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Strategies & Market Trends : Value Investing

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To: LesserApe who wrote (49432)9/28/2012 2:39:19 PM
From: MCsweet1 Recommendation  Read Replies (2) of 74459
Great write-up Aberdeen International governance (AAB.TO and AABVF)

Below is a great write-up from another message board. I would like to get the word out on this if anyone has suggestions for getting it disseminated. Note that the last time I checked, Seeking Alpha apparently doesn't do articles on stocks under $1.00.

I still really like this stock as a short-term speculation/special situation, but longer term (i.e., years horizon) I am less enthusiastic given how some of these Canadian asset managers mistreat their investors through high fees and excessive pay.


How to Pocket $5MM For Losing Over a Quarter of Company’s Assets in Only Six Months

It was a tough year to be a shareholder of Aberdeen International ( AAB.TO). In the first six months of 2012 the net loss amounted to over $26MM or over 25% of the assets, the net asset value (NAV) at the end of the period was less than $72MM (from $136MM in the early 2011), the share price declined 40%, and the market cap dropped under $35MM. But while shareholders felt the pain, the management was doing great: “salaries, consulting, benefits, and bonus” increased sharply compared to prior years: for the past six months it was $5,459K compared to $600K in 2011 and $798K in 2010. Most of the difference was due to increase in the “key management remuneration” which added up to $4,870K in benefits and shares – 7% of the NAV and almost 15% of the market cap - in just six months. By any reasonable measure, the “key management” awarded itself compensation that is way out of proportion to company’s overall performance or assets.

Aberdeen is lead by Mr. Stan Bharti who is not a stranger to excessive compensation questions. Only this year a similar situation took place at Longford Energy, where Bharti-led management gave themselves seven figures bonuses before being finally unseated by dissident shareholders. And at Bharti-led Forbes and Manhattan Coal ( FMC.TO), where Institutional Shareholder Services (ISS) just this month highlighted excessive executive compensation issues and shareholders are fighting to replace the board (1).

If you think that you would get similar level of investor protection in Canada as you do on NYSE or Nasdaq (admittedly, not a high bar), you’ll be disappointed to discover that that’s not the case: while in the US public companies are obligated to seek shareholders’ approval over executive pay, in Canada certain executives use companies they are supposed to manage on shareholders behalf as their personal piggy banks while the regulators are powerless. When contacted, the Ontario Securities Commission (OSC) explained that this is not the kind of issue that they can regulate. There are organizations such as ISS that look out after institutional investors’ interests, but if you are a retail investor you are on your own. Perhaps that’s one of the reasons why the Canadians markets have been underperforming the US markets over the past few years.
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