9 November 2012
PETALING JAYA: iCapital.biz Bhd founder Tan Teng Boo has refuted claims made by Laxey Partners Ltd, one of the substantial shareholders of the company, concerning the “substantial discount” that the closed-end fund was trading to its net asset value (NAV) and that its returns have underperformed the FTSE Bursa Malaysia KLCI.
In a statement , Tan said that Laxey Partners had distorted the facts by focusing only on the short-term which was “its undeniable area of expertise.”
Laxey said that iCapitial's 2012 annual report showed a NAV gain of 3% against a 1% gain in the FBM KLCI.
However, the index was not adjusted for dividend yield, which was in excess of 4%, meaning that the actual return was 5.6%.
As the discount on the shares widened from 19.5% to 25.5%, total returns to shareholders was -4.5%, translating to an underperformance of 10.1%, the European fund said.
Tan pointed out that the dividend of the KLCI as of Oct 24 was 2.93%.
“Despite the fact that the FBM KLCI pays dividend, its performance has lagged that of iCapital.biz, which is a non-dividend paying fund, as can be seen from its first annual report of 2006. If the KLCI pays no dividends, its underperformance would be even worse,” he said.
Tan said Laxey's analysis of the fund performance has shown its “short-term” focus as it was based on only one fiscal year.
“Since 2005, iCapital.biz has outperformed the KLCI by a massive 115%. Its performance is comparable to that of the surge in gold price. Gold jumped 199% and iCapital.biz has surged 199%,” Tan said.
“Our objective which is to allow long-term shareholders to benefit from value-investing is stated in our annual reports.
“If it do not agree with this, why invest in the fund in the first place,” he told StarBiz.
Laxey is recommending, among others, share buybacks to close the discount between the shares and NAV. It argued that the company was more than able to do this, as its cash position stood at RM133mil.
Tan, however, pointed out that a share buyback in a closed-end fund such as iCapital.biz would benefit only short-term investors looking to make a fast buck.
The top 30 shareholders of iCapital.biz have remained since 2006, he said.
“Hence, it would not matter if the discount between the share price and the NAV narrowed, because, these shareholders are in it for the long haul.
“If Laxey comes in and initiates a share buyback, this means that it will be using the fund's excess cash to boost iCapital.biz's share price, which will only benefit short-term traders,” he said.
Furthermore, for a closed-end fund like iCapital.biz, share buybacks would not work, Tan said.
He pointed out that share buybacks to increase the share value for companies such as IOI Properties and AirAsia Bhd, would work as they have their business operations and are not reliant on their cash pile to generate profits for the company.
However, in the case of iCapital.biz, its cash is its main asset and that is needed to invest in other equities in order for profits to be made.
“If it is using that cash to buy back its own shares, how can it buy other equities, and thus add value to the fund?” he asked.
On Laxey's statement that the board should concurrently engage advisers to research other methods to permanently remove the substantial discount at which the shares trade, Tan said this would imply that the fund would be liquidated.
“How else do you permanently remove the discount between share price and NAV without liquidating the company?
“It would appear that they are looking to come in, liquidate and then get out.
“If they don't want to liquidate the fund, then (the founder of Laxey) Andrew Pegge's track record as a fund manager comes into play.”
The Terra Catalyst Fund and the Value Catalyst fund under Pegge are in the process of being wound up.
It is learnt that Laxey is seeking to get three of its representatives, namely Pegge, Lo Kok Kee and Low Nyap Heng, on board iCapital.biz.
[Source]
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