Hong Kong Financial News

A well known local clothes retailer – Crocodile Garments Limited (0122) – has announced that the major shareholder (the Lam family in Lai Sun Group) will buy back all existing shares from independent shareholders at a price of HKD 0.40. Because of this news, Crocodile jumped 87% today to HKD 0.38.

The total amount for the buyback should be around HKD 119 million, and the offeror will finance the cash consideration through bank borrowings.

Personally, I believe the buy back makes sense for the major shareholder as the offered price, although it is already 90% more than the traded price before the announcement, is still 50% below the net asset value per share of Crocodile (even if there is significant writedown of their assets and real estate at the end of this financial year, the offered price should still be below the net asset value per share).

This buyback plan is scheduled to complete by 31 August 2009. What are the risks of this deal not getting completed?

1. Risk of independent shareholders not approving this buyback - I would think the chance of this is slim. (Even the PCCW privatisation got approved in their EGM!)

2. The major shareholders unable to procure enough funding – highly unlikely since the major shareholders are the people behind Lai Sun Group

3. Political risk – personally I believe since this is a relatively small company in terms of capitalization and is less high profile than PCCW, I would believe the chance of it getting criticized in the public is very less.

4. Delay in completing the transaction – To me it seems to be a quite straightforward deal without a lot of counterparties involved. So I believe the risk of this happening is minimal.

Please let me know if I have left out any major risk that needs to be addressed.

I would recommend buying this stock now below or at HKD 0.38. Then by the time this buyout is completed, you will earn a decent 5% return in less than one year.

February 18th, 2009 | Tags: 0122, Crocodile, Crocodile Garments Limited, Lai Sun, privatisation | Category: Companies | Leave a comment

The privatisation has been delayed for one week as the Directions Hearing – a procedural hearing according to the announcement made by PCCW – has been postponed from 17 Feb 2009 to 24 Feb 2009. The most important court hearing – the High Court hearing to sanction the privatisation – scheduled originally for 24 Feb 2009, would now need to move further down the timetable. The chance of the privatisation being successfully completed seems to be lower as time progresses. Also, following Friday’s drop, the share price has dropped 17 cents today to HK$ 3.85.
There are just too many uncertainties to this privatisation: SFC’s investigation on the manipulation of the vote result in the shareholder meeting, the uproar of some minority shareholders, and the negative impression surrounding PCCW in most newspapers and magazines over the years since the dot-com bust: all have made Richard Li’s plan to privatise the company a harder feat than it originally seemed to be.

February 16th, 2009 | Tags: 0008, PCCW, privatisation, Richard Li | Category: Companies | Leave a comment

Below are the uncertainties surrounding the PCCW buyout / privatisation:

1) the High Court will need to approve the buyout. This is scheduled for 24 February 2009.

2) On whether the High Court will approve or not, this depends on whether the regulator, the SFC, has finished investigating the vote-rigging issue or not. The SFC can petition to the High Cour to veto the buyout if it discovers any evidence of vote-rigging in the shareholder meeting.

3) Will the SFC finish its investigation before 24 February? If not, will the High Court delay its ruling until the full SFC investigation is complete?

4) In an open forum last Sunday, some minority shareholders protested that the management has largely ignored the minority shareholders in the shareholder meeting. This theme of “majority shareholders bullying minority shareholders” has been a popular topic in the mass media lately. The voice of the minority shareholders is further amplified by some Legislative Council members who have decided to step up and try to stop this privatisation. There probably will be uproar if government approves the privatisation as originally planned on 24 February 2009.

For these 4 reasons, I believe that this privatisation will not get approved by end of February. It will take some time before the share price will rise near HKD 4.5 (the offer price). So my stock recommendation is Hold.

February 10th, 2009 | Tags: 0008, buyout, minority shareholders, PCCW, privatisation, Protest | Category: Companies | Leave a comment

PCCW (0008) is the focus company among all HK-listed companies today:

The shareholders have approved the privatisation plan, despite the claim from David Webb that there is some vote-rigging involved (http://www.webb-site.com/articles/pccwrig.htm) in which David Webb claimed that hundreds of Fortis insurance sales agents received one lot (1000 shares) of PCCW recently and in return they would need to sign the proxy form to be in favour of the privatisation. With this privatisaion, shareholders will receive HKD 4.5 per share.

In the shareholder meeting, there were some minority shareholders who asked to delay the vote on privatisation until the investigation of vote-rigging is finished by the SFC. Not surprisingly, this was voted down.

On another front, the PCCW labour union (PCCW Employees General Union) has reported that PCCW will cut 5% of the workforce (600 people) and the rest of the employees will have their work week shortened from five / five and a half days to four days (and thus their pay is reduced).

Finally the privatisation saga has more or less come to an end. Personally, I believe this is a decent deal for the shareholders: most of the minority shareholders don’t mind approving this privatisation actually: a lot of them probably have held their shares since the dot com era (the peak split-adjusted share price was HK$ 131.75). The net asset value of PCCW is probably a lot higher than the amount paid for the privatisation; but at this time of the market, shareholders probably don’t mind exchange their shares for cash (and with a small premium to current share price too!)

February 4th, 2009 | Tags: 0008, layoff, PCCW, privatisation | Category: Companies | Leave a comment

According to Ming Pao today, Leung Ngok, the Chairman of U-Right (0627), has been declared bankrupt by the Hong Kong High Court. He is the first chairman of a HK-listed company to be bankrupt in this financial crisis.

January 23rd, 2009 | Tags: 0627, bankrupt, U-right | Category: Companies | Leave a comment

Update on the First Natural Foods case (http://www.hkfinancialnews.com/?p=111): The Chairman, Yeung Chung Lung, is still nowhere to be found and the High Court has appointed Stephen Liu Yiu Keung and David Yen Ching Wai of Ernst & Young to be the provisional liquidators of the Company.

According to Apple Daily, other than Deutsche Bank filing a claim against the Company, Taishin Bank, Commerz East Asia, E. Sun Bank, Shanghai Commercial & Saving Bank, Entie Bank, Yuanta Bank, ICIC Bank, Orix Asia, and Shin Kong Financial Holding have extended HKD 196 million of loan to the Company at the end of 2006. They have held a meeting on 19 Dec 2008 to discuss strategy on how to recover the funds.

January 14th, 2009 | Tags: 1076, First Natural Foods, provisional liquidation | Category: Companies | Comments (2)

As reported by the Hong Kong Standard today, a fully owned subsidiary of China Communications Construction (1800), China Harbour Engineering Co Ltd, was alleged in bribery in order to win a port contract in Bangladesh.

I am doubtful whether today’s drop in share price (more than 6%; closed at HKD 8.85) is due to this bribery case. I think it is mainly due to the general weakness today. Come on, if you add China and Bangladesh together, I would be very surprised if there wasn’t any bribery or unethical money transfer involved!

January 12th, 2009 | Tags: 1800, Bangladesh, China Communications Construction, China Harbour Engineering | Category: Companies | Leave a comment

eSun (0571) has announced that they have terminated their placement plan because (i) the recent increase in its share price and (ii) the uncertainty resulting from the injunction brought by Passport Capital (Passport Special Opportunities Master Fund and Passport Global Master Fund). On the other hand, eSun will vigorously seek damages and remedies against Passport in the hearing on 22 January 2009. At the same time, the Court has asked Passport to provide a bank guarantee of HKD 120 million in the case the Court rules favourably towards eSun for compensation of damages. This amount of HKD 120 million is the total amount of money that the placement (new shares plus warrants) could have brought to the Company.

It seems like eSun and Passport will fight ’vigorously’ in court. Passport has won part I of the battle — the placement is not going ahead already. Will eSun win part II of the battle? Personally I would think that eSun should be able to get something from Passport — definitely not the entire HKD 120 million, but probably a few millions? One fact that I believe is very favourable towards eSun is that the placement price was actually above the then-trading price when the placement was announced. The share price jumped only after Passport filed an injunction against eSun.

January 11th, 2009 | Tags: 0571, eSun, Passport Capital | Category: Companies | Leave a comment

On 7 Jan 2008, there was a rumour in the afternoon saying that the chairman of New World Development (0017) was seriously ill in hospital. At one point, the share price dropped more than 6% in 5 minutes. Journalists quickly called New World Development for clarification. Seeing that he had been badmouthed badly, Cheng came out of his office in New World Tower in Central and told people that he is super healthy! The share price then went back up 3% in the next few minutes.

January 9th, 2009 | Tags: 0017, Cheng Yu Tung, New World Development | Category: Companies | Leave a comment