Which institutional investor would buy shares with the intention of driving the price down and hurt itself? It is others selling the shares at any price that cause the discount. The deeper the discount, the more it will buy, to average down the cost. As a public company, there is no requirement to declare one's intention when buying, or selling. Foreign or otherwise.

@FastMoney When an investor who has been steadily buying the shares for more than 10 years without selling has been accused of wrecking the company and causing the price discount and taken to court, someone has to speak up for them. Not only that, now that share prices have moved up partly through its buying, others are taking the credit for it.

To show that I write without fear or favor, this is a letter to the Edge written back in 1998 against UE-Renong's poor corporate governance, and we all know how powerful they were then: April 27, 1998
LETTERS TO THE EDITOR
The Edge, PO Box 8348, Pejabat Pos Kelana Jaya, 46788 Petaling Jaya or e-mail: tecom@pc.jaring.my.
Pseudonyms are allowed but please state your full name, address and contact number (tel/fax) for us to verify

It’s definitely not the spirit*
When you thought it's safe to get back into the water (the stock market) after Jaws 1 (the United Engineers Bhd
(UE)/Renong controversy), Jaws 11 is now appearing at a theatre near you.
Cement Industries Malaysia Bhd (Cima) has made an unsecured advance of RM292 million to its
parent UE, equivalent to about 45.6 per cent of the former's shareholders funds (The Edge, April 13,
1998).
Under the KLSE listing rules, any "transaction” exceeding 25 per cent of either a company's
shareholders’ funds, assets, or profit contribution, requires shareholders’ approval, and this would be the
case if the money is to be invested in , for example, Renong shares directly. However, if the funds were
to be up-channelled to UE, which in turn made the Renong investment, all that is required is a footnote
in the annual report, no shareholders meeting, no independent adviser to minority shareholders, no FIC
approval, nothing!
This may have complied with the letters of the KLSE listing rules, but definitely not the spirit. To
control the diversion of a listed company's assets from its principal businesses, and lending money to the
parent company generally is not one of them. If this is loophole in the KLSE rules, amend it by all
means before more "trucks" drive through it.
At least, if Cima made the investments directly, it can retain ownership of the assets, but in this case,
the loan to UE is unsecured and payable as and when able (no fixed repayment terms). Should some
unfortunate event happen to UE, minority shareholders will be left holding an "empty bag”.
Another way to look at the exercise is in terms of the net equity" UE has in Cima. The latest accounts
gave UE's shareholding in Cima as 53.9 per cent. After taking back 45.6 per cent of its investment in
the form of the loan, UE's net equity in the company is only 8.3 per cent.
Thus, UE is now effectively controlling Cima with only a minor equity, and there is little the majority
shareholders (technically the minority shareholders on the register) can say or do about it, other than
voting with their feet. This is a disguised preferential return of capital to the controlling shareholder,
albeit temporarily in the form of a loan. Because Cima has to borrow the bulk of the funds itself and
there is no indication of a spread in the interest charged to UE, what is Cima’s minority shareholders
getting out of this whole exercise?
The upside the interest spread if any. The downside: I shudder to think!
Non-swimmer
Kuala Lumpur
* Letter of the Month award winne

TTB wants to give the impression that he is under existential siege from all sides when the voting results show otherwise. In fact, he is the one on the offensive, taking COL to court in a failed attempt to stop its buying, and hoisting an unannounced foreign shareholding limit on surprised foreign shareholders, forcing them to take out an injunction for protection. Not to mention having closed door road shows to attack his imaginary enemies. Did COL say any thing here or in public?

@Patient Investor What do you mean by "pressured and attacked by you guys"? As far as I am concerned, I am not a party acting in concert with COL. Don't know them personally, not in contact with them. Also, COL has claimed to be a passive investor while I am an active one. As I have mentioned before, all COL did was to vote against certain resolutions, and that is attack? If what I wrote are rubbish, how can these pressure TTB? Just ignore them, don't need to single me out at AGM's. My votes are so insignificant, and did I ever suggest the fund manager to be replaced or the fund liquidated? On the contrary, I have been explaining how difficult these can be, so don't dream about them. As they say, quantity may not be equal to quality, so no need to keep a tally of my posts, unless I can be a KOL on this blog and fan a mob of attackers. My posts on the "cash is a free call option" and the "novel dividend policy" are not personal attacks, just to explain why they are different from what I have been taught by my business school professors. But the School had been attacked as having taught me rubbish, what a waste doing my MBA there. To make such a comment on a business school that has pioneered modern portfolio theory, efficient market hypothesis, options pricing theory and corporate finance theory, all Nobel Prize winning contributions to fiance, reflects on either a person's arrogance or envy.

@Sslee Under the prospectus of the company, and the constitution, there is no restriction against the purchase of PN17 shares. There is only a special resolution against investing in foreign markets. However, I am not sure what is the accounting standard now for suspended shares, how to mark to market. For broking firms, suspended shares under margin will be valued as zero, more because there is no ready market rather than actual value of the shares. Other funds may have specific restrictions on what they can hold, e.g. bond funds may have minimum credit ratings requirements, some funds in the past can only invest in 'trustee' stocks, i.e. those that pay a certain dividend.

@Sslee I have described the iCap's deep discount as shark bait, getting COL hooked, thinking the discount should normalise sooner or later like most other CEF's. But instead, the discount has now turned into a semi-permanent feature and COL has neither a minimal haircut exit plan, nor a clear way forward. I am not their supporter, but a sympathizer, because in spite of their best efforts, fund managers can be caught due to circumstances beyond their control. They have to face their impatient investors after every performance report, but have no answers.

iCap has claimed that COL is the de facto owner of the shares registered in the various funds name. There is a similar counterpart for board of directors of companies. There are official directors who act for 'shadow directors' whose name do not appear, but effectively control the company. When things go wrong, the BOD will be on the firing line, but not the latter. This is what is going to happen to some of the companies being investigated now for all kinds of wrongdoings.

@4dview Thanks for the moral support, at least there is some one who says I am not posting rubbish here. I have been around on both the buy and sell side of the securities business, running a broking firm and managing portfolios, so should know a thing or two about the stock market and closed end funds. If you have the time and wants to know more about iCap, I suggest you do some due diligence on the recent foreign shareholders limit claimed by the company. You may be surprised.

Whatever happens to COL or what COL's next move will be should be of concern to shareholders. If it should decide there is no point remaining persona non grata and pull the plug, what will happen to the share price? If their investment funds are well diversified and have gains else where, they can afford to take the loss on their portfolio if need be. Can the retail investors do the same? Don't expect any other foreign funds will want to come in to fill the gap, after seeing the way foreigners have been treated all this while.

As the investors with the largest shareholdings in the company, what ever the intention is, it is definitely not to destroy shareholders value, which is against its own interest. And it is still buying after more than 10 years, without selling. Just like Dr. M, its loyalty is being questioned. The Company and the management are two different entities. A citizen may vote against the ruling government, but he or she need not be disloyal to the country.

The failed injunction on COL cost the company an undisclosed legal costs, which every shareholder should care. Someone mentioned the figure was $800K, and it was money down the drain. Same with the failed dual listing expenses, Any other shareholder asked any questions on that? That's 6.7 million, in case people forgot the figure.

What hostile acts did COL commit against the company so far? Even though it has more than the required 10% shares, did it propose any EGM or resolutions ever? Did it take the company to court? If merely voting against the resolutions at AGM is considered hostile, then better not run a public company. I have not yet come across any other public listed company that asked its shareholders to justify their voting choices. COL's presence has been blamed as the cause of the discount, and yet evidence has shown that their buying after the lifting of the injunction is the main cause of the price increase. I have explained here more than once that the fund manager's position is iron clad, as its removal requires a special resolution, so stop the fear mongering that the company is in danger of being taken over. Recent AGM and EGM voting results are proof.

@Patient Investor But this is exactly what the company is trying to prevent from happening, with the foreign shareholding limit! You have to decide whether COL is a benefactor or a wrecker?

Yes, the outcome of the court case will be very interesting, whether there is such a limit?

Whoever John Dough is, he better not be connected to iCap or he will be in contempt of the court injunction for posting this.

" Your Fund has a Prescribed Limit in its Constitution imposed by the Securities Commission Guidelines for Public Offerings of Securities of Closed-end Funds [Paragraph 3.7.1(iii)] and the Bursa Main Market Listing Requirements [Paragraph 7.40]." Which Clause in the constitution says so on the foreign shareholders 20% limit?

Like they say, just follow the evidence. It is not like the FM just utter some magic words and prices moved up by themselves. It is just basic supply and demand, more buyers, prices move up, with more than a little help from COL. Please give credit where credit is due and not try to claim it all by yourself.

@zhangwin Why would COL want to bail out shareholders here who have been consistently supporting the management which accused the former for causing the discount? Like they say, voters deserve the government they voted for. Besides, why not wait for the dividend plan to work its wonder as promised?

The current injunction will not stop the foreigners from buying, it only stops the company from imposing the foreign limit on the voting rights of the foreign shares, so the present status quo stands.

@speakup It is going to be a very simple case, whether such a foreign limit exists or not, just like in the earlier case, whether COL is a 'shareholder' as defined under the company's constitution. I have already posted the link to the constitution here earlier, go through it and see if there is such a restriction and make your own guess on the outcome. What do you think the consequences will be if there is no such a limit in the first place, the flip side of the positive case? https://www.bursamalaysia.com/sites/5d809dcf39fba22790cad230/assets/63f73eda39fba27cf3b70602/4._Inaccurate_Disclosures_or_Announcements__amnd-Kheesan___Clean___1_.pdf

iCap shareowners are very smart value investors, never over pay, so how to trade at a premium?

Years ago, i made a site visit of XDL and Maxwell's operations in China sponsored by the companies and the investment bank. The operations are there alright, factories, dormitories, showrooms etc, but as things turned out, the books are another story. Not just the Malaysian red chips, but the Singapore and US ones are majority in the same category of fraudulent. Lessons learned. But one of the US listed company that I followed, analysed and wrote about, lost more than 99% of its IPO price and still trades on Nasdaq, after going through a few rounds of share consolidation to stay above the minimum $1 price quote. Like they say, a new sucker is born every minute.

This is how the game was played in the good old days. A corporate owner will run up his share price in the market, then cash in his profits by swapping it with a friendly unit trust manager for units to be held by the public company he controls. So all the profits he pockets, while the future liabilities are shared with the public investors. What is in it for the unit trust manager? First, there is the sales commission from the sale of the new units, then there is rebate from the broking fees for marrying the trades, and lastly, the management fee from the enlarged AUM. What about the losses? Blame it on market conditions loh. There are always new investors roped in by the sales agents from their immediate families and friends to keep the ball rolling.

@speakup, if only life can be so simple! In theory, any listed company can do the same kind of asset swap against new shares between 2 non-related parties, so the assets can be realised at book value and the shares transacted also at book value instead of both at deep discounts. But there is no guarantee that the new shares will not revert back to the old deep discount and the vendor will have to mark them to market, and back to square one. For the buyer, if the assets are not marketable securities, there is some room to wriggle on the valuations, so no adjustment to goodwill is needed until the next revaluation exercise.

An interesting corporate exercise was announced recently between Sungei Bagan (SB) and Kuchai Development (KD) involving an asset swap with shares of the former for assets of the latter. The two companies have the same major shareholders and are trading at deep discount to NAV. SB was trading at $3.25 before the announcement, against NAV of $9.82, or 0.33 price/book while KD was at $1.50 against $2.85 NAV, or 0.44 price/book. The deal is for SB to buy over KD’s assets at the full book value with new SB shares valued also at full book value. The market reacted to the news by chasing the shares limit up today.
As both companies are controlled by the same common shareholders, this is more like an exercise of from left pocket to right pocket, and along the way, transacted their depressed assets and shares at full book value on paper. There will be no changes to the assets other than the swap, so they will continue to produce the same earnings as before, except that instead of having two listed companies, there will then be only a single larger one holding the combined assets of both companies.
If such a move can succeed in reducing the price discount of the shares, it will be so much more effective than some fancy dividend with DRIP plan. In the old days, this is what corporate owners do all the time to pump up their share prices, A buys B shares and B buys A shares in a cross holding, before it is legal for companies to buy back their own shares.
The question is, can shareholders value be created by such an asset shuffling exercise?

TTB has a solid lock on at least 25% of the votes at the moment, so can veto the special resolution any time.

@zhangwin Special resolutions are those that require 75% majority, otherwise they would be just ordinary resolution. If the winding up resolution fails, iCap will become a zombie, neither dead nor alive. It cannot continue, but cannot be liquidated, so how? Shareholders may want to hang on instead of realising the full value of the shares in a liquidation, such is their loyalty, haha.

The original M&A of iCap was drafted by Michael Wong, managing partner of Shook Lin & Bok law firm, so it covered most of the bases in favor of the client. Without going to the prospectus, which disclosed more things than is otherwise required, there is no other way to find out the conditions for the termination of the designated person and fund manager.

@stockraider Please read the company's constitution. The scheduled shareholders' vote is only on the continuation of the fund, not liquidation. So there is this missing gap between discontinuation, which is ordinary resolution and liquidation, which requires special resolution (Section 176 of the constitution). Ditto for the removal of the fund manager (Section 5(iv) of the prospectus. https://1drv.ms/b/s!AgLvGZpm89Ysu2bGJmMTjSjCKcb5?e=ZxWCv3 iCap constitution
https://1drv.ms/b/s!AgLvGZpm89Ysu2W7QYLeDR90UQVT?e=50UL1d iCap prospectus

@stockraider You can dream on about the liquidation, which requires 75% shareholders approval. All that is needed is a 25% vote to block any such proposals. With the DRIP, there will be a slow drift in the shareholders' demographics. It will be like the country, those who don't like the system will migrate, those who stay behind and have children will increase in the racial composition. So same with iCap. Those who take cash dividend will be diluted by those who take the DRIP, and we all know who the latter will vote for. This is part of the takeover proof defense build up, along with the now injuncted foreign shareholders limit.

Just to illustrate, on 20/12/23, COL bought 55,700 iCap shares from the market for a cost of $154,289, but the market cap of the company improved by 8 sen as a result, or 11.2 million for all shareholders. On the other hand, iCap blew a few times that amount in legal costs against COL, with no value add.

What better marketing slogan than "Better than best"? This says it all for iCap/CDAM, in your face, for all those attending the AGM/Investors Day. A bit ironic that the CEF with a first in the world innovative dividend policy is also the one with one of the deepest price discount. The cost effectiveness of these marketing efforts need to be examined. Saving cost by not printing the annual reports in full color is negated by the 6-figure expenses for the lavish AGM/Investor Day, both for the company and also for the shareholders in transport costs. On a per market cap basis, the AGM and road show costs must be among the highest for all Bursa listed firms, at least for all the AGM's I have attended so far.

Great 3-month internship directly under TTB is better than a MBA, as claimed by the former. Think of all the unique and innovative ideas they can learn from the master himself, adjunct professor of finance for UTS, and the savings in tuition fees!

@Sslee This is like having a fan club for a pop icon!

If the above is true, it begs the question why the shares are still trading at a substantial discount, instead of at a premium like WB's Berkshire? Hype versus reality!

OK, just read the detailed information sheet on the DRIP. It appears to indicate no discount if price is below NAV. So the difference between using the dividend cash to buy in the market or taking the DRIP option is only the transaction cost. The level of acceptance will be reflective of the loyalty of shareholders. All things taken into consideration, the net effect is the cash dividend in the hands of shareholders, which is now free from the previous price discount on NAV, the bird in hand principle, so there should be a slight increase in the ex price of the share. Take an hypothetical example of a share with $4 NAV trading at a 25% discount at $3, pays a dividend of $1. The remaining $3 in NAV at the same 25% discount is now valued at 2.25, which when added to the $1 dividend received, gives a total of $3.25 instead of the previous $3.

For rights issue at a discount, the SOP for those not willing to increase their holdings but want to capture the discount is to arbitrage by selling the equivalent mother shares at market and pick up the rights at discount. This is where extra selling may be induced by the discount.

A DRIP can be broken down into its two components, a dividend payment, and an optional rights issue to subscribe for more shares. There is no shareholders' decision to be made on the former, just accept whatever management decides to dish out. But for the rights, the choice is to accept or decline. Even though iCap may have special shareholders issues internally, the conventional market wisdom on rights issues should also apply to it. Without a discount, the level of acceptance will definitely be lower than that of one with discount. So it is then up to management to decide whether they want to maximise the acceptance or just leave it entirely to the shareholders, when deciding on whether to give a discount or not.

Your quote :"DRIP shall be applied a discount ONLY when the market price of ICAP is above its NAV.”, the word ONLY is your addition, without it, it can also be interpreted that this is the ONLY exception to the earlier statement that management can fix the issue price without any qualifications. Why allow such ambiguities in such an important resolution?

@4dview If there is no discount, then my argument that who will want to take up the shares when they can buy the same in the market? Or just wait and see? Can the fund manager take the risk that the dividends paid out will not come back into the kitty? Or if it is going to be advantageous to COL more so than the other shareholders, why have it in the first place with all the song and dance? Anyway, why have a resolution that is subject to various interpretations and possible litigation later?

The trouble with discounted DRIP plan is that two can play at the same game of having the cake and eat it too, by arbitraging the discount as mentioned earlier, to get the cash dividend and the discount at the same time, but with the unintended result of selling of shares in the market when there would be none before.

Actually, the hidden agenda of the DRIP is to dilute the holdings of the non-diehard shareholders who will just take the cash, while the die-hard shareholders will increase their holdings through the plan. So the greater the discount offered on DRIP shares, the less attractive will the cash option be, leading to a gradual change in the demographics of the shareholders. In other words, the DRIP plan is the golden handcuffs to retain the loyalty of the shareholders, making it expensive not to reinvest the dividend declared. So what you see is not what you get, you see the dividend cash, but cannot get to spend it if can buy more shares at a discount on top of the already discounted share price. Same as the much touted NAV, you can see it, but cannot get it unless and until the company is liquidated. This is just an analogy, not a suggestion for the company to be liquidated, lest I get accused of such a capital crime against the company. Of course, there is always the possibility that the share price may trade at a premium again, then you do not need to give discount any more.

The whole idea of the DRIP is for shareholders to have the cake and eat it at the same time, getting a dividend, but also reinvesting in the company, so no loss of fee income for CDAM too. That's the beauty of the plan in the first place, supposedly win win for shareholders and the fund manager, which a dividend without DRIP cannot satisfy.

@4dview My reading of the announcement is that management can fix the issue price of the DRIP at its discretion, with the exception if market price is above NAV, where the maximum 10% discount rule will apply. If there is no discount, no difference from buying from the market, where is the incentive to reinvest the dividend, which is the whole idea of the DRIP in the first place? The savings in transaction cost is not going to cut it as an inducement.

TTB is iCap. He owns the IP to the company's name.

sports Toto is a cash cow business, there is little or no capex required, as the number forecast business in the country is already saturated, with outlets in every nooks and corners, so the bulk of the earnings will go towards dividend. Valuing it on earnings or yield basis will be equivalent.

@FastMoney, you have not learned from the M&M Theorem, which says the value of the firm is determined by the earnings potential of the firm, not by the dividend yield. So to go back to $2 price level again, bring up the earnings back to the previous level. The dividend will then follow as before.

I have amended the returns for EPF in my earlier Excel chart, to adjust for the starting and ending period not being full calendar years. The difference is immaterial, EPF is still higher than iCap share price.

Whatever he read, he made the statement that if the cash portion of the portfolio is excluded, the performance would have been better. This is an example of having your cake and eat it, the same with the dividend policy, having a dividend and discount is better than having a discount but no dividend.