Who gains from Ming Pao issue?
THE market had obvious reasons for dumping Ming Pao Enterprise Corp shares this week.
Revelations of an undisclosed criminal record by the chairman tend to lead to under-performance. Definitely the last thing a company which has under-performed the index by 30 per cent so far this year needs.
The market is not short on conspiracy theories on how news of Yu Pun-hoi's youthful crimes came to light. Take your pick between a personal feud involving another newspaper man, a Beijing-backed sabotage of a newspaper which has been less than supine in the face of attempts to prevent investigative reporting of events in China.
There are also tales which point fingers at lenders to Ming Pao and others which say the acquisition of Ming Pao by Mr Yu's firm was far from free of acrimony.
But what of the company? How is it faring? At an operating level, margins have been dropping. Margins were 16.8 per cent in 1994 against 19.4 per cent in 1993.
Publishing revenue fell 24.3 per cent from $148 million in 1993 to $112 million in 1994 while turnover from the sector grew from $497 million to $652 million.
The cause here is Ming Pao's expansion into Canada which has not so far borne fruit. But then Canadian activities are not Mr Yu's strong point.
Some observers have focused on the group's debt. Expanding fast, Ming Pao has borrowed the cash to finance its plans. Most recently it went to the syndicated loan market to borrow US$50 million from a set of seven banks led by a British bank.
Astonishingly, the bank has gone on the record as saying the loan is now under review, a move unlikely to endear them to Ming Pao shareholders who may have expected confidentiality from their bankers.
In its annual report Ming Pao lists a further HK$116.15 million in loans due between two and five years away and $22.25 million in short-term borrowings.
It paid out $22.74 million in interest and finance charges, which points to an interest rate on balance sheet debt of 16.4 per cent.
But Ming Pao disposed of its property arm during the year, and some debt could have been discharged then which would distort the figure.
In any case, with attributable profits of $159.86 million the firm has interest cover of seven times and dividend cover (excluding a special distribution of shares) of 2.3 times.
But cash is going out of the company. Before financing some $406.04 million left the company compared with an exodus of $598.61 million in the previous year.
Financing in 1994 came mainly from bank loans of $168.21 million along with a $75 million loan from minority shareholders at a subsidiary. The year before the company pulled in $297 million from issuing shares and $165 million by rights issue to minority shareholders in a subsidiary.
Despite financing there was a net decrease in cash each year. The decrease was $22.66 million in 1993 and $150.98 million in 1994.
The net current assets and liability picture had suffered a turnaround. In 1993, the asset liability ratio was 1.96 times. In 1994 the figure was 0.82 time which indicates there may be over-trading or liquidity problems.
Reserves were bolstered by a property revaluation which contributed $213.94 million to the reserves.
Ming Pao is in a mode of rapid expansion so the increases in debt, the poor liquidity ratios are not necessarily worrying.
But with Mr Yu so vulnerable, and the stock price deflated, Ming Pao looks like it could be vulnerable to attack either by its banks or by a hostile bidder.
Just to keep the conspiracy buffs happy, here is a question: who would have what to gain from either of those situations?