Is This The End Of Jason Holdings Ltd? What Can Investors Learn From It?

It is likely that not many investors know about Jason Holdings Ltd (SGX: 5I3). After all, even when the company’s share price peaked in 2015, it had a market capitalization of just S$130 million or so.

But, the story of Jason Holdings highlights one of the key risks when it comes to investing.

First, the tale

In mid-2015, Jason Holdings announced a massive rights issue. The company planned to issue one rights share for every two existing shares at a price that represented a 52.8% discount to the last transacted price just before the rights issue was made known. Most of the funds raised was to be used for acquisitions.

But on October 2015, Jason Holdings announced the termination of a Memorandum of Understanding (MOU) regarding the possible acquisition of a private company. The MOU was signed on 29 June 2015, the same day the aforementioned rights issue was announced.

Roughly a week after the MOU was terminated, Jason Holdings disclosed that its Chief Executive Officer and Executive Chairman, Jason Sim, had sold a huge block of the company’s shares in an off-market deal.

Just over a month after the off-market sale of shares happened, Jason Holdings announced that Sim had been served a High Court Writ of Summons by CIMB Securities (Singapore) Pte Ltd for a contractual dispute. At that time, Sim was to continue in his roles as both CEO and chairman. But, in December, Sim stepped down from his chairman role.

Then, on 4 January this year, it was announced that agreements for Jason Holdings to buy two companies had lapsed. In the same announcement, it was revealed that the aforementioned rights issue had been terminated too.

The big blow then came 10 days later on 14 January; an internal audit on Jason Holdings found potential material misstatements in the company’s financial reports. Operational lapses by the company’s management team were also uncovered. The company had requested for its shares to be suspended from trading on 13 January.

Jason Holdings’ internal audit announcement was followed by a series of law suits, which led to a winding-up application being made against the company’s key subsidiary, Jason Parquet Specialist, in June.

More was to come. Jason Holdings revealed yesterday that the Commercial Affairs Department (CAD) of the Singapore Police Force has started investigations on Sim.

An article from The Business Times had shed some light on the issues related to Sim and Jason Holdings. Here’s an excerpt:

“A report by EY on May 24 highlighted a number of potential breaches of fiduciary duties in the management and administration of Jason Parquet.

EY’s findings included deposits and prepayments made by Jason Parquet using trust receipts obtained from banks without underlying goods; accounts receivable financing from different banks obtained using progress claims with identical work values and descriptions at different times; discrepancies in inventories; and an improper hire purchase transaction involving a vehicle registered to Mr Sim’s spouse.”

Management risk

So, an internal report that found issues with Jason Holdings’ operations has led to multiple law suits against the company. And now, with the CAD‘s investigation, there is a possibility of fraud being involved.

What this shows is investors might still need to worry about management risk even when investing outside the S-Chips universe. In my opinion, this is something investors in Singapore tend to forget when investing.

Management risk is not something confined to just one group of companies. It can happen to any company. Moreover, unless we are deeply involved in the operations of the business, it would be hard for an outside investor to detect any mismanagement.

This is why it is very important for investors to always diversify. Operational lapses – or even frauds in the worst cases – can happen anywhere. It happened with Enron, it can happen with S-Chips, it can happen in government-linked companies, it can happen anywhere. As a rule of thumb, I say “Diversify, diversify, diversify.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own shares in any companies mentioned.