Kenmark - A bizarre run of events

Saturday June 5, 2010

A bizarre run of events

An implausible series of happenings at Kenmark requires that the authorities take note and do the needful

ANYONE following the strange sequence unfolding at furniture manufacturer Kenmark Industrial Co (M) Bhd can be forgiven for thinking that there is more – much more – than meets the eye.

A disappearing managing director and senior management saw its share price collapsing and in its aftermath, a new controlling shareholder emerged, along with the re-emergence of the MD made known via a press release.

First indications of trouble came when the share price collapsed on the eve of Wesak day, on Thursday May 27 and again on Monday, May 31, there being no trading on Friday because of the public holiday. From nearly 80 sen a share, it had collapsed to about 10 sen, in just over a day, wiping out nearly nine tenths of its value.

On Monday morning – 10.10am – after one hour and 10 minutes of trading, Bursa Malaysia suspended the shares and shot a query to the company on the unusual market activity.

Back came the shocking reply on the same day: Kenmark said its independent directors, Zainabon @ Zainab Abu Bakar and Yeunh Wee Tiong, were the only ones present at an audit committee meeting that was to be held at 10.30am on May 27, incidentally, the day the share prices collapsed.

Neither managing director James Hwang nor another executive and non-executive director, all from Taiwan, could be contacted. The deputy general manager and the finance and administration manager had resigned. There was no management representation at the meeting and therefore the meeting could not proceed.

The independent directors visited the company’s premises in Port Klang on May 29 and found it sealed and the premises secured by a guard. In a further announcement the same day, the independent directors revealed that there were letters of demand for borrowings which totalled over RM60mil and that they were unable to ascertain the financial position of the company or offer any other opinion.

And the independent directors said the company would enter PN17 status requiring its operations to be regularised. They also said that the company would be unable to release its quarterly report in time and that the shares would be suspended five trading days later on June 8. This was confirmed by Bursa Malaysia. All these announcements were made on May 31.

In short, it was utter chaos and no one knew what was happening with key board members and senior management having resigned or disappeared or otherwise unable to be located. That must have been a sort of record even for the Kuala Lumpur stock exchange where strange things have sometimes been known to happen and set the stage for a sell-off.

Incredibly, with such a state of uncertainty surrounding the company, the suspension of the shares was lifted the following day, June 1. Prudence should have dictated that the suspension be maintained until more information was forthcoming so that all shareholders could act from a position of equal information.

That would have discouraged needless speculation and ensured that insiders did not have a trading advantage. If syndicates were in the market, they could have been flushed out as more information about the company came into the public domain.

On May 31 when trading was shortened by the suspension, turnover of the company’s shares had already ballooned to an incredible 72 million shares from 1.5 million shares the previous trading day, May 27 and just 55,000 shares on May 26. That 72 million represented nearly 40% of Kenmark’s issued shares, enough to tell anyone that activity was not just unusual but terribly, terribly unusual, considering the shares changed hands in just one hour and ten minutes of trading. .

If you thought turnover was high on May 31, wait for the next day when the suspension was lifted. It shot up to a massive 190 million plus, more than the entire paid-up capital of Kenmark, implying the same shares were changing hands several times. The following day it was still an incredible 138 million shares.

And then came the next shocking announcement on June 2, when the shares were suspended from trading at the awkward time of 4.43pm and remained suspended until yesterday, June 4

Suddenly, managing director Hwang was contactable. He even issued a press release. He had been sick and unconscious, he said, and his family had barred all calls. But he did not explain why his other directors could not be contacted as well. He apologised for the confusion caused.

“I have spoken with a friendly party who has already acquired a substantial stake in the company and there will be new appointments of directors, including two executive directors to manage the situation there,” he said.

He did not say when he spoke to the friendly party.

His letter to the independent directors said that four new directors should be immediately appointed to the board. They were Ho Soo Woon, Ahmed Azhar Abdullah, Woon Wai En and Datuk Abd Gani Yusuf. The last was appointed executive chairman. The independent directors then resigned.

It transpired that the friendly party and new major shareholder was Datuk Ishak Ismail, who managed to pick up some 32% from the market on June 1 and June 2. Ishak, at his own admission, was the bumiputra partner when Kenmark was listed in 1997.

Yesterday, trading continued to be active and the share closed at 29.5 sen, more than double the previous close of 11.5 sen, on a turnover of 100.8 million shares but still well below its recent price of around 80 sen.

The series of events can only be termed incredible and highly volatile. Any reasonable person who follows the case closely will have serious questions to ask at each juncture of the transactions.

It is now up to the authorities, Bursa Malaysia and the Securities Commission to investigate and establish what happened and bring those responsible to book.

At the very least, there was gross negligence in terms of corporate governance and the proper running of a company.

But things could be a lot worse than that.

l Managing editor P Gunasegaram says that smoke usually indicates fire.

http://biz.thestar.com.my/news/story.asp?file=/2010/6/5/business/6407063&sec=business