investors continue to bail from silverlake axis 1134272015

Stock crashes nearly 28 per cent after resumption of trading

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By :  ,  Financial Analyst

With memories of the plunge in the stock of Noble Group Limited (SGX:N21) after it came under fire from Iceberg Research and Muddy Waters still fresh, investors are likely not taking any chances with software solutions provider Silverlake Axis Ltd (SGX:5CP); the latest Singapore listed company to find itself in the crosshairs of a short seller.

Silverlake last traded Friday at SG$0.63 before it went into a trading halt when the 42-page research report issued by an anonymous researcher called ‘razor99’ became public. On resumption of trading on Wednesday, the stock opened gap-down at SG$0.47, crashed to a low of SG$0.35, but finally managed to close at SG$0.46 after trading 3 million shares. The company said in a statement that it requested a trading halt “to allow the company time to investigate the matter and prepare its response.”

The company indicated in its statement that the author clearly had pecuniary considerations in mind while writing the report. “The author(s) of the Report have chosen to conceal their identity, whilst having no qualms in openly revealing their real motivation in issuing the Report, i.e. by expressly admitting that they ‘may have short positions in Silverlake Axis Ltd and stand to realise gains in the event that the price of the stock decreases’.”

The company clarified that related party transactions, which are the main thrust of the report by razor99, “are either subject to specific prior Shareholders’ approval or are undertaken strictly in line with the parameters of the previously approved Shareholders’ mandates for recurring interested person transactions.”

“For related party acquisitions, they are supported in each case by a report from an independent financial adviser and further subject to the approval of the minority Shareholders of the Company, i.e. all as prescribed by the Singapore Exchange Listing Rules.”

The company claimed that its financial statements had strictly adhered to either Singapore Financial Reporting Standards, or to International Financial Reporting Standards, whichever was applicable, and that these had been audited by reputable auditors and reports issued without qualifications.

The company said its board was unanimously of the view that razor99's allegations were completely baseless and without merit, and that the board had decided “not to dignify the report by preparing its own point-by-point rebuttal.” The company said it was seeking legal advice and strenuously investigating the source of the report.

Meanwhile, to reassure investors and shareholders, the company said it will be engaging Deloitte Singapore as an independent third-party to review the allegations made in the report.

Unfortunately, the report already appears to have inflicted some damage on the company. Apart from the slump in its share price, analysts at UOB Kay Hian have downgraded Silverlake to a ‘Hold’ and forecast its target price at SG$0.660, citing its complex corporate structure as well as slower growth in its licence and projects service segments.

Malaysian billionaire Goh Peng Ooi, who is the founder, group executive chairman and majority shareholder (67 per cent) in Silverlake, appears to be unfazed by these developments, however.

“Everything is in order. The company has been growing since the assets were injected,” he said in an interview to StarBiz yesterday on Tuesday.

He pointed out that for the financial year ended June 30, 2015, the company posted a net profit of RM282.7 million (SG$94 million), generated an operating cash flow of RM305.5 million and paid out RM285.8 million as dividends. “We dividend out most of our profits,” Mr Goh said, observing that if the company had profits only on paper, it would not be able to pay such dividends in cash.

He said he took the research criticism in its stride. “My character is more academic and I don’t care what others think about me. But I do take people’s criticism as an education process.”

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