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Saturday, June 5, 2010

What’s going on in Kenmark?

Saturday June 5, 2010
What’s going on in Kenmark?

OVER 20 years of sweat equity by the founders and employees of Kenmark Industrial Co (M) Bhd must have seemed to have come crashing down in just a span of a week.

The only one who has the answers to the strange and unexpected developments in the company is 59-year-old Taiwanese national Hwang Ding Kuo @ James Hwang, the company’s managing director. But his sudden “disappearance” and surprising reappearance days later with an apologetic note that he was taken ill and unconscious, has in fact, added more fodder to the unusual circumstances.

Along with Hwang, two other Taiwanese directors had also gone missing.

The uncertainty had led the share price to nose dive, wiping out some RM100mil in market value over this week.
The factory in Port Klang

The business

Kenmark is a big supplier of goods to the international supermarket chain Wal-Mart and other global stores either directly or via its agents.

The predicament in a nutshell – the company failed to submit its financial records on time; two creditor banks has asked the company to pay up; several banks and stockbroking firms have force sold the shares in the open market and its suppliers, to put it mildly are worried.

The first red flag had come from Bursa Malaysia with its query to the company on the unusual market activity, points out Rita Benoy Bushon, chief executive officer of the Minority Shareholder Watchdog Group (MSWG). Suspicions were further heightened when it failed to issue its fourth quarter results.

Rita is calling for Bursa Malaysia and the Securities Commission to conduct a thorough investigation on the matter and if wrongdoing is ascertained, to mete out the necessary penalties.

In a written reply, Bursa Malaysia said it was investigating the matter and “will pursue enforcement action for any breaches of the listing requirements.”

“Bursa Malaysia had engaged with the company’s independent directors, external auditors and officials to ascertain the state of affairs of the company immediately when the issues came to light,” it added.

In comes Ishak

And just as market observers found themselves gobsmacked by the slew of strange developments in the company, the story took on another dimension. Datuk Ishak Ismail, who made his mark in Malaysia’s corporate stage in the early 90s but had bowed out of the limelight in early 2000 following a conviction by the securities regulator, has emerged as the single largest shareholder of Kenmark after acquiring a 32% block.
Kenmark’s new directors (from left) Ho Soo Woon, Datuk Abd Gani Yusof and Woon Wai En at the press conference on Friday.

Ishak and Hwang are old pals. In fact, Ishak was the bumiputera shareholder of Kenmark with a 20% stake when the company was listed in 1997 but had subsequently unwound his holdings.

Ishak tells the StarBizWeek that he had received a call from Hwang on Monday night to “help out”.

Based on announcements to Bursa Malaysia, BHLB Trustee Bhd, a trust for Ishak’s family, scooped up 30 million shares or 16.83% stake in Kenmark on Tuesday. A day later, he used another vehicle, Unioncity Enterprise Ltd to acquire 27 million shares or 15.53% of Kenmark, raising his stake to 32.36%, just shy of the trigger point for a mandatory general offer.

Based on Kenmark’s share price over the two days of the acquisition, it can be assumed that he had acquired the shares at not more than 8 sen apiece. When trading on Kenmark’s shares resumed on Friday, the counter shot up to 26 sen, a 126% gain from its last traded price of 11.5 sen. This means Ishak could be sitting on a paper gain of some RM10mil.

When contacted by the StarBizWeek, Ishak who was in Baghdad, explained why he had acquired the shares: “It is a good company. I checked and there was nothing wrong with the operations. There is just some misunderstanding. What I am thinking now is how we can get the business operations re-started. I have been an investor before and this company is involved in a lot of export business. Imagine the foreign earnings it brings into Malaysia.

“There is also another aspect. About 400 jobs are at stake if the plant does not restart. So, I wanted to help bring the employees back to work. So, it is not about (grabbing) an opportunity but doing a social service. What is wrong with that?’’ he asks.

How much did he acquire the shares for? “I do not know. The purchases were done by the trustees. They make independent decisions,’’ he replies.

Still, many observers expect Ishak to exit not too long from now, pocketing some handsome capital gains. Will that happen? “It all depends on the trustees, it is not about me. This is a family trust and I am not in control of the trust. But this (Kenmark) is a good company,’’ he adds.

Lost confidence

Meanwhile, 133 Malaysian workers of the total workforce of 413 employed by Kenmark are seeking RM1.4mil in damages for being locked out of the factory at the Labour Court in Port Klang. The claims were for termination benefits, compensation in lieu of notice and unused leave.

Quite clearly, the four new directors on board have an uphill battle ahead to regain lost confidence. After their first board meeting on Thursday, they had proceeded to the factory in Port Klang but were barred from entering the premises. On Friday, they met up with the senior team.

CLICK to view graphic

“We just met key management staff and asked them what is required to restart the whole production again. We will take it from there,’’ said newly appointed executive chairman Datuk Abd Gani Yusof.

At the start

Kenmark was set up in Taiwan back in 1978. Kenmark Industrial Co Ltd, which had a factory in Nei Hu, Taipeh, set up its first overseas plant a decade later in 1988. The plant in Malaysia began operations in 1989 on a 10-acre site in Port Klang.

Hwang, the founder of the company, is said to be a very enterprising man; within a short span, the operations expanded to Singapore, Australia, London, Hong Kong, Vietnam, US and China.

The Malaysian operations was listed on Bursa Malaysia in 1997. There are two other Taiwanese directors in the company - Chen Wen-Ling and Chang Chin-Chuan. Chen owned 18.7% stake in the company, according to the company’s latest annual report. With Hwang, the Taiwanese collectively owned 46.4% of Kenmark.

A substantial amount of these shares, it is believed, were pledged to banks and several stockbroking firms for share margin financing. Given the counter’s free fall over the week, many of these shares were force sold, which led many to believe that this is how Ishak could have accumulated his interest in the company.

Domino effect

On Wednesday, after Hwang had “disappeared”, the factory in Malaysia was shut down.

Some suppliers, spooked by the developments, were believed to have taken back their supplies.

On May 27, the company’s two independent directors Zainab Abu Bakar and Yeunh Wee Tiong had called off the audit committee meeting because Hwang had failed to appear. They could not reach Hwang or the two other Taiwanese directors.

Much to their dismay, Zainab and Yuenh had found the factory sealed. They both had stepped down from the board on Thursday.

One of the creditors, EON Bank had caught wind of these developments and wasted little time engaging their solicitors to seal the company. The company received letters of demand from EON Bank and Export-Import Bank for some RM71mil.

In a statement to Bursa yesterday, Kenmark said “There were some trade bills due for payment at the end of May 2010 but due to the unfortunate situation last week ... the trade bills could not be paid and EON Bank in safeguarding their interest had then appointed the Receivers.”

As for its Vietnam plant, Kenmark said that it has learnt from Hwang that the local authorities were requested to take control of the operating premises to safeguard the assets when some looting occurred during the absence of senior management staff.’

Hell breaks loose

On Monday, the situation worsened. The staff who turned up for work that day were told to go home. On that same day, Kenmark’s independent directors had updated officials from Bursa Malaysia on these developments, which led the latter to slap the company with a PN17 status.

After two days of wild speculation, Hwang appeared with his apologetic note that he was “sorry for the confusion” and that he was “taken ill in China ... and was in a delirious state from lack of sleep and was in and out of consciousness.”

Naturally, most found the excuse hard to swallow.

“It shows total disregard of shareholders, suppliers and employees. Even if he was not around, how could anyone expect the company to run rudderless?,” asks an observer.

Those who are close to Hwang say that he largely handled the business on his own, preferring that to delegating the work to the rest at top management. “This could explain the chaos his absence had resulted in,” says a source.

The task ahead

Since then, four professional managers have been appointed to the board. They are Ho Soo Woon, Ahmed Azhar Bin Abdullah, Woon Wai En, Datuk Abd. Gani Bin Yusof. Woon was formerly with Vads Bhd while Ho has his own family business. Gani has several businesses of his own but not much is known about Ahmed.

Evidently, the team is determined to get things back to normalcy. One of the most urgent matters that needs to be addressed is that the company needs to submit the fourth quarter results. The directors have failed to get an extension of time to June 30 from Bursa Securities to submit its results as the application was submitted less than fifteen days prior to the due date for submission.

“The Directors do not have access to the accounting records as yet and shall endeavour to have the results released as soon as available,” it said in a note to Bursa Malaysia late Friday.

Time is not a luxury it has. Bursa has given Kenmark till June 8 to submit the results, failing which the trading of shares will be suspended.

Analysts expect the group’s showing in the fourth quarter to be “less impressive” as orders from the European markets have been soft due to the economic slowdown.

In the company’s latest annual report, it had stated that it will focus on strengthening the wood-based business as margins were better than the LCD television business unit which was facing stiff competition. It also expected demand for wood-based products to remain stagnant until the economy in the European and North American markets pick up.

About 78% of Kenmarks business, said the analyst is export driven; one of its largest export markets for its furniture products is Europe. As such, he expects the weakening Euro to put a damper on the company’s latest results.

For the year ended March 2009, Kenmark made a net profit of RM3.8mil on the back of RM259mil sales compared to RM10.1mil and RM308mil a year ago.

Questions left unanswered

Without a doubt, the whole debacle has raised key corporate governance issues. The unusual market activity in the counter also needs to be prodded further by the authorities.

Was this simply a case of one thing leading to another? Or is there more to it than meets the eye?

“From a corporate governance view, it is astonishing that it has reached this stage. Some processes and checks and balances had failed. If so, how and why?” asked a peeved observer.

Related Stories:

Kenmark among firms that broke listing rules

Ishak – no newcomer to corporate controversy

Stock an easy buy after force-selling

Directors shed some light

A bizarre run of events

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