The bone of contention here is not the portfolio or how it has been managed, but more on the discount, and the fact that shareholders sells on discount prices, but managers get paid on full NAV value. But then, the problem arises when the discount is fixed and COL leaves and look for discounts elsewhere, then what is going to happen to their block of shares?
I see....no wonder the irresistible force met with big batu.....they will automatically feel defensive as they perceived as a threat as if they get questioned why they got paid full NAV while not fixing the discounts...
Fixing discounts is not easy....it's involved technical and emotional aspects. Sharebuy back is one way, as I put forth the other issue of COL ownership will be enlarged....but somewhere you made a comment that we may not need to do full blown buy back just some small % like 10% may be enough to fix the discounts. The other part of discounts is old friends fear and greed in play.
I understand better now, COL model is to find big discounts in closed end funds, fix the discounts and move on next projects. Unfortunately it was misunderstood . COL was projected as a villain or corporate raider. Or may be lack of scientific explanation - pure birth dates bo ngam😂😂
@Fairplay To give an example of why the value of payments of dividend is mainly informational rather than directly affecting the share price, an investor can devise a trading system to game the dividends by buying the shares just before the expected announcement of the dividend, wait for the share price to go up following the announcement and then sell it to capture the expected gains. Or hold it to capture the dividend and then sell it after the ex date. If only making money from the stock market can be that simple! This is why M&M's Theorem of Corporate Finance says if taxation and transaction costs are not involved, dividend policy should not affect the value of the firm. Value of the firm before dividend = value of the firm ex-dividend + dividend.
@i3lurker Haha, I am duty bound to defend my professor's theorem by including the lecturers' expenses as transaction costs, same as the costs involved if the investor sells a portion of his shares to get cash versus the cost of distributing the dividends to him if a dividend is declared instead of retained.
@FastMoney On the comment that a 10% share buyback will increase COL's share %, the net increase will be 10% of their existing 23%, or just 2.3%. Given the AUM size of COL, they can jolly well buy this same amount from the market if they wanted to and no one can stop them. But if the company announces that they will do a share buyback, there is bound to have a bit of psychological impact on the weak shareholders. The benefits of buying back shares at a deep discount are well known, so no need to repeat here again.
@i3lurker OK, let's examine the effect of dividend on iCap as a specific case. There will be a beneficial effect if the dividend is paid out of low interest earning surplus cash, because if the recipient then puts it into his own bank deposit account, the price discount on the dividend cash will no longer be there and there will no longer be management fees to be paid. But the same effect will be there if it is in the form of a capital repayment of surplus cash, so you don't need a specific dividend policy to achieve the same result.
In the case of WB's Berkshire, the no dividend policy has not been seriously questioned because historically, the company has outperformed the market, so shareholders have been better off letting WB invest for them than paid out as dividends. This is the usual argument given to support the dividend does not matter theorem.
@dumbMoney. Yes.. Re enlarged ownership only 2.3% with 10% buyback that's why I softened my view. It's doesn't affect me at all but for the benefits of other readers that may not understand this impact, the clarification will help them a lot.
@dumbMoney. Yesterday conversation on 20% foreign owneship limit is a non event to me... from law point of view. Next is 33% concert parties.. Care to elaborate? What is rule and it's implications?
The 33% parties in concert rule means that any single or number of shareholders acting in concert with more than 33% voting rights will be required to make a mandatory general offer for the rest of the shares at the highest price paid within the last 6 months.
@dumbMoney. The 33% parties in concert rule will be triggered if COL as a fund manager with multiple funds, hypothetically, exceeded the 33% ownership? Falls under a number of shareholders acting in concert? Kam siah😁😁
Yes, that's the rule, and can include other parties that are not funds under its management, but acting together for the same purpose. Sorry, because of the special 20% single shareholder limit in iCap, it will necessarily mean multiple shareholders, not single one. For other companies without the 20% limit, then the 33% MGO rule also applies to single party.
Thanks. Understood. Learn so much......I am pretty sure to many, are still weighing the probabilities, the chance of COL become a white knight is dead or alive. Some thought COL is checkmated with the 20% foreign ownership. Now it also becomes clearer to me why the fund manager is getting paranoid. They possibly think, in the unlikely event of MGO, the minority of shareholders will receive the short end of the stick. This can be also a political capital to talk about.
I will leave that to other to imagine......not sexy, if there is nothing left for imagination. TGIF🍻
There is no compulsion for shareholders to accept the MGO price, as it is only mandatory for the offeror, not the outside shareholders. It is only after reaching 90% ownership, then the offeror can compulsorily acquire the remaining shares to take the company private. However, the offeror is free to increase the offer price if he chooses to in order to induce more acceptance.
If COL intention is not to liquidate icap, why do they stop buying? The restriction is only on voting, not buying, COL can keep buying since the discount starts widening again.
If I’m COL, I want to proof a point. Since the fund manager said they have done the wonderful promotions with all kinds of roadshows, there should be shareowners stepping in now, with 30% discount to NAV.
Ever since they announced the innovative dividend policy and reminding COL not to buy, the share price keeps dropping, like a falling hot knife cutting through a butter. Oh perhaps, they will say correction is normal since it’s overbought…. well, we shall wait and see what will happen when it’s oversold(soon).
Or perhaps, easiest explanation later, damn COL is causing troubles again…. COL will be the sacrificial lamb lagi!
So now COL is being blamed for the price drop because they are not buying? Someone else just took credit for narrowing the discount by introducing the innovative dividend policy. Go figure! Maybe they got things reversed.
TTB acted like soorhaiis on its dividend proposal loh!
The question is.....share price under performance.....nothing to do with.....value generations mah! But shareholders get rewarded by under performance bcos of under performance loh!
Icap must commit genuinely & pay 6 sen div per yr lah!
Innovative Dividend Policy, The unit holders would have additional cash money to buy more units, And certainly would reduce the NAV / Price gap.
But by doing so, a certain amount of cash would flow out from the fund, The total NAV of the fund will reduce, and the annual fees would reduce too. I gave a thumb up to TTB, and I thought of buy some ICAP.
However, when I read that the DRIP would be applicable, and the discount could be as high as 10%, As there is an attractive discount, most people would go for DRIP, Only very little cash flow out from the fund. Then, this is not really a real Dividend, but more like a mini scale of Bonus Issue.
@i3gambler The big DRIP discount is to minimise the cash outflow, it is like paying you a cash dividend, but also offering a cheap rights issue to take back your money. Only those desperate for cash will not take advantage of the discount. The whole scheme is no different from giving out the equivalent in bonus shares, or share dividend (same things nowadays with no par requirement) those who want cash can sell the new shares, those who are reluctant to give up the share price discount can keep the new shares. To get a 4% yield, the price discount needs to be at 24% still.
After all the mumbo jumbo about how unique and innovative the dividend policy is, here is a simple analysis that every one can understand. Basically, the company is very stingy about paying a dividend, but due to 'popular' demand, reluctantly it has agreed to finally have a dividend policy, with just a basic 1% yield. The rest will be on demand, depending on how deep the discount is. Then in order to minimise the cash outflow, and the resultant reduction in fees (officially to keep enough reserves to take advantage of buying opportunities), they offer investors the opportunity to reinvest at a discount. So imagine that you only give a 'bonus' dividend when the discount is already so big, you give a further discount to the DRIP, how many would take the cash unless very desperate? This is what I already suggested earlier. If the company is so confident of generating an annual returns so attractive as claimed, just set a dividend that is similar to what the REITs are required, (at least 90% of annual income), its structure being similar, except the former is investment in real estate and the company is in the stock market. A 6 to 8% range would be very competitive in the market. Declare it all in share dividends, or as in mutual funds, bonus units, so there is no actual outflow of cash and the management fees are not affected. No need to have the extra step of doing a DRIP. Shareholders needing cash can sell the extra units in the market, otherwise they are automatically reinvested back into the company. Every one is happy, management fee not affected, shareholders get a dividend that is comparable to other high dividend stocks, less paperwork, every thing is online, no cheques to bank in, shares are directly credited into the account automatically, no need to do the DRIP option paperwork, and as i3lurker pointed out, no need to pay the foreign lecturers to explain what I have just explained in a few paragraphs here.
They are trying to borrow some credibility by using UTS of which top 90 in QS World University Rankings 2024, is it necessarily? Thank God it's only university not Morgan Stanley or Goldman Sachs..🤡
@FastMoney Look up University of Chicago Booth Business School's rankings and number of Nobel laureates and see the difference. My year mate there was ex Goldman's chairman.
Because there is no actual cash outflow paying share dividends, a company can afford to keep paying that even in not so good times, because just like in a bonus issue, it is dividing the cake into smaller pieces. Nothing changed, as in the M&M theorem, just the optics. So all this dividend policy is just smoke and mirror, haha. It is how the company is performing that actually determines the enterprise value, not how you structure it with equity, borrowings, bonus issues and dividends. This is how fundamental corporate finance works. The rest are just refinements and window dressing and hype.
I have my own theory of premium/discount from psychology point of view, EXPECTATIONS, the expectations of growth prospect of a company and cost of capital.....but let's put aside the cost of capital as aside today....such as CAPM, risk free, etc. ...In English, an investor is willing pay for high Price Earning Multiple for example is due the company has demonstrated high growth in the past and investor will project high growth in the future indefinitely...when the growth is fall short, darlings turn into fallen angels, we will see PE multiples will collapse rapidly. Say 50 times PE ratio will collapse quickly to mid or even single digit.
Let me share my own experience on my personal investment in iCAP.....way back to 19 years ago....Oops probably you will know I am not young anymore....
Prior to iCap launched, the fund manager is managing fund for private investor and it's not available to small retail investors. I will probably take many back right to Asian Financial Crisis.....
At that time, I saw the fund manager is someone can walked on water.....when comes to investment.....I can't exactly but his investment return of CDAM fund performance was really fantastics... Year ** YoY returns 1998 + 20% 1999 57% 2000 1% 2001 8.7% 2002 12.7% 2003 39.7% 2004 16.2%
I was willing to pay for premiums...you know, at time, many of self taught investors like me baptized with Buffett investment philosophy....it's okay to pay for a premium for a good company or fund manager
Then shits hit the fan.....we had financial Pearl Habour...I didn't bailed out...but stopped buying till mid 2008....and double down and keep buying till 2010
I finally sold my investments in year 2011...during PIIGS time frame....also that was the time the rate of NAV growth has slowed down and I started to feel it's time to move on to other investments
I emerged buy some small quantities when I see the discounts is getting ridiculous at 40% but dare not swing as big as in the past as my confidence is not that great....it's okay to play small small la
This is my personal experience about how my expectations translate into what I am willing to pay when there are discounts or premiums....I have been there for both periods.😂😂
@dumbMoney - I was not trying to mock Morgan Stanley or Goldman Sachs....but the point was they are expensive....why go through all the troubles to do MRI scanning, full blood test, ECG test running around the town trying to get the best doctor, when the symptom is only a small flu....take 2 Panadols and have a good sleep.
The fund manager is probably feel if it is coming from his mouth, it's not partial or not-independent.....trying to get an expert to say it. The crux of the issue I feel is his credibility is chipping away....and he should return to his root as a stock picker. He has been setting up too many funds for his business expansion. And not to mention wasted all the time chasing a ghost that doesn't exist, discussing lawsuits.
The fund manager is wearing two hats, that of the fund manager for the company, as well as owner of the fund manager, so which side should he choose, one side pays out the fees, the other side receives it. So he needs these impartial international experts, but then, he is the one who chooses the experts, the same with the independent board of directors. In statistics, we call this selection bias.
Yup - probably the findings that these experts have considered should be communicated to shareholders. 101 Stakeholders engagement. If they have presented the alternatives considered such as cash dividend, share dividend, share buy back, etc... Better informed shareholders will have better buy in and hold on to their investment not quit silently.... Beside selection bias, confirmation bias also should be eliminated.
I want to share a very micro case study on YTL Corp. The company is quite flexible when comes to cash dividend and share dividend. When the company is seeing its share price is under pressure, they will do share buy back...The advantages,
1. Provide liquidity on days there are big sell orders....without them absorbing the sell orders, price can drop a lot faster. I have mentioned before EPF was selling like nobody business from year 2020 till April 2023, they sold something like 100 million shares, if without the company share buy back, the company share price will be way below 0.50.
2. They buy back when the price is low when sentiment was low. I give you this example during period of covid 19 from year 2020 to year 2022 and they stopped buy back after that. They think the sentiment has improved and do not need to do intervention because it can stand on its own and let the market forces govern the demand and supply. During this period they accumulated 74 million shares. average buy back price is about RM 0.82. They put this back into treasury shares and distribute back to shareholders sometime in the future.
3. Like cash dividend, if they distribute as share dividend, share price also will be adjusted downward of equivalent amount. But if the company is buying at rock bottom price and distribute it, when sentiment is turning the corner, the rate of return is fantastic. Point #4 to follow.
4. For argument sake, when they distributed this share at 0.82/share in early 2023 and you can sell it in the market for RM 1.41 as of last Friday, this is a tidy profit of 72%.....the return will be far higher than ROE.
Conclusion: if managed it right, this is one of ways to enhanced shareholders' value.
You may see some of the data that I extracted from Bursa Malaysia website. Some day share buy back can be as low as 1,000 shares when trading volume is very thin but there are small guys want to sell and exaggerated price drop downwards.
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....
FastMoney666
583 posts
Posted by FastMoney666 > 2023-10-05 15:40 | Report Abuse
I have opened up my kimono now...usually left with not much imagination is not so sexy anymore