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The arbitrage opportunity of ABRIC, much better than SPACs I think
With the coming three years due date of QA of the SPACs like Sona and Cliq, people are eyeing the arbitrage opportunity of the liquidation, hoping to make some gains on the difference between liquidation value and share price.
However, many big sharks and small fishes are eyeing this little piece of cake, I doubt there’d be any leftover left.
Here comes an arbitrage opportunity of Abric, which I think is much better than these SPAC counters.
To recap the story:
Back to December year 2014, Abric disposed core business (security seals) and paid 30cents cash dividend to shareholders.
Then Abric fall into PN16 which was required to find a new business within one year. Now the time has lapsed, Abric decided not to acquire a new business and declare liquidation of the company on February.
When the news is announced, Abric’s share price dropped from 50cents to 47cents instead of rise. This is how the arbitrage opportunity emerged.
Steps to liquidate the company:
1. EGM approval
2. Abric will declare 43cents cash of capital return to shareholders
3. Delisting,
4. Liquidize the remaining assets when becoming a private limited company.
In arbitration, time is the money. Maybe this is the reason why people are not interested, they want to get back the money quickly.
In my opinion, no matter listed or delisted, the shareholders are still protected by the law of Malaysia under Companies Act 1965.
Maybe it will be quicker to settle things with a private limited status, because no need to go through many procedures like a public listed company.
As at the end of FY2015 Dec, Abric’s nta stands at 63cents.
Assume a full conversion of the remaining 9.5mil warrants, a total 2.9m Ringgits of cash will be added into Abric’s balance sheet, and the total ordinary shares will be increased to 149m, around there.
So the fully diluted nta per share of Abric will be at 60cents, at the current share price of 47cents, you’re able to arbitrage the difference of 17cents, which is 28%.
The remaning 17cents per share of asset is made up of:
|
cents |
|
|
cash |
4.3 |
|
trade receivable |
4.7 |
|
property plant and equipment |
2.4 |
|
investment property |
5.6 |
|
total |
17 |
*According to FY2015Q4 quarter report, “The market value of the investment properties as at 31 December 2015 were RM11.7 million”,
First of all, we need to see whether the decision to liquidize the company is justified.
Below are my analysis:
When many companies jumped into property, Abric stay away.
When many companies jumped into oil & gas, Abric stay away.
When many companies went to Indonesia do plantation, Abric stay away.
When many companies went to Asean to do power generation, Abric stay away.
Abric is definitely not the company that you jumped I jump.
After that, we need to assess the integrity of the management, whether the management is willing to share the profit with minority shareholders, How fast the company able to liquidize the properties.
To recap the process of disposing core business:
On 2014 July, Abric received intention from third party to buyout the business, September signed S&P, December EGM approved, deal was done, get the money and pay back to the shareholders.
Everything is done within less than 6 months. We can see the management has had a plan before announce anything.
Since your cost is at 47cents, u would get back 43cents capital return first.
Assume 3m (2cents) will be spent on working capital during a one year liquidation process, therefore you’re literally using 4cents to make a return on 15cents liquidation.
Ownership
Ong’s family held 30% shares, Individual investor Pui Cheng Wui, held 20% shares.
I think Mr. Pui has been eyeing for the liquidation long time ago since he has been accumulating shares for two years.
Make your own decision
The present market is like a muddy water, you hardly can see a clear direction.
Warrant Buffett used to say: “Be greedy when people are fearful, and be fearful when people are greedy.”
As what can I see now, the market is always greedy and fearful co-exist.
It is difficult to find any investment idea that is solid.
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Discussions
3 people like this. Showing 24 of 24 comments
And the AGM is mainly to pay directors a 'fat' fees which I going to vote against!
2016-03-24 09:03
it is an interesting stock (diluted NA vs market price) but not without risk.
1) the timeline in the announcement is grossly inaccurate. I am almost quite certain it won't be completed by 2Q 2016. My estimate would be circular out by end Apr, EGM end May, high court approval by july, set entitlement/payment date probably aug/sept, then you can get back the 43c
2)after that delisting. the danger of holding unlisted shares, they could change their mind of winding up then you could be stuck forever. even if they do carry out, it hinges on whether can they realise the arbitrage 17-18c per share in full probably in 2017. Notice their latest results they revalued downwards their investment property. Maybe it's not as valuable as they think. The longer it drags, the more dangerous. By then, cash has been distributed and there is no interest income. Expenses will still be incurred, directors and management probably still getting their fees.
Below 50c maybe worth a look but I would cash out if the return is reasonable, in any case before entitlement date. The danger of being stuck is all too real
2016-03-29 15:40
haha, dun we forget we are the majority shareholders, we all want to get the money as quickly as posible.
2016-03-30 18:06
n while waiting for the potentially long full distribution/winding process the directors need to suspend their fees and cut down unnecessary expenses as they are practically doing nothing !!!
2016-03-31 09:47
if they wn to do so, they can simply find a biz, get out of pn16, continue to leech money out of the company without paying special dividend.
Kris, u must think from ur opponents' perpectives, not juz ur own perpsectives.
2016-04-02 08:55
u can take facb as a bad bad example, now it cash still 30% higher than sp, bcoz they keep the cash tightly in the bank
知己知彼，百战不殆
2016-04-03 10:22
Although Abric offer a bigger payout, its risk is higher than Spac.
Spac has a fixed governance and expiry date and the monies can use for single specific purpose whereas company has more option, no expiry date and more flexibility for their management.
It is bcos of these reasons, companies with huge cash and minimal business....looking for acquisition like abric, puncak, hwang...trade at a big discount compare with spac.
2016-04-03 10:36
kakashit, do u think the fees to be paid to the directors as per the AGM is appropriate as per the little work done by them for the past 1 years or so ? Most important to me is the need to protect all minority shareholders interest, not only my interest! If the directors are really doing their work, the EGM required for the proposed distribution announced in January should be over by now!
2016-04-03 15:28
This is so called cigarrette butt investing championed by Warrant Buffett, whereby go smoke the last drag of the throw away cigar.
Kris, seems like u're expecting more than this, u're expecting durian runtuh.
My way is try to make a good balance btw risk n reward.
But seems like u wan all the reward n dun wn any risk, how could it be?
Even an IS fighter need to bommb themself first b4 getting 47 or 46 virgin wives.
2016-04-04 13:12
Kakashit, I am just a beginner, put your ilustration in plain langauge n try not to use too much technical n bombastic terms so that most can understand. BTW have u notice directors fees have gone up for FY2015 although Abric had incurred a loss for FY2015 (compared FY2014). Is it right for a company to reward its Directors even for non performance ?
2016-04-04 14:06
kakashit, or is it u want to let the directors enjoy 'durian runtuh' inflated directors fees and also getting 47 or 46 virgin wives first even without doing much work for the past 1 year or so !!!
2016-04-04 16:09
The Directors want to 'reward' themselves with a substantial fees rise during the coming AGM held tomorrow depite doing nothing much resulting in Abric incurring a loss in FY2015. R they 'Tak Malu' kah ? Hope the Minority Shareholders Watchdog Group to look into this matters.
2016-04-05 09:01
A Mat Salleh decided to change to Chinese, if u don't want to comment on the Directors Fees matter, just say so and don't talk 3 talk 4. I will report the directors fees matters to MSWG once the AGM is over.
2016-04-05 14:41
Kris, u focus on details, i look at the bigger picture, we re totally at diff levels
2016-04-05 17:19
kakashit, Ya, u should know wat level u r at when u even simply cannot say a single thing on the ridiculous increase in Directors fees for FY2015. U can continue to look at your 'bigger' picture protecting the Directors interest who r helping themselves with a 'bigger' fees but I prefer to look after the Minority shareholders interests
2016-04-06 02:33
thx for reminding, Kris Wong.
I hv attend the agm this morning, juz dun say i bojio, hehe
2016-04-06 14:06
haha, i know what u dy, u re a perfectionist, so u must be in search of the next public bank, and in fact u do hold some public bank shares
2016-04-07 00:01
u r right I only look at companies who look after shareholders and especially minority shareholders interest n definitely not only at their own directors interest. Few if any would object with their Directors fees at Public Bank AGM as it performed year in year out. Do u ask for a 70% fees/pay rise like Abric Directors did when u don't performed ? Tak tau malu kah !
2016-04-07 09:21
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Kris Wong
But the problem is when can the company provide a rough timetable guide to complete the whole process in order to pacify shareholders especially the minority ones !!!
2016-03-22 12:07