Lessons for investors from Country Heights Growers Scheme
On Feb 8, investors of the Country Heights Growers
Scheme (CHGS) approved its early termination. The investors also
accepted the goodwill package of about RM25 million, equivalent to a 12%
net yield payment, offered by Tan Sri Lee Kim Yew, CHGS founder and
chairman of its manager Plentiful Gold-Class Bhd. This is on top of the
company’s one-to-one buyback offer (totalling RM215.5 million) plus the
net yield of RM78.5 million paid out between 2007 and 2011.
The reasons for CHGS’ failure were agricultural in nature, which a good estate manager would have planned for.
It is always a disappointment when one’s investment does not pan out as expected. But then, the company had in the last five years paid out 48% of return in total, giving 8% return per annum for the first three years and 12% in the consequent years.
Recognising that it could not afford another payout due in Feb 14, it had on Jan 17 said so, and proposed to terminate the clearly unsustainable scheme.
If all goes well, and regulator Companies Commission of Malaysia (CCM) is pressured to make sure it does, investors would get their monies back by August. It is a relatively swift happy ending of sorts, considering how awry this could go.
Take the Euro Deposit Investment Scheme (EDI), for example. The Securities Commission (SC) had commenced probe into the scheme following complaints from investors and on April 28, 2009 issued a notice prohibiting the soliciting of new investments and directing that payments due to clients paid and their assets returned. It had been quiet since, until Feb 7, 2013 when SC announced it had on Jan 23 filed a civil suit against RBTR Asset Management Bhd and seven others over the scheme.
According to SC’s statement of claim, 112 EDI investors had cumulatively invested RM27.71 million between November 2007 and May 2008. From May 2008 to January 2009, only 49 investors, with funds amounting to RM14.18 million, were repaid in full or at all. A total of RM13.53 million, in particular investments maturing February 2009-May 2009, remains unpaid.
The ball has start rolling again with the civil suit but as one investor who had sunk in RM50,000 puts it, “there will only be closure when we get our capital back” and that could take years, if at all.
Meanwhile, the early termination of the CHGS sparked some concern over the viability and sustainability of other interest schemes. That they are registered and “endorsed” by the CCM does nothing to assuage the worry. After all, CHGS was registered with the CCM, and many quarters question whether the regulator body has all the necessary expertise to monitor them all efficiently. It was reported that CCM admits to having insufficient knowledge in oil palm plantations.
As of deadline time, Business Circle was unable to get a response from the CCM to its questions.
CCM’s website lists 171 registered interest schemes that are active, including recreational clubs, property schemes, and schemes involving timesharing, farmsharing and equipment sharing. The list does not seem to be updated as CHGS is still listed as active.
CCM did not respond to our queries on whether there had been many complaints over these schemes and what actions it had taken to date.
Interestingly, CHGS’ early termination caused only minimal concern among investors of another oil palm-based investment scheme Golden Palm Growers Scheme (GPGS). According to Andrew Phang, executive chairman of the scheme’s manager Golden Palm Growers Bhd, “our investors are fairly comfortable” with the management and sustainability of GPGS.
He highlights two fundamental differences between GPGS and CHGS – the model and the agricultural practices.
“The CHGS model promised to pay based on external indicators, i.e. the CPO price, regardless of whether its trees are fruiting or not. This led to a mismatch between its revenue and its ability to pay. We promise to pay based on how much we earn.
This model will consistently provide solid returns over the 23 years of the scheme and we’ll never have a mismatch issue.” He adds that the cited reasons for CHGS’ failure were agricultural in nature, which a good estate manager would have planned for. “Rainfall, terrain and wildlife, including elephant encroachments… all these affect us too. At the end of the day, it depends on how good your estate management practices are.”
GPGS currently has some 3,700 investors.
Photo Credit: firdaus usman via Compfight cc
CHGS logo obtained from CHGS official website.
http://www.businesscircle.com.my/lessons-for-investors-from-country-heights-growers-scheme/
VVVVVVVVVVVV
Sunday, 27 January 2013
Weekly roundup: Country Heights, gold trading, Protasco, CDS information leaked
MSWG has tackled the "Country Heights Grower Scheme", according to this article in The Star:
“Why the rush to terminate when the prevailing average crude palm oil (CPO) price is still hovering around RM2,300 per tonne, which is above the minimum RM800 per metric tonne?”
Rita pointed out that Ferrier Hodgson, the independent adviser, had stated that a shortfall between the grower's fee payable of RM215mil (contributed by the subscribers) and the underlying value of the land at RM129mil cast doubt on the recoverability of the grower's fee.
“Would CHGS be able to refund the capital of about RM215 million in this two years?” questioned Rita.
“If the net yield payments were not made, would it not be deemed as a breach of the terms and conditions of the agreement signed between the subscribers and CHGS?”
“Why is there a difference, ie, RM86mil, ie, RM215mil and the value of the land, ie, RM129mil? Why was there no professional valuation carried out for the said land?”
The first grower scheme in the country will be seeing its general meeting next month on Feb 8.
“In addition, what was the reason for fixing the general meeting date a day before the Chinese New Year's celebration, given the expected long break holiday?”
These seem to be all very valid questions. Although Country Heights is a listed company, the details of this kind of investment scheme can not be found on the website of Bursa Malaysia.
On MSWG's website Rita writes:
"It is time market regulators re-examine all such schemes, its structure and marketing taglines to ensure that subscribers/investors are protected"
This scheme is attracting a lot of attention in the forums, for instance on lowyat.
An old link from a Bloomberg interview with Country Heights's Lee about the Grower scheme:
``It's like money dropping from the tree,'' Lee, managing director of developer Country Heights Holdings Bhd., said July 2. ``I'm a very conservative guy. The only risk they take is the price of the palm oil.
Bee Garden Holdings Sdn., owned by Lee's wife and which runs the project, has sold 8,000 of the available plots, and expects to sell the rest by the end of the year, said Lee.
"Under the so-called Country Heights Grower Scheme, plot buyers will receive 12 percent each year on the amount invested if palm oil averages above 2,100 ringgit a ton from the fourth year onward, and a further 5 percent depending on the plantation's output. If palm oil prices are lower, the annual return drops on a sliding scale, paying 1 percent if the price of palm oil is between 901 ringgit and 1,100 ringgit a ton. There is no return on a price below 800 ringgit. ``It's very difficult for the price to drop below 800,'' Lee said. ``The potential is so great on palm oil.'' In total, annual returns will probably range from 11 percent to 17 percent from the fourth year onwards, the project's prospectus says."
With palm oil around RM 2,300 per ton, annual returns should be good, so MSWG's concerns regarding the termination of the contract seem to be correct.
A more general article about Malaysian investors hungry for yield and the rise of unregulated investment schemes can be found on Bloomberg.
In Singapore another gold trading company, Gold Guarantee, has apparently run into problems, the newspaper article is mentioned here.
I would caution investors to participate in these kind of schemes. If an investor is bullish about gold, he could invest in one of the large, listed mining companies in the US, Canada or Australia. If an investor is bullish about palm oil, he could consider investing in any of the listed plantation companies. And for property there are the REIT's. Information on these companies is much better and can (for Malaysian companies) easily be found on Bursa Malaysia's excellent announcements website.
On my posting "Protasco's Puzzling Purchase", "anonymous" suggested that the purchase might have to do with the recent change in directors and shareholding. "Ronnie" mentioned that "MSWG is doing a fine job given its limited resources. Hopefully they will do something or raise the alarm.", with which we agree.
The red flags are too numerous to count, and the announcement was of extremely poor quality. Not a single reason (production numbers, proven/probable/possible reserves of oil or gas, large historic profit numbers) was given why PT ASI would be worth that much money. A valuation would be done, but is it not the normal way first to do research before one buys a part of a company?
And then there was the saga of CDS account information possibly having being leaked. The Star's editor Risen Jayaseelan suggests to make the list of the largest 1000 shareholders available, for a price:
News editor Risen Jayaseelan reckons that if made available, the latest shareholder list of companies like Hong Leong Capital Bhd would be a sought-after item, as it would shed light on who is really buying the shares at prices above the takeover offer.
Bursa Malaysia was initially reluctant to investigate, hiding itself behind the excuse that it had not received any complaint. If information is credible (which it appeared to be, from different sources), then Bursa should just act and not use these kind of excuses, but act pro-actively and fast. Luckily, a few days later did it had indeed started an investigation into this matter, according to The Edge.
Busy days for the regulators.
“Why the rush to terminate when the prevailing average crude palm oil (CPO) price is still hovering around RM2,300 per tonne, which is above the minimum RM800 per metric tonne?”
Rita pointed out that Ferrier Hodgson, the independent adviser, had stated that a shortfall between the grower's fee payable of RM215mil (contributed by the subscribers) and the underlying value of the land at RM129mil cast doubt on the recoverability of the grower's fee.
“Would CHGS be able to refund the capital of about RM215 million in this two years?” questioned Rita.
“If the net yield payments were not made, would it not be deemed as a breach of the terms and conditions of the agreement signed between the subscribers and CHGS?”
“Why is there a difference, ie, RM86mil, ie, RM215mil and the value of the land, ie, RM129mil? Why was there no professional valuation carried out for the said land?”
The first grower scheme in the country will be seeing its general meeting next month on Feb 8.
“In addition, what was the reason for fixing the general meeting date a day before the Chinese New Year's celebration, given the expected long break holiday?”
These seem to be all very valid questions. Although Country Heights is a listed company, the details of this kind of investment scheme can not be found on the website of Bursa Malaysia.
On MSWG's website Rita writes:
"It is time market regulators re-examine all such schemes, its structure and marketing taglines to ensure that subscribers/investors are protected"
This scheme is attracting a lot of attention in the forums, for instance on lowyat.
An old link from a Bloomberg interview with Country Heights's Lee about the Grower scheme:
``It's like money dropping from the tree,'' Lee, managing director of developer Country Heights Holdings Bhd., said July 2. ``I'm a very conservative guy. The only risk they take is the price of the palm oil.
Bee Garden Holdings Sdn., owned by Lee's wife and which runs the project, has sold 8,000 of the available plots, and expects to sell the rest by the end of the year, said Lee.
"Under the so-called Country Heights Grower Scheme, plot buyers will receive 12 percent each year on the amount invested if palm oil averages above 2,100 ringgit a ton from the fourth year onward, and a further 5 percent depending on the plantation's output. If palm oil prices are lower, the annual return drops on a sliding scale, paying 1 percent if the price of palm oil is between 901 ringgit and 1,100 ringgit a ton. There is no return on a price below 800 ringgit. ``It's very difficult for the price to drop below 800,'' Lee said. ``The potential is so great on palm oil.'' In total, annual returns will probably range from 11 percent to 17 percent from the fourth year onwards, the project's prospectus says."
With palm oil around RM 2,300 per ton, annual returns should be good, so MSWG's concerns regarding the termination of the contract seem to be correct.
A more general article about Malaysian investors hungry for yield and the rise of unregulated investment schemes can be found on Bloomberg.
In Singapore another gold trading company, Gold Guarantee, has apparently run into problems, the newspaper article is mentioned here.
I would caution investors to participate in these kind of schemes. If an investor is bullish about gold, he could invest in one of the large, listed mining companies in the US, Canada or Australia. If an investor is bullish about palm oil, he could consider investing in any of the listed plantation companies. And for property there are the REIT's. Information on these companies is much better and can (for Malaysian companies) easily be found on Bursa Malaysia's excellent announcements website.
On my posting "Protasco's Puzzling Purchase", "anonymous" suggested that the purchase might have to do with the recent change in directors and shareholding. "Ronnie" mentioned that "MSWG is doing a fine job given its limited resources. Hopefully they will do something or raise the alarm.", with which we agree.
The red flags are too numerous to count, and the announcement was of extremely poor quality. Not a single reason (production numbers, proven/probable/possible reserves of oil or gas, large historic profit numbers) was given why PT ASI would be worth that much money. A valuation would be done, but is it not the normal way first to do research before one buys a part of a company?
And then there was the saga of CDS account information possibly having being leaked. The Star's editor Risen Jayaseelan suggests to make the list of the largest 1000 shareholders available, for a price:
News editor Risen Jayaseelan reckons that if made available, the latest shareholder list of companies like Hong Leong Capital Bhd would be a sought-after item, as it would shed light on who is really buying the shares at prices above the takeover offer.
Bursa Malaysia was initially reluctant to investigate, hiding itself behind the excuse that it had not received any complaint. If information is credible (which it appeared to be, from different sources), then Bursa should just act and not use these kind of excuses, but act pro-actively and fast. Luckily, a few days later did it had indeed started an investigation into this matter, according to The Edge.
Busy days for the regulators.
10 comments:
- Thanks, corrected, also found another Bloomberg article about "money dropping from trees", hope that will be the case, but I have my doubts .....Reply
lmenwe28 January 2013 21:53Actually Mr Lee's reputation and integrity is questionable. There are too many red flags in the growing scheme but again the crowds will ignore as long as the return is guaranteed. I just couldn't understand why there are so many fool in the world but I had yet to meet one in my whole life (excluding my family members)!Reply- "If an investor is bullish about gold, he could invest in one of the large, listed mining companies in the US, Canada or Australia."Reply
http://www.businessinsider.com/hugh-hendry-insane-to-own-gold-minging-equities-2012-10 - guys, please refer to POST 958 at http://forum.lowyat.net/topic/545351/+940Reply
There is a letter from Tan Sri to all the growers. - It was a informatory post and it has a significant meaning , thanks forReply
sharing the information. Would love to read your next post too……..
gold trading - lmenwe4 February 2013 14:20I had just done a rough calculation of the worth of plantation land in listed company.Reply
Below info is extracted from 2011 annual report. There might be some discrepencies due to increase of landbank.
Sarawak Oil Palm with market cap of RM 2.48833 billion and land bank of 72653 hectare. The land worth about RM 34249/ha.
Rimbunan Sawit with market cap of RM 1.02718 billion and land bank of 44188 hectare. The land worth about RM 23246/ha.
TSH resources with land bank of 57532.82 hectareand market cap of RM 1.75217 billion. The land cost is roughly RM 30455/ha.
Cepat wawasan with market cap of RM 281.16 million and land bank of 9816.979 ha. The land cost is roughly RM 28640.1754.
I wonder how come a scheme with unplanted land can be sold at RM 53341.6/ha? Others are even more ridiculous. Golden palm can be sold at RM 77362.63/ha. Golden Agro at RM 78944.18/ha. Sorry for East West One as the pricing is too complicated.
- Thanks for the work, if these numbers are indeed correct then that leaves even more question marks. I would not be completely surprised, with landbanking etc they also buy cheap land, subdivide it and sell at a huge premium. And then hopefully the land gets converted to commercial/resedential use and profit is indeed made.Reply
I fail to see why all these alternative investment schemes would be more profitable then simply investing in blue chips in the same industry. The only thing for sure is that one has less rights with those schemes then investing in a listed company.http://cgmalaysia.blogspot.com/2013/01/weekly-roundup-country-heights-gold.html
Thank you