DAP warns of asset stripping in MCA-linked firm’s reverse takeover bid

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By Ida Lim

KUALA LUMPUR, May 27 ― DAP lawmakers today warned Matang Holdings Bhd’s shareholders that their investments may be in danger due to a potentially bad deal by the MCA-linked company.

They were commenting on Matang’s proposed reverse takeover (RTO) of listed electronics firm Scope Industries Bhd, which they claim to be an “asset-stripping” exercise by MCA.

“MCA must answer whether it is embarking on an asset-stripping exercise by exchanging hard-earned savings of ordinary MCA members and their friends to secure the financial position of its political elite and its cronies,” DAP’s Liew Chin Tong, Tan Hong Pin and Liow Cai Tung said in a joint statement today.

They pointed out that a large number of the 19,984 Matang shareholders are Johor MCA members and associates who had bought the shares in 1981, which allegedly helped the state MCA raise RM50 million in “interest-free loans”.

But these shareholders may be powerless to stop the deal in a voting exercise in Matang’s extraordinary general meeting (EGM) this Friday, the DAP lawmakers said.

They highlighted the fact that an MCA-owned company effectively has the controlling stake in Matang at 10.72 per cent, and could allegedly vote for the RTO deal to go through with ease.

“Many of these shareholders have held on to their Matang shares for 30 years, only to be now exposed to a deal that jeopardizes them. Worse still, these small shareholders face an uphill battle to stop the RTO deal since they will likely be outvoted by Matang’s largest shareholder, Huaren Holdings, which is also MCA’s investment arm.”

“Is this how MCA intends to repay its loyal supporters?” they asked.

In the same press statement, the DAP trio questioned if the deal was a disguised transaction between two MCA companies.

“Is the Matang-Scope RTO an asset-stripping scheme disguised as a ‘willing buyer, willing seller’ transaction between two MCA-linked companies? Lifting the veil of Scope Industries Bhd will reveal who is behind the deal and who will benefit from the RTO.

“The beneficiaries of this RTO will certainly not be the almost 20,000 Johor MCA members who parted with their savings some 30 years ago to purchase Matang shares out of trust for the party,” they again said.

They listed down three ways in which Matang’s shareholders would allegedly be hurt by the deal, basing it on press statement from the company’s minority shareholders and information from Matang’s former chief financial officer Wong Pang Nam.

“Firstly, in this deal Matang’s key assets have been deliberately undervalued, including a freehold 1105.50 hectare oil palm estate with main road frontage which has been valued at RM107 million or approximately RM39,630 per acre. At this price it is impossible to find a seller in peninsular Malaysia.

“Obtaining oil palm land at such a favourable (undervalued) price will be a windfall for Scope, considering that globally such land is considered scarce and Malaysia is reportedly left with 800,000 hectares of land suitable for further oil palm cultivation. The country is expected to run out of available oil palm land by 2015 or 2016.

“Secondly, the RTO deal would offer Matang’s entire RM25 million cash holdings approximately in exchange for Scope Industries shares. Due to the value discrepancy between Matang and Scope, this exchange is not only unequal but appears to be siphoning Matang’s cash (which is the hard-earned savings of MCA members) in return for Scopes shares which are of lower value.

“Thirdly, the Scope shares issued to the Matang shareholders are subjected to a four year moratorium on the 580,000 new Scope shares to be issued to Matang shareholders. This means that Matang shareholders will only be able to sell their Scope shares over a period of four years, a gross unfairness that his been pointed out by MCA’s former deputy finance minister Donald Lim. Lim highlighted this issue in the press lately, threatening to oppose the RTO unless the moratorium was removed.

“It should be noted that Scope is an ACE-market listed counter, which has lower listing requirements than the main board market.”

The DAP trio then urged Matang shareholders to turn up this Friday at the company’s EGM to vote against the proposed RTO deal.

Under a reverse takeover deal, a private company skips the initial public offering (IPO) process to become a listed company by taking over companies that are already on the stock market.

This is in contrast to a typical takeover, where larger public listed companies take over control of smaller private companies by buying the latter’s shares.

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