Thursday, February 8, 2018

The curious case of Carlo Rino, Bonia and LEAP

When the LEAP market was created and approved last year in Malaysia, it was supposed to be an alternative platform for Malaysian companies - many of them early stage companies to raise funds. Hence, one of the criteria created was that only those individuals who has RM3 million in assets or earns RM300,000 a year and able to prove them can invest into LEAP market stocks. Companies that has at least RM10 million assets only are allowed to trade LEAP market stocks.

I have written about my apprehension on LEAP here.

However, Bonia's management has done something which I will not even be able to think about. My always thought tells me that most bankers will approach the smaller companies and those that are much riskier as these stocks are not going to be liquid anyway. These are what I hear in the market as well.

What Bonia does is that they have pulled out an old brand - Carlo Rino (CR) - from their portfolio and proposed to list them on LEAP. Firstly, CR is not an early stage company. Secondly, this proposal sounds more like a privatisation effort.


For LEAP market, usually these companies that want to go for IPO - they are under a smaller group of investors and those investors normally will be the friendly parties as only those who can have better access and information on these companies will dare to invest into LEAP shares as it will not be as easy to sell these companies as compared to the normal Main Board and ACE market as anybody can trade. For LEAP only very selected few can trade.

This CR exercise sounds like one. (I am not saying it is)

As it is Bonia has been traded for a while in a much fluid market. If it wants to expand CR, it could have raise more funds in other manners and it has lots of avenue to do so. When CR is ready for IPO in a bigger board, the usual practise is also about offering to its existing shareholders. Split the two businesses - not unusual.

By going to LEAP it is like preventing the current shareholders to buy CR - as LEAP feels like it is only for a special club of investors. A good management is about offering to its current shareholders - now this exercise is NOT.

Isn't it weird? Think of it, if I am already on Main Board, why would I go to a much lower board and let my stocks be illiquid?

With this case, you know what some companies can do? The management pulls out the most promising companies from their listed company (in the name of allowing the shareholders to share the wealth from the exercise). Pull those that has yet to make much profit but highly promising. List them under LEAP - where they can put them with family and friends as shareholders. When they get bigger, list them in the Main Board. Who is the sucker here.

Much food for thought for SC and Bursa to think further when they created LEAP...Are we now allowing the creation of monsters here?

(The above are entirely my opinion and not necessarily represent the true picture)


Unknown said...

very good analysis!! a new transferring value method

Anonymous said...

Thanks! But I thought this was a spin off and hence current shareholders will get equal shares 1:1 so current shareholders will benefit? Are you saying they will sell as LEAP is illiquid market?