Shareholders of China Yuchai International Limited (NTSE:CYD) have seen some very interesting developments the past several months.
In early July 2009, a shareholder group comprised of Mr. Himanshu Shah of Shah Capital Management, Mr. Patrick Manning of Quasar Capital Management/Trellus Management, and Mr. Theo W. Muller disclosed that collectively they held in excess of 12.5% of the outstanding shares and requested the convening of a Special General Meeting of the Company and to vote on a total of six (6) shareholder proposals.
In short, these proposals are as follows:
- Eliminate the Special/Golden Share Rights
- Removal of Executive Officer – Mr. Teo Tong Kooi
- Appointment of a new and qualified Chief Executive Officer
- Appointment of two (2) Independent Directors
- Removal of Director - Mr. Teo Tong Kooi
- Removal of Director and Audit Committee Chairman – Mr. Tan Aik-Leang
Shareholders have been notified that this Special General Meeting is to be held Friday, September 4, 2009 at 11am (Malaysia time) at The Grand Millennium Kuala Lumpur.
As a shareholder for several years, and as I also have taken the current Singapore management to task, it should be disclosed that I am not part of this Group as mentioned above; but I do OVERWHELMINGLY SUPPORT their efforts. These gentlemen – Mr. Shah, Manning, and Muller deserve be recognized and commended for their latest activist efforts and I do believe they are determined to do what is best for all the shareholders of the Company.
Shareholders have now seen the appointment of a new President – Mr. Boo Guan Saw (began his duties August 1, 2009), the filing of the Company’s 2008 Annual Report – FINALLY! (July 15, 2009), and the unaudited results for the first quarter of 2009 (July 31, 2009). While these developments are encouraging, in my opinion I would like to borrow a quote from Mr. David L. Sokol, the Chairman of MidAmerican Energy Holdings Company, a Berkshire Hathaway subsidiary – “I am pleased, but not satisfied.”
Also noteworthy, just in the past week, shareholders of China Yuchai were sent their proxy form which, according to the Company, was incorrect as it showed the Board recommending voting “FOR” all of the shareholder proposals outlined above for the Special General Meeting. The Company has stated that this proxy was printed incorrectly and a new proxy, with the correct Board recommendation is forthcoming. As a long term shareholder, I question the internal controls being performed at the Company. With such an important vote in the near future, wouldn’t good business practice be to have this important proxy reviewed internally, by the Board, and by outside counsel before it is mailed to shareholders? I will let shareholders make their own determination on this issue.
Shareholders are now presented with the potential to make several important decisions regarding the future of China Yuchai. Shareholders can now make a milestone pronouncement and inform the Company that their past mistakes and methods of managing this company will no longer be tolerated. It should be noted that a Singapore management team (and controlled Board) have in fact been in charge of China Yuchai since its IPO in December 1994 at US$10. As I have stated in previous correspondence to the Board on Seeking Alpha, the occupations of a CEO and CFO have changed dramatically in the past five to seven years. It has become more difficult and a much different role. It is not about just reporting the financials and the balance sheet. A CEO and CFO are obliged to get engaged with the business to assist it to perform at higher levels. To be a good CEO and CFO you have to understand on a very detailed level the business the company is in, and your finance team has to understand the business. China Yuchai shareholders would greatly benefit from having top executives who are on the ground in Yulin, who are intimately involved in the business working hand in hand with the Chinese Chairman and his management team, and who have a firm understanding of US listed company rules and regulations.
For the record, concerned readers should understand that I hold no ill will toward the current Board of the Company or its controlling shareholder – Hong Leong Asia. In fact, I do have a tremendous amount of respect for these gentlemen – they are outstanding individuals who have expertise in their disciplines. However, I question whether they are the CORRECT candidates to run, operate, and advise a diesel engine business in China while being a US listed equity. I continue to ask questions to myself such as, “Why aren’t several candidates familiar with US GAAP accounting policies and procedures (instead of Singapore GAAP)? Why hasn’t Hong Leong Asia assisted their largest operating subsidiary in revenue and profitability in raising capital to strengthen its business since 1994? Why does it appear that CYI is managed as a private entity with an apathetic attitude towards its shareholder base which hold 65% of the outstanding shares? As HLA has been the controlling shareholder for approximately fifteen (15) years, do they have an exit strategy – are they an interested seller of their stake if they lose interest in the business?” All interesting questions I would think……
As many shareholders would agree, CYI is a highly profitable and wonderful business – I personally view Yuchai as the Cummins Engine of China. The past financial releases prove it to be. But shareholders now have the opportunity to make a difference about the company’s immediate and long term future. Shareholders may want to ask themselves “What are we voting for – more of the same since 1994? Or do I/we stand up as the real owners of the Company and vote for real change?” As the Company has formally come out and recommended that shareholder vote no for the pending shareholder Group’s proposals, it should come as no surprise to the readers of Seeking Alpha that I will be VOTING “FOR” the Group’s proposals; and I strongly urge other long term shareholders that they vote accordingly.
Last, shareholders should be aware that on Friday, August 6, 2009, Proxy Governance, Inc. of McLean, Virginia, announced and published its opinion for the upcoming Special General Meeting to be held on September 4, 2009. This report can be viewed here PROXY Governance Analysis - 2009 China Yuchai International Special Meeting (2).pdf
DISCLOSURE AND DISCLAIMER
Peter A Delgado II is the Principal and owner of Threshold Capital Corp, a state Registered Investment Adviser in the State of New Jersey. Threshold Capital Corp and its clients currently hold a position in China Yuchai International, Limited and plan on holding that position through the Company’s Special General Meeting. The above commentary represents the opinions of Peter A Delgado II and Threshold Capital Corp and in no way constitutes a solicitation of business or investment advice. It is intended solely for informational and entertainment purposes of the reader and the author.