27 February 2023, Kuala Lumpur Malaysia, YNH Property Bhd (KLSE:3158) — Dato’ Dr. Yu Kuan Chon and Dato’ Yu Kuan Huat (Pictured above), the co-directors of YNH Property Bhd, have allegedly created a fraudulent asset-backed security (ABS) scheme to extract assets worth RM 422 million. This scheme has been exposed, forcing the Yu Brothers to change the “independent” directors of ALX Assets Bhd from persons connected to YNH employees to ALX nominee shareholders.
Under the scheme, the Yu Brothers sell two malls to a pretend “independent” company called ALX Asset Berhad, which they set up and funded. The ownership of these malls will be transferred to the “independent” company to raise operational cash and pay off bank borrowings. However, the use of proceeds from bonds issued in 2019 and 2022, which total RM 415 million, appears to list the same debts that are to be paid off again, raising suspicions about the need to raise money every year to pay the same bank loans three times.
Moreover, it is likely that the Yu Brothers used the bond proceeds to pay out more deposits to imaginary projects, as reported in the company’s annual report for the past 20 years, totaling nearly RM 1 billion. The Yu Brothers failed to comply with the compliance requirements listed in the SC GUIDELINES ON THE OFFERING OF ASSET-BACKED SECURITIES, as AXL Assets Bhd was formed and funded by YNH Property Bhd and controlled by the Yu Brothers.
The sale of these two income-producing assets without any fair valuation or competitive bidding process, allows the Yu Brothers to use a simple property valuation with no consideration for the future value of the property as a business. This creates little to no oversight on the price at which these assets are sold, and the material data required in Malaysia Security Commission ABS Guidelines 6.0 TRUE SALE CRITERIA has not been disclosed as required.
LINK to Malaysia SC Guidelines for ABS: https://www.sc.com.my/api/documentms/download.ashx?id=0dc160c4-ea22-478d-98b0-e8dd18e3ac1b
The ALX directors appointed were hidden persons connected that the Yu Brothers could control. This act proves devious intention and a cover-up of true control and intention. Moreover, the transaction is for a note to pay in the future RM 422 million, not for cash. It has already been declared a related party transaction because the proposed unit holders of record are non-other than Dato’ Dr. Yu Kuan Chon, a director of YNH Property Bhd. The rest of the UNITS will most likely be purchased by other Yu Syndicate members who normally take instructions from the YU Brothers.
SC GUIDELINES ON THE OFFERING OF ASSET-BACKED SECURITIES Section 9 Disclosure requirements have yet to be released in detail to the public. The disclosure will show the annual Returns and the past and future cash flow projections that would be used to determine the appropriate future value of the assets in question.
The Yu Brothers control ALX Assets Bhd from the corporate level and proxy shareholdings and directorships, and the funding parties of the ALX Asset fundraising exercise itself will also control it. In liquidation preferences, the unit holders of the exercise are the ultimate beneficiaries of the ALX assets. The Yu Brothers are both the seller and the buyer of the transaction, making it impossible to have independence in the transaction itself.
There is no way that this can be an “independent” transaction as defined by the law. It can only serve as a vehicle to extract assets out of YNH Property Bhd without the normal protections granted by the law and regulations of Malaysia for creditors or minority shareholders. The YU Brothers control the assets in all directions and possibilities.
If YNH wants to sell the two malls, they should make an offer and open competitive bidding, get the best offer on the table, and provide an appropriate return to all shareholders. As long as YNH Property Bhd remains a public company, it must follow the rules of Malaysia and treat all shareholders fairly, not just the Yu Brothers’ buddies in the Yu Syndicate.
The Yu Brothers claim that this exercise is to raise money to pay back bank borrowings, but they can loan the money they are planning to use to buy the ALX units directly to YNH or create a PPM and offer to other shareholders and the public to buy more YNH shares while keeping the assets in the company where they belong, working for all shareholders.
The Malaysia Security Commission has long-standing strict guidelines for the approval of asset-backed securities schemes, and it is likely that the YNH Property Bhd’s scheme will not be approved after a proper review due to non-compliance and hanky panky in the formation of the SPV. However, with the scheme already in motion, it remains to be seen what the consequences will be for YNH and its shareholders.
Some investors and industry experts are already sounding the alarm bells, warning that the YU Brothers’ scheme is likely to result in significant losses for YNH Property Bhd’s shareholders. They argue that the assets being sold to the “Independent” ALX company are worth much more than the price they are being sold for and that the sale is likely to result in a significant loss for YNH.
Others point out that the YU Brothers have a long history of questionable business practices and are known to be highly skilled at manipulating the system to their advantage. They argue that the YU Brothers will likely find a way to profit from the scheme, even if it results in significant losses for YNH Property Bhd’s shareholders.
Regardless of the outcome, the YNH Property Bhd case serves as a cautionary tale about the risks of investing in complex financial instruments and the importance of doing due diligence before investing in any company or financial product. Investors must always be wary of schemes that appear too good to be true and be willing to ask tough questions to ensure that they are not being taken advantage of by unscrupulous operators.
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