Azizan must be investigated for failure of ‘Fiduciary duty’

The recent Sime Darby acquisition into E&O, drew a lot of flaks from all sorts of quarters. The deal is being looked at from the perspective of ‘insider trading’, the repeat of ‘ECM Libra eating-up Avenue Capital’ and even a failed-Kali-planned-invasion.

Now, Securities Commission announces that they would look into the deal and all the share transactions involved which so many talked about:

Thursday September 8, 2011

SC to look at all E&O share transactions in relation to Sime offer

By JEEVA ARULAMPALAM

jeeva@thestar.com.my

PETALING JAYA: The Securities Commission (SC) is looking at all transactions involving Eastern & Oriental Bhd (E&O) shares over the relevant period of time in relation to Sime Darby Bhd‘s recent proposal to buy a 30% stake from three E&O shareholders.

A SC spokesperson told StarBiz yesterday that it reviewed all trading activity surrounding major corporate announcements and in the case of the Sime Darby and E&O deal, SC was examining stock transactions by all parties over the relevant period.

“We are also examining the circumstances surrounding the transaction for any Takoever Code implications. Our course of action will be based on our findings,” SC said in an e-mail response.

Bursa Malaysia filings showed that shareholders and board members of E&O and investment firms had been buying up E&O shares ahead of the deal being announced on Aug 28.

Just before the Hari Raya break, Sime Darby announced it wanted to buy a 30% block (involving 273 million shares and 60 million irredeemable convertible secured loan stocks) in E&O at RM2.30 per share or a total of RM766mil.

The RM2.30 offer price represented a 60% premium to E&O’s then market price.

The vendors of the block are E&O managing director and founding member Datuk Tham Ka Hon, Tan Sri Wan Azmi Wan Hamzah and Singapore-listed GK Goh Holdings Ltd.

It is interesting to note that GK Goh had been actively buying shares amounting to 1.25 million shares from the open market for three consecutive days starting Aug 10. Other parties buying up E&O shares in August ahead of the deal being announced include ECM Libra Financial Group Bhd which acquired 6.16 million shares, increasing its stake by 0.63% amounting to 6.25% in four transactions in August.

Aside from this, E&O chairman Datuk Azizan Abd Rahman had purchased 100,000 shares on Aug 12 from the open market.

In total, Azizan had purchased some 450,000 shares from the open market involving five separate transactions from April to August this year.

Three of the transactions were done in July and August. Based on Bloomberg data, E&O saw trading volumes increase drastically in July and August, with the company’s share price hitting an initial high of RM1.70 ahead of the deal being announced.

E&O’s share price had been moving upwards since mid-March (RM1.08 on March 16) and closed at RM1.71 yesterday.

In a response to queries from StarBiz on share purchases ahead of Sime Darby’s proposed acquisition, Azizan had this to say: “With regard to the issues raised pertaining to Sime Darby’s proposed acquisition of a 30% interest in E&O, I would like to highlight that it is a private transaction between major E&O shareholders and Sime Darby.

“The transaction does not require board approval and hence, was not discussed at the board level. As such, board members were not privy to the transaction and continued to trade in accordance with the prevailing rules and had made appropriate filings with Bursa Malaysia,” Azizan said in an e-mail response.

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In reality, this SC announcement isn’t really expecting a thumbs from the people who watches the capital market and Malaysian corporate scene. The reason is simple; the notorious SC Chairman Tan Sri Zarinah Anwar, her previous track record in this exact corporate scandal and of course, her husband Dato’ Azizan Abdul Rahman’s role and involvement in the deal.

Of course, it is believed that Azizan did start to accumulate 500,000 shares of E&O during or just before interested parties shown into the probable substantial acquisition, either by his good friend Riong Kali via ECM Libra or SP Setia.

The statement made by Azizan should be deemed inappropriate. He as the Chairman of the board is entrusted to uphold the interest of the company and shareholders first, before individuals which even include members of the board of directors and substantial shareholders. Under the principle of ’Fiduciary duty of a company director’, a legal or ethical relationship of confidence or trust regarding the management of money or property between two or more parties, most commonly a fiduciary and a principal. In a fiduciary relation one person, in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests.

A fiduciary duty is the highest standard of care at either equity or law. This principle is upheld in Bristol & West Building Society v Mothew where it was decided “A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence”.

Even for private placements by the directors and substantial shareholders in their personal capacity, the interest of stakeholders which include the public as E&O is plc must be uphold first.

Another interesting story about Azizan’s ability to manipulate his position and use it for insider trading. The merger of oil and gas players Kencana Petroleum and Sapura Crest is something many expected to be lucrative.

12 May 2011: Kencana propose to buy Allied Marine & Equipment Sdn Bhd (AME) for RM400 million via a share swap in its move to become a fully integrated offshore services player.

11 July 2011: Kencana Sapura merger announcement. Kencana shareholders get RM3.00 per share offer.

18 July 2011: Azizan, by virtue of being vendor of Allied emerges as 6.76 substantial shareholder of Kencana.

16 August 2011: Azizan no longer shareholder of Kencana after selling the shares.

For the record, Azizan Abdul Rahman is the Chairman of the board of Ramunia Holdings Bhd. Isn’t it very strange that Azizan took substantial shareholding in a competitor plc?

Now, we are almost sure Ramunia shareholders are happy to note that Azizan got his own oil and gas business, and ended up selling it to a rival, and while being Chairman, he also was substantial shareholder of the rival. And on top of that he has an investment role in Lembaga Tabung Haji. This guy has so many hats, Malaysia should consider opening up a Hat Factory.

There are issues of fiduciary duty and manipulating position and information for ‘insider trading’, in this man. MACC should really investigate all these allegations. Of course, no one who watches all these and all the corporate vices Azizan did expect SC would act.

This episode and several other corporate scandals allegedly involving Azizan and Zarinah either directly or indirectly are examples of corporate governance issues which are seriously lacking from the system. This must not be good for Prime Minister Dato’ Seri Mohd. Najib Tun Razak’s transformation programs and his Government’s hardwork to bring in FDIs and confidence into the Malaysian economic eco-system.

*Updated 2300hrs

- bigdogdotcom