Friday, December 30, 2011

Year End Reflection

To all readers and "friends". Aheem....trying to clear my throat before I make a year end speech. Pretty serious-huh?

Tuan-tuan dan puan-puan sekalian. Thank you for taking interests in my blog for another year. I must say that I am the one that benefited the most out of blogging because writing keeps my brain muscles moving. Brain exercise is one thing but my heart is also get to exercise as well. Writing with honesty and revealing what I feel on a particular issue certainly help me emotionally. I think you have seen it all here -- funny, sarcasm, wit, anger, nag, sad, regret, hope, care, boast, greed, fear, etc.

The third part is my writing skill. I have been struggling with it for years. Can't get my tenses right, mixed up singular with plural nouns, typical school boy English with out of tuned, out of tempo conjunctions(but, however, subsequently, etc). English has cost me dearly. After I came out from school, I flung so many professional job interviews whenever written English is required. I was trying to psycho myself with all kind of positive thinkings, yells it aloud I CAN, I MUST, I WILL. I wanted it to make it happen badly, very badly I am telling you. I was trying to read. I was trying to impress with flowery language and bombastic words but it made others' hair stand on end. I CAN, I MUST, I WILL got me no where but to the land of broken hearts.

I am grateful for my bosses who sacrificed their precious times to flood my drafts with red inks. The first few red inks papers made me felt almost crippled by snake venom. I felt immobilized, paralyzed and lost the ability to feel -- waiting to be taken HOME. You see your colleagues composing masterpieces and yet you are still working on your mechanics and techniques. How frustrating is that? You feel that you are so small that you are regretted to be born into this world. Your analytical skills, business acumen, ability to relate others are literally destroyed by English. English does not only cost you your career advancement but it can affect your self-esteem. My heart beats will be drumming every time I send in my drafts for review. You know how an insecure person feel when he is waiting to be criticized. Don't play play-ah!

I am grateful that I can write in simple English to communicate with you today. I am sure my "teachers" will still leave some red inks circles and a few arrows here and there(if I show them my draft). It's too bad that one of them had gone back to heaven and the other one retired already.

So what is the moral of the story today? Don't be offended if I sound like treating you like a student. Investing is like English, it is not a nice-to-have but a must-have. Like grammars, there are rules. Like painting or music, some endow with a natural gift but many will struggle. I can go on and on but what is my punch line? Punch line? Here you are:

Good investors are made, not born!

Investing is a journey, not a destination!

See you in 2012!

Thursday, December 29, 2011

While I was away

I was on Internet and TV free for a week. It was a truly quiet week, almost doing nothing. Nothing glamorous for our first Christmas at our new home. I discovered something, when you stop to be hyperactive, your family members will also become less active and sitting around you and start talking.

While I was away, our KLCI cracked above 1,500? That was amazing, think again, where will it go? The fund managers are busy doing window dressing, telling their clients their funds at least are not losing money for 2011. Their life depends on it, ours are not.

Since I have done very little efforts to catch up with market analysis, this update will be very brief, no charts, no data -- which is almost a capital crime for me. But I tend to break rules once in a while. So, only hypothesis this morning.

Many things made me unsettling. The Chinese and Indian stock markets were making new lows coincide with negative macroeconomic news made me felt that the theory of emerging economies are going to be the next Hercules begin to look shaky. Can emerging economies hold the sky from falling?

The Europe. The fiscal compact is the right things to do but it has many short term consequences.

To prevent the holes from getting larger, the European Union members will have to limit their budget deficit no larger than 3% of GDP going forward or face penalty. This will establish some accountability but sticking to the plan means less growth(likely to contract) and accept market pricing of higher interest rates. Italian 10 years bond yield persistently on high end of 6% and occasionally above 7% means less money to spend on more productive policy. I would not use a stronger word like spiralling down but the cleansing process will need longer time.

The fact that they let IMF to handle the money which operates based on one tranche one reform, we should see things get worse before it gets better. The sunny side is we will see true reformation. They will emerge stronger later on.

If the ECB is truly independent, they should not print money. But some doubted that because they recently launched an operation to loan banks a big sum of money, 400 billion plus hopefully they will do carry trade, borrow cheap money and buy higher yield assets like government bonds. As of this point of writing, there are no signs of them doing carry trade because the banks still parking money with ECB, close to about 452 billions Euro, up from 411 billions Euro before Christmas. If there is no trust among banks, are we not going back to square one?

There is no doubt that the European markets(DAX, CAC 40, etc) had suffered more than 30% declined from peak lead to many to argue that lower earnings should be expected in 6 - 9 months down the road. Though it has recovered a bit somewhat, these markets are selling close to 10-12 PE. Fair valuation unless the markets are expecting a much more serious deterioration. This lead to some to believe it should fall another 10% from here, in the latter scenario.

The US. The economic data is like stock market -- sending mix signals. People are reacting to those news offer no significant meanings really. To me, it is still bouncing around the bottom. The last two pieces that brought some hopes to the market were better employment figure(of which I doubt a true picture) or a start of housing recovery(but dashed by the latest home price declined again), leaving us wonder where is the market heading. My take is South bound, S & P 950 +/- 50 points. People are keep chasing dividend yield stocks are telling us they are nervous and they don't buy into a a picture the world is my yummy oyster.

Our home, KLSE. If you go drive around kampung, the noisy tar tractors are very busy. They drive me sick because those nice conditions roads are being resurfaced but NOT our old Georgetown roads which full of pot holes. That is the price to pay when you go against the government. But I rather be poor than selling my soul to the government. Even they sell me into a whore house, you can have my body but not my heart, just like an actress line in those old black and white movie.

Mind you there is a judgement will be made for Anwar case by Jan 09, 12. Will he go back to jail? It does not take much intelligence to figure out the general election is around the corner. While the market appears to be robust for now, the risk is also equally high. Gradual sell down could happen prior to general election should not be ruled out.

Not a short update after all? :)

Thursday, December 22, 2011

Happy holidays

To a lot of people, Christmas is $$$.

Gifts. Shopping. Dining. Restaurants. Alcohol. Bar.

But one word is missing.


For us who believe, 2000 years ago, God came to this world. Downgraded himself and turned himself into one of us. He died on the cross for sins he did not commit. All innocent men will want to be heard and justified, telling the world that he/she is innocent. They will appeal to highest court on this earth to seek justice. But not Jesus. He remained silent when he was mocked and accused of things he did not do. He was born to fulfil his mission. A mission to spread the gospel of love.

Wednesday, December 21, 2011

Catching A Falling Knife, part 2 coming?

This article that I about to feature is about 9,000 words. It's a long story but once you start reading it, it's hard to stop. This is a story of many suspected to be ex-CEO of Fibrechem, an S Chip company or a typical small Chinese company that listed in Singapore Stock Exchange. The confession of this CEO dated sometime in late 2008 or early 2009.

The motive of the confession may not seem to be as innocent as it appears because you never know what is in his heart. In part he could be trying to "redeem" himself and to help the investing public. But there are certainly some elements of black mailing too -- threaten to expose the rich and powerful. Remember this, the Chinese in China are very different from the overseas Chinese, more than once I was cautioned. They are not like majority of Malaysians Chinese, behind Singaporeans Chinese, who are typically "more stupid" than the rest of other overseas Chinese(particularly Taiwanese and Hong Kee). But in this story, some of the law fearing Singaporeans appeared to be equally corrupt.

Regardless of his motives the risks element in his story serves very good reminders.

Why am I highlighting this? I saw many of these Chinese companies listed in KLSE hit new lows last week. The property correction and sharp manufacturing deceleration in China may expose a few skeletons in the closet. Beyond technical rebound, the risks of buy and hold in these counters, you know lar.........

Let me tell you the story. By the time you read this article, it would reached have hundreds of investors, bankers, regulators and journalists. My purpose was to shed some light on the “dark sides” of the business of S-Chips (Chinese companies listed on Singapore Stock Exchange), so as to help prevent more financial losses in the future hurting the ordinary people on the street. From this angle, I wish to redeem myself somewhat………

It all started some 6-7 years ago. My colleagues and I were just a few of the million of entrepreneurs in China struggling to make ends meet at the textile fibre factory that we bought from the government. Some of our older colleagues had laboured for more than 20 years before having the chance to “privatise” the state-owned textile fibre factory in Fujian Province that we have worked for since the day we left school under the Premier Zhu’s “government retreat, private sector advance” scheme, literally at a song. We thought we were going to be very rich very soon. Little we knew that when the local governments of the various counties and villages decided to “retreat”, we end up! with thousands of “privately-owned” textile fibre spinners that competed ever more aggressively. Despite ever rising revenue, margins were disappearing fast……. Sometime, we just wonder why we have worked so hard only to earn next to nothing. Perhaps, our only reward was meant to be “the master of our own destinies”…… But we never really gave up hope…… One day, we shall strike gold…….

1990, the year after the TianAnMen Incident, was really a very difficult year. Many of our clients, the textile manufacturers who were enjoying the initial euphoria of the burgeoning export demand, went belly-up within a short 2 years of economic contraction. However, we pulled through all the vanishing receivables and anguish cashflow-balancing exercises.

By 1993, we were off for the biggest boom ride of our life-time. Our textile fibre business blossomed as China becomes the clothing factory of the world, benefiting not least from the one-off Renminbi devaluation that the Chinese government engineered in 1994. Those were the good old days, where sufficient numbers of our competitors were eliminated by the TianAnMen-induced recession, and the world began to look to China for every piece of garments stretching from the heads to toes.

Money was easy……and we expanded our production capacity as quickly as we could, limited only by the fact that the state-owned banks were not really very keen to lend money to private enterprises like ours, and we just have to borrow from our villagers at some 15% interest rates!!! Nevertheless, we did good business and our leader, the general manager of the factory, could even afford a chaffer-driven Santana. In any case, he was too old to learn new trick, even as simple as driving itself. I was the rising star which had to bide my time, as I was the only person who speaks decent English. I was meant to be the tongue of the company in dealing with the external world. But I am getting impatient. For while the company was booking increasing profits, we never seems to have cash to be distributed as any excess cash generated from the business was never enough to cover the capital expenditure needed to expand the production .

We just owned an ever-growing production business. Unfortunately, good profit margins never last in China. Good demand quickly attracted new entrants into the business as the barrier of entry is relatively low. At the same time, some of the so called “obsolete capacities” came back from the grave and soon, we found ourselves struggling to churn our profit. It was like working for free again……lots of revenues but just no profit!!!

By the middle of 1990’s, we were doing great business selling to our customers in different areas of the coastal areas. In 1995, we suddenly found ourselves having to deal with fast rising cost pressure. However, the market was buoyant enough for us to raise our product prices to pass on the cost increase to our customers. Then, we realized that we must move ahead in term of technology and product offering. Like everyone else around us, we took advantage of the tax concession offered by the government to the so-called joint venture companies. We recycled our “cash” to Hong Kong, set up a “foreign company”, which in turn pumped back the cash to Fujian in the form of a joint venture entity, using the cash to purchase some second-hand German equipment to produce the chemical fibre! s needed in all kinds of fabrics and artificial leathers.

However, luck did not really favour us, at least thus far. Soon, we were told that our economy was experiencing very high inflation rates and soon, the then Premier Zhu Rongji stepped a hard brake on the economy, cutting the bank credit to many state-owned enterprises which were producing things that no consumers wanted. While as private enterprise we did not enjoy the benefit of bank credit, its sudden massive contraction hurt us as bad as the state-owned enterprises who received such reckless loans. We were entangled like the other enterprises in what we called the “triangular debt” problem, where everyone owes the next person money and there was just no money at the source for anyone to get paid…….!!! The situation last for quite sometime as we lived from hands to mouths, sometimes having to send out local thugs to chase for receivable payments from cash-strapped clients. Then again, what else can we do? We had so much or our friends’ and relatives’ money with us investing in all these machinery now that the only road for us is to struggle forwards……turning back would have made us the “outcast” of the village……. By the time the rest of the Asian economies cracked in 1997 amidst the so called Asian Financial Crisis, we were already becoming numb to bad news. I remembered there were days that I wished I had not joined the textile industry, or any industry at all……for making money out of making something is so darn difficult……. I thought I might have just wasted my youth. Somehow, we managed to pull through as a group. The general manager of the factory, who is now getting seriously old, made his sacrifice along the way by selling his Santana in order to keep more mouths fed. We all had no where else to turn to but to continue pushing hard to sell our new product, the chemical fibres.

Finally, by year 2000, the economy began to recover. Our hard work and persistence were also beginning to get paid off handsomely as China had become the centre of all textile, shoe and furniture manufacturing in the world, and all these products required some forms of chemical fibres. We were beginning to rake in cash beginning 2002!

Then my life-changing incident took place. One fine day in late 2002, I was introduced over the dinner table to one Singapore “Deal-maker” who was to become one of the richest men in his country in the next 5 years. Mr D was still a “relatively” poor deal-maker at that time. Just like many so called “deal-makers” running around China at that time, they hope to make small fees introducing companies to capital, or vice versa. Mr D claimed that he had successfully engineered a number of private equity transactions in China, helping companies with so called “mezzanine” financing to prepare the companies to be listed in stock exc! hanges outside of China. He was fully aware of the psychology of Chinese entrepreneurs and their deep dissatisfaction with the bias of the Chinese government in allowing only state-owned enterprises to list on the local stock exchanges. To us, having a listing status in China is like having acquired the right to print money. One just has to cook up a nice investment story and he could get Chinese investors to subscribe to the right issues of a listed company at any price. It was so much more an elegant way to make some money, rather than to have to toil for a few cents selling chemical fibres……. Mr D went further to claim that he had taken some of the invested companies public in both Hong Kong and Singapore Stock Exchanges and given his investors had made some money, he always have a group of ready-investors willing to back all his “stock picks”. He went on to ask quite a number of detailed questions on the operating conditions of our companies over the dinner, jotted them down carefully on a small note book along the way. Later on, we adjourned up-stair the restaurant for a KTV session. I must admit that I remembered clearly Mr D was a good Chinese song singer, having sung some hot-off-the-chart songs that I heard my niece hummed sometime shortly before the incident. His smooth handling of the KTV girls, which he asked for two concurrently, also showed that he had been around………

The next time I met Mr D was three months later, quite unexpectedly as I had thought he could have decided to give our company a miss given our relative small size. He requested for a factory visit which, after having consulted our old general manager, I accompanied throughout. As usual, no serious business until after dinner and getting slight tipsy after a few drinks forced down by the KTV girls in the evening. I must admit that Mr D is a seasoned operator. He was quick to recognise that I was an impatient young man to take over the operation from my older colleagues. Throughout the entire evening, he was trying to convince me to move the gear one notch faster to accept some private investors into the company, beyond which he was confident to help us to get the company listed in one of the foreign stock exchanges, where everyone will be able to cash out their profit if they so ! chose. I pretended to be sceptical while deep in my heart, I need no convincing as I have known many Fujian entrepreneurs shot to fame and riches, 2 of them by turning large tracts of collective land into vegetable farms and the other bending float glasses he bought from state-owned factories into auto wind-screens and sell them to car manufacturers. I never doubted that one can make a lot of money from car wind-screen, but I could have never imagined striking it rich planting vegetable…….!!!

Mr D and myself both agreed later that we need to convince the other older colleagues of mine to approve such a scheme, and over time, move them aside to allow someone young and dynamic person like myself to be the face of the firm to cater to the likings of the investors, who were mostly English speaking. In the meantime, my task was to convince the existing shareholders to allow a group of Mr D’s friends into the shareholding first, while paying Mr D a “structuring and introduction” fee along the way. The easy part was, as Mr D coached me on how to present to the rest of the shareholders, his fees will not be in “cash” but rather in equivalent value of “shares”. He said that was to assure everyone that he could only make money should he be able to engineer an eventual listing of the company on a stock exchange, after another year of lock-up period for promoter shares aft! er listing. All interests would be aligned, as he put it.

Mr D was indeed an experienced operator. He had anticipated all the concerns of the “older” colleagues of mine, who feared that this was another one of those “leather-bag-company” deal-makers that was trying to make money out of no commitment. So he got through the first “hurdle of trust” after my carefully orchestrated presentation to the “board” of the company.

However, there was still one important issue we could not resolve amongst the board members. The finance manager correctly pointed out that the company indeed, did not need substantial amount of cash at this moment as we were not expanding aggressively anymore. The market place for our products was relatively stable right now with demand and supply growing organically. We will not be able to drive higher sales without sacrificing our margins by cutting prices. In short, we can only grow organically at around 10% ! per annum, which was probably not the most exciting story for the investors. In fact, the board members did not see the need for new capital. However, the idea of getting listed did appeal to them. They too had many friend who had become “paper millionaire” after the companies got listed. They too were looking for the big-pay-off day. So I was tasked to come up with a solution. In other words, there was a “green-light”! I did not expect my luck! Almost immediately after the board meeting, I called Mr D to tell him the outcome, as well as the issues raised. Again, I thought he must have expected the outcomes. As he explained calmly over the phone, the first round investors (which he called angels) will not put in a lot of money so that they would not dilute the existing shareholders very much. These angels are the “connected persons” that will come in with their own money (through Mr D’s personal vehicle) that will help cement the way for some of the well known direct-investment funds to step in at a slightly later stage, which would provide the company with the credibility, other than funding, to convince the stock exchanges to allow the company’s listing, and the subsequent active participation of other institutional investors during the IPO. Mr D went on to explain that the process of getting a Chinese company list! ed was in fact, an art. There were not many people like him that could have the trust of many influential people to conceal their names behind his vehicle to invest in a company, not unless they have been working on other cases together before and having developed deep working relationship. These angels will see the company through the process from getting “restructured” to “listed”, rendering their helps in one way or another through exerting subtle influences on counter-parties, bankers, regulators and other investors. Mr D’s vehicle will participate in the shareholding of the company first, where they will invest up to 5% at book value. In other words, they demand for very cheap entry. Mr D will only take his fees later after having brought in the money from direct investment funds, in larger quantum, in the form of shares of the company at book value before the entry of new capital. He wanted 2% worth of the amount of money he would bring in from the funds in such shares. Subsequently, he went on to explain that this was the modus operandi these days as he could introduce us to the senior executives of the companies who had done business with him for further due diligence on his reputation. In particular, he emphasized that my colleagues should not be worried at all given the fact that it was going to be his and his friends’ money that will be in their hands, rather than the other way round. My older colleagues did find some solace in this argument later on.

As for the use of money, Mr D simply pointed out that we will have 6 month to a year to come up with a new plan on spending the proceed of investment, in the form of new technology and new products. “Aren’t you guys always looking for money to upgrade production machinery to produce new stuff for the market? It the same bunch of the customers anyway……”, so he quipped. So the decision process took a few months, where in between, Mr D sent in some accountants and lawyer to conduct some checks on our operation and accounts. We had nothing to hide then as we had no reason to fake anything. Everything was ours…….then. Subsequently, the “angels” came in, followed by, indeed, a number of reputable direct investment funds a few months down the line. We got a whopping US$20mn to put up a new plant to produce a new type of artificial fibre, the machinery of which was to be imported from Germany. The new product was in fact, attractive to a lot of customers. However, none of them were going to buy a lot of it at the beginning as they were not sure their customers were going to like the new types of yarns made of this new fibres. Business was not as brisk as Mr D had! hoped for…….

On the other hands, Mr D seemed quite keen that we could move forward in our listing process. He began to educate us the process and requirement of the stock exchanges for listing. We paid visit to Hong Kong and Singapore, talking to bankers and exchange officials, attending seminars, as organised by Mr D. We were all psyched up to be a rich millionaire once the company is listed. However, there was just this little problem…..our new products were not accepted by the market as fast as we had wished for. Most of our customers operate under very tight cash flow situation. They only have working capital to provide for the acquisition of raw materials to produce the yarns ordered by their customers. No one was going to spend a lot of money buying our new fibres, prod! uce large quantity of products to purvey them in trade shows, despite they all fed back with good comment on the potential of the new fibres. Very quickly, Mr D came up with an idea. In order to boost our sales numbers fast, he will raise another US$20mn of money from all the direct investment funds in the name of working capital need. As he explained, they often did the same tricks with those companies they listed before. They will raise new capital to produce the new products to sell to customers, encouraging them to help push the new products by offering them more favourable and longer payment terms. With the increased sales and profitability number, he could get the company to list very quickly to get more money to help push for more sales……. He claimed he had done it many times before and it had always worked out. The economy was recovering quickly in 2003, nothing was to going to go terribly wrong. When I asked whether that would be considered “artificially inflating sales number”, he laughed and quipped, with the capital markets on your side, you can engineer self-fulfilling prophesies!” Of course, this article cannot be complete, at this juncture, without citing Mr D’s favourite quotable quote. “Water enough money into any company, even a fake one could become real some day.” He believed so much in this that I thought one day, this could cause his downfall. So we went ahead, sold the new shares at higher valuation to another bunch of investors Mr D arranged. He took another round of commission in the form of shares. We were beginning to admire Mr D. Money flows through his hands like water and he did it so effortlessly.

We were no less impressed by his connection to some of the richest and most influential people, particularly in Singapore. You see, he was viewed as a successful Singapore entrepreneur made good in the vast land of the North. Through diligence and perseverance, he carved a niche for himself identifying promising Chinese companies to groom for listing on the Singapore Stock Exchange which was losing out in race to Hong Kong Stock Exchange as the Chinese! state-owned enterprises were encouraged to list in Hong Kong. Mr D was their hero, directing promising private Chinese enterprises to list in Singapore and along the way, enriching many “angels” and local investment banks in Singapore. I chanced upon many of these angels as well.

There were occasions Mr D would have called me to help arrange for some transport and accommodation in Xiamen for groups for “secret” visitors. They are usually small groups of 4-8 people. I would generally put them in comfortable Buick mini vans, receiving them from the airports, ferrying them to golf courses, restaurants and night clubs. They would usually visit one of two factories invested by Mr D. From my impression, these were the angels behind Mr D, which for obvious reasons, he had to please. There were bankers, lawyers, other deal makers, stock brokers, fund managers and people that do not have a job, simply because they were so rich already. Occasionally, there were ex-CEOs or Chairmen of large government controlled enterprises in Singapore. Once, I even met a supposedly ex-member of parliament in Singapore.

It was obvious to me that Mr D entertained them in separate groups at separate times, taking pains in ensuring that some of them were not aware of the involvement of the others, for some reasons. I was always invited to all these golf and night entertainment events for a simple reason: I speak English and Mr D wanted to be seen as having someone like me to watch over his investment in this part of the world and helped him to tap into different kinds of local relationship. The other Chinese entrepreneurs may not be comfortable in dealing with the whole bunch of English speaking Singaporeans.

One common trait of all these trips was that all these guys from Singapore seemed to love the night clubs in China. The daily programme always ended in some night clubs, where these guys would party till the wee hours, every night they were there. Mr D would sometime, when he was half drunk, tell me that he had again “nailed” some key relationship and one of the travellers in the group would soon be in his “Club”. He would whispered that someone in the group was the senior partner of an investment fund, or someone in another group was connected to the so-and-so in Singapore, or someone was closely associated with the chiefs of some Singapore banks, or someone had “influence” over the listing approval process of the stock exchange, and some would just be some new investors that he was trying to woo to invest in his pre-IPO projects or the shares in the companies that he sponsored the IPOs.

When I asked why they were all so tireless in their nocturnal activities, Mr D laughed, “This is what I call pent-up demand. You know these people cannot even come 100-meter close to any KTV in Singapore because of their social status. The opening up of China is probably the best thing that happened to all these Singaporean men, for they can at least release their “valves” once in a while…….. Do you know how boring Singapore is? I have a permanent KTV room booked up in one of most posh KTV in Singapore, costing me half a mill ion Dollar at the minimum every year. Guess what, the only important guests I have using that rooms are from China!” Watching Mr D in action, I finally understood the true meaning of “club”. He had managed to combine the “social club of friends” and KTV clubs so well that I thought every successful Chinese businessman should learn. And in so many ways, the “club” in Singapore is really not that different from the “club” in China…….. So finally, we got our act together to attempt a listing towards the end of 2003, after much of the financial twisting and engineering to make our company look like a well-funded high-tech textile fibre company on the verge of experiencing explosive sales take-off. In truth, we produced a lot of the new fibre products and literally give them to our customer to produce new fabric for marketing purposes, with the promise that we will not collect money until their products are sold. Nevertheless, we book these as receivables.

To the dismay of Mr D, my older colleagues had insisted on listing the company on the Hong Kong Stock Exchange, rather than the Singapore one, where Mr D has greater control on the process. They felt that the company would probably be accorded higher valuation in Hong Kong. Besides, they were not comfortable with Mr D’s influence in Singapore fearing the ultimate loss of the control of their company. Mr D went along grudgingly, helping to smooth the way to facilitate the IPO. We got a small investment bank to underwrite the IPO. The big ones were really not interested in this small piece of business. We went on to file the application to list to Hong Kong Stock Exchange, who was equally high-handed as Hong Kong was flushed with quality large size state-owned enterprises queuing up to list there. Being relatively uninterested in small size listing and more experienced in evaluating the quality of smaller Chinese private enterprises, they were quick to notice the sudden expansion of account receivables on our accounting statements. They followed up with a number of questions with the clear purpose of delaying our listing, probably to see how these receivables will behave given longer period of time. In short, there would be no quick IPO for us.

Mr D was quick to use this delay to his advantage. He hinted to everyone on the company board was that one of the reason for the stock exchange delay was due to the lack of a convincing younger manager helming the company, and that our senior colleague was already too old to project a “dynamic” image to the Exchange and the investors subsequently. He wanted me to be promoted to the CEO position while our existing GM to become the Chairman of the board. With his insistence, my appointment was pushed through the board, which made one of my older colleagues very angry as he was supposed to be the next-in-line in seniority. But heck, he should have spent some time learning English! Mr D, being truly worried about the age of the receivables on our book that would become increasingly dubious as days go by, pushed us to shoot for a Singapore listing where he feel, with his broad relationship will help a smooth IPO. This time round, my older colleagues obliged grudgingly. So we quickly filed an application to list in Singapore. It proceeded relatively smoothly and we went through an initial hearing very quickly. The market was in relatively stable conditions and we felt we could get the IPO proceeds quickly at the turn of the year. With lot of money, like Mr D’s famous words, a fake company can become real……. To be fair, ours was not really a fake company. We were just doing what the Chinese proverb describes: Accelerating the growth of the seedling by pulling it up a little everyday…… To our surprise, we got a letter very soon from the stock exchange questioning us the reason for the failure to disclose to them we had applied to the Hong Kong Stock Exchange earlier. They asked whether we had been rejected previously and on what ground we had been rejected. Just as we wonder how they found out so quickly since one could safely assume due to competitive relationship, these exchanges should not be talking to each other on micro matters like this, Mr D came storming in over-night. “Someone wrote a poison letter to the stock exchange”, so he explained. “Someone who knows the situation very well and who is not very happy with the whole thing”, he concluded. We were fortunate, he went on to exclaim, as he felt that given the Hong Kong Stock Exchange never really rejected our application, he could still salvage the situation using his relationship and influence. While there was no hard evidence, we nevertheless took the precaution of asking for the early retirement of the senior colleague who was passed over for the post of CEO as we suspected him to be the whistle-blower. We made sure he was well compensated in monetary terms as we thought that would sooth his anger, with promises to allocate more of the shares to him so that he would share our desire to see a successful IPO. Then we went on to reply to the stock exchange disclaiming the fact that we were previously rejected, citing our need to access capital markets fast as ours business was expanding rapidly. Hong Kong was just going to be too long a wait for us.

On the other hand, Mr D worked his network and “club of friends” to sooth the nerves of the exchange officials, who were working hard to promote Singapore as the “second board for China” The launch of “second board of China in Shenzhen” hit a snag when the National Peoples’ Congress decided that the Chinese investment public was still too unsophisticated to handle investing in non-State-controlled enterprises that even the Chinese government may not be able to police effectively. So after 3 month, we were informed that we manage to secure the final hearing. Mr D and some young lawyers and accountants spent a few days preparing me to handle the questions “correctly”. I saw the signs of satisfaction on the faces of the officials during the hearing. One of them even went on to comment on the fluency of my English…… Mr D was right again. My Chairman could have fumbled and rumbled on just like any other Chinese CEO during such occasions. They were just the hardworking mulls that built the foundation of the Chinese’s manufacturing might. I belong to the generation that would take the company to soar higher as we understand and speak the language of high-finance, in English! The battle to IPO was hard won. We got listed in 2004 and to our pleasant surprise, some of our customers came back to pay down the receivables and asked for more of our new chemical fibres. By now, China has become the “factory of the World” that churned out all kinds of consumer and industrial products so cheaply that the Americans and the Europeans were so addicted to. The stock markets and physical property markets in the world were becoming buoyant and everyone was beginning to feel wealthy and began to spend more. Our new fibre products found more commercial uses and we bought more machines using the IPO proceeds to produce more products to cater to the booming demand.

Again Mr D was right. Pour more cash into the business and you will get a real company………just like the pig-farmers l! isted on the stock exchange…….as he put it. Sensing potential to make a lot of money out of the good performance of the company and the buoyant market conditions, Mr D descended into town one day and asked me out for a dinner. As usual, we headed to his favourite KTV after dinner. After a few drinks, he leaned over and whispered to me, “Hey, this is your chance to grow really big very fast. The IPO proceed was not enough to fund your growth. Now that we are listed, we can place more shares out to raise more money to accelerate the business expansion to capture more customers before the competitors in China could replicate our capabilities, which always happen in every industry and business in China.” I was reluctant to agree to help sell the idea to my old! er colleagues as their shares were still in lock-up period and I imagined they would hate to see any dilution of their interests further at this juncture. Mr D went on, “I really needed your help as I need to get the shares placed out to some of those who helped us through the difficult times just not too long ago. We need to let them make some money as we are entering a bull market soon. In any case, the issuance of more new shares will give us more power to cement your position as the number one man in your company as we all support you rather than your older colleagues.” As usual, we kind of half forced the issue through the board with my older colleagues grudgingly approved some kind of convertible issue to assuage their fear that the new institutional investor would not be able to sell before they were allowed to.

In Mr D’s effort to consolidate his hold of the board further, a new director from the institutional investor group was appointed to the board. I had known him earlier as one of those that visited our plant before the IPO, when Mr D was just beginning to restructure the company shareholding where this new director was once introduced to me as an “angel” investor. Apparently, they were good friends that “make money together”. By 2005, the Chinese economy had entered into another “boom era” and our business was literally flying, just like any other businesses in China. Profit margins were good while sales expanded quickly, and our share prices rose more than 3 to 4 times from the IPO price. Many of older colleagues sold their shares and retired happily into the sunset in 2006, only to regret to see the shares they sold almost doubled again in 2007. Being the new helmsman, I could not easily sell my shares as it would have been construed as management not having confidence in the business. By then, Mr D had become one of the richest men in Singapore. Leveraging on his experience and the capital he accumulated from earlier successful IPOs he conducted, where in some case he made more than 50 times his capital, he exploited his new reputation as the “preferred deal-maker in Singapore” to the maximum. His “club” became increasingly larger as many people with money and “influence” joined the “club” to participate in this unprecedented “Chinese feast”. He doled out hot IPO share allocation through investment banks to repay old favour and to cultivate new relationship. Success begets success and money begets money. It all seemed so easy and so natural. Everyone got what they wanted. The Chinese companies got their money to expand their business (which at a later stage, no one is really sure which company really had any business to start with), the entrepreneurs were handsomely rewarded for the risks they undertook, the deal makers got their fees, the angels made their killings, the bankers collected their fees and dished out new loans, the lawyers and accountants recruited more young graduates to cope with the record work volume, the stock exchange got their “new mandate as the second board of the Chinese companies”, the investors got their hot-and-sizzling China concept stocks and above all, the rich and the influential members of the “invisible clubs” were all happily enriching their own pockets……

The reason why Mr D was successful, I realised, was that he always try to help the people who helped him in one way or another to become richer. Despite the fact that I could not sell my shares, I got the help of one of his banker friends to obtain some financing by securing my stake in the company to join in the biggest “Chinese feast in Singapore”. Just like all the Chinese entrepreneurs Mr D helped, I became one of his “angel investors”, taking stakes in promising new companies through his vehicles, got allocated hot IPO shares and reaped substantial gains within short span of time. I too, was becoming not only asset, but also cash rich. I took advantage of the Singapore immigration rule and got myself a per! manent resident by purchasing a property in Singapore. I wanted my son to study in the English school in Singapore and grow up as part of the establishment there. In any case, I would be able to help him join the “club” and he will be taken care of the rest of his life.

As for Mr D, he was purchasing properties in the form of “tracts of land” as he moved to diversify his assets from stock holdings to land holdings, with a sight to become a serious property developer. The Singapore property market was getting sizzling hot by the middle of 2007 and it seemed nothing could go wrong, particularly when 2 casinos were being constructed in an otherwise very conservative society. For myself, Mr D was going to be my role model. I went on to fund entrepreneurs and Chinese companies directly, hoping one day to bring these companies to someone like Mr D, and make more than the Singaporean deal-maker, at least equal…….. Oh, I forgot to mention that the Chinese local stock market went through the roof as well. To take advantage of this, I needed no advice from Mr D. My friends in the local banks helped me secure the capital easily just like what they did for thousands of state-owned enterprise officials. They took the company’s cash as “invisible lien” to lend money to the managers of these companies to punt in the stock markets. The profits of such stock market speculation go directly into the pocket of the managers.

However, only in hindsight after the stock market collapse at the end of 2007 that it became obvious a lot of Chinese companies’ cash in the bank vanished into thin-air alongside the stock market bubbles. Our worlds began to unravel at the end of the third quarter of 2007. By then, the Sub-prime Crisis, as we knew it now, had hit the U.S. economy. We were still busy feasting in the spoilt of the capital market excesses, unaware of the impacts of such a crisis that originated from the housing bubbles in a country so far away. We were blind-sighted by the ease of making money from stock markets and at the peak of the markets in the middle of 2007, we all felt like the “masters of the universe”.

The first sign of trouble amongst the Singapore listed Chinese companies appeared when the share price of a Chinese steel company got sold off aggressively. In good times amidst a vibrant economy, this company presented to the investing community a story of their ability to turn in good profit margins by buying hot-rolled steel coils, coating them in zinc and sell them to car and consumer durable makers. One analyst, whom everyone ignored when the stock prices were rocketing, did question its business model as firstly, such production method is highly inefficient as most modern steel mills produce zinc-coated plates in one continuous process, and secondly, the investing world also knew that the prices of hot-rolled coils became excessively expensive as there was a preponderance of such downstream ! processing plants who got squeezed by the few integrated steel giants who have the capability to smelt iron-ore. Then there was the rumour of the company being privatised by a foreign steel giant seeking easy entry into the China market and its stock prices shot up before the trading of this steel company was suspended one day.

Rumour had it that it had been reporting fake profits, an official report of which the investing community is still awaiting after a few months. It was so obvious an insider job to cash out their position to the retail investors and apparently, the company management was not contactable anymore! By the second half of 2008, I believed many Chinese company CEOs were having tough times struggling to keep their business afloat amidst the most serious and swift crisis in memory as the credit situations around the world got frozen up. Worst, many of us were facing more serious issues in our personal finances. All our investments in stock and property markets were plunging in values amidst the so-called sub-prime crisis. Worse, we could not sell our stocks and properties as the transaction volume of these investments just vanished quickly together with the confidence of the investors globally.

While we busy feasted in the spoilt of the capital market excesses over the last 2 years, we did not realise that we were piling on quite a fair bit of leverages as we secured our investments for more bank loans to attempt to reap more profits, when it all seemed so easy. We never thought we could have any problem of repaying any of our borrowing as we were sitting on a lot of gains on our investment holdings. There was only one easy way out for all the Chinese company CEOs and that was to dip into the honey jugs. We all understood the importance of having our closest allies to be the finance managers of our companies so that any small “problems” could always be ironed out. In this case, I just “borrowed” some cash from the company accounts to fill some of the “margin calls” from the banks outside of China, which financed my “investments” in the stocks listed on Singapore Stock Exchange, as these foreign banks were ruthless in coming to seize the underlying security when the “margin calls” were not met. In some cases, I just pledged more of my personal assets to the foreign banks. I was becoming very stressed by all these happening and was not sleeping well.

Mr D was not having a good time either. He too was suffering from exactly the same problems as we were just emulating his investment styles and leveraging activities. I heard of incidents where he turned to some of other more cash-rich companies that he invested in to “borrow” some cash to bridge through some “margin calls”. He sold down quite a fair bit of his investment holdings to some “friendly hands” in a series of stock placements. At this moment, the goodwill and friendship he built over the years came to his rescue in these moments of “illiquidity” as the market transaction volume just dried up almost completely. However, the market prices of the stock holdings we used to secure our financing continued to drop by the days. Some of our friends and fellow “angels” were selling their holdings……..and may just be in the same kinds of troubles as well. No one trus! ted each others at moments like these. Those that were selling their investments would not pre-warn their “fellow investors” as everyone would rush to sell at the same time! It was a time where everyone was for himself! My anguish did not escape the attention of the “director” on our board that Mr D posted in earlier. He flew over one day and was visibly concerned about the situation of my finances and of course, more importantly, that of the company. He sensed troubles as he knew that I too, had quite a fair bit of personal investments that were vanishing into the thin air in values.

By now, at the end of 2008, I was becoming desperate. Our company was going into the “audit season” and obviously, there was a large cash deficit that we would not be able to explain to the auditor. In the past, we could have just “arranged” for some cash to be credited into the bank account for a brief period to satisfy the auditors’ check. However, there was no such “temporary cash” to be found at any price as the sub-prime crisis had now developed into a full blown credit-crisis around the world. China was not spared in the process. With no where to turn to and the audit dateline closing in, I took the risks to “brief” the director of the true situation and asked for his help. I was surprised that he was not shocked by my confession. He had probably guessed it! In any case, the director asked me to remain calm while he would consult Mr D to seek some kinds of new financing to help bridge this difficult period. He asked that everything remained confidential as the last thing we wanted the world to know was the “missing cash” in the company accounts. H told me that quite a number of the S-chip CEOs were on the same boat and some of the “funds” that used to backed their IPOs have been able to extend some credit directly to them ease the pressure from the foreign banks, secured by again, stock holdings of the CEOs. Little did he know that my assets had almost been entirely secured by all kinds of creditors already!

Then the irreparable damage struck. I had borrowed some money from the local Chinese banks to punt in the local stock markets. The arrangement was such that I had to return such cash to the Chinese banks at the end of the year because they too, were subjected to annual audit. I had carefully maintained sufficient cash in our company accounts, which served as the “collateral to the conscience” of my friends in the Chinese banks. As I began to use them to fund the “margin calls” of the foreign banks and the amounts got further depleted by operation losses of the company amidst the worst economic crisis the world was now facing, my “friends” in the local Chinese banks were not going to take a chance on their own fate. They were definitely not “friends in need”. They simply deduct the amount I owed personally from our company accounts two days before their auditors came in, w! hich was of course, a few days before our company auditors came in. The rest was history……………….

The auditor, which was an international firm, was not going to take a chance with their reputation. They formally informed our board of directors in early 2009. In other words, they were warning the board that the financial statements they were going to publish would be “disastrous” and could cause a serious enquiry by the regulators. I think some insiders proceeded to sell some of their shares before any official announcements were made but most of us were warned not to do anything with our holdings as that would be considered “insider trading”. Of course, all my older colleagues and company directors hated me as a consequence. I was asked to absent myself from all their meetings as they attempted to come up with a solution before the mandated result announcement date stipulated by the Stock Exchange. I was very scared. I had no one to turn to as even Mr D had stopped answering my phone calls. Everyone was trying to distance himself from me and it became obvious that I was going to be the “scapegoat”.

To protect myself, I seek the advice of some lawyers in China who in turn, consulted their friends in Singapore. To my relief, I was advised that should I be found guilty in the Singapore courts for misappropriating company assets, there was no established bilateral treaty as yet for Singapore court to extradite me from China. The China Securities Regulatory Commission, the securities regulator in China, had never once recognised their responsibility to regulate the S-chip companies listed in Singapore. In fact, the Hong Kong Stock Exchange had faced similar issues for decades in their attempt to regulate the P-chips, which were Chinese private enterprises listed on Hong Kong Stock Exchange, to no avail. In other words, as long as I refrained from stepping my feet on Singapore soil, nothing could be done to me. In any case, I thought given the hatred I faced from all my older colleagues and friends in the hometown, I should be taking some long overdue holidays. I relocate my family to a Chinese seaside town.

Although I was now an ordinary citizen, I was glad that my wife kept quite a far bit of the money I gave her along the way and that should be enough to last us a life time, at least in China. Through internet, I came to know that the company finally disclosed the incident to the Stock Exchange and the stock was suspended. They appointed an investigator but I was no where to be found. So it would be interesting on how the story could turn out post the investigation report. In fact, a number of S-chips suffered from the same problems and were suspended from trading soon after us. Inevitably, there were cases of over-stated revenues, fathom receivables, missing cash, over-leveraged financial positions of the founding entrepreneur who mortgaged away their own stocks, as well as outright manipulation of stock prices. In many cases, I suspected the irregularities had begun right from the very beginning, before the companies were even listed. Many were not real companies at the first place. My friends in the know told me that a few more had been discovered as suffering from “missing cash” and jokingly commented that the Exchange had to arrange for a smooth sequence of announcements just like the way they schedule result announcements of listed companies. With all these irregularities exposed and more promised to appear, the stock prices of all S-chips have literally collapsed. All my friends and their “club members” must have suffered tremendous losses. Some dealmakers and their syndicate members apparently were facing margin calls on daily basis and some even declared themselves bankrupt. It must have been a very trying period for everyone. However, I did not seem to have much sympathy to all these people. I witnessed how some of them became filthily rich in a short span of time without having to work hard, while other enjoyed a good ride in fortune just because they (or their friends or relatives) were in position of influence.

I was the only one that would be made a “scapegoat” and had to live a life of “exile”, while these guys could still just lick their wounds secretively and continued on with their life. I do not sym! pathize those institutional investors who lost their money as if they did, they were simply either incompetent or someone had benefited personally along the way in having committed their funds’ money in such investments. Curiously, I wonder who will speak on behalf of all the many ordinary people in Singapore who came to believe the investment potential of these S-chip companies after all the beautiful “packaging” the dealmakers and entrepreneurs wrapped around them, and went on to invest their life savings in the S-chips, only to find out one day that all these were worthless! So when dust finally settles one day, we shall all look back and evaluate what had gone wrong and who are to be blamed. I am sure all fingers will be pointing at the Chinese entrepreneurs such as myself, who are usually labelled as “greedy and unscrupulous”.

There is a ring of truth to that accusation and I admit I am guilty. But how about those dealmakers, who taught us how to cook the books? How about those angels, who hid their identities behind some dealmakers and exerted influences to assist them to succeed in their schemes? How about those institutional investors who trifled with the money entrusted to them? How about those intermediaries and professionals who were not vigilant enough to protect the interest of the investing public? I would like to end with a comparison. The Ming Dynasty collapsed only after the General (Wu San Gui) they sent to defend the border against the Manchurians opened the gate voluntarily to allow the Manchurian’s army to come into the Great Wall. General Wu did that probably out of a promise to be made a king later on and be endowed tremendous amount of riches by the Manchurians. Of course, the historians would like to add that he also needed the help of the Manchurians to defeat another general that had taken his favourite concubine. In short, the thieves and robbers are only usually allowed in by the insiders……….

If you have read the story till this part, I am sure you are either a victim or someone who is deeply interested in the development of the S-chips going forward. Please help to forward this email to any many such interested parties as possible. We need to put an end to all these irregularities lest more ordinary people on the street suffer unnecessary losses. In the process, you will help me to partially clear my name…… For I am not the only one to be blamed……………..

Note: 1. Not everything is true in this story that I have just presented in order to protect some friends that still remain friends. In particular, the story before 1995 was inserted in only to give you a perspective of the difficulties that most Chinese entrepreneurs went through, and how they eventually all came to resent the ease and ruthless manner in which people like Mr D made great fortunes leveraging off their hard work.

2. At the same time, I sincerely hope that the investigation report that was pending in the case of my company comes out being at least “fair” to me. Otherwise, the more “real truths” will follow in subsequent emails……… hahahaha, the power of internet……..

Additional reporting: Goh Eng Yeow on Straits Times

Tuesday, December 20, 2011

Doing business in China ....... I

I have been posting a series of my thoughts on topics of China for a while. I have been pressured to grow our presence there because growth else where muted. Does that means China is immune from the on-going in the Europe? If the world is slowing down, how can you grow? The answer is the cake may be getting smaller however the opportunity is still there. Everyone, I mean literally everyone, flags from the US, Taiwan, Japan, South East Asia countries like Singapore, Malaysia, Thailand, etc are flying on the companies poles. The reduced cake is still larger than anywhere in the world. So, it's a question of how can you win market share in a slower growth environment.

Doing business in China can be difficult. Having raised in a conservative Chinese background helps but is still difficult. One of the difficult concepts for a westerner to understand is guanxi. At the surface, it sounds like something like a brotherhood bond. It may sound so noble and thinking of these people are so nice but at the business level, it's much deeper than that. A lot of people understand guanxi means reciprocal, giving face, not offending them, pleasing them but ultimately means money or help them to rise up in power.

The Chinese government is portraying an image that they are fighting very hard on corruptions. Yes, I believe they are but the followers may not. They have been inventing creative ways. I was told that people who buy Maotai usually won't drink it, and people who drink Maotai usually don't have to buy it. Maotai is like gold. It's a currency, they can resell it and turn Maotai into cash.

I thought it was a joke, when I goggled this, this is what I found.

This year so far we have seen eight rises in the price of Maotai. The potent Chinese liquor now costs four times what it did five years ago.

According to the overjoyed manufacturers and the press, the rocketing price, fueled by a booming demand experienced by no other commodity in the world, is just another manifestation of China's booming economy. But surveys show that only 10 of every 100 smokers of Zhonghua brand cigarettes buy the cigarettes they smoke, and only 1 in 100 drinkers of Maotai pay for their own drinks.

Liquor culture is an essential part of traditional Chinese civilization. In Chinese, the expression for government "review and approval" sounds very similar to "cigarettes and liquor", and in reality approval often requires the giving of cigarettes and liquor.

In other words, by bribing officials with cigarettes and liquor, one can avoid troublesome bureaucratic formalities and obtain approvals and permits with ease and speed. The popular Chinese sayings "no cigarettes and liquor, no approval or permit", and "buyers of Maotai don't drink it, drinkers of Maotai don't buy it", lay bare the hidden rules for dealing with government officials.

Nowadays an increasing number of officials puff only on Zhonghua and nip nothing but Maotai. It's not uncommon for officials at municipal and county levels to keep a store of cartons of Maotai at home, which, one cannot fail to figure out, are gifts from people who have approached them for help. As to how much Maotai they have consumed on public money, we will never know.

It's said that every year the mayors of many mid-sized cities assign their most trusted subordinates to travel to the Maotai distillery to source precious liquor, as it is an indispensible drink at banquets staged for important guests. The task is glorious but arduous, as it is neither easy to secure the amount required, nor to ascertain that every bottle is genuine. For this task, funds are not an issue at all. With their best efforts, some manage to secure 2 tons or 4000 bottles for their cities, but that is far from enough. On average, a typical municipal government holds 5-10 banquets every day of the year, and at each such banquet, 3-5 bottles of Maotai are drunk.

Since liberation, Maotai has been the designated liquor for state banquets. But in line with China's reform and opening up, it has also become the liquor of choice at banquets organized by provinces, cities, counties, towns and even villages. For officials to treat their guests, toady to the higher-ups, favor their subordinates and socialize, Maotai is absolutely indispensible.

It is common office gossip that a lack of capacity for liquor is equivalent to a lack of capacity for work. Therefore, in order to demonstrate their capacity, some officials drill themselves to acquire the capacity to pour two bottles of 53 percent alcohol Maotai down their throats at one sitting without getting drunk. Some of them become so addicted that they don't feel themselves if, for some reason, they don't get their daily fix.

The leading group of a city usually comprises 10 people including the party secretary, the mayor and vice mayors. For them, 4000 bottles are far from enough. As a result, the number one man usually assigns an aide to manage the precious store of Maotai and ensure that his demands take precedence over those of the other leaders.

At a Party meeting the number one man might extend some words of consolation to his subordinates: "Comrades, it's not that I set out to abuse my position to monopolize the Maotai. It's just that the supply is too low. Consider the annual supply of 25000 tons a year, equivalent to just half a billion bottles. How can that meet the rising demand from all over China. And our buyers are below par. Once again they have failed to lay their hands on enough."

Our army officers have a special fondness for Maotai liquor, reflected in the oft-told tale of former premier Zhou Enlai engaging in a drinking contest with General Xu Shiyou.

For a civilian, to be able to drink a whole bottle (or half a liter) of Maotai at dinner is something to boast about. But many army officers are not satisfied with drinking only one bottle, which cannot fully demonstrate their heroic mettle. Also, they disdain to drink in the same manner as civilian officials. Consequently, Maotai liquor has begun to appear in liter bottles, produced specially for the enjoyment of our army officers. As to what proportion of our military expenditure is actually spent on drinking Maotai,nobody has the guts to try to find out, as it is undoubtedly a military secret.

People may say that I am out of date to regard the consumption of Maotai as the epitome of corruption in today's China. Though high, the price of Maotai has not yet gone above 1,000 yuan a bottle, and even the strongest drinker can drink no more than two bottles during one meal. Now, we have entered the age of ice liquor, of which high-end brands can cost 1,500 yuan a bottle. A person with a good capacity for drink can consume 8-10 bottles during one meal.

Friends, don't be shocked by this, as the era of consumption of Lafite is approaching. This well-known wine is made in France, and costs about 20,000 yuan a bottle. A capable drinker can drain 3-5 bottles at one sitting!

It sounds absolutely inscrutable. But the point is who the buyers of these liquors are. If they are owners of private enterprises, it does not matter too much, as all that is lost is some state assets to which we ordinary people have no access at all. However, if they are government officials or army officers, the tax payers of China can do nothing but lament, as what is wasted is their hard-earned tax money.

Mr. Chunyu Jinzhang, president of a well-known stationary company in China, has been working as an amateur teacher of English for over 30 years and was the first man in China to promote the Queen's English.

Monday, December 19, 2011

China watch update

On this trip to China, people I met just like the weather -- bitter cold. They turned cautious.

Airports I went pretty much like my two months ago visit, almost empty on my way in and some life on my way out. Some still do a little bit of year end travelling but the way they dressed -- these are people who can afford to throw money at any economic conditions.

Housing was still a big topic. Stock market was still a huge topic. But not in bullish tones. These people did not think they are in the bargain level. Chinese are unique when come to anchoring, they don't anchor at the top but they anchor at the previous bottoms. If everyone waits for a bottom, it is has some way, some time, to go.

Copies of China Daily delivered to my rooms daily without fail. One headline had my attention.

BEIJING - Foreign direct investment (FDI) fell almost 10 percent last month from a year earlier, the first drop in 28 months, as Vice-Premier Li Keqiang called for a boost to domestic consumption on Thursday.

Amid the "grim and complicated" global outlook, China needs to strengthen market capacity and growth by encouraging private investment, increasing investment in affordable housing projects and accelerating urbanization, Li said.

This update is rather short. I'm badly lagging behind many of my duties. Just done shopping for coming school re-open. The school uniforms are getting very expensive. I don't think I will do more shopping for coming Christmas and New Year despite of many offers have been dangled in front of me. Just don't feel like throwing money on stuffs I don't need. I just hope for a quiet and restful holidays. I also hope to spend some time to think about 2012 -- it's certainly not a year of Four Horsemen calling like in the movie but I certainly expect to see more volatility ahead.

Wednesday, December 14, 2011

Watch China

I've been watching the A Share Index for months. It was hitting a new low yesterday. That made me nervous. I was undecided whether to use a dramatic phrase like the last bolt on the world’s engine growth is about to give way. This is our last hope. If this last engine is giving up hope, our hope for some global economic growth will be dashed. Growth will gravitate to center. Pretty close to zero.

I will be out of town for a few days on a business trip, to China.

Monday, December 12, 2011

A Time for Everything

1 There is a time for everything,
and a season for every activity under the heavens:

2 a time to be born and a time to die,
a time to plant and a time to uproot,

3 a time to kill and a time to heal,
a time to tear down and a time to build,

4 a time to weep and a time to laugh,
a time to mourn and a time to dance,

5 a time to scatter stones and a time to gather them,
a time to embrace and a time to refrain from embracing,

6 a time to search and a time to give up,
a time to keep and a time to throw away,

7 a time to tear and a time to mend,
a time to be silent and a time to speak,

8 a time to love and a time to hate,
a time for war and a time for peace.

Ecclesiastes 3

My last entry received one of the highest hits. I normally get this kind of hits when I write about companies, actionable information so to speak. The amount of time visitors spent did not decrease either. What does that tell us?

A couple of things I conjecture:

1. Our lives are not define by a few hundred thousands, millions or even billions Ringgit. We are not things but make up of spirit, mind and body. Missing one of them is called zombies -- walking dead men.

2. Many of us have made a lot of promises that we break it a thousand times. Promises to spend time with love one, to walk in a park, to feel the breeze, or what ever that is good for spirit, mind and body. We can be a man or lady of honor when come to business dealings, you make good of every promise you make but you fail to make good on promises to yourself, wife/husband, parents, lover or kids, why???

3. We are fear of death. We hope this will never happen to us. I am no insurance sales man or a will writer. Betting against certain risks are not worth it.

4. You identified with what I wrote, the camp that we are in. Demanding multinational companies that put you in a circle cage, forcing you to run in a rat race. We don't have to quit. We just have to learn know when to jump out from the cage and when to jump back in.

We have been conditioned that every stimulus follows by a response in classic Palov's theory. Somebody has discover that there is a space between stimulus and response. That space is called C-H-O-I-C-E. You have a complete freedom to chose. You have a choice not to get sad, not to get angry, not to feel or to be happy, to be compassionate or to feel.

If our brains are big enough to plan for multi-million perhaps multi-billion projects with huge success, why are we not smart enough to plan to for a few hours a week to refresh our mind, body and soul?

5. Money is not everything but everything is money. I don't disagree with that but there is


Friday, December 9, 2011

Our number One wealth: Health

Two to three persons I know died of heart attack. The most recent one was yesterday. He died of heart attack, one day after his daughter wedding in overseas. He was in his late fifties. A few years ago, a husband of a person that I know suddenly collapsed in a shopping mall. [He was] in his early thirties. He did not make a will, left my friend scrambling because his assets were frozen. I can’t write much more in details but I think you can imagine the rest of the plots. About a year ago, a young and bright engineer that I know died of heart attack while playing badminton with his friends.

I was supposed to take a break but sad feelings creeping in driving me to reach out my keyboard slowly to write something as a reminder. Not a reminder perhaps, to reflect may be, a therapy may be, aahhh……whatever…….no justification needed.

As an investor, we are quite ruthless demanding this company and that company to deliver results. We demand them to beat quarterly results years after years. If there is anything that we don’t like to hear, we dump shares. We rant. We ridiculed the CEO. Sometimes, we get what we want, a tough, inspiring, charismatic leader will show up……we pay them in million(s). They drive. People working behind those high performance organizations for whatever reasons, in the name of challenging the mission impossible, love for money, taking care of stomachs, etc……they labour harder than those slaves serving Pharaoh. Lots of companies set up nice gyms but soon you see dust and rust. Beer belly and cellulite. They design nice landscape but they get to enjoy it as fast they pass by to and fro their parking lots or maybe they were not even looking because their panda eyes were fixed on the road to think of something.

Shareholder is the king, I was once told, even though I am a small fly. Everyone needs to deliver. If you can’t stand the heat; get the hell out of the kitchen. Everybody is a kiasu-kia(sons/daughters of kiasu). We can lecture them/ourselves a thousand times -- live a balanced life but……Always but. The fear of being left behind is so strong. You don’t like to be labelled as bottom 20s performers. There is no time to think when you are spiralling in a whirlpool.

You swear to yourself this is the one last Italian job that are going to do. Buy a piece of land. Build a humble house. Stop squeezing your brains. Stop pumping up your testosterone level -- to fight like a man. Just you, your love ones, your pet. Nice wish but………….the last job????

This entry is dedicated to rest of us who work like shit, spinning in a whirlpool hoping to make our shareholders richer, customers happy and a hell for our competitors. When we earn enough, learn to lose, learn to live. When we don’t earn enough, pray one day your CEO will be willing to take a lower pay and learn to share…….If our wish does not come true, just a RM 50 wreath flowers… are our greatest asset, we’re going to miss you. Signed. Your loving CEO and Chairman.

Thursday, December 8, 2011

Myth of General Elections and Stock Market

The general belief among the

uncle--untie--abang--adik--kakak--punters--investors is

The Stock Market Will Go Up because the government is pumping in money.

When I went back to the last three elections, the data says otherwise. The government is generally wanting to call for a GE after the market peaked out from a bottom recovery.

In 1999, one year after the big wash of 1997/1998 financial crisis. GE was called after some signs of market recovery exhaustion.

2004 GE was called after exhaustion of 2001 dot com bust recovery.

2008 was unique, Pak Lah was kind of unseated by Dr. M from behind the scene. He was lucky because the sub-prime was still brewing nicely. Najib got the shits.

Now we have European crisis and a slow down in China, I do not think the trend is going to be up anytime soon.

The last 3 - 6 months to GEs were generally on a down trend, NOT UP.

It's a bit of fortune telling this morning.

I will only be back to post on next Monday. Have a nice day/weekend ahead.

Wednesday, December 7, 2011


You got to be at least 40 years old and above to remember this kind of movie. Some people are so funny that make you hold on to your stomach, laughing and rolling on the floor. Will try to go around to hunt for this series over the weekend. That means I will not be able write serious stuffs for a while.

Tuesday, December 6, 2011

My fears

This is a continuation from what I wrote yesterday. I thought it will be good that I write with a bit more clarity so that I don't confuse anyone.

My greatest fear is people take my writing seriously, take action and lose money. If I come to know that, I will feel pretty bad.

The other fear is people mis-interpreted what I write and take the wrong action. Again, I will feel very bad. That could be due to either I have written too little or certain things are just too public to disclose or unintentional omissions, or too bullish or too bearish, or this and that. I don't mind to lose my own money because it's my money. But if it's other people money.....then I'll feel very bad. Putting a disclaimer that you should consult your investment advisor is merely covering my ass technically. A three years old kid would know that!

Having said that, I wish to tell you two things more explicitly:

1. My bearish view still stand and it is crystal clear that I have sold at the wrong time. Period. My fear is my readers take my timing mistake and imprint them into their unconscious mind......the bulls are in control forever. If I am right on the direction but wrong on my timing and my readers get caught at the wrong time, I will feel very bad.

2. Three things that I should tell you about TDM after I re-think about it.

One - There was a leadership change in TDM in 2008. I was not sure whether it was due to political pressure or some other issues. The fruits that the current management is enjoying probably due to the old management team's efforts. I was not too sure whether the old management was good in getting things done but probably reach its limit to bring the company to the next level, which is growth. If it's the latter, I will feel better.

Two - The current CEO made an aggressive target to achieve 20 MT/hectare in 2008. Obviously he missed his target and kept quiet about it. The acreage did not expand but the FFB fell in 2009 and 2010. That was the reason I have to estimate the yield for that 2 years. There is a small crack line in characters as I took an X-Ray on them again.

Three - I do not know who is Mr. Koon Yew Yin. I am aware of this person when a friend of mine send me an e-mail regarding his write up on the great Malaysia's brain drain. I published his writing on my blog a while back. From what I read he is a humble and simple man. He is one of the a few good men around. I do not wish to take advantage of his reputation of owning this stock to influence your opinion.

Monday, December 5, 2011

Turtle Portfolio Update - Dec '2011

I keep reminding myself on two things

1. how to fall safely and
2. get back up gracefully.

My brain is probably weighs around 1,300 gms. Small isn't it? It's so small that I cannot afford to store less than 1 byte four-letter-word called: Q-U-I-T.

I was too conscious of my public performance, keep looking at scoreboard, causing me to keep missing my moves. I hope one day, everything in the world will just disappear - in complete silence. I'm completely free, nothing to fear. It's just me and my stage. Just moves, dance and dance and dance...............

Sunday, December 4, 2011

TDM.....Fair is fair

I think Badawi is a cleaner among the dirtiest shirts. The GLC transformation that he started in 2004 did bear some fruits. Some of the results were visible in 2007 and 2008. I believe it was too late for him because people ran of patience and could vote for anybody as long as it was not a blue colour. It was that desperate if you could recall. When Najib took over the ruling government after the aftermath, 'till today, I think hapak pun tadak nampak.

Don’t get me wrong. I’m not running a goodwill campaign for the present government but I felt that no matter who they are, when they did a good job, just give them the credit. Pak-lah did something and TDM is his witness today.

Don’t count on the present ruling government, they have good experience of running the country but their superlative corruption experience is also easily one of the top notches in the world. Net of that equals to going no where if not backward! I could recall one of Guan Eng’s speeches that sound something like this: yes we have no experience to run the country but neither have we had the experience to corrupt. Well said Guan Eng. Net of that equals to progress.

A clean officer who refused to participate in an en-mass graft sharing program will certainly be murdered brutally, so don’t count on the old system. We need an alternate new system. Don't expect the final product will look different if it's coming out from the same mold.

Back to money matters, TDM indeed is a very undervalued stock. This company started their journey to reform in 2004 under Badawi's GLC reformation initiative. The first thing that you may notice from the below table is --- their yields were below the industry efficient players which is around 20 MT/hectare.

The yields, as you can see, were certainly crawling upward after they put in more efforts to improve their productivity, replanting, better fertilizing program and etc.

Luck was on their side too, rising commodity price lifted the CPO price. When the twin-turbo(rising CPO price and rising FFB(due to productivity improvement)) is super-charging, any idiot also can make a conclusion that this is a no brainer stock to buy.

I believe Mr. Koon Yew Yin thinks this stock is so undervalued that he does not want to stir the market when he was accumulating. How do I know? I deduced this by looking at how he bought this stock. His public records revealed that he bought through 4 stock brokers. 4 brokers? Yes, using 4 brokers to accumulate speak volume of his convictions. No need to prove beyond reasonable doubt.

OSK 894,400 shares
TA 599,400 shares
HLG 593,000 shares
Maybank 445,800 shares

TDM has a plan to have 40,000 hectares presence in Indonesia. You can sense what they said will come true because they already acquired 25,000 hectares. And by 2014, these 25,000 hectares will be fully planted. If CPO prices stay between 2,500 - 3,000/MT, they can easily double their earnings in the next 7 - 10 years. TDM is currently managing 12 palm oil estates with about 33 k hectares planted.

Disclosure: None.

Saturday, December 3, 2011

Denominator or numerator?

The US jobless rate dropped to 8.6%. A big improvement especially the number stuck in the high level of 9%. The US market did not rocket. Muted, probably confused by the number. Employers did add 120 k jobs while the market expect to add 175k and think unemployment rate should remain at around 9%.

If the numerator did not grow fast enough then it must be the denominator that shrunk faster. How could that be, I mean employers cannot just blow up people. Did employers just let their workers retire?

The next subject: the strength of the US consumer. Marc Faber noted this

The American consumer went shopping but it’s not supported by income growth. If you look at the share of labor income or salary as a percent of GDP going down, what is happening is that people are again borrowing and diminishing their savings rate and I don’t think that is very sustainable. - in GuruFocus

Wow man, the recent generation of Americans are really serial debts addict!

Let me give you the visual. See that?

It's a beautiful Saturday morning. Don't let my bearish views spoil your day, I could be wrong. Please enjoy the rest of the weekend. Cheers man, lady too! :)

Thursday, December 1, 2011

Interesting twist

Got to be quick this morning.

The stories developing in the markets place is getting more and more entertaining, far more interesting than reading a thriller novel.

Whenever I see Central Bankers draw a line in the sand, they will get my attentions. The line that they drawn revealed something. It's almost like a bribe to vultures so that they can stop circling the dead bodies.

China Central Banker has been talking tough not to loosen its monetary policy but will tweak its fiscal policy. Guess what?

BEIJING -- The People's Bank of China, the country's central bank, said Wednesday it will lower banks' reserve requirement ratio (RRR) by 50 basis points for the first time in three years in order to replenish liquidity in the country's banking system as inflation eases.

The latest cut, effective on Dec 5, drops the RRR to 21 percent for large commercial banks and 17.5 percent for mid- and small-sized banks. An estimated 396 billion yuan ($62.38 billion) in capital will be released into the market.

The move signals that the government is set to stabilize economic growth after easing inflationary pressures, although it is not yet known if the change will bring about a full-on move toward a looser monetary policy, analysts said.

"The RRR cut is a signal for stabilizing growth, making the central bank's fine-tuning of the country's monetary policy more explicit," said Zhuang Jian, a senior economist with the Asia Development Bank

Then we have Ben Bernanke announcing a coordinated efforts globally.

U.S. stocks advanced, driving the Dow Jones Industrial Average up the most since March 2009, after six central banks took action on Europe’s debt crisis by making it cheaper for lenders to borrow in dollars

Popping 490 points on the Dow does not concern me. Desperate central bankers are masking something that many of us do not want to hear --- the "bungee jump slow down", recession, liquidity crunch, unsustainable high borrowing costs, or whatever.

My best strategy is just like dealing with a kid. All you need is just sit there patiently and listen to a kid keeps on explaining himself 'till he runs out of story. He will tell you the truth eventually. Just don't punish them. The more you punish them the more they will lie.

Wednesday, November 30, 2011

It's now or much later.........

I've been wanted to capture my thoughts on plantation stocks over the weekend but there have been a lot of interruptions......some baby snails were literally ruining my plants so I've to harden my heart to get rid of them with a loaded pesticide water gun. Hasta la vista, baby!

The sector(plantation index) had a huge run prior to sub-prime collapsed and the Humpty Dumpty had a great fall. All were not lost, the market managed to stick back the pieces(with some help of all king's horses, all king's men and some luck of course). Since then it had a very successful recovery. The sector appeared to have been topped out in the early of 2011 and trapped in the downtrend for last 10-11 months.

The CRB index appears to have a similar pattern. It has been on the downtrend as well since the beginning of the year and the Baltic index is clearly looks like a Vietnam veteran having bad dreams, screaming at nights.

A main competing commodity to palm oil, soya beans, got hammered in September. They said they worry about global growth. They might be right, for once, I agreed with these traders. Damn! did I just shake my hand with them?????

Back to our KLSE, our top guns, i.e. heavyweight like Sime Darby, IOI Corp and KLK have been getting expensive. The valuation has caught up with price pretty fast. There are some issues and worries with these stocks(a story to be told in another day). Those market cap stocks between RM $ 5 - 10 B are also getting expensive. The valuation gap in fact had almost been eliminated. A lot of stocks with less RM 1 B had their days, justice had been served -- the valuation is also appear to be rich too. There are 2-3 more stocks like TDM is waiting for a handsome prince to kiss them. Don't let me stay like a frog forever, she said with her beautify winky eyes. Kiss me please.

Dividend yields are not that generous, on the average of 3+%, are indications of prices had surged too much. Some are even worse - less than 2% - telling us players are willing to go after capital gains only.

A few of the undervalued stocks have only a window of about 6 months, it's now or much later. The logic drives behind this premise is CPO price can still be firm due to the lower harvesting yields caused by heavy rainy seasons. When all stocks slide under water slides, pumping adrenalin will not equal to making money.

Take care all my friends.

Tuesday, November 29, 2011

Has Toyota lost its mojo?

What is mojo?

It's a noun. I know stupid. Be more serious.

It's something related to a magic charm when I looked up in Oxford dictionary.


Has Toyota lost its mojo?

I would like to answer a question with a question. Why Toyotas' chiefs frequently shed tears?

A doctor says it's got to do with biology.


It's got to do with the level of testosterone.


The higher the level of testosterone, the higher the level of aggression.

That makes sense, when the level of testosterone drops -- especially when they grow older -- they become more compassionate. Don't send them to kill a lion or else they........use your imagination to figure that out.

I see. When Toyota announced their withdrawal from F1, it's all about giving up something that they really passionate in exchange for something "bigger than my Alpha male ego" mission. It's painful you know. The future is not about something who can make a "beast" louder, stronger but about something is more friendly to our earth.

You mean there is a quiet revolution going on?

Yeah....check this out.

Can you feel the ice, not heat?

Driving L badge that starts at 168 k?

Yeah, it's very cool but you still have not answered my question.

Is it important?


Young man, young man. You don't like what you hear, don't you?

The young man had just turned into a classic stonewall. Muted.

All you care is UMW, isn't it young man?