Penny stock-linked Magnus Energy's past transactions under spotlight as dissenting minorities call for EGM

SINGAPORE (Nov 25): A group of minority shareholders of Magnus Energy shot down all the resolutions put forward at the recent annual general meeting on Oct 30. They ousted three of the directors and blocked the reappointment of the external auditor as well as the mandate to issue shares to raise funds or pay director's fees.

Now, this group of Magnus Energy’s minority shareholders — including its former managing director Charles Madhavan — are keen to press on. On Nov 7, these shareholders, who hold a total stake of about 10%, sent Magnus Energy’s board an extraordinary general meeting requisition notice.

The potential boardroom tussle is adding a new twist to the company, which is already suffering from being linked to John Soh Chee Wen, one half of the alleged masterminds behind the 2013 penny stock crash. Soh is linked via Mid-con Group, (formerly known as Mid-Continent Equipment, the subject of a cornered stock operation), which was majority-held by Magnus Energy.

Minority shareholders are clearly voicing their displeasure with Magnus Energy, whose share price has dropped to the rock-bottom level of 0.1 cent from a high of $3.75 in February 2013.

Furthermore, trading in the counter has been suspended since Aug 19, leaving shareholders with no avenue for offloading their shares if they want to. Magnus Energy’s falling share price has caused some minority shareholders to suffer huge losses. An investor told The Edge Singapore he had put $200,000 into the company when its share price was 40 cents and now, the shares are worth only $500. Another had sunk in $20,000 only to see the value of his shares drop to just $20.

Madhavan was part of a group of investors who took up a share placement in February 2018. On top of demanding for an EGM, they are suing the present and past Magnus Energy directors for breaches of their general and fiduciary duties to the company.

The suit is launched based on five transactions out of eight reviewed by Provenance Capital, as ordered by the Singapore Exchange. These five were the subscription and disposal of shares in GCM Resources; loans to Indonesian contractor Hanjungin; a joint investment agreement with Yangtze Investment Partners; a convertible loan to Revenue Anchor; and a microalgae project in Malaysia.

Other transactions covered in the review, released on Aug 23, were the purchase of a company vehicle for Magnus Energy CEO Luke Ho, a sum of $300,000 recorded as a fixed deposit used as bail and loans made by Ho and the directors to the company.

Bangladesh’s coal mine

The first transaction involved the subscription and subsequent sale of shares in GCM, a London AIM-listed entity, by Magnus Energy via a subsidiary called MEG Global Ventures (MGV). On Aug 28, 2013, MGV entered into a subscription agreement for 9.4 million GCM shares for £1.8 million. Yet, MGV was only incorporated a day later, on Aug 29, 2013.

This was not the only issue with the transaction. At the time of the subscription, GCM was already under investigation by the UK National Contact Point for allegedly violating Organisation for Economic Cooperation and Development guidelines in connection with its major asset, a coal mine in Phulbari, Bangladesh.

Furthermore, Magnus Energy, despite being the second-largest shareholder with a 15% stake, did not seek a seat on GCM’s board. When GCM shares were sold by Magnus Energy, there were more points of contention. Specifically, there was a block sale agreement between Magnus Energy and one Thames Capital Partners LLC.

According to Provenance Capital in its review, it could not find a Thames Capital Partners LLC on the UK Registrar of Companies. Instead, it could only find a similar-sounding Thames Capital Partners Ltd, which was set up on May 23, 2018 with one Patric Lim as a shareholder and £1 in capital.

Thames Capital was found to have not paid the deposit it was supposed to have paid, in accordance with the terms of the agreement. Instead, it paid the proceeds of an open-market disposal of three million GCM shares on March 8, 2017 to Magnus Energy, only to instruct the company to refund the balance of the proceeds to Lim’s personal bank account in Hong Kong. Magnus Energy did as requested.

Magnus Energy would eventually divest nine million GCM shares. Yet, it received only £605,000 out of the £1.8 million agreed. The remaining £1.2 million has remained outstanding for over two years, and Provenance Capital noted that it raises questions about whether the nine million GCM shares were indeed sold.

When interviewed by Provenance Capital over this transaction, most of the board members gave non-committal replies on why they did not ask for the monies back. All admitted that more could have been done, but there was also mention of CEO Ho’s gentleman’s agreement with Lim.

Indonesia’s manganese

The second questionable transaction by Magnus Energy involves loans given to Hanjungin between May 2015 and April 2016, of which $10.9 million had been disbursed for a housing development project, construction of toll roads, and land clearing and tunnelling works as part of a dam construction. Magnus Energy had entered into a memorandum of understanding for the manganese deposit in a plot of land at Kupang City, East Nusa Tenggara, Indonesia owned by Hanjungin, and would provide a redeemable convertible loan of $5 million to be drawn down in 50 tranches of $100,000, with an interest of 9% per annum payable on Dec 31, 2017.

However, it was later revealed that Magnus Energy had gone ahead with the projects even though Hanjungin’s business licences had expired. Moreover, Magnus Energy did not secure the first rank to the right of security to the land at Kupang City by deed of mortgage. Magnus Energy’s Ho told the board that doing so was a long process and would cost US$200,000. As a result, the board chose not to go ahead.

Hanjungin also withdrew the $5 million in five tranches of $1 million rather than 50 tranches. Further, Magnus Energy had not sought shareholders’ approval to diversify the company’s business before investing in the land on Aug 12, 2015, but only did so on Oct 29, 2015. The plot at Kupang City is currently the subject of two suits in Indonesia. In addition, three other parties have asserted their rights to the site. While $4 million has been repaid by Hanjungin, there is still an outstanding $6.9 million owed to Magnus Energy. It remains uncertain whether the company can recover the sums by selling the land because of the competing claims.

London’s SoloPower

The third transaction reviewed was that between Magnus Energy and Yangtze Investment Partners. Magnus Energy invested US$1 million via Yangtze into the potential IPO of a renewable energy company on the London Stock Exchange. This would eventually become a reverse takeover, with SoloPower Systems Holdings injected into London main market-listed Opera Investments.

According to the agreement, should the investment not be made within three months of the agreement, the amount would be paid back in full. In addition, there was to be a profit-sharing arrangement between Magnus Energy and Yangtze, should there be a profit in excess of 20% of the amount invested. Yangtze would be entitled to 40% of the profit in excess of the initial 20% profit and would also guarantee the repayment of the investment.

However, Magnus Energy’s response to SGX’s queries on Oct 12, 2018 appears to be different from the terms of the initial investment agreement. According to Magnus Energy, it would only receive payment in the event that the renewable energy company was listed. This investment was undertaken at a time when the amount represented 43.8% of Magnus Energy’s market capitalisation at that point in time. The proposed IPO did not materialise and the agreement was mutually terminated on May 31, 2017. Magnus Energy has not undertaken any steps to recover the outstanding amount so far.

Madagascar’s tantalum

The fourth transaction called into question was a convertible loan Magnus Energy extended to Revenue Anchor, a Malaysian company. Revenue Anchor was to assign the benefit of a loan to GCM Resources to MGV, in exchange for a loan of £510,000.

Under the convertible loan agreement, the amount would be convertible into GCM shares at 11 pence a share, equalling about 4.6 million shares, provided that Revenue Anchor’s shareholding in GCM did not reach or exceed 30% of GCM’s issued share capital at conversion.

Magnus Energy agreed to pay £510,000 as consideration for the benefit. However, the money was not remitted to Revenue Anchor’s accounts. Instead, £390,000 was sent to accounts belonging to Tantalus Rare Earths, a Dusseldorf- listed entity that sold a tantalum asset in Madagascar to another John Soh-linked company, ISR Capital (since then renamed Reenova Investment Holding). The remaining £120,000 was sent to one Farhash Wafa Salvador. Neither party appear affiliated with Revenue Anchor.

Despite the agreement, Revenue Anchor failed to secure GCM’s consent to assign the debt to MGV. Neither did Magnus Energy attempt to secure or facilitate GCM’s approval, nor seek representation on GCM’s board. As such, the assignment is deemed as not effected. While Magnus Energy accepted 2.4 million GCM shares as full settlement of the £510,000 debt, it incurred an overall loss of $71,203 after disposing the shares.

Malaysia’s algae project

The fifth and last transaction raised by the suit involves the microalgae project in Malaysia that Magnus Energy tried to undertake. On June 22, 2016, the company’s subsidiary, MGV, signed a US$12.75 million contract with Algae Farm Engineering (AFE) for the latter to build, operate and maintain a microalgae farm, with an eye on the biofuel market. The contract price included a patent licence agreement with one Kim Jae Hoon.

At the time the contract was signed, US$12.75 million was 219.2% of Magnus Energy’s market capitalisation. Yet, shareholders’ approval was not sought. Neither was there a performance guarantee from AFE to secure the completion of the project. Furthermore, AFE failed to issue progress reports after September 2016, and only resumed in September 2017, with the last report in August 2018.

It later transpired that the patents of which MGV was a licensee had lapsed or were rejected. MGV had paid US$9.55 million by Oct 31, 2018, but the microalgae project appeared to have stalled. On April 2, 2018, Madhavan joined Magnus Energy as its managing director. The company by then was unable to further fund the project. Sometime in 2018, Kim drained all the algae from the tanks within the plant.

This is contrary to what Magnus Energy had disclosed on Nov 2, 2018. It claimed it had embarked on a pilot commercialisation of microalgae crude oil production. In the Provenance Capital report, Kim admitted to not having been involved in the project since 2018. The last update from Magnus Energy about the project was the inability to resolve the contamination issues affecting the growth of the microalgae.

MMP Resources, Innopac

Provenance Capital’s report also flagged issues such as how other companies were also utilising the same patents that Magnus Energy had licensed. Sino Construction, now known as MMP Resources, had announced a proposed joint venture (JV) with Primeforth Special Situation Fund to generate electricity from renewable energy, namely biofuel. Primeforth was described as a Cayman Islands company owning all proprietary and patented technologies, know-how and trade secrets in cultivating, harvesting and manufacturing biofuels from microalgae developed by one Peter Kim Jae Hoon — presumably the same Kim involved in Magnus Energy’s algae project.

Innopac Holdings, another John Sohlinked company, had also signed a JV agreement with Primeforth, now known as Primeforth Renewable Energy, to commercialise the microalgae project using Primeforth’s proprietary know-how and technologies.

In Innopac’s case, the company had claimed its microalgae plant was located in the same area as Magnus Energy’s plant. Innopac’s management later disclosed that it had terminated the project, as Magnus Energy did not agree to share the harvesting machine, thus rendering the project unfeasible. Subsequently, Magnus Energy would clarify that it would share the machine, but not the land site.

The Edge Singapore contacted Magnus Energy’s Ho with questions on these five transactions and the upcoming EGM, but he declined to comment.

GSS Energy links

Former managing director Madhavan, who was with Magnus Energy for just two months, claimed to have a turnaround plan. He wanted to salvage the microalgae project and have a mini-refinery in Riau, Sumatra, to refine the biofuel from the microalgae plant, and to also ink oil production JV agreements in Myanmar and Abu Dhabi.

Before Madhavan could put the plans in motion, he left Magnus Energy on May 25. He is now part of the group of dissenting shareholders, who controlled about 10% of the company as at Sept 20.

The Edge Singapore has sighted photos of the alleged mini-refinery, which Ho claims Madhavan had proposed to the board during his tenure. Ho also claims that the businesses Madhavan proposed have not materialised.

Madhavan, Ong Chin Yew and Anthony Kuek, the shareholders putting themselves up for election as new Magnus Energy directors, have a common link other than to Magnus Energy: They were connected to another Singapore listed company, GSS Energy, previously. Kuek is still the non-executive chairman of GSS Energy, while Madhavan and Ong were shareholders of Cepu Sakti Energy (CSE), which GSS Energy acquired in 2014. Madhavan was appointed an executive director at GSS Energy in March 2015, only to resign in August 2015 to pursue personal interests.

Under the terms of a 2015 agreement, GSS Energy was to pay Java Petral Energy $48 million for a 53.7% stake in CSE, including 76 million shares in GSS. However, this was reduced to $15 million for a 100% stake in CSE, with the remaining 46.3% acquired for $1 as part of a settlement agreement. This came after the termination of the Old Wells agreement between village Cooperative Sumber Pangan and Pertamina EP, leading to a termination of CSE’s Indonesian agreement to manage old wells at Dandangilo-Wonocolo and Ngrayong Fields in Kedewan-Bojonegoro, East Java.

However, GSS Energy was unable to commence production at the fields. It suffered repeated delays. On May 31, 2016, GSS Energy sold 100% of its oil business to Indonesia’s state giant Pertamina for a nominal sum of $1, but in exchange, it was excused from putting in more capital expenditure for the oil field, while enjoying the prospects of a percentage of royalty if the fields start producing.

EGM resolutions

In its SGX filing on Nov 19, Magnus Energy said it had since responded to the lawyers representing the dissenting shareholders. The company is inviting Madhavan, Ong and Kuek to amend their proposed resolutions.

The first condition is the removal of the sole independent director, Seet Chor Hoon, on the passing of one of the resolutions for the appointment of new directors, or subject the removal to be effected only if one director remaining in the company is a resident in Singapore or appointing one who is.

The second proposed change to the list of resolutions is to limit the resolutions for the appointment of new directors without designation to avoid a conflict with the Companies Act and the company’s constitution.

The third proposal is to withdraw the resolution on the removal of directors appointed after Nov 7, the date of the requisition notice and the proposed EGM. Magnus Energy has proceeded to look for a venue to convene an EGM.

Madhavan, Ong and Kuek have said that their lawyers believe there is nothing wrong with the wording of the resolutions, but they are willing to change the wording, with no changes to the issues raised in the resolutions.

Benjamin Cher, The Edge