This article first appeared in The Edge Malaysia Weekly, on December 14 - 20, 2015.

OSK Ventures International Bhd’s (OSKVI) decision to dispose of its entire 15.92% stake in Green Packet Bhd at a loss recently has raised some eyebrows among the investing public. Should that be their cue to exit too or will Green Packet see better days ahead since its founder mopped up most of the shares sold?

The quandary is understandable. After all, OSKVI (fundamental: 1.20; valuation: 0.90) is a locally listed venture capital and private equity firm set up by veteran stockbroker, banker and businessman Tan Sri Ong Leong Huat.

Moreover, OSKVI was a pre-IPO investor in Green Packet (fundamental: 0.35; valuation: 0), which started in 2000 and floated on the Mesdaq Market (now ACE Market) in 2005 before moving up to the Main Market in 2007. In its heyday, Green Packet was a star in OSKVI’s portfolio. At its peak in 2007, the stock was worth 22 times more than what it fetches today.

At a glance, the headline, RM1.1 million loss and a one-sen decrease in earnings per share from the sale to OSKVI is very small for the self-made tycoon, whom Forbes ranks at No 35 on Malaysia’s rich list this year with a net worth of US$435 million (RM1.85 billion).

Yet a closer look reveals that OSKVI actually spent RM93.5 million buying Green Packet shares between 2004 and 2014. So, the RM1.1 million loss was on the carrying value of RM34.1 million in its books as at Dec 4 — which implies RM59.4 million already written off over the years through progressive fair value accounting. In fact, in the nine months ended Sept 30, OSKVI booked a net loss of RM15.3 million, largely due to RM13.48 million fair value loss from its listed portfolio in 3Q2015 (RM20.5 million for 9M2015).

“Tan Sri Ong, a seasoned stockbroker, is known to many in the corporate world. The fact that OSKVI is now willing to exit its investment at a loss may be perceived that he has lost faith and patience with Green Packet,” a corporate observer tells The Edge.

When contacted, Ong describes the disposal as “not something unusual”.

“In OSKVI, we invest and divest. We have invested in Green Packet for a long, long time. Since there is no significant development, we have to move on and look for alternative investments,” Ong says over the phone.

Ong is currently a non-executive director at OSKVI. He is also the non-executive chairman of PJ Development Holdings Bhd (fundamental: 1; valuation: 2.40) and RHB Investment Bank Bhd as well as CEO and group managing director of OSK Holdings Bhd (fundamental: 1.50; valuation: 3) and OSK Property Holdings Bhd.

“Over the years, we have seen ups and downs in [Green Packet]. As things don’t seem to be getting better, we thought maybe now is the right time to sell off the stake. It could be a wrong decision, it could be a right decision ... we will see,” he says.

He adds that in the current challenging times, it is better for OSKVI to liquidate its stake in Green Packet, cash out and wait for other investment opportunities. After all, he says, he is not an expert in the telecommunications industry. “I’m not a telco analyst, so I don’t want to comment much about [Green Packet]. In fact, I’m not directly involved in the share disposal. I leave it to my people to handle it.”

Stock market data shows OSKVI disposed of 109.89 million shares or a 15.92% stake in Green Packet for RM32.97 million cash through an off-market transaction on Dec 4. In its reply to a stock exchange query, OSKVI said the disposal was brokered by an independent third-party placement agent and no information on the purchaser(s) was made available to OSKVI.

Three days later, Green Packet founder Puan Chan Cheong, better known as C C Puan, declared that he had mopped up 75.89 million shares, raising his stake to 31.7%. In other words, he bought about 70% of the shares sold by OSKVI. It is not known who the buyer for the remaining shares was.

In a statement, OSKVI says the disposal price of 30 sen apiece is fair and reasonable and “cash proceeds from the disposal will provide OSKVI the additional flexibility in managing its funding requirements for future growth and reinvestment in other potential high-growth business opportunities”.

Interestingly, OSKVI’s exit from Green Packet came a year after the latter reduced its 57% stake in the loss-making WiMAX operator Packet One Networks (M) Sdn Bhd to 31%, following the entry of Telekom Malaysia Bhd (fundamental: 0.80; valuation: 1.10). The deal was completed last September with TM controlling 55.3%, Green Packet, 31.1%, and South Korea-based SK Telecom Co Ltd, 13.6%.

TM’s entry is seen as a prelude to a revival of P1 as well as Green Packet, which until recently has not been profitable since 2007. After divesting part of its stake in P1, Green Packet made a profit of RM2.3 million in the 15 months ended Sept 30, 2015. From July to September last year, the group had gained RM152.68 million from the dilution of its interest in the subsidiary. Green Packet is currently involved in the manufacture and distribution of wireless networking and telecom products, networking solutions and other high technology products.

Asked on OSKVI, Puan would only say this: “I can only comment on my own position as the founder of Green Packet. Increasing my stake in the company reflects my confidence in the future of the company.”

Only time will tell if Puan is right and if OSKVI should have waited a little longer, having held on for so long.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

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