29 June 2013
AS corporate takeover sagas go, Hong Leong Capital Bhd (HLCap) will go down as one of the more colourful ones in Malaysia’s corporate history. The usually savvy tycoon Tan Sri Quek Leng Chan ought to have wrapped up the privatisation of the investment banking and asset management unit of his group by now.
But alas what he is faced with is a HLCap share price that had risen up to several hundred per cent more than the price he had offered to pay, although the share price has seen some softening over the last few days.
To recap, Quek used his flagship holding company Hong Leong Financial Group Bhd (HLFG) to make the buyout offer of HLCap on Jan 14. The offer had failed as at the closing date of acceptance, Feb 25. HLFG only had 81.33% of HLCap shares.
The thorn in Quek’s side is low-profile property developer Datuk Dr Yu Kuan Chon, who has accumulated 21.3 million HLCap shares, giving him a stake of 8.65% at last count.
The saga has now drawn in one of Quek’s key lieutenants, the investment banker Lee Jim Leng. Jim Leng, as she is better known, heads Hong Leong Investment Bank (a key asset of HLCap) and filings showed that Jim Leng had on June 19 exercised 1 million HLCap stock options at a price of RM1.20 a piece.
The implications of this were significant.
By Jim Leng doing so, the enlarged share base of HLCap increased by 0.4%.
And as Jim Leng is considered a key member of Quek’s management team, she isn’t being considered as part of the public shareholding of HLCap.
Hence the exercise of her warrants nudged the free float of HLCap to below the 10% threshold, thereby enabling HLCap, in accordance with Bursa’s listing rules, to announce that it intends to suspend its shares on Aug 12, being 30 market days post the 10% threshold being hit.
Recall that just recently, in March, HLCap had issued the same notice, only for Bursa not to go ahead with the suspension as the free float had gone back up to the 10% level within that 30 market day period.
In that instance, it was the savvy Yu who had ensured that happened. He simply sold down some of his shares to ensure that the free float stayed above 10%.
For those unfamiliar with Yu and his involvement in the HLCap saga, Yu had suddenly emerged with a substantial stake in HLCap at just about the time the buyout was being announced.
Yu also continued accumulating HLCap shares since then and is probably the main reason why HLcap shares are now trading at a whopping RM5.50 per piece which is three times the RM1.71 Quek offered to buy them out.
HLCap shares had hit a high of RM7 a piece on June 14.
The suspension of trading of a stock is always bad news for minority shareholders as it means they can no longer sell their shares in the open market. Hence the threat of suspension had worked to force minorities in buyout situations to throw in the towel in the past.
But is Yu that kind of a minority shareholder?
In other words, maybe he doesn’t mind staying on as a nagging minority shareholder of HLCap, even if the stock is suspended from trading, until a good deal is offered to him by Quek and Co for his shares.
Furthermore, if Yu remains a minority shareholder in the suspended HLCap, he would have a big say during HLCap’s next AGM later this year, especially when voting on related party transactions (RPTs) within the Hong Leong group. (In RPTs, the related parties would not be allowed to vote, and that includes HLFG that owns just over 81% of HLCap at last count).
Then again, it is likely that Yu or parties linked to him have been aggressively selling their shares yesterday, considering that HLCap shares dipped by around RM1 or 15%. Yu is likely offloading those shares to ensure that the free float rises to above 10%, something that he successfully did in the past.
The question is, will Yu be able to keep selling enough shares to ensure that the free float stays above 10%? Or will there be more Esos exercises by high-ranking officials of the Hong Leong group?
According to HLCap’s 2012 annual report, there were a total of 4.475 million of stock options granted under the company’s ESOS to directors and chief executives of within the HLCap group of companies and that all options had remained outstanding as at June 30, 2012. The annual report also said that no options were exercised during its financial year ended June 30, 2012.
According to filings by HLCap, Jim Leng had on 16 Jan 2013 been given options to subscribe to 2 million HLCap shares.
Filings also showed that Jim Leng had on Feb 22 exercised 450,000 of those options at a price of RM1.42. And significantly, filings two days later showed that Jim Leng had then “sold” those 450,000 shares into the buyout of HLCap by HLFG.
Hence the recent exercise of her 1 million options is the balance from the 2 million she was granted earlier this year. It is also understood that Jim Leng had been given another 1.5 million options earlier.
It is likely therefore that Jim Leng has another 3 million options of HLCap shares to exercise.
Jim Leng’s stock options
But the question remains as to why Jim Leng did not exercise all of her options during the buyout period and turn that into acceptances from HLFG’s buyout of HLCap. Wouldn’t that have helped the case of Quek’s buyout of HLCap?
To be noted is the fact that Jim Leng, after forking out the RM1.2mil to exercise the 1 million options recently, had sold 34,000 of those shares into the market at prices ranging from RM6.83 to RM6.96 a piece, giving her gross returns of some RM234,260. The question is will she be selling more shares into the market or will she be holding on to the bulk of those HLCap shares, a move which will have an impact on the free float of HLCap shares.
Incidentally, there is also some market rumours that this whole HLCap saga has had some collateral damage to another key Hong Leong personality, although this theory could not be verified.
Stalwart banker, Datuk Yvonne Chia, resigned as CEO of Hong Leong Bank Bhd in March.
The reason cited then was simply that she was retiring.
But now rumours are circulating that Chia may have had to leave because she had failed to support HLFG’s buyout by selling her holdings or stock options into the HLFG buyout of HLCap.
All parties related to this story could not be reached for comment.
The market will be watching closely now how the HLCap unfolds and what other cards will be pulled or placed out by the savvy corporate players in this game of poker.
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