What you can do with RM38mil in N. Sembilan?

Perbadanan Kemajuan Negeri Negeri Sembilan (PKNNS) has been a major shareholder in PK Resource Berhad, a company listed on the Bursa Saham Malaysia.

According to Bursa Malaysia records, as at 15 June 2001, PKNNS held 21,357,000 shares representing about 18.7% of the Company’s 114,035,500 issued and paid up ordinary share capital. PKNNS has maintained more or less the same shareholding level from 2001 till 2007.

Things became fast moving and interesting in 2007. Suddenly, a long term strategic investor in PKNNS did something significantly different.

On 26 April 2007, PK sold its subsidiary, Emerald Spirit Sdn Bhd (ES) to Gen Glamour Sdn Bhd. GG paid a total of RM49.3 million either by way of subscribing to share capital of ES or assuming the liabilities of ES

ES owns and runs the Allson Klana Resort in Seremban. (It boasted the biggest resort swimming pool in Malaysia when it was first completed, me thinks)

The disposal by PK was approved by the Foreign Investment Committee on 16 May 2007 subject to certain conditions.

Amazingly, 2 days later, on 18 May 2007, PK made an announcement to the stock exchange that PK and GG agreed to a waive a term in the sales and purchase agreement that required PK shareholders to approve the sale of ES by PK to GG.

“With reference to the announcements made on 3 May 2007 and 26 April 2007 pertaining to the above subject heading, the Board of Directors of PK Resources Berhad wishes to further announce that the parties to the Subscription Agreement dated 26 April 2007 have, on 18 May 2007, agreed that the Conditions Precedent in respect of the Company's Shareholders' Approval as stated in the said Agreement and any provisions related thereto be waived.”

Why the rush and did this violate the provisions of Companies Act, 1965 and interest of the shareholders, like PKNNS?

One would expect a strategic investor would be hopping mad if he or she was by-passed when the company they invested in did a deal behind their back. So what's PKNNS gonna do?

On 23 August 2007, PKNNS exchanged 11,551,000 PK shares it acquired to obtain 5,474,407 ES shares from GG. On 19 November 2007, PKNNS exchanged its remaining 10,070,000 PK shares with 4,772,512 ES shares owned by GG

This is the site to view the shareholding change.

Note the prefectly matched disposal and acquisition between PKNNS and GG Sdn Bhd


The cost of PK shares to PKNNS was RM38,917,800 and according to the valuation approved by the Menteri Besar of Negeri Sembilan, the worth of ES shares acquired was RM17,296,000 – a loss of RM21.6 million! (source: audited accounts of PKNNS for the financial year ended 31 December 2007)

PKNNS has given up a strategic 18.96% hold in a listed company that has diversified interest in property development, education services, quarry, operation of golf and country club and landscaping in exchange for a mere 22.75% shareholding in a sdn bhd which sole assets was a resort in Seremban.

Based on the audited accounts as at 31 December 2007 of PK and ES, the net assets of PK and ES were RM558million and RM45million respectively. Had PKNNS not made the share exchange, PKNNS would have a holding of 18.96% in PK which amounted to RM105.8million but instead it ended up with a mere 22.75% in ES which was about RM10.3million.

A reasonable man who wonder about the following:

1) What is the rational for giving up so much to gain so little?

2) Did PKNNS, with its responsibility to uphold the economic well-being and development of the state of Negeri Sembilan, taken sufficient due care to consider the viability of this corporate exercise, e.g. payback period, return on investment etc?

3) Given the short time frame (GG acquired the shares in May and concluded the exchange with PKNNS took place within 6 months), did the Board of Directors of PKNNS performed a proper due diligence to ensure the economic interest of the state and rakyat been properly protected? (normal corporate exercise takes months or even a year before it can be completed)


Here are the answers given by the Menteri Besar of Negeri Sembilan during the DUN sitting in October, which revealed and justified very little or a lot, form your own opinion:

"i. ...pihak PKNNS mempunyai satu matlamat iaitu untuk menjadi sebagai pemegang saham minoriti dari 19% di dalam PK Resources Berhad ke 22.75% di dalam Emerald Spirit Sdn Bhd..."

"ii pembelian dan penjualan saham-saham berkaitan telah melalui proses kelulusan serta penilaian yang sewajarnya telah dibuat dari segi ekonomi, kewangan dan lain-lain secara terperinci dengan mengambil kira fakta impak. Kajian telah dibuat dan taklimat sewajarnya telah diberikan kepada Lembaga Pengarah di dalam membuat keputusan yang bijak untuk bergabung dengan agensi kerajaan Negeri yang lain untuk menguasai pegangan dalam Syarikat Espirit Sdn Bhd"

My own conclusion is

1) What good does it bring to become a minority shareholder in a sdn bhd? You are under the thumb of the majority shareholder

2) First time I hear someone's ambition to become a minority shareholder in a sdn bhd, is that a good investment objective?

3) Any financial consultant with a wee bit of experience would wonder who was the valuer; who did the financial appraisal of the investment and result of the appraisal; who gave the briefing (taklimat); how come a financial due dilligence worth tens of millions can be concluded so fast; who were in the Lembaga Pengarah that voted for the transaction?