Blumont Group Ltd - Did outgoing chairman make S$16.57 mln just hours before Friday's slump?

Neo Kim Hock pledged his 'nil-paid' rights, which were sold by a bank on Wednesday and Thursday last week. Lynne Ng Su Ling, after selling shares last Wednesday, sold more in an off-market deal yesterday.

10/10/2013 – Just hours after a relentless fall in its stock price, Blumont Group Ltd named Alexander Molyneux as the chairman designate.

Mr Molyneux will serve as a non-independent non-executive chairman of the group.

Mr Neo Kim Hock, the present executive chairman, will step aside and will assume the role of the non-executive deputy chairman.

Mr Molyneux, on October 7, agreed to acquire 95 mln shares from Mr Neo and another 40 mln shares from an undisclosed "non-substantial non-director individual shareholder" of the company.

At present, Mr Neo owns 249.77 mln shares (about a 9.67% stake) of Blumont.

Once the transaction is complete, Mr Molyneux will own a 7.83% stake in Blumont, bought at S$0.40/share.

According to the press release, the purchase price of S$0.40 per share is 'subject to price adjustments'.

Apparently, the purchase price of S$0.40/share represents a premium of over 200% on Tuesday's closing price of S$0.13.

After the proposed rights issue of Blumont, Mr Molyneux would own a 5.22% stake in the company.

Closing on October 10, the proposed rights issue would see the company issuing about 861 mln shares at 5 cents/share, to raise about S$43 mln.

Mr Molyneux is expected to acquire the stake on or before November 6.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. What made Neo Kim Hock step down as the executive chairman?

The announcement and press release didn't highlight the reasons for which Mr Neo was selling a part of his stake to Mr Molyneux and stepping down as the executive chairman of the board.

But the chronology of events makes us curious.

The change at the helm comes immediately after devastation of the company's market capitalisation, from more than S$4 bln on Thursday, to just over S$220 mln on Monday.

Therefore, is Mr Neo taking responsibility for the crisis by stepping down?

Or is he just looking for a partial exit at 40 cents per share, compared to a market price of 13 cents?
We don't know. But somebody must.

Question

2. Which individual investor is selling 40 mln shares to Mr Molyneux?

Blumont says a "non-substantial non-director individual shareholder" is selling 40 mln shares to Mr Molyneux.

According to its 2012 annual report (page 109), that really only leaves a few possibilities.

Ooi Cheu Kok owned 98.2 mln shares or 5.79% of the company as at March 18, 2013.

Also known as Billy Ooi, he took part in a placement of 400 mln shares on August 8, 2012.

He is also a shareholder in Innopac.

Datuk Idris Bin Abdullah @Das Murthy owned 51.9 mln or 3.06%.

He is a member of the Companies Commission of Malaysia (source), and also owns or owned stakes in SGX-listed IPCO, and Bursa Malaysia-listed Xian Leng Holdings Berhad and Kuantan Flour Mills Berhad.

He is also Chairman of APAC Coal, and non-executive independent chairman of Magnus Energy.

Lim Kuan Yew owned 39.3 mln shares or 2.32%.

He took part in a share placement six weeks earlier than Mr Ooi, on June 28, 2012, in which 250 mln shares were issued.

Mr Lim also owns shares in Innopac, Magnus Energy Group and APAC Coal.

He is also a director of Mid-Continent Equipment Pte Ltd, and Executive Director of Xian Leng Holdings Berhad.

Ms Quah Su-Ling owned 36.4 mln shares or 2.15%.

She is also CEO and shareholder of IPCO International, and a shareholder in ISR Capital.

Then there is Ms Lynne Ng Su Ling, but she only owned 32.7 mln shares or 1.97% of the company as per the annual report, and has just sold some of those shares.

So she can't be the vendor.

And the only other individual shareholder in the top 20 is Bobby Gumanti, but according to the annual report he only owned 18.2 mln shares, so he also couldn't possibly have sold 40 mln shares to Mr Molyneux.

He does not appear to be linked to any of the other companies mentioned, according to Handshakes.

So, which of these - Billy Ooi, Datuk Idris bin Abdullah, Lim Kuan Yew or Quah Su-Ling? - has sold shares to Mr Molyneux?

It can only be one of them.

While the proposed change at the helm was announced, on SGX, at 10pm on Monday, an even more substantial announcement came in at about mid-night.

Question

3. What made Mr Neo announce the sale of rights and shares at midnight on Monday?

In an announcement at 11:36pm on Monday, Blumont informed to the exchange three transactions that led to changes in the stake owned by its substantial shareholder and the executive chairman, Mr Neo.

In the first transaction, on October 2, 4 mln rights of Mr Neo were force sold in the open market by an unnamed bank, for S$9.2 mln.

For the sake of comprehension, it is important to elaborate what are 'rights' of Mr Neo.

On July 29, Blumont Group Ltd proposed a rights issue.

The company proposed to issue one rights share, at 5 cents, for every two shares already held in its capital.

The rights issue price of 5 cents was at a discount of more than 96% to the market price of S$1.33, on July 29.

The circular for the issue was desptached to the shareholders on September 26.

The shareholders would be allotted the rights shares based on their holdings on book closure date of September 23.

According to page 12 of thecircular, the trading of 'nil-paid' rights commenced on September 26 and would continue until 5pm on October 4.

But before that deadline, the shares and rights of Blumont saw a big fall, leading to a suspension of trading by SGX at about 10am on October 4 (Friday).

The 'nil-paid' rights are provisionally allotted rights, without paying the consideration (5 cents/right in this case).

In plain terms, the existing shareholders of Blumont were allotted 'nil-paid' rights (for free) which they could sell on SGX, before 5pm on October 4.

This is how the 'rights' of Blumont Group traded on the exchange, before suspension at about 10am on Friday:

In essence, the market price of the 'rights' moves in tandem with Blumont Group's stock price.

In simple terms, the price of each right is nothing but the market price of the stock, reduced by the price per right to be paid at the time of final allotment.

Blumont's rights issue offer ends on October 10. Any existing shareholder would still make money by buying the rights' share at 5 cents and selling it at a still significantly higher market price of 13 cents.

Therefore, as the stock price of Blumont was S$0.88 at the time of suspension of trade on Friday morning, the closing price of each 'right' was S$0.83 (the difference represents the rights' issue price of 5 cents).

Now let's re-look at Mr 'Neo's mid-night announcement on October 7 (Monday).

In the first transaction, on October 2 (Wednesday), 4 mln 'nil-paid' rights of Mr Neo Kim Hock were force sold in the open market by an unnamed bank, for S$9.2 mln – that's an average price of S$2.30/right.

In the second transaction, on October 3 (Thursday), 3.445 mln more 'nil-paid' rights of Mr Neo Neo were force sold in the open market by an unnamed bank, for S$7.37 mln – that's an average price of S$2.13/right.

Together, the bank sold 7.445 mln rights for S$16.57 mln.

In an announcement on October 1, Mr Neo informed the exchange that he received the rights' issue application form on September 27 and he was provisionally allotted 124,886,013 rights shares on September 30.
''
Mr Neo could sell those rights on SGX before 5pm on October 4 (Friday).

But instead, he seems to have borrowed funds from a bank by placing those 'nil-paid' rights as security.

Now, here is why the timing of the announcements is extremely important:

Mr Neo must have placed the 'nil-paid' rights as security on September 30 (after he was provisionally allotted the rights) or October 1 (a day before the bank sold the rights in the market).

That means the bank sold the 'nil-paid' rights in open market in about 48 hours between the time Mr Neo pledged the shares with the bank (leading to the creation of the bank's charge over the rights) and the time they were sold.

Now, something really dramatic had to happen for the bank to sell those rights in such haste.

But the market price of the rights was rather steady, closer to its all-time high.

Then, what changed in those 48 hours?

Looking at the market price of the stock and rights of Blumont Group, there wasn't any apparent reason for the bank to force-sell the rights of Mr Neo.

That begs the question:

(Total:15 questions)

We have emailed Blumont Group’s IR agency, August Consulting Pte Ltd, requesting the email id of Mr Neo Kim Hock so that we can address the questions directly to him.

However, we are still waiting for a response from the IR agency.

We intend to email the questions to Mr Neo as soon as we have his email id.

Regarding the questions to Ms Ng Su Ling, we have already emailed her the questions from our other story on LionGold.

But we are still waiting for her response.

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