MSWG Weekly Newsletter 13 July 2018 (English)

Friday, 13 July, 2018




The Company had on 3 July 2018 announced that the Securities Commission Malaysia (“SC”) had vide their letter dated 27 June 2018 (“SC letter”) reprimanded MSPORTS as a result of its finding that MSPORTS has breached Section 354(1)(a) of the Capital Markets and Services Act 2007 (“CMSA”) read together with Section 369(b)(B) of the CMSA for knowingly causing the furnishing of MSPORTS's Financial Statements that is false or misleading to Bursa Malaysia Securities Berhad ("Bursa Securities"), as follows:-

  • MSPORTS had failed to disclose the outstanding liabilities under the 8 Loans owed by Baixing in MSPORTS's Financial Statements. In the said Financial Statements, it was disclosed under "Interest-bearing bank borrowings" that MSPORTS's liabilities were RMB11.5 million only instead of the liabilities highlighted in the SC's Notice to Show Cause dated 13 February 2018.
  • The non-disclosure of the outstanding liabilities as stated above had caused MSPORTS's Financial Statements, which were lodged with Bursa Securities, to contain false or misleading information relating to the affairs of MSPORTS.

As such, pursuant to Section 354(3)(c) of the CMSA, SC reprimands MSPORTS taking into account the fact that new Directors have been appointed on the Board and efforts are being made to regularise its operations and financial condition.

[Source: MSPORTS’s announcement on Bursa Malaysia’s website on 3 July 2018]


Financial statements are not only a basic and important tool used by the investors in making their investment decisions, it is also a document that serves as a source of important information for other stakeholders of the Company which include creditors, bankers, etc. Given this fact, the integrity of the financial statements must not in any way be compromised.

The announcement alludes to the fact that new Directors have been appointed on the Board and efforts are being made to regularise its operations and financial condition.

We are also of the view that besides reprimanding the Company for the misleading Financial Statements furnished, Bursa Securities should also hold accountable those Directors on the Board when the financial statements were prepared and furnished. Sanctions should also be imposed on those directors regardless of the fact that they have resigned as a Board member (perhaps pursuant to section 369(b)(B) of the CMSA or some other appropriate sections).

Also, under Section 592(1)(c) of the Companies Act 2016, an officer of a corporate who, with intent to deceive, makes or furnishes or knowingly and wilfully authorizes or permits the making or furnishing, of, any false or misleading statement or report to a stock exchange relating to the affairs of the corporation commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding ten years or fine not exceeding three million or to both.

Under this Section, Suruhanjaya Syarikat Malaysia (SSM) can also take the necessary actions against the Directors who were involved in the wrongdoing.


TGCB had on 7 July 2018 announced that the company and its wholly-owned subsidiary, Top Care Sdn Bhd have taken legal proceedings against Adventa Capital Pte Ltd vide the Kuala Lumpur High Court and the High Court of the Republic of Singapore, as well as Low Chin Guan, Wong Chin Toh and ACPL Sdn Bhd vide the writ action on 29 June 2018 and 2 July 2018.

As clarified by the Company in its announcement on 9 July 2018, TGCB discovered irregularities in certain  balance sheet items of Aspion, in particular, inventories, and plant and machinery. Upon such discovery, Top Glove conducted its own investigations and appointed an independent accounting firm to investigate the irregularities in Aspion’s accounts as well as the possible overstatement of the acquisition price for Aspion.

From the interim report given by the independent accounting firm, there is currently an overstatement of inventory, plant and machinery in Aspion’s accounts amounting to RM74.4 million (“Overstatement of Assets”). Further, the interim report also states that the acquisition price of Aspion was overstated by RM640.5 million (“Overvaluation”). Therefore, the claim amount of RM714.9 million in the legal proceedings consists of the Overstatement of Assets and the Overvaluation.

In the reply to the queries from Bursa Malaysia Securities Berhad’s letter dated 9 July 2018, it was stated that the management is in the process of re-assessing the profits and cash flows projection of Aspion in view of the latest development. The Company endeavours to incorporate the financial impact, if any, in the coming 4th quarter financial results ending 31 August 2018.

The Company has on 11 July 2018 announced that the ex-parte Mareva Order granted by the High Court on 2.7.2018 against Wong Chin Toh, Low Chin Guan and ACPL in the Writ Action as well as the ex-parte Mareva Order granted by the High Court on 2.7.2018 against Adventa Capital have been set aside by the High Court today. The inter partes hearing for both applications are now fixed on 19.7.2018.

[Source: TGCB’s announcement on Bursa Malaysia’s website on 7 July 2018, 9 July 2018, 10 July 2018 and 11 July 2018]


This is a serious perplexing case of “misadventure” in an acquisition – and a large one too. Many questions have arisen but will there be sensible and acceptable answers?

To begin with, was there a full and thorough due diligence conducted which could have detected all these irregularities? Based on press reports, the due diligence was conducted in a Virtual Data Room (VDR) manner without a full/physical due diligence at Aspion’s plants/operations.  This approach may have been chosen to protect Aspion’s proprietary technology as TGCB was a competitor to Aspion. Isn’t the approach too big a risk in relation to such a massive acquisition?

In the SPA, apart from the profit guarantee, there were seller’s warranties for claims up to RM50 million, in the event of discrepancies found after the completion of the transaction. This is insufficient to cover the overstatement of assets by RM74.4 million.

Of course, a very puzzling discovery is the issue of overvaluation to the tune of RM640.5 million. Many would find it difficult to comprehend how this overvaluation could have come about. What exactly was the profit guarantee based on? Had the profit guarantee been realistic and achievable, would there still be an overvaluation?

With TGCB having suspended Mr Low (Managing Director of Aspion) and taken full control of Aspion’s management, would the profit guarantee be still valid and would there be a risk of net profit shortfall?

Obviously, the share price of TGCB plummeted and investors who invested in TGCB based on its reportedly strong fundamentals suffered. TGCB may have to impair its accounts as early as its Q4 results ending 31 August 2018. The whole episode threatens to be a long-drawn legal dispute which will not only increase TGCB’s costs but also distract it from its daily operations.

There are many lessons to be learnt from this episode, ranging from sufficient due diligence to structuring a proper deal with more robust risk mitigation features.


For this week, the following are the AGMs/EGMs of companies which are in the Minority Shareholders Watch Group’s (MSWG) watch list.

The summary of points of interest is highlighted here, while the details of the questions to the companies can be obtained via MSWG’s website at


Date & Time



18.07.18 (Wed)
10.00 am

Sapura Energy Bhd

Kuala Lumpur Convention Centre, Kuala Lumpur City Centre


Some of the points of interest to be raised:


Points/Issues to Be Raised

Sapura Energy Bhd

  1. Please explain the basis and rationale for the bonus payment to the President and Group CEO especially since the Group has incurred losses before tax of RM2.32 billion for FY2018. Furthermore, the Board has not recommended any dividend payment for FY2018. As such, there is no alignment of interest between shareholders and management.


  1. The Intellectual property rights, trademarks and branding fee paid/payable to Sapura Holdings Sdn. Bhd. and Kencana Capital Sdn. Bhd. amounted to RM43.4 million (FY2017:RM43.4 million) and RM12.5 million (FY2017:RM26.6 million), respectively, as disclosed in Note 37(a) on page 197 of the Annual Report.


Please provide the justification for the above payments.



May exports up 3.4% y-o-y

Confidence in the Malaysian economy rose in Q2 2018

Proton sales surge by 50pc in June

Misif: Steel industry faces RM100m extra cost

BSL Corp files judicial review against MoF, Customs

SC Invites Applications for Registration as Equity Crowdfunding and Peer-to-Peer Financing Operators

BNM international reserves decline 3% to US$104.7b as at June 29

F&B SPAC Red Sena drops qualifying acquisition plan

KUB Malaysia disposes of A&W for RM34m

Versatile Creative: Unauthorised payments probe won't impact our ops

CCCC confirms ECRL suspension order by MRL

Mavcom chairman to step down

Are CEOs overpaid?

Remuneration based on performance

Austerity drives can unleash confidence

Stockbroker’s MGO for TA Enterprise could trigger takeover of TA Global

Khazanah to seek clarification from Putrajaya on investment mandate

Media stocks to see low adex, rising costs and competition in 2H2018, says HLIB Research

Retail and franchise exhibition targets sales of RM70m



US imposes tariffs on US$34bil of Chinese imports

US adds 213,000 jobs in June, unemployment rate jumps to 4pc

US trade deficit narrows to smallest since 2016 on soybean exports

China June FX reserves unexpectedly rise to US$3.112t

Debt curbs likely hit China's 2Q GDP growth as trade war looms

Japan government to forecast bullish CPI, GDP growth in FY2019

Indonesia to review capital imports

Passenger demand up 6.1% y-o-y in May 2018, says IATA

Can we improve corporate governance without onerous rules on companies and directors?

There are fears about an oil spike above US$150


MSWG Analysts

Lya Rahman, General Manager, [email protected]
Rebecca Yap, Head, Corporate Monitoring, [email protected]
Quah Ban Aik, Head, Corporate Monitoring, [email protected]
Norhisam Sidek, Manager, Corporate Monitoring, [email protected]
Wong Kin Wing, Manager, Corporate Monitoring, [email protected]
Hoo Ley Beng, Manager, Corporate Monitoring, [email protected]

Elaine Choo, Manager, Corporate Monitoring, [email protected]
Lee Chee Meng, Manager, Corporate Monitoring, [email protected] 

Abdul Halim Alias, Manager, Corporate Monitoring, [email protected]

Mustaqim Yusof, Senior Analyst, Corporate Services, [email protected]


•           With regard to the companies mentioned, MSWG holds a minimum number of shares in all these companies covered in this newsletter.

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