KUALA LUMPUR: Malaysia’s only closed-end fund listed on Bursa Malaysia, icapital.biz Bhd, has come under fire from substantial shareholder Laxey Partners Ltd, which is seeking to place three nominees on the board of the company.

icapital.biz’s fund manager and investment adviser, Capital Dynamics Asset Management Sdn Bhd (CDAM), led by Tan Teng Boo, vehemently opposes the appointment of the three nominees to be directors and would retire from its role as a fund manager if any of the nominees are appointed to the icapital.biz board.

icapital.biz shareholder, Evelyn Ho, has proposed the appointments of Laxey managing director Andrew Pegge; Lo Kok Kee, who is a shareholder and director of Jupiter Securities and Low Nyap Heng, a vice-president of a corporate advisory firm in Hong Kong, to icapital.biz board.

“If any of these three are voted in, we [CDAM] might seriously have to consider resigning,” icapital.biz managing director Tan said at a press briefing yesterday.

He said in a statement the objective of the three nominees was not only contradictory to the long-term vision of icapital.biz but also detrimental to the sustainability of the fund’s future.

CDAM believed that having such individuals on the fund’s board would threaten the continued success of the fund, Tan said.

icapital.biz has nominated Datuk Tan Ang Heng and Dr Yin Thing Phee as directors — a move seen as its counter strategy should any, or all the three nominees, be elected to the board.

Shareholders will decide the fate of icapital.biz’s directors at the company’s 8th AGM on Saturday.

Laxey, a European hedge fund, has over the last two years accumulated shares in icapital.biz, accounting for 9.45 million shares or 6.89% of the company. The second largest shareholder is City of London Investment Management Co with a 6.45% stake.

Laxey’s main grouse is that the share price of the fund has persistently traded at a substantial discount to its net asset value (NAV).

According to a letter to shareholders from Laxey, although icapital.biz reported an NAV gain of 3% compared with the 1%  under the FBM KLCI for the financial year ended May 31, 2012, it claimed that the fund actually underperformed the index.

“The index is not adjusted for dividend yield, which is in excess of 4% per annum. So the actual return of the index was in excess of 5.6%,” said Laxey.

The European hedge fund manager also said taking into account the discount to NAV at which the shares traded during the period, the fund had further underperformed the index.

Laxey said while the fund manager received a 13% increase in management fees, the shareholders actually lost 4.5%.

However, Tan does not view the discount as an issue as icapital.biz’s objective is to invest based on value investing, taking a long-term view and targeting undervalued stocks.
For this very reason, Tan said the fund purchased stocks at low prices which were not favoured by others.

“We bought stocks such as Petronas Dagangan, Padini, Parkson, Fraser & Neave in 2005 and 2006 when no one wanted them,” he said, illustrating his view of long-term value investing.

“It is ironic that foreign investors such as Andrew Pegge see value [in icapital.biz] before Malaysians do,” said Tan.

Laxey has not explicitly disclosed its intentions for icapital.biz and Tan has his reservations on the matter.

“When we look at [Laxey’s] past track record, all it wants to do is to sell shares at a profit,” he said, indicating a short-term view of investing.

Tan cautioned that Laxey may cash out of the fund at any point after instituting changes to icapital.biz, leaving shareholders with long-term interests to fend for themselves.

He said Pegge and Lo, nominated as directors, have some things in common because they had in the past attempted similar moves with Amanah Millenia Fund and Amanah Harta Tanah PNB2.

Laxey in the letter to shareholders said share buybacks were a common method of enhancing NAV and that icapital.biz should buy into their own portfolio at a deep discount.
Laxey was not happy with some of icapital.biz’s directors who it claimed previously had links with Sime Darby Bhd.

It said icapital.biz’s current directors — Tunku Tan Sri Ahmad Tunku Yahya, Tunku Abdul Aziz Tunku Ibrahim and David Loo Kean Beng — had all worked with Sime Darby in the past and are currently serving on the board of icapital.biz.

Laxey added that newly nominated Yin currently works at the Sime Darby Medical Centre.

Separately, CDAM has obtained the Securities Commission Malaysia’s approval to submit an application for the formation of a dual-listed global closed-end fund, the first of its kind.
icapital.biz’s NAV now stands at RM2.95 per share, according to Tan. At yesterday’s closing, the stock was priced at RM2.56, a 13.22% discount to NAV.

This article first appeared in The Edge Financial Daily, on Nov 7, 2012.