How real is $400 million debt recovery by MUI?

Saw this in the Star

PETALING JAYA: The Kuala Lumpur High Court has ordered the winding up of companies owing monies to Malayan United Industries Bhd a total outstanding receivables of RM427.75mil.

In an announcement, the company said that the debtors consisted receivables of RM245.6mil as principal and accrued interest of RM182.1mil as of Sept 30. “At this stage, the company is not able to estimate the exact time period for recovery of the outstanding sums,” it said.

The questions run at the back of my mind were who are the debtors and do they have the ability to pay back ?

The answer to the first question. Hope Foundation or Yayasan MUI who has been alleged that Khoo transferred $ 400 million to this foundation a long time ago during his down fall -- that I could not verify. You may want to read this here

 http://www.malaysia-today.net/mtcolumns/40479-tan-sri-dato-dr-khoo-kay-peng

The second part of the question, which is more important, do Hope Foundation has the money? It is seems that KKP has made a series of calculated moves trying to unlock the value in PMI and also their holdings in MUI. Hope foundation has been disposing shares from the height of 441 million shares in MUI down to zero in September 2011. That itself at average price of RM 0.25/share would have raised at least RM $ 110 million. They disposal in PMI is estimated around $ 20 - 30 million. Hope Foundation would have raised at least $ 130 - $ 140 million. I suspected Hope Foundation subsidiaries must have more assets or money that hidden somewhere to be unlocked. The liquidation may take some time and let say MUI manage to recover at least 75% of $ 427 million, that will work out to be around RM $  0.14 / share.

Sometime in April this year, MUI announced that they will sell their insurance arm MUI Continental to Tokio Marine for RM 180 million. MUI owns 52% of MUI Continental and that will work out to be around RM 90 million or 0.03 / share.

There are a series of other properties that have not be revalued 20 – 30 years ago. I have done a calculation a few years back it was worth close to RM 1.1 billion or RM $ 0.375/share.

Just ignore on other items, this itself already worth close to $ 0.545/share.

The last part of the question, so what if you have unlocked the value? Will you return the cash to shareholders ? KKP and their friends have a large holding in MUI and looking at the moves intensity that they are making, I do not think they will want to do all the hard work for nothing.

Disclosure: I have some picked up some shares recently below RM 0.22.

iCapital.biz

Tomorrow will be an interesting day for iCapital.biz shareholders. Based on what I read on-line, both Tan Teng Boo and Andrew Pegge seem to get very emotional. We have to brush aside the emotion and analyze things that are affecting our money on the line.

iCapital posted performance of Laxey Partners on their website. Here is this

First it says that the fund that Laxey Partners manage lost almost 70% of its value and the closed end fund discount at one point as bad as 40%. So the argument that if Laxey Partners were to take an active role, where will it be heading? It will be a disaster for iCapital.biz shareholders.

Fund discount or premium is a reflection of investors' sentiment. When the market is hot, people tend to pay for premium. When it cold, people will tag discount simply because there are more sellers than buyers. The real long term issue is the performance of the fund manager. If the fund manager can deliver long term results, say 15% 5 years from today, its NAV will be around $ 5.92. Even you tag a discount of 20% the projected market price will be around $ 4.73. Depending on the market price you pay, you will still make money. If Tan can perform, it will be a loss to investors.

The second short term issue on my mind is to consider the impact of regardless Lexey Partners succeed or fail. Since they(Lexey and City of London Investment) have accumulated the shareholding over 18 million shares, what is the impact of they start to dispose shares? If they have accumulated the shares over 2 years, I think the average price is around $ 2.25. If they are willing to absorb 10% loss, $ 2.00 will be the floor.

Let's take a look at United International Securities, a global closed end fund listed in Singapore exchange where Lexey Partners tried to make a similar attempt but failed. The chart below shows the blue is the price of UIS and red is STI index. UIS price fell sharply but STI was also fell in parallel. It was not really a concern since we may think that it is more of general sentiment. However, STI is recovering, UIS price was stuck. One can safely say that someone is trying to exit gradually.

Back to iCapital. If they choose to sell down gradually it will take a while to distribute that 18 million shares. That will take at least 9 - 12 months exit.

What if Lexey Partners successfully elected themselves on the board of directors. It will be a cheer to short term investors but a loss to long term investors.

Back to risk-reward thing. At yesterday closing price of 2.45, risk is 0.45(2.45-2.00) if you lose and reward is 0.51(2.96-2.45). So it is like 0.88 risk reward ratio. At this price, I will not go aggressively.

Meanwhile let's see the plot unfold.

Why make trade call while stay bearish?

Some of you must be wondering what the heck am I doing --- making trading calls while stay bearish, right?

Did I miss the last 1 year bull run so badly that I need to make up at the last minute?

The answer is no. The reason is simple. Did anyone actually make money while staying in the market?

If you look at FBM-Small Cap, unless you manage to get in late of 2011 and get out early February, the gain is as good as doing nothing. This index was about to have a golden cross but then telco came in and halted the party.

I feel that we are at last leg of the bull run before we have a more significant correction(15-25%). Usually the last 3 months before the bull run ends, the correction is usually brief and a new high is make in a relatively short time. After 2 - 3 rounds, the market participants tend to get complacent and keep thinking correction equals to new high.

One more sign that I found in my studies, the perceived safest stocks will have the last run. As you can see that ICAP was making the new highs about the same time KLCI was making its way to peak. I don't have the data on hand now but I was remembering that the so called many little "buffetts" came out and drove the stock to all time high way above its NAV in late 2007. If the history were to repeat a 10% premium to RM 2.96 NAV will equal to $3.25. I was being conservative and just call for $ 3.00 as the target.

There is another stock that frustrate its long term shareholders enough. Even patience investors like iCap, real insider Cheng, EPF and whole lots pared down its holding. Guest what? It just had a breakout recently. That is what I called capitulation! After all these big investors had nothing to sell, the rally tends to be sharp just like what you have seen in Alam. The other stock that mirror Alam is Sealink.

Disclosure : I have icapital loaded below $ 2.25, Parkson at $ 4.70, Sealink at $ 0.38. I am going to hang on to it for another 2 - 3 months. I quit Alam around $ 0.65 and may consider to reenter if it can pull back between $0.65 ~ 0.68. Since it is such a short holding, that is the reason why I did not load it into Turtle Portfolio. You are welcome to join the ride. However if you are feeling I am promoting the stocks, just ignore these postings. See you in December.

If trade you must ----- ICAP

Let me keep it short and sweet. If trade you must, ICAP is a good bet. Good luck.