INVESTMENT CASE STUDY – SORRY GORDON FOR “GREED IS NOT ALWAYS GOOD”

INVESTMENT CASE STUDY – SORRY GORDON FOR “GREED IS NOT ALWAYS GOOD”

   By S. Khugan

This case study is directly an example of UNDERSTANDING INVESTORS IN MALAYSIA. This particular case study illustrates another reason why Investors do not take proposals easily when presented. As this particular case shows the ethics or rather the lack thereof of a particular client.

The Case in hand – The client was a well known Meat Processor in the Kuala Lumpur area and had expanded their operations to other parts of Malaysia and was doing well. However, to expand further into other unfamiliar territories he operated several companies with proxy directors, which I guess everyone is aware is a norm here in Malaysia.

However when these proxy directors started making money through the client’s endeavors, they started to get themselves into further debt trying to maintain a certain lifestyle. When the time came to confirm major orders they were not bankable—most of them had several credit issues that affected their personal and in return the company’s chances at obtaining any bank facilities.

So they came to us at SKB to seek for alternate financing. In this case as they had several international orders, they needed a bridging for their finance. They needed to pay their suppliers till they could deliver on the said contracts and en-cash their Letter of Credit (LC) upon delivery of the said goods.

Upon studying the initial proposal and because they were introduced by a reliable associate we accepted the case and went ahead with the diligence and the preparation of the Investment Memorandum which we presented to our panel Investors. We were convinced with the projects viability and found it to be lucrative and profitable as based on our calculations our Investors would be making a comfortable profit within the next Three(3) months at minimum risk. For arguments sake, let’s just say that the returns for the next 3 months would have been at 7% on total investment.

The presentation was made and the Investors were acceptable to the proposed terms and returns and asked us to set up a meeting with the said client. Please note an actual and genuine investor would only leave 90% of justification of the Investment to any professional Consultant, Advocate, Accountant or their most trusted friend who has recommended the said case.

The balance 10% is always between the Client and The Investor as in the words of several Investors, - “We need to see how the chemistry between us and the client works, and also how truthful the person who is holding our money is” The Trust Factor has to be there before any formal transaction can take place when dealing with genuine Investors. After all, nobody’s money comes the easy way and that goes for Investors too.

The appointment was set between the Client, SKB and the Investors at the client’s factory at 1am in the morning. Such unnatural timing is because as Meat Production is usually done between 10pm to 5am.As deliveries begin from 6 am onwards and 12pm -3am is their peak production hours.

At 1 am the Investor was there inspecting the factory and was impressed with the production of the company and went to the office to confirm the terms of Investment. However when the client saw the seriousness of the Investor, he got too excited and started to think that he was the smartest guy in the room all of a sudden.

The Negotiations began with the client suddenly increasing all cost prices…raw material from RM4.30 a kilo shot up to RM4.90 per kilo. Packaging from RM 1.35 went up to RM 1.65 transportation and other costs shot up as well as shipping and other ancillary costs.

Eventually the promised returns of 7% for 3 months came down drastically to 4%. With a huge smirk on the clients face…and us looking flabbergasted. However it is one of the reasons why I love my job so much as I get to learn so very much from every opportunity around me.

In this case, I learnt from being around my Investors. Their experience and knowledge of the poultry industry enlightened me not only about the Industry, but also how clients can sometimes behave like software completely infected with virus and behave irrationally and unpredictably. In this case, I believe, that Greed was virus.  When the client started running away from his costing, I was extremely embarrassed to have misjudged the situation. However, the financier looked at me and gave me a knowing smile—almost as though he had anticipated this.

Then he smilingly looked at the client and said “Are you finished?” The client pretending to be worried about his elevated costing with a sigh said “Yes”….

That’s when the Investor still smilingly said, “The cost of your raw materials as of 6.30pm today is RM4.18 per kilo and not RM 4.90, of course we give you the price of RM 4.30 as a price variance as per the proposal. The packaging that you are using is actually RM 1.15 that is if you purchase it. If we do the packaging, the price would be RM 0.95 cents.”

 The same way he showed the actual costing involved in transportation, shipping and the other ancillary services.

By the time the investor was done and showed the calculations, the Returns on Investment (R.O.I) stood at well over 11% to which they were still willing to accept the offered 7%. The client was shocked at the knowledge of the Investor on his Industry and could not say a word further.

It was then the Investor still smiling and without any hint of irritation informed the client, ‘If you are serious about me financing, please be straight with me…if not, you may find someone else”. The awe stricken client could not utter a word. Till this day I still can’t tell if it was due to embarrassment or shock.

Needless to say the Investor backed out of the deal as did we at SKB. The client lost an Eight Million Ringgit Investment that day due to his greed and attitude. The Investor saved his money by not working with an unscrupulous client. As even if he had considered it we would have called off the deal from SKB’s side as we believe ETHICS is the basis of any business relationship….what do you think???

 THE MORAL OF THE STORY : People with money to Invest in you did not arrive at that position by being stupid, before they meet a client they are always well versed and well informed through their advocates, consultants and accountants but most of all they have the “The Instinct” in knowing who to trust and what deals to go into.

Only serious and genuine clients come across serious and genuine Investors, as it is hard work to convince them on a project. Those who ramble on about other things but your project…Please Beware. Please look out for more case studies in my following articles soon!!!

Till then please have a Profitable Week Ahead and Best Regards Always!!!

S. KHUGAN