Coal due to a condition breach on the latter’s part. Guildford Coal, which has coal assets in Australia and Mongolia, was the only asset under Sino Construction’s radar that was producing coal. Its other coal assets are still in the exploration phase.
Market watchers reckon it is back to the drawing board.
The company has issued a statement reiterating that its plans to transit into energy remains intact. Through its 70 per cent-owned joint venture, Magnum Modular Power Generation, Sino Construction intends to leverage its core competency in construction, while moving up the value chain to asset ownership and energy generation through the construction of micro power plant technologies.
Management is also reviewing commodity transactions that the company had undertaken in 2014, which were based on short to medium term growth strategies and commodity prices. The current depressed commodity market has rendered infrastructure and financing requirements of such mining operations extremely difficult, as Mr Madacsi conceded. Data from price assessment provider Platts suggests that from January 2014 to February this year, the value of Australia’s hard coking coal and Newcastle thermal coal has fallen 18.9 per cent and 25 per cent respectively.
On the positive side, Sino Construction’s stock price is losing value at a slower rate, albeit trading at about a quarter of its price just slightly over a week ago. The company’s South Korean power generation plant is expected to be up and running by mid-April. If all goes well, that should start generating recurring profits from end-April or early-May onwards, according to Mr Madacsi.
More asset injections could be in the works, and Sino Construction also needs to build a strong management which believes in the long-term prospect of the firm. Securing funding will be key, and this rides on the prospects of the company, and whether the energy-commodity cycle shows signs of a recovery.
Whether the company is able to regain lost ground will ultimately depend on the ability of its management to execute its transformation plans, and more importantly, rebuild badly shaken investor confidence.