Frankly Speaking: How to irk minorities

This article first appeared in The Edge Malaysia Weekly, on August 12, 2019 - August 18, 2019.
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When it comes to upsetting the minority shareholders, corporations can always look to Genting Malaysia Bhd . It seems to have a knack for dismaying minorities with its related-party transactions (RPTs).

Its latest proposal — to acquire a 46% stake in loss-making Empire Resorts Inc from Kien Huat Realty III Ltd, which is linked to the founding family — has not gone down well with the shareholders.

The day after the announcement, Genting Malaysia fell as much as 15% to a low of RM3.08 before closing 43 sen or 12% lower at RM3.18, wiping out RM2.55 billion of its market capitalisation. Its parent, Genting Bhd, fell 47 sen or 7% to close at RM6.18, resulting in a RM1.82 billion drop in its market cap.  The two counters lost a total of RM4.38 billion in market cap the day after the RPT announcement.

The Minority Shareholders Watch Group also voiced its objections to the RPT (see Page 25).

While the proposed RPT itself is not surprising, what has stumped the investing community is that the board approved it. Does it see something that the minorities and investing community do not see?

Also note that seven out of the nine board members of Genting Malaysia are independent directors.  The independent board members believed the RPT is in the best interests of Genting Malaysia., having considered the rationale, prospects and risk factors.

What value do the independent directors  see in the deal to acquire 46% of a company that has been loss-making since 2015? They should clarify their rationale for approving the RPT to the minorities, whose interests the independent directors have a fiduciary duty to protect.

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