This article first appeared in The Edge Malaysia Weekly on December 18, 2017 - December 24, 2017
CHINA Stationery Ltd (CSL) appears to have reached the end of the road as a public-listed company after five years on Bursa Malaysia. Trading in the China-based stationery maker’s shares was suspended on Dec 5 after it failed to furnish the regulator with the results for its third quarter ended Sept 30 (3QFY2017) within the stipulated time.
On the day before its suspension, CSL closed at one sen.
Bursa is slated to commence the delisting process against CSL six months from Nov 30 if the company does not meet its directive to release its 3QFY2017 results by then.
From the looks of it, it is unlikely that CSL can meet the regulator’s deadline, given that the company’s last remaining director, Chan Fung @ Kwan Wing Yin, who is also the executive chairman and CEO, has been unreachable so far.
Before the company’s suspension on Dec 5, the investing community saw the resignation of its chief financial officer, Chin Siew Weng, along with five other directors, namely Risambessy Izaac, Herman Widjaja, Ang Wei Chuan, Lim Kim Huat and Chan Fung’s son, Angus Kwan Chun Jut.
All six resignations took place within two weeks in November with Angus being the first to announce his exit due to “other business commitments”.
CSL also has several litigation cases pending against some of its subsidiaries. However, the legitimacy of these cases cannot be confirmed by CSL. The cases were brought to light in August when the board was told that they were in relation to the CEO’s personal loans.
Unfortunately for the minority shareholders, who were unable to sell their shares in time, there is not much they can do except to file a complaint to the authorities and wait, says an observer who monitors corporate governance in Malaysia.
“Realistically, they should write down their investment to zero,” adds the observer.
He opines that the regulator should look into the role CSL’s directors played and whether they performed their fiduciary duties.
“The regulator has a tough job on its hands. The company is listed in Malaysia, incorporated in Bermuda, has operations and assets in China, auditors in Singapore, the two main shareholders are Hong Kong citizens and two of the (former) independent directors are Indonesians. The regulator should seek the cooperation of the Chinese and other foreign authorities,” he says.
The truth be told, troubles are not new to CSL. Just two months after its listing in 2012, the company raised eyebrows when it proposed a bonus issue of 596.3 million free warrants to shareholders on the basis of one free warrant for two existing shares held.
It did not embark on any fundraising at the time or seem to have a need for cash through the exercise of warrants, given its huge cash pile of more than RM1 billion.
If exercised, the warrants would have raised RM665 million at a conversion price of RM1.10 each. However, given the low share price, the conversion did not materialise.
Less than a year into its listing in February 2012, the company started to show signs that triggered the suspicions of investors — its major shareholder, Lead Champion Ltd, led by Chan, started to aggressively pare down its stake in CSL.
Since its initial public offering, Lead Champion’s stake has been trimmed from 74.88% to a mere 12.17%, which is equivalent to 150 million shares, based on its most recent filing with Bursa on June 20.
Perhaps what were most questionable were its financial statements, which consistently showed a cash balance of over RM1 billion. But it only rewarded shareholders with dividends of 1.8 sen and 1.6 sen per share in FY2012 and FY2013 respectively.
“Although the last published accounts of CSL — both the audited year report and the unaudited quarterly numbers — did show a huge cash balance, it would be naïve to assume that the money really existed, given what has happened recently. Companies with more than RM1 billion cash simply do not behave this way,” says the observer.
He adds that companies with huge cash piles typically reward shareholders with regular dividends or initiate a share buyback programme, have a decent amount of interest income relative to cash holdings and would not raise more cash through rights issues or private placements.
Based on its financial statements for the second quarter ended June 30, 2017, the company recorded a cash and bank balance of RM1.19 billion and no bank borrowings.
In its 2QFY2017 financial statement, CSL shows an 8.4% year-on-year rise in revenue to RM78.29 million. However, it reversed into a net loss of RM7.32 million from a net profit of RM7.91 million before.
Interestingly, the cost of sales for CSL shot up to 70.8% of revenue compared with 51.5% a year ago. It is also worth noting that its selling and distribution expense of RM40.31 million accounted for 51% of revenue.
In the grand scheme of things, it is worth highlighting that CSL is not the only China-based listed company in Malaysia that has ran into trouble with the regulator. Many other red chips face various issues, ranging from qualified accounts to questionable advertising expenditure. The question is, will they go down the same path as CSL?
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