Ishak – no newcomer to corporate controversy

WHILE the jury is still out as to whether Datuk Ishak Ismail (pic) is a white knight or opportunistic raider in Kenmark Industrial Co (M) Bhd, his return to the limelight after a long absence somewhat brings back memories of eye-brow raising corporate tussles and surprise manoeuvres that had once made him an icon in Malaysia’s corporate scene.

While he has had a fair share of the limelight since the 1990s, starting with Idris Hydraulic, Aokam Perdana Bhd and later KFC Holdings Bhd, Ishak had been relatively quiet for much of the last decade, at least as far as corporate news was concerned.

The Penang-born Ishak last made the front pages of business newspapers in 2005, when he was actively fending off parties who had sought to take over KFC’s parent company, QSR Brands Bhd. Since the late 1990s, it was widely perceived that Ishak was in control of QSR and KFC.

KFC, during Ishak’s time, was riddled with boardroom tussles and several curious developments, and had found itself a takeover target of various parties given its healthy cash flow. In fact, it probably holds the record of having had the most number of board changes as a result of these feuds. Ishak was a key character in this entire saga.

In the last battle over QSR and KFC in 2005-2006, it was reported that Ishak’s trusted aides had let the company slip into the hands of others. The saga came to an end when Johor state-controlled Kulim (M) Bhd emerged to take control of QSR, in a deal many perceived was orchestrated by Ishak.

Ishak’s major entry into the corporate scene started in the early 1990s when he staged a takeover of Idris Hydraulic (M) Bhd, which became a darling of retail investors during the stock market’s bull run then.

Idris Hydraulic held various timber concessions in Keningau, Sabah, which were collectively known as the Sagisan Concession, spread over 256,000ha. To leverage on its concessions, it had entered into a joint venture with Aokam Perdana Bhd in 1992 with Teh Soon Seng. Ishak forged a bond with Sarawakian Teh to win a high-profile battle against Leong Hup Holdings Bhd for control over KFC, which marked Ishak’s entry into the fried chicken retailer.


Aokam Perdana’s shares rallied in the early 1990s as investors were drawn to the notion that the company earned fat margins due to a cheap supply of logs from Idris’ concessions. Idris Hydraulic’s shares also had a phenomenal run. Stories of its planned expansion and diversification plus a healthy dose of rumour further fuelled optimism; Idris Hydraulic’s share price skyrocketed from 80 sen to RM8 within a year during the super bull-run of 1993–94.

The company was involved in a wide array of businesses, from timber concessions in far-flung places like Gabon in Africa, to hotel operations in Myanmar and multi-billion ringgit sewerage concessions at home. There was also a steady stream of talks and deals, most of which never came through, that had added to the sugar rush in the counter.

However, having reached its peak of RM8, the stock steadily began its downward spiral. Even the stock market rally of 1996-97 failed to lift the counter which appeared to have lost its lustre. Many of the promises on the company’s future plans were not delivered.

Ishak also controlled several other companies involved in retail, food and beverage, hotels and property development and had stakes in Parit Perak Bhd and hypermarket chain Carrefour.

He was also once a secretary of the Permatang Pauh Umno division, the stronghold of then deputy prime minister and now Opposition Leader Datuk Seri Anwar Ibrahim.

But like many other businessmen, the 1997-98 Asian financial crisis dealt his impressive portfolio a massive blow. He lost Idris Hydraulic in a debt-restructuring exercise. In 1998, Aokam was declared insolvent and could not pay some RM33.3mil of debt.

It was reported in 1997 that the police was looking for Teh to assist in investigations surrounding an alleged theft and misappropriation of funds from Aokam worth some RM55mil.

According to the Securities Commission (SC) website, in 2001, Ishak was convicted by the courts for disclosing false information to the SC in a proposal by Idris Hydraulic to the SC that stated he did not hold any shares in KFC. The information submitted was in connection with a proposal for the acquisition of an asset of KFC by Idris Hydraulic. Ishak pleaded guilty and was convicted on Aug 23, 2001. He was fined RM400,000, in default six months imprisonment.

In 2003, Ishak, as a director of Idris Hydraulic, was also compounded RM400,000 by the SC for misusing RM50mil of the proceeds raised from the disposal of Kewangan Bersatu Bhd. As a result of the compound, the charge was withdrawn.

His long absence from the corporate limelight ended this week following his entry into Kenmark, a homecoming of sorts as he was a shareholder in Kenmark way back in 1993. Kenmark was listed in 1997 and Ishak sold his 20% stake subsequently. He acquired a chunky 32% or 57 million shares in Kenmark early in the week, after the stock price tanked on some puzzling uncertainties. The question in most people’s minds – is he merely seizing an opportunity as an investor or is there more to the story?

By RISEN JAYASEELAN ,risen@thestar.com.my

Directors shed some light

AT a hastily arranged press conference yesterday, Kenmark Industrial Co (M) Bhd’s newly appointed directors sought to shed light on their plans to turn around the company and to explain some of the puzzling developments that had plagued the company over the last few days. Below, excerpts from the press conference with Datuk Abd Gani Yusof, Woon Wai En and Ho Soo Woon:

SBW: What is the priority at this point?
 Gani: It is to see how fast we can commence operations. We are also accessing the situation and will release statements as new developments happen.

Who gave you access to start operations? Have operations actually started?

Datuk Abd Gani ... ‘If out customers and banks support us, I believe we can turn the company around.’

 

Gani: We met key members of management and we asked them what is required to restart the production. We will take it from there. Management is supposed to do an assessment of various departments, the equipment, and the personnel required. Some new recruitment may be needed.

Are there enough raw materials, enough workers?
Ghani: I can’t answer that yet. We are meeting management on Monday to see where we stand and decide whether there is a need to purchase more raw materials or get more workers.

Where will the funds for the operations come from?
Gani: As we saw yesterday, we have enough machinery and raw material stock. There are also some debts that can be collected. Any additions will have to be reviewed as we go along.

What’s the situation with Kenmark’s creditors?
Gani: We are not under any threats from creditors. The term loan with EON Bank was taken for our factory in Port Klang. And that too, is well secured.

Have you defaulted on any of your debts?
Gani: We have not.

So why did the bank come out with this notice to secure the premises?
Gani: They had to once they found out there was no management in charge and nobody is looking after the business. Somebody has to look after the asset that is charged to the bank.

It’s been reported that key management has resigned. Is this true?
Gani: We talked to key management yesterday, and they told us none of them have resigned. Only one person resigned, and we asked her to come back and she is willing.

Doesn’t Kenmark have to meet orders from customers in time?
Gani: We only have one order to deliver by month-end, that is why as soon as we get the company working again, the business can recommence and the delivery for month-end will be met.

There is another executive director, Chang, who’s role is to take care of the plants. So how did the new directors come into the picture?
Ho: He is mainly in charge of the Vietnam plant.

Is he in communication with the new directors?
Ho: Yes he is, with the company secretary.

Does he hold the key to the factory’s production?
Ho: No.

We are trying to establish when and why was the factory shut down, and what has happened between that time. Can you comment?
Woon: We did not do a post-mortem on those events when we met with management this morning. We are not out to do a witch hunt. That can come later. We want to recommence the business as soon as possible. The idea now is to instill confidence, get the staff back so that we can deliver our orders. If we have to double time to get it done, we’ll do it.

How much damage has happened at Kenmark’s Vietnam factory? We heard there was some looting.
Ho: It is intact, because they can’t take away big machinery. The most they can take away are computers. In any case, we don’t want to speculate. We are not able to identify who the culprits are.

How soon will it take for you to come out with a regularisation plan?
Gani: I don’t know, but we have a board meeting scheduled on Monday followed by a staff meeting. We will come out with a firm plan. We know the mistake now. We know there was some communication gaps that resulted in this whole mess. We won’t let that happen again.

What are the special auditors who have been appointed tasked to do?
Gani: The terms of reference will be given upon the approval of their appointment by Bursa. Bursa will draw up what they want the special auditor to do.

Is there hostility between James Hwang’s people and this new team?
Gani: I do not know, but they voted us in yesterday.

Do you represent Datuk Ishak Ismail? He seems to have bought so many shares in Kenmark in two days. How is that possible?
Gani: Why don’t you ask him that.
Ho: I think if you look at the turnover of the volume done for Kenmark, it was quite high.

On James Hwang’s disappearance.

Are any of the four new directors in contact with Hwang?
Ho: Yes, he calls us.

What does he want?
Ho: As he explained in the letter, he is very sorry this has happened and is asking us to help him rectify the situation.

Does he feel sorry for what he has done?
Ho: Yes, as he said in the letter. I think he’s very depressed.

How could he just leave everything and run off?
Ho: I think the issue is he did not leave everything. Sometimes when you collapse, there is no such thing as “I am going to collapse, I need to get this and that done”. I was told that he collapsed due to exhaustion and lack of sleep. At one point, he was without sleep for nearly 20 days which I don’t think is humanly possible.
This is something which is unplanned, and very unfortunate for a man who thinks he is superhuman.

But he has other directors. Why didn’t they come out?
Ho: The management and operations are very tightly controlled by one man. And without this person’s direction, the other directors will not do anything.
We are here to put the situation right. Even from the board position, the executive directors are all Taiwanese, and they all report to him. There is no local executive director to liaise with the market to say what is happening. So this is a situation that we have rectified by appointing four local directors.

Why didn’t his family members alert the public as to where he was?
Ho: His family also did not know where he was. The initial reaction was that he was kidnapped.

So you believe you can make Kenmark better?
Ho: With the co-operation of everybody, we can.

But what is the main plan for Kenmark?
Woon: Too early to say as this is only our second day of being appointed.
Gani: We are here to work and to deliver. We want to get the business going on again. If we didn’t believe in that, we won’t waste our time here.

What would it take to win confidence?
Gani: Start operations again, and return to profitability.

When can this happen?
Woon: As soon as possible.
Ghani: The first task is to get the company out of PN17.
Ho: We want to get the business going on again. I think if you look at the company’s track record, it has been very solid. For this to happen overnight, it is very unfortunate. The fact that the key management staff we met today, most of them told us that they have worked from between 19-26 years. That says a lot of the company. If the key people are with us, if our customers still trust us and the bankers support us, I believe we can turn the company around.

By BK SIDHU and TEE LIN SAY, starbizweek@thestar.com.my

A bizarre run of events

An implausible series of happenings at Kenmark requires that the authorities take note and do the needful

ANYONE following the strange sequence unfolding at furniture manufacturer Kenmark Industrial Co (M) Bhd can be forgiven for thinking that there is more – much more – than meets the eye.

A disappearing managing director and senior management saw its share price collapsing and in its aftermath, a new controlling shareholder emerged, along with the re-emergence of the MD made known via a press release.

First indications of trouble came when the share price collapsed on the eve of Wesak day, on Thursday May 27 and again on Monday, May 31, there being no trading on Friday because of the public holiday. From nearly 80 sen a share, it had collapsed to about 10 sen, in just over a day, wiping out nearly nine tenths of its value.

On Monday morning – 10.10am – after one hour and 10 minutes of trading, Bursa Malaysia suspended the shares and shot a query to the company on the unusual market activity.

Back came the shocking reply on the same day: Kenmark said its independent directors, Zainabon @ Zainab Abu Bakar and Yeunh Wee Tiong, were the only ones present at an audit committee meeting that was to be held at 10.30am on May 27, incidentally, the day the share prices collapsed.

Neither managing director James Hwang nor another executive and non-executive director, all from Taiwan, could be contacted. The deputy general manager and the finance and administration manager had resigned. There was no management representation at the meeting and therefore the meeting could not proceed.

The independent directors visited the company’s premises in Port Klang on May 29 and found it sealed and the premises secured by a guard. In a further announcement the same day, the independent directors revealed that there were letters of demand for borrowings which totalled over RM60mil and that they were unable to ascertain the financial position of the company or offer any other opinion.

And the independent directors said the company would enter PN17 status requiring its operations to be regularised. They also said that the company would be unable to release its quarterly report in time and that the shares would be suspended five trading days later on June 8. This was confirmed by Bursa Malaysia. All these announcements were made on May 31.

In short, it was utter chaos and no one knew what was happening with key board members and senior management having resigned or disappeared or otherwise unable to be located. That must have been a sort of record even for the Kuala Lumpur stock exchange where strange things have sometimes been known to happen and set the stage for a sell-off.

Incredibly, with such a state of uncertainty surrounding the company, the suspension of the shares was lifted the following day, June 1. Prudence should have dictated that the suspension be maintained until more information was forthcoming so that all shareholders could act from a position of equal information.

That would have discouraged needless speculation and ensured that insiders did not have a trading advantage. If syndicates were in the market, they could have been flushed out as more information about the company came into the public domain.

On May 31 when trading was shortened by the suspension, turnover of the company’s shares had already ballooned to an incredible 72 million shares from 1.5 million shares the previous trading day, May 27 and just 55,000 shares on May 26. That 72 million represented nearly 40% of Kenmark’s issued shares, enough to tell anyone that activity was not just unusual but terribly, terribly unusual, considering the shares changed hands in just one hour and ten minutes of trading. .

If you thought turnover was high on May 31, wait for the next day when the suspension was lifted. It shot up to a massive 190 million plus, more than the entire paid-up capital of Kenmark, implying the same shares were changing hands several times. The following day it was still an incredible 138 million shares.

And then came the next shocking announcement on June 2, when the shares were suspended from trading at the awkward time of 4.43pm and remained suspended until yesterday, June 4

Suddenly, managing director Hwang was contactable. He even issued a press release. He had been sick and unconscious, he said, and his family had barred all calls. But he did not explain why his other directors could not be contacted as well. He apologised for the confusion caused.

“I have spoken with a friendly party who has already acquired a substantial stake in the company and there will be new appointments of directors, including two executive directors to manage the situation there,” he said.

He did not say when he spoke to the friendly party.

His letter to the independent directors said that four new directors should be immediately appointed to the board. They were Ho Soo Woon, Ahmed Azhar Abdullah, Woon Wai En and Datuk Abd Gani Yusuf. The last was appointed executive chairman. The independent directors then resigned.

It transpired that the friendly party and new major shareholder was Datuk Ishak Ismail, who managed to pick up some 32% from the market on June 1 and June 2. Ishak, at his own admission, was the bumiputra partner when Kenmark was listed in 1997.

Yesterday, trading continued to be active and the share closed at 29.5 sen, more than double the previous close of 11.5 sen, on a turnover of 100.8 million shares but still well below its recent price of around 80 sen.
The series of events can only be termed incredible and highly volatile. Any reasonable person who follows the case closely will have serious questions to ask at each juncture of the transactions.

It is now up to the authorities, Bursa Malaysia and the Securities Commission to investigate and establish what happened and bring those responsible to book.

At the very least, there was gross negligence in terms of corporate governance and the proper running of a company.

But things could be a lot worse than that.

A QUESTION OF BUSINESS By P. GUNASEGARAM
p.guna@thestar.com.my

Managing editor P Gunasegaram says that smoke usually indicates fire.
 
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What’s going on in Kenmark?

What’s going on in Kenmark?

OVER 20 years of sweat equity by the founders and employees of Kenmark Industrial Co (M) Bhd must have seemed to have come crashing down in just a span of a week.

The only one who has the answers to the strange and unexpected developments in the company is 59-year-old Taiwanese national Hwang Ding Kuo @ James Hwang, the company’s managing director. But his sudden “disappearance” and surprising reappearance days later with an apologetic note that he was taken ill and unconscious, has in fact, added more fodder to the unusual circumstances.

Along with Hwang, two other Taiwanese directors had also gone missing.

The uncertainty had led the share price to nose dive, wiping out some RM100mil in market value over this week.

The factory in Port Klang

The business

Kenmark is a big supplier of goods to the international supermarket chain Wal-Mart and other global stores either directly or via its agents.

The predicament in a nutshell – the company failed to submit its financial records on time; two creditor banks has asked the company to pay up; several banks and stockbroking firms have force sold the shares in the open market and its suppliers, to put it mildly are worried.

The first red flag had come from Bursa Malaysia with its query to the company on the unusual market activity, points out Rita Benoy Bushon, chief executive officer of the Minority Shareholder Watchdog Group (MSWG). Suspicions were further heightened when it failed to issue its fourth quarter results.

Rita is calling for Bursa Malaysia and the Securities Commission to conduct a thorough investigation on the matter and if wrongdoing is ascertained, to mete out the necessary penalties.

In a written reply, Bursa Malaysia said it was investigating the matter and “will pursue enforcement action for any breaches of the listing requirements.”

“Bursa Malaysia had engaged with the company’s independent directors, external auditors and officials to ascertain the state of affairs of the company immediately when the issues came to light,” it added.

In comes Ishak

And just as market observers found themselves gobsmacked by the slew of strange developments in the company, the story took on another dimension. Datuk Ishak Ismail, who made his mark in Malaysia’s corporate stage in the early 90s but had bowed out of the limelight in early 2000 following a conviction by the securities regulator, has emerged as the single largest shareholder of Kenmark after acquiring a 32% block.

Kenmark’s new directors (from left) Ho Soo Woon, Datuk Abd Gani Yusof and Woon Wai En at the press conference on Friday.

 

Ishak and Hwang are old pals. In fact, Ishak was the bumiputera shareholder of Kenmark with a 20% stake when the company was listed in 1997 but had subsequently unwound his holdings.

Ishak tells the StarBizWeek that he had received a call from Hwang on Monday night to “help out”.

Based on announcements to Bursa Malaysia, BHLB Trustee Bhd, a trust for Ishak’s family, scooped up 30 million shares or 16.83% stake in Kenmark on Tuesday. A day later, he used another vehicle, Unioncity Enterprise Ltd to acquire 27 million shares or 15.53% of Kenmark, raising his stake to 32.36%, just shy of the trigger point for a mandatory general offer.

Based on Kenmark’s share price over the two days of the acquisition, it can be assumed that he had acquired the shares at not more than 8 sen apiece. When trading on Kenmark’s shares resumed on Friday, the counter shot up to 26 sen, a 126% gain from its last traded price of 11.5 sen. This means Ishak could be sitting on a paper gain of some RM10mil.

When contacted by the StarBizWeek, Ishak who was in Baghdad, explained why he had acquired the shares: “It is a good company. I checked and there was nothing wrong with the operations. There is just some misunderstanding. What I am thinking now is how we can get the business operations re-started. I have been an investor before and this company is involved in a lot of export business. Imagine the foreign earnings it brings into Malaysia.

“There is also another aspect. About 400 jobs are at stake if the plant does not restart. So, I wanted to help bring the employees back to work. So, it is not about (grabbing) an opportunity but doing a social service. What is wrong with that?’’ he asks.

How much did he acquire the shares for? “I do not know. The purchases were done by the trustees. They make independent decisions,’’ he replies.

Still, many observers expect Ishak to exit not too long from now, pocketing some handsome capital gains. Will that happen? “It all depends on the trustees, it is not about me. This is a family trust and I am not in control of the trust. But this (Kenmark) is a good company,’’ he adds.

Lost confidence

Meanwhile, 133 Malaysian workers of the total workforce of 413 employed by Kenmark are seeking RM1.4mil in damages for being locked out of the factory at the Labour Court in Port Klang. The claims were for termination benefits, compensation in lieu of notice and unused leave.

Quite clearly, the four new directors on board have an uphill battle ahead to regain lost confidence. After their first board meeting on Thursday, they had proceeded to the factory in Port Klang but were barred from entering the premises. On Friday, they met up with the senior team.

CLICK to view graphic

“We just met key management staff and asked them what is required to restart the whole production again. We will take it from there,’’ said newly appointed executive chairman Datuk Abd Gani Yusof.

At the start

Kenmark was set up in Taiwan back in 1978. Kenmark Industrial Co Ltd, which had a factory in Nei Hu, Taipeh, set up its first overseas plant a decade later in 1988. The plant in Malaysia began operations in 1989 on a 10-acre site in Port Klang.

Hwang, the founder of the company, is said to be a very enterprising man; within a short span, the operations expanded to Singapore, Australia, London, Hong Kong, Vietnam, US and China.

The Malaysian operations was listed on Bursa Malaysia in 1997. There are two other Taiwanese directors in the company - Chen Wen-Ling and Chang Chin-Chuan. Chen owned 18.7% stake in the company, according to the company’s latest annual report. With Hwang, the Taiwanese collectively owned 46.4% of Kenmark.

A substantial amount of these shares, it is believed, were pledged to banks and several stockbroking firms for share margin financing. Given the counter’s free fall over the week, many of these shares were force sold, which led many to believe that this is how Ishak could have accumulated his interest in the company.

Domino effect

On Wednesday, after Hwang had “disappeared”, the factory in Malaysia was shut down.

Some suppliers, spooked by the developments, were believed to have taken back their supplies.

On May 27, the company’s two independent directors Zainab Abu Bakar and Yeunh Wee Tiong had called off the audit committee meeting because Hwang had failed to appear. They could not reach Hwang or the two other Taiwanese directors.

Much to their dismay, Zainab and Yuenh had found the factory sealed. They both had stepped down from the board on Thursday.

One of the creditors, EON Bank had caught wind of these developments and wasted little time engaging their solicitors to seal the company. The company received letters of demand from EON Bank and Export-Import Bank for some RM71mil.

In a statement to Bursa yesterday, Kenmark said “There were some trade bills due for payment at the end of May 2010 but due to the unfortunate situation last week ... the trade bills could not be paid and EON Bank in safeguarding their interest had then appointed the Receivers.”

As for its Vietnam plant, Kenmark said that it has learnt from Hwang that the local authorities were requested to take control of the operating premises to safeguard the assets when some looting occurred during the absence of senior management staff.’

Hell breaks loose

On Monday, the situation worsened. The staff who turned up for work that day were told to go home. On that same day, Kenmark’s independent directors had updated officials from Bursa Malaysia on these developments, which led the latter to slap the company with a PN17 status.

After two days of wild speculation, Hwang appeared with his apologetic note that he was “sorry for the confusion” and that he was “taken ill in China ... and was in a delirious state from lack of sleep and was in and out of consciousness.”

Naturally, most found the excuse hard to swallow.

“It shows total disregard of shareholders, suppliers and employees. Even if he was not around, how could anyone expect the company to run rudderless?,” asks an observer.

Those who are close to Hwang say that he largely handled the business on his own, preferring that to delegating the work to the rest at top management. “This could explain the chaos his absence had resulted in,” says a source.

The task ahead

Since then, four professional managers have been appointed to the board. They are Ho Soo Woon, Ahmed Azhar Bin Abdullah, Woon Wai En, Datuk Abd. Gani Bin Yusof. Woon was formerly with Vads Bhd while Ho has his own family business. Gani has several businesses of his own but not much is known about Ahmed.

Evidently, the team is determined to get things back to normalcy. One of the most urgent matters that needs to be addressed is that the company needs to submit the fourth quarter results. The directors have failed to get an extension of time to June 30 from Bursa Securities to submit its results as the application was submitted less than fifteen days prior to the due date for submission.

“The Directors do not have access to the accounting records as yet and shall endeavour to have the results released as soon as available,” it said in a note to Bursa Malaysia late Friday.

Time is not a luxury it has. Bursa has given Kenmark till June 8 to submit the results, failing which the trading of shares will be suspended.

Analysts expect the group’s showing in the fourth quarter to be “less impressive” as orders from the European markets have been soft due to the economic slowdown.

In the company’s latest annual report, it had stated that it will focus on strengthening the wood-based business as margins were better than the LCD television business unit which was facing stiff competition. It also expected demand for wood-based products to remain stagnant until the economy in the European and North American markets pick up.

About 78% of Kenmarks business, said the analyst is export driven; one of its largest export markets for its furniture products is Europe. As such, he expects the weakening Euro to put a damper on the company’s latest results.

For the year ended March 2009, Kenmark made a net profit of RM3.8mil on the back of RM259mil sales compared to RM10.1mil and RM308mil a year ago.

Questions left unanswered 

Without a doubt, the whole debacle has raised key corporate governance issues. The unusual market activity in the counter also needs to be prodded further by the authorities.

Was this simply a case of one thing leading to another? Or is there more to it than meets the eye?
“From a corporate governance view, it is astonishing that it has reached this stage. Some processes and checks and balances had failed. If so, how and why?” asked a peeved observer.

By B.K. SIDHU
bksidhu@thestar.com.my

 Related Stories:

Kenmark among firms that broke listing rules

Ishak – no newcomer to corporate controversy

Stock an easy buy after force-selling

Directors shed some light

A bizarre run of events 

No payment so no audit report released on Kenmark

By DANNY YAP ,danny@thestar.com.my,  Thursday September 16, 2010

PETALING JAYA: Just when it seemed that more clarity could emerge on what transpired at troubled furniture-maker Kenmark Industrial Co (M) Bhd, a new hurdle has emerged.

Reliable sources said that while the special audit report on the company had been completed by accounting firm UHY Malaysia, the report had yet to be released to the relevant regulatory bodies because no one had paid UHY.

When contacted, an official from UHY’s forensic accounting division confirmed that it had yet to receive payment for its professional audit fees for the special report from Kenmark.

The situation poses a dilemma for the regulators as it is only expected that any firm carrying out an audit will need secure payment for work done on such a report.

To recap, UHY was directed and endorsed by Bursa Malaysia to conduct the special audit report on Kenmark back in July to determine if there had been any accounting irregularities, potential breaches of rules and regulations that contributed to the current RM150mil recorded losses.

Moreover, the special audit report was conducted to find out if there were any more losses that the new management had to deal with and debt exposure that shareholders should know.

Bursa Malaysia had confirmed to StarBiz that it had so far not received the special audit report on Kenmark.
A senior auditor of a local accounting firm said professional fees for scope of work that had been identified and endorsed by the regulators should not be disputed, especially when the work had been completed.

“If payment is not made to the accounting firm conducting the special audit report it would be difficult to know the actual financial position of Kenmark and on technical grounds and the lack of pertinent information (on the company’s past undertakings and accounts), it is likely the company would get away with any missdeeds because of the lack of evidence.”

For latest Bursa Malaysia indices, charts and other information click here

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Whither finance for innovation?

THE New Economic Model (NEM) characterises Malaysia in 2020 as market-led, entrepreneurial and innovative. A deliberate move towards a more competitive society, dedicated to value-adding to achieve high-incomes. A year ago, I wrote in this column: “The centrepiece to promote recovery and quality growth during hard times is to drive innovation.”

The key element here being the Government’s will to make some fundamental changes, including “a stubborn resolve to change mindsets in order to instil and build (and effectively put on the ground) a creative and innovative culture, and a national entrepreneurial spirit.”

A year later, I wrote: “…we can’t be expected to grow efficiently by simply doing more of the same. To become an increasingly higher income nation, we need to shift to an economy that is innovation led.”

Innovation simply means fresh thinking and approaches that add value to consistently create wealth and social welfare. In the end, “innovation drives productivity, and productivity drives the flow of real income.” I ended with a remark on venture capital: “From Asean to North-East Asia and from India to Japan, the big risk to innovative ventures remains the lack of ready access to finance.” Policy makers have turned to creating tomorrow’s jobs rather than saving yesterday’s. The buzzwords in government are entrepreneurship, innovation and venture capital.

Asian environment is set in a culture that does not take on risk easily. Thomas Watson (founder of IBM), when asked about risk taking, said: “If you want to succeed, raise your error rate.”

I believe our Government has to become a bold enabler when it comes to nurturing the build-up of risk capital. I also believe any government that takes no risk in promoting innovative ventures is likely to make the bigger error of not trying hard enough. Accept the hard-headed Sun Tzu rule that making omelettes will require breaking egg shells.

Venture capital vs private equity

Venture capital (VC) and private equity (PE) are not the same. VC provides development funding to early stage firms in high-technology and bio-technology. In contrast, PE backs established enterprises using equity and debt.

VC helps fund innovation – to grow seed and start-ups into major break-throughs that dazzle. PE thrives at the other end of the spectrum – offering equity and leveraged finance to spin deals. PE backed enterprises are usually run by the same executives who ran them before PE moved in.

Essentially, PE teams up with entrepreneurs to create value. However, VC managers bring professional advice and managerial and organisational support to the table, help manage start-ups and “teenage” ventures.

PE executives make money from fees; capital gains are just a bonus. The standard “2 & 20” fee structure, whereby managers charge investors 2% on monies managed and 20% of profits earned, is lucrative. They also charge transaction fees and fees for monitoring portfolios.

In contrast, VC takes are more modest since their fund size pales in comparison. VC ventures do fail but occasionally they get a hit – returns of 10 to 50 times. In the end, VC is all about real big successes.

PE is never easy; funding and executing private investment is hard. Competition is fierce and much financial engineering has already been tried. Only operators who are talented – and lucky – can keep producing high returns. Similarly, VC funding is difficult in terms of staying power.

The easy-to-profit schemes of 1990s created impatient investors. But building new ventures take perseverance. Most 100 largest publicly traded US software companies took six years or more to generate enough revenue to reach IPO (initial public offering). Microsoft and Oracle, which went public in 1986, were founded in 1975 and 1977 respectively.

VC fuses innovators and entrepreneurs with intelligent capital (and business know-how) in a combination that’s capable of spectacular successes, such as Apple, Google, Intel and FedEx. This also needs enlightened government policies. That’s how wealth creation takes place.

Be that as it may, NEM needs a dynamic VC and PE industry to meet its goals. Innovation and finance go hand in hand. With economic recovery, VC and PE must get back to providing growth capital – from seed to start-ups and then, on to expansion, refinancing, buy-outs, in the drive to maturity. Indeed, recession has left them with lots of “dry powder” (uninvested committed capital) before they need to raise new money. Yet, many have fallen victims of a world-wide reshuffle. Survivors will have to get used to a diet of smaller deals and lower returns, at least until economies fully recover.

VC in Malaysia

In Malaysia, chronic risk aversion defines the financial landscape. So much so the VC industry remains grossly under-developed, unwilling to take on seed and early-stage big-bang bets. In the 1970s, Bank Negara took small steps to set up VC funds. The first real move was Bank Industri’s joint venture (JV) fund with San-Francisco based Walden International to finance nascent ICT ventures. The JV later set up two additional venture funds in the 1980s.

Since then, the Government has introduced a wide array of VC funds, soft loans and tax incentives. But according to Prof N. Takahashi of Musashi University, Malaysia today ranks very low among 54 countries with less than 0.5% of those aged 18-64 involved in start-up activities, compared with 10% in US, 6% in Britain and 4% in Japan.

Structurally, the VC industry in Malaysia is very skewed and weak. Among 114 players, 104 were 100% locally-owned, nine joint-ventures and one, 100% foreign-owned. Together they managed RM5.36bil of funds at end-2009 (less than 1% of gross national product), of which only 48% (RM2.6bil) was invested.

In 2009, only RM597mil was invested; 80%-85% of committed funding came from government and only 12.6% from banks, financial institutions and individuals. Of the funds invested in 2009, only 24% went to seed (3%), start-ups (6%) and early stage (15%). The bulk was utilised to fund expansion (53%) and bridging (17%). Not only is VC funding highly reliant on government, but the ecosystem presents difficulties in private fund raising because of risk averse institutional investors, restricted regulations on asset allocation, and VC firms lack track record.

While entrepreneurs recognise there are improvements in start-ups, changes are in small and many barriers remain. The lack of “real” venture funding is a problem and funds are highly risk averse. About 85% of VC funds is provided by the Government. Since the mandate is to lend, they just do so and quickly take them to IPO, rather than take on the risk to nurture them, as in the US and Europe.

In the Government, the culture is to avoid taking risk. Malaysia is not unique here. VC companies in Japan have long suffered from a dearth of “risk” capital with a conservative attitude. According to Prof S. Kagani of Tokyo University, Japanese VC firms do not take risk even though they offer “risk” capital. Typically, they invest with other VC, scatter their funds widely and keep them small to minimise risk.

Japan invested US$2bil in 2008 (as against US$25bil in the US), of which only 10% was in start-ups (18% in the US). In Malaysia, the ratio is 6%. Like Japan, Malaysian VC still has much “dry-powder” in hand, totalling RM2.7bil (or 52% of capital committed). They still have money to spend.

Compelling challenges

US President R. Reagan used to joke that the nine most terrifying words in the English language are: “I’m from the government and I’m here to help.” To be fair, government has helped ignite entrepreneurship. It also helped develop the VC industry – warts and all. Indeed, most great entrepreneurial hubs, from Bangalore to Hangzhou, from Singapore to Seoul bear the stamp of public intervention.

In Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurships & Venture Capital Have Failed – and What to Do About It, Prof J. Lerner (Harvard Business School) points to two foolish tendencies among politicians.

First is temptation to spread wealth to regions and interest groups. France, for example, tried to transform Brittany (a backward region) into a hive of high-tech activity but failed miserably. Second is suspicion of foreign investors. In the 1990s, Japan lavished billions on start-up VCs but was reluctant to embrace foreign VCs or invest in non-Japanese VCs. Today, Japan has the rich world’s weakest VC market. Sound familiar?

Start-Up Nation by D. Senor and S. Singer tells the story of how Israel plugged itself into the global VC market in 1992 with a US$100mil publicly funded VC. It was designed to attract foreign VC and foreign expertise to do the job. This market-driven fund attracted foreign VC to participate. The nascent high-tech industry boomed, domestic VCs learnt from this experience and foreign expertise was passed on. Its VC industry flourished. In 2009, Israel attracted as much foreign VC as France and Germany combined; and had more companies listed on Nasdaq than China and India combined.

New approach to VC

The Malaysian VC community is too government-centric: the Government provides funding and calls the tune on what to invest, who to invest in, how to invest and whom to manage.

Funds are risk averse in practice, reflecting conflict between its developmental and commercial agenda. But, they are risk averse by necessity because VC lacks risk management skills; activities are largely insulated from global inter-connectivity, with only a limited window abroad. As a result, it has poor deal flows. Its overall performance has been dismal.

The fundamental weakness lies in a lack of focus on seed and start-up enterprises; these account for 9% of total VC funding. Including early-stage, their combined share is about 24%. But there are only a handful of professionally managed, genuine early-start VC funds – targeting pre-revenue, unproven businesses. Organised angel investing, where affluent individuals invest in seed and early start-ups, is rare.

Yet, early-stage funds play a critical role; they create jobs and new industries as well as generate high returns. Importantly, without continuing flows of early-stage funds, later-stage funds would be starved in subsequent years. So why aren’t there more early-stage funds? Two main reasons. First, there is genuine lack of expertise. Second, most VC funds effectively force them to do deals of RM2mil or more to ensure a manageable number of investments.

Indeed, a few smaller-ticket early-stage deals are done as an afterthought. While VC investing traditionally has been a “home-run” business, venture firms are backing far safer investments. What’s needed are smaller funds of RM50mil and a fresh outlook from investors willing to take calculated risks on small but good opportunities and strong teams, and patience to wait for real value creation.

To succeed VC has to dramatically change direction. Creating a more dynamic environment must be high on the agenda. Here, taking risk and managing risk have to be seen in a more positive light in the Malaysian business culture.

To begin with, VC needs to be market driven. To survive, the business must be risk-, people- and innovation-driven. The Government will be needed to act as an enabler: a funder with private investors and markets; and a provider of incentives to deepen business commitment. VC focus must be on seed and start-ups.

To better serve and service the business, VC’s structure and organisation (systems processes and skills) have to be re-vamped within a more friendly ecosystem. Also, VC must be regionalised and globalised in scope.

To complete the chain, PE must also be restructured but approached differently to complement VC growth in vital areas of re-financing, mergers and acquisitions, and buy-outs.

All these simply mean a complete mind-set and culture change. In the end, VC and PE business must be seen to be talent- and skill-oriented, with the world as its marketplace. Transformation of the VC-PE landscape (restructured to up-skill with due emphasis on generating deal flows) becomes critical. Finally, VC-PE needs to find its niche business on the Islamic finance radar screen.

Source: WHAT ARE WE TO DO By TAN SRI LIN SEE-YAN

·Former banker Dr Lin is a Harvard educated economist and a British chartered scientist who now spends time writing, teaching and promoting the public interest. Feedback is most welcome at starbizweek@thestar.com.my.

CFA Exam Draws Record 139,900 as Asia Applicants Increase 12%

June 2 (Bloomberg) -- A record 139,900 candidates enrolled for the Chartered Financial Analyst exam in June, an increase of 9 percent from last year as applicants seek a hiring edge in the recovering financial-services industry.

The number of registrations rose 12 percent in Asia, 9 percent in Europe and 5 percent in the Americas, the Charlottesville, Virginia-based CFA Institute said today in a statement. The first level of the exam is in December and June; the final two levels are administered only in June. Fewer than half the applicants at each level passed last June.

Candidates take the test hoping the certification can lead to better jobs, higher salaries and a deeper understanding of finance. Financial firms worldwide have cut more than 346,000 workers since the credit crisis began in 2007, according to data compiled by Bloomberg. U.S. banks posted their highest profits in two years in the first quarter, the Federal Deposit Insurance Corp. said last month.

“At this time of global economic instability, we believe it is especially important for the investment industry to be led by professionals who put investors’ interests first,” John Rogers, chief executive officer of the CFA Institute, said in the statement. “Finance markets cannot function effectively without ethical behavior, and transparency, and CFA charterholders are integral to this.”

Candidates from 160 countries are scheduled for the three levels of the exam. Forty percent of registrations for the test in June come from Asia, according to the CFA Institute statement. Applications from China climbed 19 percent to 15,700. India had the largest increase, 39 percent to 11,800. The U.S. had the most registrations with 38,200, up 3 percent from a year earlier.

The Topics

There are about 88,700 CFA charter holders globally, according to the organization’s website. The not-for-profit CFA Institute said candidates spend an average of 300 hours studying for each phase of the test. 

Topics range from ethical standards and securities valuation to financial statement analysis and portfolio management. Completing all three levels costs about $2,500 and takes an average of four years.

The CFA program started in 1963 and stems in part from Benjamin Graham, a pioneer of value investing who mentored Warren Buffett and advocated a rating system for financial analysts.

By Michael J. Moore

--Editors: William Ahearn, David Scheer

Mission to Mars - 6 Volunteers begin Mars500 isolation

The door shuts on the six astronauts for the next 520 days

Six would-be cosmonauts have entered a sealed facility where they will spend 18 months with no windows and only e-mail contact with the outside world. 

The men are taking part in the Mars500 project, which aims to simulate a mission to Mars.

They entered the craft, located at a medical institute in Moscow, just before 1100 BST on Thursday.

Scientists say the study will help them understand how humans would cope on a long journey to another world.

During a press conference on Thursday morning, the six men - three Russians, two Europeans and a Chinese man - all described what motivated them to take part in the experiment.

Twenty-six year old Wang Yue from China, the youngest of the volunteers, said he was excited to be involved in a project that he felt would be "excellent for science and for all of humankind".

French volunteer Romain Charles acknowledged that it would be a "difficult" mission and said that he would miss his family and "the Sun and fresh air".

Space on Earth 
 
The project has been designed to be as realistic as possible even though some elements - such as the weightless conditions of spaceflight - cannot be recreated here on Earth.

"They will have to cope with limited consumables, for example," said Dr Martin Zell from the European Space Agency, a key partner in the project.

Continue reading the main story

When the very first human steps on Mars, I will be able to say, 'yeah, I helped do that'

Diego Urbina European Mars500 participant

 

"That means everything will be onboard at the start. There will be no re-load, re-supply whatsoever. It will be like a real mission."

The craft is based at Moscow's Institute of Biomedical Problems and comprises a series of interconnected steel canisters. The total interior volume is about 550 cubic metres.

Four of the tubes provide the living and working environment on the "journey" to and from Mars. Their interior has been decorated with wood panelling to give the cylinders a more homely feel.

A fifth module is a mock-up of the Red Planet itself, an enclosed room with a floor covered in rocks and sand.

THE LAYOUT OF THE MARS500 'SPACESHIP'
MEDICAL MODULE: The 12m-long cylinder acts as the laboratory. Should a crewmember become ill, he can be isolated and treated here HABITABLE MODULE: The main living quarters. The 20m-long module has beds, a galley, a social area. It also acts as the main control room LANDING MODULE: This will only be used during the 30-day landing operation. There is room only for the three crewmembers who will visit the "surface" STORAGE MODULE: The 24m-long module is divided into four compartments, to store food and other supplies, to house a greenhouse, a gym a refrigeration unit SURFACE MODULE: To walk across the soil and rocks of Mars, crewmembers must put on Orlan spacesuits and pass through an airlock

About half-way through the mission, three of the crew will have to "land" on this "surface" and walk about on it while dressed in heavy space suits.

The "cosmonauts" will be commanded by 38-year-old marine engineer and astronaut trainer Alexey Sitev, who has only recently been married.

His compatriots - Sukhrob Kamolov (32) and Alexander Smoleevskiy (33) - have medical backgrounds. The two Europeans in the group - Diego Urbina (27) and Romain Charles (31) - are engineers by training. Wang Yue has a "day job" training Chinese astronauts.

 
Near a hundred experiments will be performed during the "journey"

Colombian-Italian Diego Urbina said his motivation came from his desire to work in space research.

"I'm also very interested in being a part of the story of getting humans to Mars," he told BBC News. "When the very first human steps on Mars, I will be able to say, 'yeah, I helped do that'. That will make me feel very proud."

Scientific investigations during the experiment will assess the effect that isolation has on various psychological and physiological aspects such as stress, hormone levels, sleep quality, mood and the benefits of dietary supplements.

Dr Berna van Baarsen, from the Free University Medical Center, Amsterdam, Holland, is a principal investigator on Mars500.

"We expect Mars500 to have Earth applications, in understanding group dynamics connected to isolation and loneliness, for example," she said.

"I hope it will also help us understand better some groups, such as those elderly people who are isolated in their homes. It should tell us about coping behaviours."

 
The experiment even simulates surface operations at the Red Planet 
 
The spaceship itself will come under scrutiny, also, as the crew monitor their surroundings to see which types of bacteria take hold and thrive in the enclosed space.

All of the results of these investigations will have to be emailed to "mission control" as the organisers of the project intend to introduce a 20-minute, one-way time-delay in communications to mirror the real lag in sending messages over the vast distance between Mars and Earth.

"Everything will be done in a telemedicine environment, where the crew has to do the analysis and we receive the data by telemetry," said Dr Zell, who heads up Europe's space station utilisation programme.
This 520-day mock mission with its 30 days of "surface operations" is the final phase of the three-part Mars500 project.

Look around the spacecraft that will be the crew's home for almost 18 months

There have already been two smaller studies, one lasting 14 days and another taking 105 days to complete.
Space agencies describe Mars as the "ultimate destination" for human explorers. However, they do not possess the technology to complete such an endeavour and are unlikely have it for many years yet.

By Jonathan Amos Science correspondent, BBC News 

Woman loses RM1.2mil to ‘British’ man through Internet

KUALA LUMPUR: A virtual friendship cost a 47-year-old housewife a very real RM1.2mil.

The con man she had befriended on the Internet did not just wipe out her savings but also that of her mother, sister, niece and her husband’s funds for investments.

The woman, who only wanted to be known as Madam Lee, said a man who claimed to be a British offshore engineer named Jeff Brian Manik had added her to his list of online friends last year.

Serious matter: Chong speaking to reporters at Wisma

MCA in Kuala Lumpur on Wednesday. On his right is Lee.

 

Lee said the man told her that he was sending 10 gifts for Easter, including a designer wrist watch, perfume, a Louis Vuitton bag, jewellery, a laptop computer, a camera and his latest picture through a courier service in April.

“He asked me to pay RM16,500 as a deposit to claim those gifts, which I did by banking the money into two local bank accounts, but I did no see any gifts in the end,” she told a press conference held by MCA Public Services and Complaints Department head Datuk Michael Chong yesterday.

She said she received an e-mail from a man said to be Manik’s agent about two weeks later who told her Manik wanted to invest in property in Malaysia and needed her help to handle his £2.3mil for the transaction.
“I was convinced after I met the agent at a hotel with a suitcase of pound sterling notes,” she said.

Lee said she deposited cash close to RM400,000 with various agents via various account names between April 20 and May 11 for the transfer of the money here.

She said she deposited RM586,000 into a company account on May 16 after she received a call from one of the agents that there was a 5% tax charge on the £2.5mil.On May 26, Lee said she paid another RM258,000 to the same company.

Lee said she felt something was amiss when she never received the gifts but she was convinced by the so-called agent about the so-called Manik’s interest in investing in Malaysia.

“I just wanted to help a friend but I did not expect it to turn out like this, I just want the money back to repay my family and friends,” she said, adding that she had never met Manik.

This week, she lodged a police report. Chong said he had received complaints from 18 women of a similar cheating scam with losses amounting to more than RM2.4mil since 2007.

“Please be wary of these con men,” he said. “Some of these women were not only cheated of their hearts but all their money, too.”

Chong said the British High Commission had received many complaints of such cases where a man with a British accent would befriend a woman through the Internet.

Lawyers Claim Google Street View Wi-Fi Sniffing ‘Is Not an Accident’

Lawyers suing Google claimed Thursday they have discovered evidence in a patent application that Google deliberately programmed its Street View cars to collect private data from open Wi-Fi networks, despite claims to the contrary.

“At this point, it is our belief that it is not an accident,” said Brooks Cooper, an Oregon attorney suing Google in one of several class actions lawsuits around the country arising from Google’s disclosure that its Street View cars intercepted Wi-Fi traffic around the world. Google has described the sniffing as a coding error.

The evidence, the relevance of which Google disputed Thursday, is a 2008 Google patent application (.pdf) describing a method to increase the accuracy of location-based services — services that would allow advertisers or others to know almost the exact location of a mobile phone or other computing device. The patent application involves intercepting data and analyzing the timing of transmission as part of the method for pinpointing user locations.

The so-called “776″ patent application, published by U.S. Patent and Trademark Office in January, describes “one or more of the methods” by which Google collects information for its Street View program, Cooper’s legal team said in court documents filed late Wednesday in federal court in Oregon.

Google spokeswoman Christine Chen said in an e-mail that the patent in question “is entirely unrelated to the software code used to collect Wi-Fi information with Street View cars.” In a follow up e-mail, Chen added that Google files “patent applications on a variety of ideas that our engineers come up with. Some of them mature into real products or services, and some of them don’t.”

Chen did not immediately respond to an e-mail asking whether Google has performed the “776″ method in practice.

Whether Google willfully sniffed out internet traffic on unsecured Wi-Fi hotspots in dozens of countries is an enormous public relations headache. It also carries huge legal and monetary ramifications in the United States, where the Mountain View, California, internet giant is being sued for privacy violations in multiple federal courthouses.

Among other reasons, Google might escape liability if it accidentally collected and never divulged the data, which includes web pages users visited or pieces of e-mail, video, audio and document files.

Google must turn over the U.S. data it siphoned to a federal judge in Oregon by Friday. The data will remain under lock and key.

Street View is part of Google Maps and Google Earth, and provides panoramic pictures of streets and their surroundings across the globe.

The internet giant has maintained the collection of data was inadvertent –- the result of a programming error with code written for an early experimental project that wound up on the Street View code. Google said it didn’t realize it was sniffing packets of data on unsecured Wi-Fi networks in dozens of countries for the last three years, until German privacy authorities began questioning what data Google’s Street View cameras were collecting.

By David Kravets 

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Google's Street View probe joined by Spain, Italy, France

Google, under investigation in Germany for the data-gathering practices of its Street View mapping service, now faces probes in Spain, France and Italy for possible violation of privacy laws.

 

Google, under investigation in Germany for the data-gathering practices of its Street View mapping service, now faces probes in Spain, France and Italy for possible violation of privacy laws.

Spain's Data Protection Authority on Tuesday ordered an investigation of whether Google breached national privacy rules by collecting and storing data from Wi-Fi networks and information sent over these networks. Italy and France also ordered inquiries.

The Spanish agency "will call on Google to explain whether it has captured data without the consent of citizens in Spain," it said in an e-mailed statement May 19. It sent a formal request urging Google "to block the data associated with wireless networks gathered in Spanish territory."

The Hamburg Prosecutors' Office said it is investigating people at Google on suspicion of criminal-data capture. German data regulators are already looking into how cars that Google used to take pictures for Street View ended up with private data from Wi-Fi networks that weren't password-protected.

Google co-founder Sergey Brin said Wednesday that the company "screwed up" by collecting and storing information from Wi-Fi networks while gathering data for its Street View mapping service. The company is imposing more internal controls after it mistakenly captured the data, Brin said at a news conference in San Francisco.
Street View allows Google users to click on maps to see photographs of roadsides. Officials from 30 European countries on May 11 adopted a common approach to keep Google from infringing privacy rights as the service is rolled out in Europe. They want Google, owner of the world's biggest search engine, to improve blurring techniques used to disguise images.

"The product as such is not in breach, but more measures have to be taken to improve how images are gathered and used," Gerard Lommel, a Luxembourg member of the so-called Article 29 Data Protection Working Party, said May 11. The group is made up of the European Union's 27 nations, plus Iceland, Liechtenstein and Norway.

Switzerland's data-protection agency sued Google in November for allegedly failing to comply with proposals to make it harder to identify people and cars on Street View. That case is pending.

Google will open an online-applications store for Web browsers including its own Chrome offering, as it works to make more software accessible via the Internet.

The store, slated to open later this year, will provide free and paid apps, Sundar Pichai, a Google vice president, said Wednesday at the company's developers conference in San Francisco. Magazines, games and music providers will be among the offered applications.

By Stephanie Bodoni

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