KUALA LUMPUR, April 30 ― Tadmax Resources Bhd says Bursa Malaysia has approved its circular in relation to its proposed disposal of its wholly-owned subsidiary Tadmax Power Sdn Bhd.
Tadmax Resources despatched the circular to its shareholders on April 21.
This follows an announcement on February 20 that the company had agreed to sell Tadmax Power Sdn Bhd to Ivory Merge Sdn Bhd for RM317.3 million.
In that announcement, Tadmax Resources said Ivory Merge Sdn Bhd was a wholly-owned subsidiary of 1MDB Real Estate Sdn Bhd, which is further a wholly-owned subsidiary of 1Malaysia Development Bhd (1MDB).
It also named Dato' Azmar bin Talib, Mohd Hazem bin Abd Rahman @ Mohamed and Goh Gaik Kim as the directors of Ivory Merge Sdn Bhd.
But in a subsequent announcement on February 25, Tadmax Resources clarified “Ivory Merge Sdn Bhd is a wholly-owned subsidiary of Ivory Point Ltd. Its ultimate shareholder is 1Malaysia Development Berhad”.
It added, the directors of Ivory Merge Sdn Bhd were Mohd Hazem bin Abd Rahman @ Mohamed and Azmi Tahir.
Investor Central. We keep your investments honest.
1. Is Ivory Merge Sdn Bhd still an indirect wholly-owned subsidiary of 1MDB?
In its February 25 announcement, Tadmax Resources said 1MDB is the 'ultimate shareholder' of Ivory Merge Sdn Bhd.
Now that's different from its February 20 announcement, in which Tadmax Resources said Ivory Merge Sdn Bhd was an indirect wholly-owned subsidiary of 1MDB.
So that makes us curious about what it meant by “ultimate shareholder”.
Perhaps there’s nothing significant about this, but is Ivory Merge Sdn Bhd a wholly-owned subsidiary of 1MDB?
Or does 1MDB own only a majority stake in it?
In which case we would like to know who the remaining shareholders of Ivory Merge Sdn Bhd are?
Also, when and where was Ivory Point Ltd incorporated?
2. Why did Ivory Merge Sdn Bhd overhaul its board between the February 20 and 25 announcements?
According to its February 25 announcement, Dato' Azmar bin Talib and Goh Gaik Kim are no longer directors of Ivory Merge Sdn Bhd.
In their place, Azmi Tahir has emerged as a director while Mohd Hazem bin Abd Rahman @ Mohamed continues to be a director.
Why did two of the directors leave just days after the announcement on February 20?
Also, what is their background?
3. What explains the contradictions between the CEO’s statements and the annual reports?
Tadmax Power Sdn Bhd's key asset is a piece of vacant leasehold land, spread over 379 acres in Pulau Indah.
According to its February 20 announcement, Tadmax Power has been an inactive company since incorporation, except for the remedial works it carries out on this piece of land.
In other words, Tadmax Power doesn't generate revenue but spends money to maintain the land it owns.
On April 9 last year, Tadmax Power Sdn Bhd (formerly known as Wijaya Baru Development Sdn Bhd) agreed to sell 60 of the 379 acres of Pulau Indah land to Inai Kiara Sdn Bhd for RM48.4 million.
Though the transaction was scheduled for completion in Q3 last year, Tadmax Resources' FY2013 earnings report (announced on February 27) doesn't reflect the cash inflow from the sale.
Inai Kiara agreed to acquire 60 acres of land at RM18.5 per square foot.
But now, 1MDB is acquiring 310 acres of land at RM24.89 per square foot (refer page 6 of February 20 announcement) via Ivory Merge Sdn Bhd.
Clearly, 1MDB is paying a 34.5 per cent higher price for the land compared to Inai Kiara's offer last year.
That might be partly because Tadmax Resources would convert the land use from “building” to “industrial” before the sale to 1MDB.
Inai Kiara Sdn Bhd had agreed to acquire the land with its existing “building” use rights.
Messrs Rahim & Co Chartered Surveyors Sdn Bhd valued the 60 acres of land at RM47 million on April 8 last year (refer page 5 of April 13, 2013 announcement).
Azmi & Co (Shah Alam) Sdn Bhd valued the 310 acres of land at RM270 mln (in case of “building” use) and RM337.6 million (in case of “industrial” use) on January 25 this year (refer page 6 of the February 20 announcement).
So, that somewhat explains the rise in price of the land from April 2013 to February 2014.
But on both the occasions, the land was priced manifold a valuation announced on August 4, 2011.
According to Tadmax Resources' 2012 annual report (page 113), the entire 379 acres of piece of land was valued at RM163.9 million at the time.
Soon after the announcement of the deal on February 20, Malaysia's Democratic Action Party (DAP) was quick to highlight that.
Tony Phua ― Petaling Jaya Utara MP and a member of the DAP ― raised questions about 1MDB's acquisition of the 310 acres of land from Tadmax Resources.
He highlighted that Tadmax Resources' Chairman Abdul Azim Zabidi was a former UMNO treasurer while its CEO Faizal Abdullah continued to be the Deputy Chairman of UMNO Kapar division.
Interestingly, Tadmax Resources' Chairman Abdul Azim Zabidi resigned on March 24 ― a month after MP Tony Phua questioned the deal.
Petaling Jaya Utara MP Tony Phua also brought up Tadmax Resources Bhd's (formerly known as Wijaya Baru Global Bhd) link to the RM12.5 billion Port Klang Free Zone scandal.
According to a news report, Tadmax Resources was appointed the turnkey developer by the Port Klang Authority (PKA).
Tadmax Resources' subsidiary Kuala Dimensi Sdn Bhd sold 753 acres of land in Pulau Indah to PKA at an “astronomical price” of RM1.09 billion in 2004, the report said.
Tadmax Resources and its subsidiary Kuala Dimensi Sdn Bhd are currently involved in a legal battle with PKA.
However, some key accused in the scandal were acquitted by the court in the last few months (refer Malay Mail's January 13 report).
The matter is still before the courts.
In essence, MP Tony Phua's contention was that 1MDB ― which comes under the Finance Ministry and is funded with taxpayers' money ― should reassure the public that the deal wasn't over-priced to “bail out” Tadmax Resources, which is related to UMNO and also has a history of allegedly over-pricing land deal in Port Klang Free Zone scandal.
In response to MP Tony Phua's allegations, Tadmax Resources' CEO Faizal Abdullah told Malaysiakini “When we are speaking of properties under 'stock and inventory' we don't do a valuation. We carry it base[d] on historical cost” (source: Malaysia Chronicle's February 26 report).
Tadmax Resources' CEO added that the land had not been revalued since it was purchased in 2005.
But that contradicts Tadmax Resources' annual reports.
Page 113 of its FY2012 annual report and page 108 of its FY2011 annual report clearly state that the land was worth RM163.6 million based on 'Revaluation' on August 4, 2011.
Before that, according to page 87 of its FY2010 annual report, the land was revalued on May 11, 2007.
Therefore that makes us wonder why the annual reports said the land was revalued when the company's CEO claims it had not been revalued since its acquisition in 2005.
4. Will it revisit the agreement to sell 60 acres of land to Inai Kiara Sdn Bhd?
Inai Kiara Sdn Bhd is the fifth largest dredging company in the world (The Star's August 26 report).
Inai Kiara, via its subsidiary Integrated Marine Works Sdn Bhd (IMW), won a 15-year concession in 2004 from the government to manage and maintain all the ports in Malaysia (The Star's August 26 report).
According to a Yahoo Finance report in August last year, 'IMW is a joint venture between local dredging specialist Inai Kiara Sdn Bhd and UMNO-linked Tan Sri Syed Mokhtar Albukhary-controlled Seaport Terminal (Johor) Sdn Bhd'.
Tadmax Resources sold 60 acres of land to Inai Kiara at RM18.5 per square foot.
That's about 26 per cent less than RM24.89 per square foot price being paid by 1MDB for 310 acres of land.
Assuming Tadmax Resources' CEO Faizal Abdullah's is correct in his statement that 1MDB is not over-paying for the 310 acres of land, that would suggest that the company’s sale of 60 acres of land to Inai Kiara is less than it is worth.
Given that Tadmax Resources didn't record cash inflow from Inai Kiara in its FY2013 earnings statements, we assume that Inai Kiara is yet to pay for the land.
In that case, would Tadmax Resources revisit the deal with Inai Kiara to adjust the price?
5. Will the Selangor State Authority compensate Tadmax Resources for surrendering 9 acres of land?
Tadmax Resources agreed to sell 60 acres of land to Inai Kiara Sdn Bhd last year.
So that leaves behind 319 acres of the vacant land which it owns in State of Selangor Darul Ehsan.
But in its February 20 announcement, Tadmax Resources talks of selling its wholly-owned subsidiary Tadmax Power Sdn Bhd, which owns 310 acres of land, to Ivory Merge Sdn Bhd.
Therefore that makes us wonder what happened to the remaining nine acres of land.
On page 26 of its April 21 circular, Tadmax Resources revealed that nine acres of land “shall be reserved to be surrendered to the Selangor State Authority to be used as reserves and access roads, if required”.
Therefore that makes us wonder if the Selangor State Authority will compensate the company for the nine acres of land proposed to be surrendered.
6. How can an intra-company sale result in a dividend being paid to the parent company?
According to pages 10, 26 & 29 of its April 21 circular, Tadmax Power sold the 60 acres of land (which it has agreed to sell to Inai Kiara Sdn Bhd) to another subsidiary of Tadmax Resources namely, Kirana Abadi Sdn Bhd.
On February 11, Tadmax Power sold the 60 acres of land to Kirana Abadi Sdn Bhd for RM48.4 mln, which was at a net gain of RM16.6 mln.
Curiously, Tadmax Resources didn't reveal such an intra-group transfer in its February 20 announcement.
Therefore that makes us wonder why the intra-group transfer became necessary.
But what's even more curious is Tadmax Power's claim that out of the sale proceeds from Kirana Abadi Sdn Bhd it paid a RM37.9 mln single tier dividend to its parent Tadmax Resources for the second time on February 18 (refer pages 26 & 30 of the April 21 circular).
That comes after it said in the February 20 announcement, which was reiterated in the April 21 circular, that Tadmax Power paid an RM131.4 million single tier dividend to Tadmax Resources on February 6.
Now there are two things worth nothing here:
First, why wasn't the February 18 dividend mentioned in its February 20 announcement?
Second, is it possible for a wholly-owned subsidiary to sell assets to another wholly-owned subsidiary and declare a dividend to the parent company from the sale proceeds?
Isn't that purely a transfer from one pocket to another?
7. Where did Tadmax Power Sdn Bhd get the cash to pay an enormous dividend on February 6?
According to Tadmax Resources' February 20 announcement, its wholly-owned subsidiary Tadmax Power Sdn Bhd had audited net assets of RM291.9 million on December 31, 2012.
But as on February 20, 2014, Tadmax Power's unaudited net assets stood at only RM138.4 million.
So, why did Tadmax Power's net assets drop by RM153.5 million in just over one year?
The answer to that probably lies in part on page 7 of the announcement.
Tadmax Resources claims that its wholly-owned subsidiary Tadmax Power made a 'Capital repayment vide single tier dividend' of RM131.4 million on February 6.
That's just two weeks before the announcement of the deal.
But according to Tadmax Resources' FY2013 earnings report (announced on February 27), the entire group had cash and bank balances of just under RM 1 million on December 31, 2013.
Therefore we are scratching our heads to figure out how Tadmax Power could have paid RM131.4 million dividend to its parent Tadmax Resources.
According to page 29 of its April 21 circular, Tadmax Power recorded a RM284.6 million one-time profit earlier this year due to “Cancellation of share premium on 27 January 2014 per court's sealed order”.
That suggests that Tadmax Power Sdn Bhd had applied to the court for a capital reduction.
While we don't know when that was announced to the shareholders via Bursa Malaysia's website, it still didn't generate any cash for Tadmax Power so that it could have paid RM131.4 million dividend to Tadmax Resources on February 6.
That makes us wonder where Tadmax Power got the cash from to pay such a hefty dividend to Tadmax Resources and that too, just two weeks before it was sold to 1MDB.
8. When did it announce the capital reduction by Tadmax Power to its shareholders?
We couldn't spot any announcement by Tadmax Resources on or about January 27 regarding any such order by the court.
Tadmax Resources' April 21 circular is also silent about the court's order on January 27 which led to a RM284.6 million windfall for Tadmax Power.
In the absence of any disclosures by Tadmax Resources, its shareholders can only wonder about the sequence of events and the content of the court's order.
9. Why doesn't its claim about independent valuation in its February 20 announcement match the April 21 circular?
In another mysterious contradiction, Tadmax Resources' April 21 circular (pages 83 & 85) shows the independent valuer estimated the 310 acres of land to be worth RM317.3 milion if the land use was converted to “industry” from “building”.
But on page 6 of its February 20 announcement, Tadmax Resources said the independent valuer had assigned a valuation of RM337.6 million if the land use was converted to “industry”.
The circular and announcements referred to a January 25 valuation report prepared by Azmi & Co (Shah Alam) Sdn Bhd.
Therefore that makes us wonder how Tadmax Resources quoted such different figures.
10. Why did Tadmax Power's share capital increase in FY2013?
According to page 27 of the April 21 circular, Tadmax Power's paid-up ordinary share capital increased by RM2.875 million in FY2013.
Since Tadmax Resources didn't append the FY2013 earnings statements of Tadmax Power to the circular, we don't know how the share capital increased during the year.
That also makes us wonder why it didn't append Tadmax Power's FY2013 earnings statements to the circular.
In the larger context, any reasonable investor would wonder why Tadmax Power would reduce capital within a year of increasing it.
11. How much would Tadmax Resources profit from the sale of Tadmax Power Sdn Bhd?
According to page 9 of its February 20 announcement, Tadmax Resources would record a post-tax gain of RM136.5 million, or 36.6 sen per share, based on Tadmax Power Sdn Bhd's net assets of RM138.4 million as on February 20.
That's after Tadmax Power made 'Capital repayment vide single tier dividend' of RM131.4 million on February 6 (refer page 7 of February 20 announcement).
Also, Tadmax Power would record a post-tax gain of RM13 million on the sale of 60 acres of land to Inai Kiara (refer page 4 of April 9, 2013 announcement).
And as per its April 21 circular (pages 26 & 29), Tadmax Resources received a RM37.9 million second dividend from Tadmax Power on February 18.
In other words, Tadmax Resources would make a gain of RM318.8 million on its total investment of RM300 million in Tadmax Power.
So, the total cash flow on Tadmax Resources' books from Tadmax Power would be about RM618.8 million.
But the numbers don't add up for us.
Tadmax Power has been dormant since its incorporation in 1997 and its key asset is 379 acres of land.
Now, Tadmax Power is making RM365.7 million (RM48.4 million plus RM317.3 million) from the sale of 370 acres (60 acres plus 310 acres) of land.
Therefore that makes us wonder how Tadmax Resources could generate the remaining RM253.1 million cash from the sale of Tadmax Power Sdn Bhd.
12. How much does Tadmax Resources owe Tadmax Power?
According to Tadmax Power's audited financials for FY2012, as seen on page 36 of the April 21 circular, Tadmax Resources owed RM121.2 million to Tadmax Power on December 31, 2012.
In the absence of Tadmax Power's FY2013 earnings statements, we don't know how much Tadmax Resources owed it on December 31 last year.
So, how much does it owe Tadmax Power as of today?
And how does it plan to pay for it?
We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.
We also emailed the story to MP Tony Phua for his comments.
So far, we have not had a reply (which is why you are seeing this message). ― Investor Central
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