Investing in less well-known asset classes

Source: StarBiz

TO part with one's hard-earned money is painful but to lose it completely in an investment gone awry is heartbreaking. With various investment tools and schemes coming to market, investors are inundated with choices.

While many investors opt for more well-known asset classes such as equities, bonds, properties and money markets, there are also those who are game to try a less popular option interest schemes.

According to the Companies Commission of Malaysia, interest schemes have been in existence for more than 20 years in Malaysia.

The commission says that properly registered and well-managed interest schemes could play a major role in contributing to the growth of the Malaysian economy and provide an alternative mode of fund raising through participation in a variety of business models.

There are seven types of registered interest schemes in Malaysia the sale of memberships by golf clubs, recreational clubs, marinas, time-sharing, fitness clubs, the sale of license for use of urns and burial plots by memorial parks, and the sale of growers' plot in share-farming schemes.

Local investors may be familiar with two registered share-farming schemes Country Heights Grower Scheme and Golden Palm Growers Scheme which allow investors to reap returns by purchasing oil palm plantation plots.

Interest scheme products vs Unit Trust and REIT products

Given the rapid growth of the interest scheme sector in Malaysia, it is necessary to understand the differentiating features of interest scheme products that are established under the Malaysian Companies Act 1965 and products such as unit trusts and REITs that are established under the Malaysian Capital Markets and Services Act 2007.

The table below shows a broad set of differentiating features:

No.	Feature	Interest scheme product	Unit trusts or REITs
1.	Applicable statute	Interest schemes falls under the purview of Section 84(1)(b) of the Companies Act 1967 (Act 125) (“Companies Act”) definition of “interest” which means any right to participate or interest, whether enforceable or not and whether actual, prospective or in any common enterprise, whether in Malaysia or elsewhere, in which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party. Interest schemes do not fall within the excluded categories under the definition of “interest” in Section 84(1) Companies Act. Interest schemes do NOT fall under the definition of “unit trust scheme” as contained Section 2(1) CMSA for THREE (3) reasons: i. Interest schemes have NOT been exempted from the operation of Section 84(1) Companies Act by the Minister of Domestic Trade and Consumer Affairs exercising his powers under Section 96(1) Companies Act; ii. The Minister of Finance must have made a prescription under Section 5 CMSA for the “interest” to fall under the operation of the CMSA; and iii.There are material differences in pith and substance between the interests created under the interest schemes and that of a “unit trust scheme” as defined in Section 2(1) CMSA. These differences are enumerated below in this Comparative Table.	For the Capital Market and Services Act 2007 (Act 671) (“CMSA”) to apply to any “interest” created, such an “interest” requires two positive statutory actions under the Section 2(1) CMSA definition of “prescribed investment”, namely: i. An interest as defined under subsection 84(1) Companies Act must have been exempted under Section 96(1) Companies Act by the Minister of Domestic Trade and Consumer Affairs; and ii. The Minister of Finance must have made a prescription under Section 5 CMSA. Section 2(1) CMSA also defines “prescribed investment scheme” as an undertaking, scheme, enterprise, contract or arrangement in relation to a prescribed investment. Although, Section 2(1) CMSA defines “unit trust scheme” to mean any arrangement made for the purpose, or having the effect, of providing facilities for the participation of persons as beneficiaries under a trust in profits or income arising from the acquisition, holding, management or disposal of– (a) securities; (b) futures contracts; or (c) any other property; there are material differences in pith and substance between the interests created under the proposed interest scheme and that of a “unit trust scheme” as defined in Section 2(1) CMSA. These differences are enumerated below in this Comparative Table.
2.	Intrinsic value	No intrinsic value - Interests carry a value derived from a direct contractual interest in a business managed by the Management Company that is protected by an underlying asset value.	Every unit of a unit trusts and REIT carry an intrinsic value.
3.	Active versus Passive Modality	Interest schemes are "common enterprise" schemes i.e. in the nature of mini joint ventures based on contractual rights. Due to their privity in contract, interest holders are more active participants. The Management Company in an interest scheme is appointed by interest holders to operate the business situated on the asset.	Investors of unit trusts and REITs are buying instruments that carry an intrinsic value independent of the business conducted by the issuer. They are passive investors. They are further removed from the actual business activity. Unit trusts pool funds from investors and then invests the funds in a portfolio of various investment mixes approved by the regulator.
3.	Tradeability	There is no separate legal instrument. Every transfer of an interest is, in fact, a novation or assignment of parties.	Unit trusts and REITs, are unitized instruments that bear an intrinsic value. The bearer of these instruments can publicly trade the unit trusts and REITs. They have better liquidity features. The character of tradeability is a key differentiating characteristic as shown by Section 2(1) CMSA definition of “unlisted recreational club” means a corporation which provides the holders of its shares or debentures the right to use or enjoy any recreational, holiday or other related facilities and whose shares or debentures are not listed or proposed to be listed for quotation on any stock market of a stock exchange.
4.	Ownership and interest	Typically the Management Company has the legal ownership of the asset. The Management Company undertakes to maintain the asset free of encumbrances. The interest holder has a direct beneficial interest in the asset.	In the case of REITs, the management company is usually separate from the owner of the asset. The owner of the asset under REITs is usually a special purpose vehicle established for the sole purpose of holding the registered title to the asset. Neither the unit trust holders nor REIT holders have a direct beneficial interest in the asset.
5.	Vesting	Interests are inchoate property interests i.e. property rights not vested / rights to property not completed but linked to the underlying property. Vesting takes place on a contingent basis i.e. where the Management Company’s role is taken over by the Trustee. Rights of interest holders are derived from the contract executed.	Investors of unit trusts and REITs are buying instruments that carry an intrinsic value linked to the value of the Issuer and, indirectly, to the Issuer's assets The underlying assets never vests with the investors. Rights of the unit trust and REITs holders are derived from the instrument itself.
6.	Share of profits versus financial yields	The “nett yield” paid to interest holders is actually a direct share of profits generated from the business conducted by the Management Company. Interests created under the proposed scheme, being mini joint ventures, generate profits that are then shared between and amongst other interest holders. However, to make it easy for participants to understand how their returns are calculated, interest schemes typically use a percentage of the base value contributed by the participants	Unit trusts and REITs use a computation formula to calculate yields which is further removed from the actual business activity. Unit trusts and REITs are, therefore, more akin to equity and financial products. In this respect, the yields from unit trusts and REITs are similar to bonds and, dividends paid to equity shareholders.

Fund-raising for SMEs using Interest Schemes

In the present economic climate there may be one bright spot for entrepreneurs with sound business ideas but who are experiencing challenges to secure funding from traditional sources.

Regulated by the Companies Commission of Malaysia (CCM) the most popular interest schemes at present are promoted in the golf and recreational clubs and timeshare sectors.

The same set of regulations that govern golf and recreational clubs and timeshare sectors are versatile enough to be applied to commercial ventures and enterprises where entrepreneurs commit to sharing the profits or financial returns with investors who are called interest-holders.

To-date, the value of interest schemes approved by the CCM since 2007 is approaching the RM1 billion mark.

Clearly, interest schemes should be recognized as a viable alternative source of fund-raising for Malaysian SMEs.

Solicitation of funds from the public by unapproved schemes

The bane of CCM has been the incidence of enterprises that have solicited funds from the Malaysian public using business models that does not comply with the existing Malaysian regulations.

In using a “Balanced Enforcement” doctrine, the CCM has demonstrated an understanding that many entrepreneurs fail to make the requisite applications to CCM for approval of their interest schemes due to ignorance.

As such, CCM’s approach is to establish a continuous programme to create public awareness that CCM’s regulatory approval is required for common enterprise interest schemes.

Recent CCM actions that have been widely reported include investigative actions for non-compliance by swiftlet schemes and landbanking interest schemes.

General features of a common enterprise interest scheme

While interest schemes promoted in the golf and recreational clubs and timeshare sectors involve the enjoyment for the use of sports, recreational and accommodation, the key feature of a common enterprise interest scheme is the periodic financial yield or return that interest holders can look forward to receiving.

Typically, a common enterprise interest scheme will involve a start-up process where the enterprise is prepared and primed for commencement of business operations. This is where the funds received from interest holders are used to establish and develop the enterprise.

During the start-up phase, the management company for the interest scheme is obliged to commit to pay each interest holder a fixed financial yield or return.

Once the enterprise commences operations, the periodic financial yield or return is calculated as a share of profits from the operations of the enterprise.

Use of independent experts and other safeguards

One measure to safeguard the interest of interest holders, the management company for the interest scheme is required to retain the services of an independent expert in the business operations of the enterprise. For example, an oil palm plantation interest scheme will have its plantation operations audited by the independent expert or, an animal husbandry interest scheme will be operationally audited by a veterinary expert.

The other safeguard is the trustee who represents the interests of all interest holders. In this respect, the role and function of a trustee in a common enterprise scheme is broadly similar to that of golf and recreational clubs and timeshare schemes.

Since interests are taken up be members of the public, a prospectus is necessary.

Efficient alternative fund raising mechanism for SMEs

An interest scheme may prove to be an efficient fund raising mechanism for SMEs with the appropriate business model. It enables an SME to reach out directly to the Malaysian public and, foreign investors, to take up interests in the enterprise.

SMEs involved in agricultural activities, such as oil palm plantations and reafforestation operations and, animal husbandry such as fish-breeding and cattle farming, are suitable candidates to tap into this fund raising mechanism. Boutique hotels and commercial property operators are also suitable candidates.

Credit Bureau Malaysia

The former SME Credit Bureau has rebranded itself as Credit Bureau Malaysia. The Credit Bureau is a useful source for business entities to check the creditworthiness of customers and clients. This will greatly assist businesses to avoid the many pitfalls in appraising new customers and clients and, greatly improve credit control procedures.

Click here to get to the Credit Bureau Malaysia webpage.

A brief background of the Credit Bureau, extracted from their website, is set out below:

Credit Bureau Malaysia is the leading provider of comprehensive and credible credit information and ratings on SMEs in Malaysia. It is:

• An initiative by Bank Negara Malaysia to enhance SMEs access to financing
• A convenient One Stop Centre for financiers and other credit grantors to retrieve credit information and ratings for credit evaluation purposes
• A user friendly platform for SMEs to build their track record and credit standing to facilitate faster processing of their credit applications

The Bureau was incorporated on 3 June 2008 and began its operations on 1 July 2008. It is a joint venture between Credit Guarantee Corporation Malaysia Berhad (CGC), Dun and Bradstreet (D&B) Malaysia, a global provider of credit information on businesses, and The Associations of Banks in Malaysia (ABM) to enhance SMEs' access to financing and to create a sound credit culture amongst the business community in the country.

Endorsed by Bank Negara Malaysia (BNM), The Bureau is essentially a platform for SMEs to build, maintain and enhance their credit standings and ultimately, facilitate wider and easier access to financing. The Bureau also assists SMEs by providing them with an avenue for recourse and ensure only accurate and up to date information is reflected in their reports and ratings.

Our Developmental Role

The Bureau's developmental role is in line with the Government's objective of strengthening the financial structure for SMEs to enable them to increase their contribution to the Malaysian economy.

The Bureau undertakes this role by generating independent credit ratings on SMEs from credit and corporate business information obtained from credible sources such as Bank Negara Malaysia (BNM) and the Suruhanjaya Syarikat Malaysia (SSM).

These ratings and reports are available to potential financiers such as financial institutions and other credit grantors, such as multinational corporations and utility companies. Designed to incorporate both positive and negative credit information, the reports provide a balanced view of the SMEs' credit standings.

Traditionally, one of the key factors in credit evaluation is the historical conduct of payment behavior. SMEs that have no previous banking history would not have the 'reputational collateral' that would otherwise give them easier access to financing.

The Bureau's role is to "bridge" the current perceived information gap and address some of the issues related to inadequate financial track record involving SMEs. By bridging this gap, The Bureau hopes to create an increasing level of trust between SMEs and lenders, while promoting greater transparency and competition between lenders.

While The Bureau's reports and ratings are primarily used for credit evaluation, they may also be used by the SMEs to undertake a self-check. This is because The Bureau's credit ratings will identify and highlight areas that need improvement and the necessary remedial actions to be taken by SMEs in order to resolve their weaknesses and improve their credit standing.

Having identified their weaknesses, SMEs, if they wish, can seek professional counseling from The Bureau on the remedial actions required. This service is available to SMEs free of charge.

More on Tanjong's sale of NFO business

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KUALA LUMPUR: Interest in Tanjong plc’s gaming business is heating up and tycoon T Ananda Krishnan could well end up a big winner as he realises more value from the recently privatised company by carving up its gaming and power assets.

The frenzy over Tanjong’s gaming unit is increasing as Ananda is said to be closing the sale soon. Analysts say Tanjong could command a premium as it has the privilege of being the only gaming business that is up for sale in Southeast Asia at the moment. It was rumoured that the price tag for the gaming unit could be in the region of up to RM2.5 billion.

A report from online news portal The Malaysian Insider yesterday speculated that the Malaysian Chinese Association (MCA), the main Chinese political party in the Barisan Nasional coalition, could be interested in bidding for the gaming unit. This was flatly denied by the party’s president Datuk Sri Dr Chua Soi Lek.

“The report is purely speculative because we have no interest in bidding for Pan Malaysian Pools Sdn Bhd,” he said in statement yesterday, referring to Tanjong’s gaming subsidiary. “The MCA is open to any investment opportunities, but it has no intention to be involved in gaming businesses.”, he said.

MCA presidential council member Loh Seng Kok said he “had heard nothing about it [the bidding for Tanjong’s gaming business]” when contacted by The Edge Financial Daily earlier yesterday.

Speculation of the MCA looking into Tanjong’s gaming business coincided with the announcement last week that its investment arm Huaren Holdings Bhd had transferred 313.31 million shares valued at RM1.28 billion in Star Publications (M) Bhd to MCA itself. The shares, representing a 42.4% stake in the company, were transacted at RM4.09 a piece.

The parties rumoured to be vying for Tanjong’s gaming business include the Cheng family, Filipino tycoon Roberto Bobby Ongpin and the Genting group.

The Cheng family, headed by Datuk David Cheng, is primarily involved in the slot machine business and in the food and beverage industry through the popular Chinese restaurant chain Dragon-I.

Ongpin, who served as the Philippines’ minister of trade and industry from 1979 to 1986, also reportedly has a sizable interest in online gaming businesses in the Philippines, apart from his property and telecommunication businesses.

It is learnt that Tanjong had already expressed its interest to sell its gaming division as early as 2007. Among the interested parties then were Genting and Multi-Purpose Holdings Bhd. But no deal materialised.

Its intention to sell the gaming unit then could have stemmed from the fact that many Malaysia-based and syariah-compliant institutional investors were not able to invest in

Tanjong’s growing power assets since the group was involved in gaming. This accounts for the fact that Tanjong has always been viewed by analysts as an undervalued conglomerate and the periodic market talk of a de-merger of the group’s power and gaming businesses over the years.

What it mean for AK

Tycoon Ananda privatised Tanjong this year at some RM12 billion, based on the general offer price of RM21.80 a share. Apart from the gaming and power assets, Tanjong also owns Menara Maxis in KLCC, the TGV cinema chain and the Tropical Islands resort in Germany.

If the gaming unit fetches up to RM2.5 billion as speculated, it would be valued at a forward price-to-earnings ratio (PER) of 26 times for FY2011 ending Jan 31, based on an analyst’s assumption that the division generates RM100 million in net profit. This is relatively pricey compared with peers such as Berjaya Sports Toto Bhd, which is trading at a forward PER of 17 times.

The analyst, who tracked Tanjong closely before it was privatisated, however, said that the acquisition PER could be potentially lower, as her forecast for Tanjong’s gaming earnings included an RM80 million loss before interest and tax at the racing totalisator (RTO) business.

Tanjong is believed to be in discussions with the government to reduce this loss, which she believes could be halved in FY2012.

Stripping out the value of the gaming unit at RM2.5 billion plus the estimated market value of TGV and Menara Maxis and ascribing no value to Tropical Islands, the residual value of Tanjong’s power division (including its local and overseas operations) works out to RM8.87 billion, according to the analyst’s estimate. This translates into a PER of 10.7 times for FY2011.

If the gaming business is sold for RM2 billion (at a PER of 20.9 times), the power division would then be valued at RM9.37 billion, or a forward PER of 11.3 times, she estimates.

At a forward PER of 10.7 times or 11.3 times, the implied valuation of Tanjong’s power assets would be very attractive compared with peers such as YTL Power International Bhd, which is trading at around 15 times.

That suggests the power assets, if they are later sold or re-listed, should fetch a handsome premium.

Judging from Ananda’s historical business strategy, a re-listing of Tanjong is possible in the future, although it will likely consist of just the power assets.

Assuming Tanjong’s power division is priced at 15 times PER, similar to its peers, a re-listing of the firm could fetch a market value of about RM12.5 billion.

As such, the re-listing of the power asset could potentially bring in a cool total profit of some RM3 billion to RM3.5 billion for Ananda, or a return on investment of between 25% and 29%.

As at FY2010 ended Jan 31, Tanjong’s overseas power assets accounted for 42% or some RM1.5 billion of the total group revenue and 28% or RM557 million of group operating profit.

For FY2011, they are estimated to collectively contribute net profit of RM832.5 million.

Tanjong’s power plants are located in Malaysia, Egypt and Bangladesh. The group also owns associate stakes in power plants in Pakistan and Sri Lanka, as well a stake in a power cum water desalination plant in Abu Dhabi. Total production capacity of the local power plants is 1,490MW and the overseas power plants 2,461MW.

Gaming earnings pulled down by RTO losses

Tanjong’s gaming segment comprises numbers forecast totalisator (NFO) and racing totalisator (RTO) businesses.

Although the NFO division has been performing reasonably well, its RTO business has been in the red due primarily to the escalating totalisator expenditure incurred and charged by the turf clubs. Tanjong is believed to be in discussions with the Ministry of Finance, Malaysian Totalisator Board and the three turf clubs about the issue.

For FY2010, the NFO generated an operating profit of RM234.9 million, in contrast to the RM65.8 million operating loss incurred by the RTO business.

At the earnings before interest, taxes, depreciation and amortisation (ebitda) level, Tanjong’s NFO business has been growing healthily from RM173 million to RM244 million from 2006 to 2010, with a compound annual growth rate of 7.12%.

On the other hand, the RTO business’ operating loss of RM65.8 million in FY2010 was more than twice the RM26.9 million loss recorded in the year earlier.

This caused a drop in operating profit for Tanjong’s gaming segment as a whole, which fell by RM41 million or 19.52% to RM169 million, from RM210 million.

It is believed that Tanjong’s gaming arm, Pan Malaysian Pools Sdn Bhd, is estimated to have about 24% market share, the lowest among the three players. Berjaya Sports Toto Bhd has a market share of about 40% while Magnum Corp Bhd has about 36%.

With Ananda having made a considerable profit from the privatisation and re-listing of Maxis Bhd, the carving up of Tanjong plc’s gaming and power assets could well follow that trend.

In the past year, Ananda has overseen the re-listing of Maxis Bhd and three privatisations — Tanjong plc, Astro All Asia Networks plc and Measat Global Bhd.

Next up is the planned re-listing of oil and gas services firm Bumi Armada, which was privatised back in 2003.

It has certainly been a busy — and very profitable — year for the reclusive tycoon.

When Is Litigation Worth The Hassle?

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Bringing a lawsuit is like any other business decision. Here's how to think it through.

Often the hardest part about litigation is making the decision to take it on in the first place--and that has a lot to do with how much the whole affair might cost. Many attorneys often divorce litigation from the business goals of the client. (After all, the litigator's business is to sell as much of his product--that is, time--as he can.) Common result: disproportionately high fees.

The decision to sue or settle should, in almost all cases, be seen as a business decision. Parties tend to litigate when at least one side is overly optimistic about its case. Settlements occur when reality converges with expectation.

Here is a basic decision-tree analysis that will allow you to deconstruct the problem into components, weigh the relative significance of the parts, assign possibilities to them and reach a conclusion.

Say a landlord comes to me and says he wants to sue a tenant for breaching a lease. The company was under a long-term lease and vacated the premises. The amount that is owed on the balance of the lease is $500,000.

At first blush, my client is correct. The tenant did vacate and the total owed is $500,000. So, we go to court, right?

To quote Lee Corso from ESPN: "Not so fast, my friend." According to the tenant, my client forced him out. (In legalese, that's called "constructive eviction"). If true, then it was my client who breached the lease and the tenant would owe nothing.

So how do we disprove this constructive eviction? What documents do we need to look at? Whom do we need to depose? What motions might we need to file? Once we get that information, we do a little economic modeling--now stay with me.

Essentially, we have to estimate the expected value of an ultimate victory. Because the likelihood of victory lies somewhere south of 100%, we have to discount the potential spoils by some factor that captures the inherent risk of not winning the case. That means taking the likely award and multiplying it by some probability of success.

Example: If you're likely to receive $500,000, but there is only a 50% chance of prevailing, the expected value of the suit is $250,000. It is against this amount that you should weigh the costs of going through with the suit vs. a settlement. (Unfortunately, most cases settle "on the courthouse steps"--that is, after most of the fees have been incurred.)

In theory, plaintiffs will accept a settlement that is higher than the difference between the expected value and the litigation costs; defendants will accept a number beneath that difference. Unfortunately, at the beginning of a case the value of the claim is overestimated by the plaintiff and underestimated by the defendant. Those poor estimates muddy the waters a bit--that adds time, and therefore, cost. That's why clients must be open and honest with their attorneys about the strengths and weaknesses of their cases.

Using the example above, say the expected value of a trial is indeed $250,000. Next, we look at the number of witnesses and other litigation factors. Let's say we conclude that it will cost each side $100,000 to go to trial (Litigation costs often chew up around 20% of the value of a case). That means the best the plaintiff can do is to net $150,000. Also, most cases do not go to trial for well over a year. Because a dollar tomorrow is worth less than a dollar today, that $150,000 in 18 months is worth less in real terms. (To simplify the calculation, we'll ignore the impact of inflation.) Bear in mind that, at this juncture, there is a lot of guess work involved; many key facts are still unknown. This is where the experience of the attorney comes into play. Self-serving, perhaps, but true.

It's difficult to accurately estimate the fees at the beginning of a case. Who really knows how aggressive the other side will be? How many motions will they file? How many depositions will they schedule? And then there are the other intangible litigation costs in addition to lawyers' fees: The time people spend being deposed or in court is time they are not spending working on their business. There is a cost to that.

So, given all of these variables, we have decided that the expected value of the case is worth something less than $150,000 on day one. What would I do as the plaintiff's attorney?

First, I may not make the opening salvo, as this would be considered "betting against yourself." However, I would sit down with the defendant's attorney and go through the same analysis, with one small difference. I would look at the upper range of success. Rather than a 50% probability, I would make a cogent case as to why the likelihood of success is 75%, or some other justifiable percentage.

So I start by saying the case is worth $375,000 on day one. Recognizing that my client is saving litigation costs, I would discount the amount to, say, $300,000. However, I would make it clear that the $75,000 discount is to account for the litigation costs and that the settlement offer will go up by a similar amount. In other words, if $10,000 is spent on the case in the first month, the settlement offer goes up to $310,000.

Also, look at it this way. On a $500,000 claim, at a 75% probability of success, less $100,000 in litigation costs, the estimated net return on going to trial is $275,000. If the defendant comes back with an offer of $300,000, you have done well. Not only is the money in your pocket, you have avoided paying your lawyer, eliminated the uncertainties of the case and, most importantly, get to move on with your business.

One of the lines I hear so often from new clients is "I don’t care how much it will cost; it's the principle of the matter." Let me tell you something: It's always the principle of the matter until the first bill arrives in your mailbox. Make a business decision: Do the math.

MCA denies gaming move despite ‘meeting’ Tanjong officials

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KUALA LUMPUR, Nov 10 — The MCA leadership today moved to deny that the party is in the race for Tanjong Plc’s gaming business, although The Malaysian Insider understands the party’s investment panel chief had met Tanjong officials over the matter.

It was learnt that panel chief Datuk Seri Dr Fong Chan Onn met officials close to the company’s controlling shareholder tycoon, T. Ananda Krishnan, who is mulling offers for Tanjong’s gaming business, valued at about RM2.5 billion.

“The report is purely speculative because we have no interest in bidding for Pan Malaysian Pools Sdn Bhd,” MCA president Datuk Seri Dr Chua Soi Lek said in a statement, saying he regretted the speculative report.

“The MCA is open to any investment opportunities but it has no intention to be involved in [the] gaming businesses,” he added.

Apart from Fong, Dr Chua’s son, Labis MP Chua Tee Yong, sits on the panel that supervises its investment arm Huaren Holdings Sdn Bhd.

Dr Chua also said MCA regretted that DAP has jumped the gun by attacking the party without verifying the accuracy of the news report.

“It should get its facts right. The MCA will seek legal recourse against any party that continues to speculate [on] this issue that has no basis at all.

“The DAP, being part of the Pakatan Rakyat government in Selangor should instead explain the mushrooming of cyber cafes, ‘health centres’ and ‘reflexology centres’ in the state,” Dr Chua added.

A senior party official has said MCA cannot afford the entire gaming business but would be keen on the Sweepstakes, which can offer recurring revenue.

“MCA has been invited to take the stake but they will not pursue it,” said the official, citing the political aftermath of such a purchase.

MCA Youth chief Datuk Dr Wee Ka Siong, however, said the matter had not even been brought up at MCA’s last central committee meeting.

“This is nothing but utter rubbish. There is no truth in this. We have not even touched on this or raised this at the last central committee meeting, so how to have takeover?” Wee told The Malaysian Insider today.

The MCA man claimed that the party was in no “financial position” to even consider purchasing the gaming unit.

“How do we even want to buy the gaming business, when MCA does not have the money to do so? It’s like buying a car, you need to first have money to buy the car, right? Anyway a purchase of a gaming business is not something which would attract MCA,” said Wee.

Wee’s remarks come after MCA’s Huaren Holdings Sdn Bhd sold its 42.4 percent stake in The Star publisher Star Publications (M) Bhd for RM1.28 billion, or RM4.09 a share, to the party last Thursday, giving the investment firm the funds to buy the gaming company in a combination of cash and debt financing.

The Malaysian Insider understands that MCA has been advised to bid for the gaming unit as it offers recurring revenue, similar to The Star daily.

It is also learnt that Ananda Krishnan will decide soon whether to make the sale, which is being eyed by the Cheng family, Filipino tycoon Roberto “Bobby” Ongpin Jr and some international private equity firms.

The expected sale is part of a restructuring to be syariah-compliant and tap the Middle East and North African markets together with those in South and South-East Asia to expand the power-generation business.

The DAP today claimed of links between MCA’s bid for Tanjong Plc’s gaming business and its previous position supporting the legalisation of sports betting.

MCA was supportive of tycoon Tan Sri Vincent Tan’s Ascot Sports’ attempt to get a sports betting licence earlier this year.

Wee, however, brushed off DAP’s remarks, claiming that this was an attempt by the opposition to start an anti-MCA movement.

“This is just a plot by them so that people will attack and hate MCA, it’s not true” said Wee.

MCA mulls buying Tanjong’s gaming business

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KUALA LUMPUR — The MCA is said to have joined the bidding for Tanjong Plc’s gaming business that is valued at about RM2.5 billion, which is also being eyed by the Cheng family with Filipino tycoon Roberto ‘Bobby’ Ongpin Jr and some international private equity firms.

The move came just as MCA’s Huaren Holdings Sdn Bhd sold its 42.4 per cent stake in The Star publisher Star Publications (M) Bhd for RM1.28bil, or RM4.09 a share, to the party last Thursday, giving the investment firm the funds to buy the gaming company in a combination of cash and debt financing.

The Malaysian Insider understands that MCA has been advised to bid for the gaming unit as it offers recurring revenue, similar to The Star daily.

“The MCA is in the fray for Tanjong,” a source told The Malaysian Insider.

It is also learnt that Tanjong’s controlling shareholder, tycoon T. Ananda Krishnan, could decide as early as today whether to make the sale. The expected sale is part of a restructuring to be syariah-compliant and tap the Middle East and North African markets together with those in South and South-East Asia to expand the power-generation business.

A key player in any deal is Ongpin, a Marcos-era trade minister, who has built a sizeable property, telecommunications and online gaming ventures in the Philippines.

It is understood that the magnate could be a partner for the bid by either the

MCA unit or the Cheng family, which is involved in the gaming slot machine business, mostly in the Klang Valley.

The family is led by patriach Datuk David Cheng, whose son, Datuk Douglas Cheng, had teamed up with Datuk Vincent Tan Ting Wong and Henry Yip to establish the popular Chinese restaurant chain Dragon-I in 2004.

“There is a tiny gap in the valuation between what is offered and asked,” the source added.

The Malaysian Insider understands that the variance is just about RM100 million.

Tanjong’s gaming business would include the numbers forecast operator (NFO), Big Sweep and Racing Totalisator (RTO).

The National Stud Farm which makes a small profit, would also be bundled into the lot, reports said recently.

Tanjong’s gaming arm, Pan Malaysian Pools Sdn Bhd, reportedly has about 24 per cent share of the local market. Tycoon Tan Sri Vincent Tan’s Berjaya Sports Toto Bhd’s market share is about 40 per cent while Magnum Corp Bhd’s is 36 per cent.

While the NFO business is the cash cow in the gaming business stable, Tanjong has been losing money from its racing operations.

According to reports, the losses from the RTO business could reach up to RM80mil in the current financial year.

The losses arise from a number of causes. It is said that the Selangor Turf Club is profitable but not those in Penang and Perak. Furthermore, the RTO business is hamstrung by annual cash payments to each of the three turf clubs.

Industry observers said the business, which has been modernised with the introduction of telephone betting, was lagging behind the illegal business which could source bets from punters through the Internet.

This has proved to be a lucrative avenue for illegal bookies who are said to make around four times what the turf clubs can pull in on any racing day.

It is learnt that the new owners of Tanjong will offer new gaming products to ensure better returns apart from asking for a reduction of government taxes.

Foreign bidders will probably not be penalised in the bidding process if they pair up with a local partner with knowledge of the industry. Multi-Purpose Holdings Bhd in a partnership with CVC Asia Pacific Ltd completed the privatisation of Magnum in 2008.