ICAP's 6th Annual General Meeting (Part 3)

I still recalled the ICAP’s extraordinary general meeting holding at last year of which the motion of investing overseas was rejected by most of the shareholders. In view of this, the management of ICAP mentioned that the board and fund manager was proposing another plan to invest overseas and they were waiting for the approval from the relevant authorities. However, after so many months, there is no any feedback from the relevant authorities as told by the Board. Though they kept telling us that once they received any new update from the authorities, they will let the shareholders know about the latest update via announcement. Even TTB once almost want to tell the shareholders what is the proposal they are working on hardly to get the authorities approve, as TTB told us his hair growing grayer and grayer during these few months as a result of this issue, but he just stopped telling almost us more due to the confidential of the proposal and probably the company is barred from disclosing any immaterialised proposal to the public.Anyway, TTB said there are still a lot of opportunities in Bursa as the fund is still able to achieve a remarkable return by just investing in Bursa. He pointed out that investing overseas is no rocket science that can guarantee us a higher return. He further provided more evidence to prove that even investing in Bursa can have a return that equal or bit a lot of overseas counters such as DBS, Cheong Kong and even Berkshire Harthaway. The return of the fund of also at least equal or more than a lot of local famous stocks like Genting and Maybank (interesting to know that Maybank’s share price still lower than its pre-Lehman crisis price) of which a lot of investors might not aware of.

The next issue to be discussed is the share price of ICAP is traded in discount to its net asset value (“NAV”). As a shareholder stated that ICAP’s share price has traded in discount since the Lehman crisis. He hoped the management can take the discount seriously and make some effort to close the gap in between share price and NAV. Because his concern was that if he invests ICAP for short term and would like to dispose it in the nearcoming future, he might just liquidate the position in ICAP for a loss. TTB immediately rebuff that he would not take a short term investment decision into consideration to solve the discount issue, as he explained the fund ‘s objective has stated clearly in the IPO prospectus that it is a fund aims to achieve capital appreciation in long-term period. So he will not let any individual short term investors to influence the fund not to comply with its mandate. So I interpreted that TTB just indirectly told the shareholder that it is his own mistake to make losses by investing ICAP due to his short-term tenure, instead he should not have invested into the fund from the beginning.

Some shareholders also proposed that the fund to distribute dividend with a yield rate to be par with the fixed deposit rate or the fund can initiate a share buy back scheme and distribute those treasury shares as share dividend. While I’m quite interesting to the proposal of share buy back, I totally object the distribution of dividend. As I have mentioned in many elsewhere before that the objective of setting up the ICAP fund is to make capital appreciation in long run. So what is the purpose of distributing cash back to shareholers? What is the purpose we invest capital into a fund and later want to take back the cash before it is long enough for the capital to appreciate, and end up need to put the cash back to the fund again?

Don’t forget that ICAP is a close-end (“CE”) fund, it is not like the open-end Unit Trust (“UT”) fund that can issue new units to get fresh proceed if those unit holders re-invest the dividend. For a CE fund, once it distributed cash, it has less proceed to invest and whatever the re-investment decision made by unit holders has nothing to do with the CE fund, and thus the dividend policy greatly reduce the speed to accumulate wealth through the fund and thus defeat the objective of setting up the fund. ICAP’s another objective is to implement value investing strategy, which means it always need to sits with a lot of cash and wait to buy stocks at a price that discount to their valuation at a right time. So after distribute cash back to shareholders, then how the hell ICAP going to buy cheap stocks? Sometimes I just dislike why there are lot of old man buying ICAP shares (as I observed that a lot of aged fellows who attended the AGM and year by year keep asking the fund the pay dividend) and not the young people be the majority shareholders of ICAP? So old people with age retiring mind please leave ICAP alone and pick other dividend stocks instead (for those people who are old but with young mind you are still welcome). And as usual, TTB just took the dividend proposal back to the shareholders that it is up to the shareholders to decide. If in the next AGM the shareholders decide to have dividend to be distributed, the fund will then deviate from its long term value investing objective, I’m sure I’ll be the first one to dispose its shares and other value investors may follow so, then we will see if the price discount issue will be solved or becoming wider.

Regarding the share buy back scheme, TTB mentioned that he will consider to advise the fund to work on the scheme if the market price of ICAP is deeply traded discount to its NAV, for example a 50% discount. Whereby my opinion is not to reject share buy back scheme, but we first need to consider some of its disadvantages and whether could it really solve the discount issue. First, share buy back will reduce the free-float number of ICAP shares and liquidity will reduce subsequently, thus it may not narrow the discount and instead it could make an even wider discount. Second, ICAP may use the cash to invest some potential investments that give a very attractive return which could outperform the discount. Currently the discount of ICAP’s price to its NAV range from a 10% to 19%, so we assume as ICAP could buy back its own shares at an average price of 15% to its NAV, however it can also invest the cash to buy other more potential stocks that achieve a return that higher than 15%, so which one is a better choice?

(to be continued)