Disclaimer

Disclaimer - I'm too dumb to be an expert thus all the contents of this blog are just my random thoughts and may be incomplete or contain any informational errors. It is certainly not recommendation to buy or sell. You'll be responsible for your own decision. Please consult your investment consultants before making any investment decision. Also the author may or may not have position in the counters that mentioned in this blog.

Saturday 30 August 2014

Sumatec - What is the end game of TSHS?

Sumatec is arguably the most attractive stock to watch for the last 2 months. In fact, this counter has hogged the limelight for quite a long time last year. I'm intrigue by the story behind the huge surge in price and trading volume of the company so I try to look back when and how Tan Sri Halim Saad (TSHS), man of the hour, came into the company. Is going to be a long post so just bare with me here because is a long story.

On May 30 2013, Sumatec announced that the company proposed reduction of 21 sen of the share capital comprising ordinary shares of 35 sen to 14 sen a share. Then it would issued 335 Million new ordinary shares of 14 sen to 'selected investors' at 17.5 sen a share. After that it would proposed renounceable rights issue of up to 2,722,220,957 new Sumatec shares with free detached warrant (Warrant-B) with every 41 rights for every 10 shares with every 1 free warrant for every 4 rights subscribe. For details of the multi-proposal, you can refer to Bursa on this link :


The 'selected investors' that involved in the private placement of total 335 Million shares at 17.5 sen a shares that mentioned above comprises of :

TSHS - 150.4 Million shares with total amount to RM 26,320,000 
Chua Ma Yu (CMY) - 30 Million shares with total amount to RM 5,250,000 
Corston-Smith Asset Management (CSAM) - 59.6 Million shares with total amount to RM 10,430,000
Tekad Mulia Sdn Bhd (TMSB) - 95 Million shares with total amount to RM 16,625,000

So from here we know how TSHS came into the picture. CMY, the co-founder of RHB Bank is of course very well known in local investment community. One can easily find a lot of information on the tycoon by just googling the web. CSAM  is a mystery since they are fund manager that acting on behalf of their client which they never reveal. TMSB is an investment holding company. You certainly needs to remember this name because it will appear again later in this article.

So from total 335 Million shares, TSHS got 44.9%, CMY 9% , CSAM 17.8% , TMSB 28.4%. I will collectively called them 'TSHS group' from here onward, of course I'm not saying they are actually a group or act in concert, is just that it makes it easy for me to analyze. (Better to have a disclaimer!!!)

TSHS group then subscribe the total rights entitled to them which amount to 1,373.5 Millions rights (41 : 10) at 17.5 sen a share with total 343.375 Million Free Detached Warrant-B (WB). After the rights subscription, the group holds total 1,708.5 Million shares + 343.375 Million WB with total cost of RM 298,987,500 or  average cost of 17.5 sen a share and all WB for free. 

The abovementioned corporate proposal is a regularisation plan to revive Sumatec by using the proceed from the private placement and rights issue to buy Rakushechnoye Oil Field (ROF) in Kazakhstan. COG is a company that held the concession to ROF and it is a subsidiary of Markmore Central Asia BV (MCA). MCA in turn is owned by MELL, a company with 2 director which were non other than TSHS & Abu Talib bin Abdul Rahman (ABU). Please remember ABU because he is a very important figure that will appear again and again in this article. Mell is wholly owned by Markmore Sdn Bhd which is control by TSHS with 99.99% & ABU with 0.01%. (Yes, it clearly shows that who is the BOSS). Chart below clearly stated the inter-relationships of all the companies and peoples involve.


Under the Joint Investment Agreement (JIA), Sumatec will act as contractor to concession owner COG to develop the oil field under Production Sharing Contract (PSC) until 25 Aug 2025 which first 2 years Sumatec will get all the profit while 3rd years onward will be 50:50 between Sumatec & COG. 

Under the terms of JIA, Sumatec would paid a signature bonus of RM 31 Million, Cost Reimbursement of RM 263.5 Million and refundable performance deposit of RM 124 Million which is deducted from future oil royalty as well as USD 5 royalty per barrel to COG. Total initial outlay will be RM 418.5 Million

Thus, basically TSHS need not pay a dime for Sumatec shares but by indirectly swapping it with the oil field concession and with some RM 280 Million spare cash since his portion of investment in Sumatec only cost RM 134.25 Million. 

So, how good is this oil field? Here is the estimated oil reserves :

mmboe - Million barrel of oil equivalent

Proved reserves: 22.4 mmboe, Probable reserves: 99.7 mmboe, Possible reserves: 209.6 mmboe

Ya, proved reserves only constitute to 6.75 % of total estimated reserves and PROBABLE + POSSIBLE reserves constitute the rest of 93.25%, WOW!!!
It certainly needs to be very 'Probable' and very 'Possible' to justify the investment of Sumatec. 

How is the performance of this oil field? Well, to date, the oil field has contributed RM 4.852 Million and RM 7.237 Million respectively for the last 2 quarters. It is certainly not much but is enough to lift the company from PN17 status. Granted, the profit might increase further with more oil well in production but Sumatec certainly needs to hurry up because they only enjoy full profit for 2 years then it will only be 50% from 3rd year onward. 

So, up till now, TSHS got some RM 280 Million cash + 767 Million Sumatec ordinary shares total amount to RM 356.655 Million (with last closing price of 46.5 sen) + 154.175 WB total amount to RM 60 Million (with last closing price of 39 sen) in return for his concession in an oil field that yield total RM 14 Million for the last 6 months. NOT BAD!!!! Isn't it? Oh ya... the oil field has potential..... so we can't value it that way. TRUE? I think I better leave it for you to judge since I don't know how to value PROBABLE & POSSIBLE PROFIT.

If you ask me how much is the entry cost of TSHS investment in Sumatec, I think on paper it is 17.5 sen a share with free WB. In real term? I seriously don't know how to calculate. 

So what now? Sumatec again proposes another rights issue with free warrant at an indicative price of 40 sen. you can read more about the proposal from my previous post : 


so I'm not going to too much details of the proposal here. The proceed of the rights issue is to actually buy an oil field instead of JIA or PSC. The propose acquisition of the oil field cost USD 350 Million and will be satisfied by cash and shares. Some 727,272,727 shares will be issued to one of the vendor ABU and TSHS will subsequently buy all the shares from ABU for 55 sen a share. YESYESYES!!! this ABU is the same ABU that mentioned above. Still remember our ABU? May be is just a coincident the both gentleman have the exact same name. It could be. The total payment to the vendors are USD 99.45 Million + 727,272,727 shares to ABU and USD 95.55 Million to one Dr. Murat Safin. (Both can scream HUAT AH.......) 

So on paper, TSHS is actually pumping more money into the company by subscribing the rights issue entitled to him for RM 153.4 Million + purchase from ABU for RM 400 Million. Since TSHS is going to buy at 55 sen a share even after the rights issue, so what are we waiting for?????

OHH!!! But wait, What IF........

Just HYPHOTHETICALLY says...... if TSHS & ABU are actually same interest party!!! I'm just saying hypothetically, I'm not saying it is. (I have made my disclaimer here again). Under this scenario, they actually get the USD 99.45 Million (RM 318.24 Million with 3.20 currency conversion rate) to subscribe for the rights issue of RM 153.4 Million with some RM 164.84 Million pocket change and the RM 400 Million is just left hand in, right hand out! NICE.... So what is TSHS investment in Sumatec shares this round again??? Under this scenario, I will say.... looks to me is free capital outlay again in exchange for another oil field. How good is this oil field??? just refer to my previous post from the link above then you know what is my opinion on it.

Under this scenario, if he subscribes for all the rights issue entitled to him (he already undertaking them) ultimately TSHS will possess 1877.8 Million shares of Sumatec ordinary shares with 154.175 WB and 383.52 Million new warrant (WC) + FREE CASH of total RM 280 Million from 1st round and RM 164.84 Million from 2nd round which total amount to RM 444.84 Million. The price for all these assets is just 2 oil fields with HUGE PROBABLE & POSSIBLE RESERVES!!!! 

How committed is TSHS in this company? On paper he really invest a lot..... The truth...... 

The only question I have in mind is what is his end game? He certainly can't sell any shares in open market or even marry deal since investors will see it as sign that he is bailing out. So how this will play out. Honestly do he needs to sell to make money from this 'investment'? To me he already made plenty. That's why I don't even want to mention how the share price perform in this article because I don't think it matters too much to him.

He is not selling but someone does :

Source: i3investor.com

Yes, is a long list. To save your trouble, the 3 repeated names Chan Yok Peng, Tekad Mulia Sdn Bhd (TMSB) and WAN KAMARUDDIN BIN DATO' BIJI SURA @ WAN ABDULLAH  share the same address. I made some rough calculation, they collectedly disposed off some RM 72 Million worth of ordinary shares and RM 24 Million of WB.

What is TSHS end game??? I don't know. Is he in this company for long term? May be!!!
Anyway I'm just going to say HUAT AHHHH...... TSHS & HAPPY MERDEKA TO ALL!!!!












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