Modern day thievery

Stealing is a crime. Everyone should agree on this. It has always been the case since civilisation and rule of law existed. Unfortunately, in modern times, "stealing" can be legalised depending on how it is being carried out. Such modern stealing are done stealthily so that the victims do not even feel that they are losing something. The best of all, the "loss" are normally shared by a big group of people and probably even pass down to the next generation so that nobody can feel the loss and thus, nobody will make a fuss out of it.

The following are two methods of modern day thievery which every responsible voters and person with authority must understand and perhaps, seek ways to prevent such cancer from decaying the wealth of honest earning citizens:

1. Transactions with unfavourable terms or overpriced

Governments and government linked companies (GLCs) make a lot of transactions every day. These transactions can be in the following forms:

• purchases of goods or services for operations or development / infrastructure
• investments into companies or non-moveable properties
• recruitment of employees

Each of these transactions presents an opportunity to "steal" money from the government and GLCs, which rightly belongs to the citizen. Although GLCs exist as a separate legal entity from the government, they are regarded to be belonging to the people as these GLCs reap abnormal profits by virtue of the monopoly created by law and granted to them or ownership of certain national strategic assets. How is the stealing done? All it takes are collusion between the person making the purchase and the supplier. Sometime, the person authorising the purchase may need to be involved but normally, as long as the transaction is done in accordance with internal procedures, it will be authorised and approved.

With the collusion in place, the transaction will be made at a high price significantly higher than market price, be it an ordinary purchase of items or an investment. The amount in excess of market price will then be channelled to the perpetrator by the supplier or seller. As we all know, some purchases are not made via open tender and this has allowed the stealing to take place. Even if the transaction is via open tender, the person in charge of the purchase will ensure that all the bidders are companies formed by the same colluding supplier (via proxies) so that no matter how, the purchase will be made from the same supplier.

In the case of employment, the recruiting person in HR may collude with the candidates or external parties so that certain position are given to person who are not qualified but favoured. Sometime this is done as political patronage. Thus, it is not surprising to see many departments and divisions created in a GLC with overlapping roles and functions so that certain high positions can be given to person with political connection as a reward. This is beginning to mimic the government which also coincidentally, have many ministries. I have recently came across a GLC with separate departments for internal audit, risk management, integrity and compliance, which I find it hard to understand their differences.

The above practices will definitely increase the government budget deficit and reduce the profitability of GLCs, which are supposed to pay dividends to government and provident funds. Any shortfall will have to be borne by someone and that someone are the taxpayer via introduction of new taxes or rolling back subsidies etc. Fortunately or unfortunately, we don't directly feel the loss as it is well spreaded across all taxpaying citizens and probably future generation as well if the government takes long term loan to cover the shortfall. This, is the beauty of modern day thievery.

2. Private placement (PP)

Sometime, a listed company may need to raise funding through equity by issue of new shares. There is nothing wrong with such exercise as long as the new shares are offered to all existing shareholders via a rights issue or warrants. Unfortunately, there is also something else known as private placement. It is also a fund raising exercise which entail issue of new shares but done privately and only offered to a selected group of people. Nobody has any idea who they are and why they are given such privilege.

Anything wrong with this? Well, nobody will complain if the issue price of the PP is above the company's NAV/share. Unfortunately, to make the PP attractive, the issue price is usually below the NAV/share and definitely below the current market price. This will definitely cause a dilutive effect to the value of the existing shares in the market as the market are now flooded with more shares and the same time, the company is not being paid with sufficient cash to maintain the NAV/share as the PP is issued at a discount to NAV/share.

What does this mean? It means that "money" is being parted from the pocket of the existing shareholders to the PP subscribers. The existing shareholders won't feel it, but the effect is definitely there. All this is done so that the selected group of PP subscribers can profit from the share market at no risk at all, at the expense of existing shareholders. The PP subscribers can immediately sell their shares at market price and pocket the profit, causing a drop in the market price and a loss to existing shareholders

Having known the above, you will wonder, is it a fair world? Or fairness belongs to a certain group of people who is in the position to redefine "fairness"? As can be seen in the chinese character of a government officer, it has two characters of "mouth". With two "mouths", you can never win an argument with government officers.

The two squares within the "officer" character are the "mouth" character.