Sometimes you just have to take the opportunity presented

I remember back in 2006, I managed to discover a stock which I was pretty sure it would have risen at least 40% to 50% - and it just needed a little bit of time and holding power. Looking back and after searching through the announcement, I am just trying to remember the past. I did not take the opportunity as I just bought some 7,000 units, which was too little.

QSR (then the controlling shareholder of KFC) made a general offer for KFC after triggering the 33% GO threshold. During then, QSR (under Johor Corp) just managed to take control of KFC. It wanted to consolidate its position, hence triggering a General Offer ("GO") at RM4.94 per share during which the price was considered very low. KFC was a cash cow as many would know, however for far too many times, there were just too many interested parties and the latest was Johor Corp. Johor Corp however does not have the funds to do the GO, hence CIMB acted as the financier. You see, seldom a bank would provide financing for an acquisition as such through a GO except for this particular case which include the pairing of state-owned organizations (in this case both of them are).

Priced at RM4.94 which was considered cheap

To initiate the GO, the price of the shares had to be cheap, hence it was priced at a single digit PE for an attractive company such as KFC (KFC's cashflow was indeed and in fact better than its earnings, if you know what I mean). At RM4.94, of course the GO will not turn into a Mandatory GO as it was fixed at too low a price, hence QSR was accumulating the shares (to close to 50%) with CIMB financing it. I knew that with CIMB financing QSR, the price of the shares would definitely rise post GO period as firstly QSR would need to repay CIMB for the financing (at market rate) and because of that, QSR being the controlling shareholder would force KFC to pay very good dividends as through the dividends from KFC, only then QSR can pay for the interest charged by CIMB for the financing of the accumulation of KFC's shares. Also, because of QSR wanted to increase to a decent percentage holding of KFC, it would not want to reduce holdings of the company (after all the hard work), hence the need for very good capital appreciation and dividends especially.

During the GO initiation period, QSR at that time would not allow the shares to rise above RM4.94 as if it were to rise, QSR would not have the chance to accumulate the shares at RM4.94. Accumulating it at a higher price would have triggered the GO at a higher price, which was not what QSR and CIMB wanted (I think).

I hence (together with QSR) seeing the plan, accumulated 7,000 units at RM4.94 per share. I was seeing the plan (without being an insider) from the actions, as I was monitoring KFC all along. KFC has always been a prized asset, until today. However, I did not take a plunge on the exercise as I was following the Benjamin Graham's principles (not to over expose on a position). Hence, I only took a RM35k decision and at price of around RM6 - RM8 I sold the shares, making a decent return but it was not good enough as (again) I was seeing the plan all along.

Of course, 6 years after that GO, KFC was delisted at a price of RM4 (after a combined split and bonus exercise of 1 share into 4 shares). So, if one is to purchase the shares at RM4.94, the shares would have effectively be worth RM16 after six years post GO at its delisted price (not inclusive of dividends income during the 6 - 7 years period). Hence, the person if to hold the shares from December 2006 until the delisting would have earned slightly less than 4 times at which price, the GO (RM4.94) was offered at in 2006. I actually have family members and friends who did hold onto the position for that entire period.

These kind of things does not recur often, and I am rueing the lost opportunity as I was just too careful, as I see it today.

Another lesson here is that shares investment is not just entirely about fundamental.

And again, these are partly my speculation which may not be true (as I see it).

IHH: Tell me who is to make the most out of this IPO

Not the employees, not the doctors, not Khazanah really if you study it properly, but perhaps CIMB!

Besides being the lead arranger and many other things (from advising on other programs prior to this IPO), this is what I gather from staffs of IHH.

1. They will not know the quantum of shares they are being offered until 4 July. From that date, they have until 9 July to subscribe which is 3 working days to pick up, arrange for financing or preparing for their own funds;
2. To apply for loan which will be offered via CIMB, the processing fee to be charged will be a flat RM130. The bank has advised those who will be offered shares to apply for the financing now, as they have very limited time to pick up once offered. This is basically pushing them towards the financing option. Assuming there are 10,000 staffs being offered and all of them are opting for the financing package from CIMB, the bank will net a cool RM1.3 million just from this non-risk income;
3. Financing rate will be BLR - 1.6% = 5.0% via CIMB;
4. The financing is only for six months, upon which if it is not paid, CIMB has the right to force sell the shares.

Now my question to IHH is why the short time frame given to the staffs and partners on the quantum they will be offered. The short time frame will not help them to arrange for financing themselves even if they have the money. Is the time frame provided as such so that they will not have much other options but to go for financing from CIMB? Then my question is already CIMB is making much from elsewhere in this IPO, why the need to make the RM130 for processing the loan from every individual?

Already CIMB is to be appointed for being the price stabilization manager (which also means they can support the price for you retail to sell in the short term). From here, the bank will be paid for stabilizing or rather preventing the shares from going below the issue price. Hence the risks is theirs to control. Why the need to overcharge the staffs (whom consists of nurses and other lower level staffs) as hospitals hire quite a bit of non-executives.

You know what pisses me off. There is no necessity to charge the flat processing fee from the working class as CIMB is already earning from the interest to be charged onto the employees. What is Bank Negara's stand in this? Is this how Malaysian banks are making money from the public? Why the need to only inform them of their entitlement on such a late notice?

In this IPO, CIMB is having the cake and eating it too.