Lim Kok Thay just pledged his shares, should you sell your Genting shares?

According to Singapore’s Straits Times, Lim Kok Thay, head-honcho of the Genting Malaysia Berhad. just pledged all his shares in Genting Hong Kong Limited, his cruise ship business, to guarantee loans. Straits Times has also pointed out he has pledged 32 per cent of his holdings in Genting Malaysia Berhad.

What does this mean for you, if you’re an investor?

Should you invest in companies whose owner/founder have pledged their shares to guarantee their company’s loans?

Aside from the fundamentals of investing in a cruise ship business right now (or a company that has openly declared a moratorium on paying its creditors), a dangerous investing situation arises when a founder/majority owner pledges their shares to guarantee company loans. If the stock price of the company continues to fall, the bank lenders might force-sell the pledged shares, triggering a wave of selling that might trigger a sudden downward spiral of the stock price.

I experienced this personally in the case of KNM Bhd, the Malaysian oil services company, listed on Bursa Malaysia. I had initially enjoyed supra-normal stock price returns from 2006 to 2008, but the stock then suddenly started tanking mid-2008. I found out from my broker later that this was due to KNM’s banks force-selling the pledged shares of the founder. I wish I had known of this pledging arrangement earlier, it certainly ratcheted the stock price downwards suddenly. Thankfully, I managed to sell the stock early enough to obtain a decent return, but I lost about one year’s worth of appreciation.

Sources told me that this happened to My E.G Bhd too in May 2018 when disastrous election results for Barisan Nasional triggered a share price drop for MyEG, which opened the threat of forced selling by banks on shares pledged by the founder.

Although, as an entrepreneur, I will resist pledging my shares in my company to guarantee a bank loan, sometimes, we do not have a choice. To obtain growth capital from banks, we will be asked to pledge our shares so that our company will be given loans. And if things go to plan, it is not an issue. Loans get paid back and our shares get unpledged.

But if things do not go to plan, then the entrepreneur runs the danger of losing control of her company. And the investor risks losing his shirt.

So when you see an owner/founder of a public company pledge her shares to guarantee her company’s loans, you should think about heading for the exit door.

#investing #genting #financialwellness #notsyariahcompliant

The Merdeka Event You Can’t Miss

We’re nearing the end of August, and it’s been a really tough year for the world, in large part due to the Coronavirus pandemic that has shook the world down to its core. Malaysians have had to adapt to our new circumstances and adopt the new ‘normal’ within our everyday lives. This has also meant that our usual celebrations during the month of August have either been non-existent, or toned down to ensure that they comply with the new Standard Operating Procedure (SOP).

However, that hasn’t stopped Huawei, who are going to be holding a Merdeka challenge in collaboration with Newswav. Starting from 16th August to 16th September, participants can expect to receive free gifts which also includes 10x Huawei P40 phones, along with a ton of weekly cash prizes! Unfortunately, this competition is only open to users who are on Huawei devices, however, do let us know if you’d like to participate in events like this in the future! 

So, how exactly does this challenge work? Well, it’s simple enough, all you have to do is to scroll and read the news on the Newswav app. A counter will appear on the Newswav App for Huawei devices, to actively track your scrolling and reading. The more you scroll, both in our News feed and within News Articles, the higher your score. Every week, the TOP 50 participants with the most points will automatically win a USB Pendrive. Furthermore, the TOP 3 on the leaderboards by the end of every week will win cash prizes of: RM1,000/RM500/RM200 respectively.

Although, for those that are committed to staying informed and keep up with the news, this is your chance to shine. The TOP 100 participants on the leaderboard by the end of the event will be placed into a lucky draw, that lucky draw will be handing out a total of 10 Huawei P40 phones to 10 lucky winners! And all you have to do is read the news! Sign up now and start scrolling today! Stay informed and be rewarded for it.

Breakdown of the schedule from Week 1 to Week 4:

Week StartingWeek EndingPrice Giving Date
12:00am 17th Aug11.59pm 23rd Aug28th Aug 10am
12:00am 24th Aug11.59pm 30th Aug4th Sep 10am
12:00am 31th Aug11.59pm 6th Aug12th Sep 10am
12:00am 7th Aug11.59pm 13th Aug19th Sep 10am