A blank cheque for Country Heights?

This article first appeared in The Edge Financial Daily, on November 9, 2018.
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SERI KEMBANGAN: Shareholders of Country Heights Holdings Bhd (CHHB) have approved the group’s proposed cryptocurrency, dubbed Horse Currency, a project that involves an initial coin offering (ICO).

At the extraordinary general meeting (EGM) yesterday, 99.99% of the shareholders present, including the largest shareholder Tan Sri Lee Kim Yew, who controls a 69% equity stake, voted for the proposed cryptocurrency venture.

But the ICO has yet to obtain any necessary approval from the authorities.

There was no circular issued to shareholders for them to understand the risks of the ICO and the implications for the group before casting their votes at the EGM.

So far, CHHB has only revealed that it will issue one billion tokens backed by RM2 billion of the group’s assets.

According to its 2017 annual report, CHHB’s total assets amounted to RM1.27 billion as at Dec 31, 2017. The group’s property, plant and equipment, investment properties and land held for property development were valued at RM684.91 million.

Lee, CHHB chairman and founder, however, said that the group intends to revalue some of its assets in order to achieve the value of RM2 billion.

“We have a lot of assets which have not been revalued. We have a list of assets and Palace of the Golden Horses is one of them,” he told the press after the group’s EGM yesterday.

According to Lee, the regulators are not entirely in the dark about the proposed ICO as there have been discussions between CHHB and the Securities Commission Malaysia (SC).

“We have talked to the SC, sometime last month. During our engagement, they asked us some questions but did not ask us to submit anything yet. They said they are coming up with a regulatory framework,” he said.

In conjunction with Budget 2019, the SC last Friday announced that the regulator is working out a framework aimed at regulating digital asset exchanges and ICOs to “facilitate a fair and orderly development of this nascent market”.

Interestingly, prior to that, the SC had warned of the risks involved in investing in ICOs.

While the SC has been quick to shut down some ICOs, such as Lavida Coin and CopyCashCoin, this year, CHHB was permitted to conduct an EGM to obtain shareholders’ approval for the proposed ICO without regulators batting an eye.

This has raised eyebrows as many are new to cryptocurrency, let alone the risks. Some quarters wonder whether CHHB is setting a precedent for other public listed companies to follow: Companies are allowed to get shareholders to approve an ICO exercise without revealing important details and risks, such as the usage of their respective tokens, the underlying technology supporting the ecosystem of the token and the impact it may have on a company’s financials. Nonetheless, by the same token, shareholders could opt to vote against such proposal.

Following the approval of its shareholders, Lee said CHHB will proceed with appointing a technology partner and setting up a task force which will manage the group’s venture into blockchain and cryptocurrency.

The task force will also engage with the SC, Bursa Malaysia and Bank Negara Malaysia (BNM), to ensure that its cryptocurrency venture is in line with the regulations to be implemented in the future.

The group is also hoping to rope in some investment banks to underwrite a portion of its token issuance, as well as investors from other countries, said Lee.

The task force will work on the white paper for Horse Currency, which will only be released once the SC unveils its regulatory framework. “All of our plans are subject to the SC’s regulations. On our side, we are currently preparing RM2 billion in assets to back the token,” said Lim.

Upon issuance, Horse Currency will be mainly used as a utility token, a reward token and royalty programme with businesses, and in exchange for CHHB’s products and services, such as services at the Palace of Golden Horses, health screenings and treatments at the Grand Wellness Centre, dining at its restaurants and private jet trips.

Lee also hopes to have Horse Currency as legal tender for holders to purchase properties sold by the group.

Without knowing much of the proposed cryptocurrency venture, CHHB’s minority shareholders will now have to count on the regulators making sure that the ICO is law-abiding and transparent.