Passport Capital is snapping an injunction again eSun’s share placement announced in December 2008. The High Court has requested the hearing to be held on 22 January. The private share placement is 120,000,000 new shares at the price of HKD 0.50, with a warrant, exercisable at HKD 0.50, attached to each new shares. The total proceeds from the shares would be around HKD 58 million and the proceeds from the warrants, if fully exercised, will be another HKD 60 million.
This fight is full of interesting facts. Next Magazine actually has a feature article on this. Some interesting facts include:
- Passport Capital is arguing that this private placement at such a low price is destroying shareholder value. When this placement was announced, eSun’s share price was HKD 0.37. Now the share price has gone up to HKD 1.50 (as of 7 Jan closing). It has quadrupled since the announcement! Before it was arguable whether the placement was actually destroying shareholder value since the placement price was above the then-trading price. But now, it definitely looks like it is severely destroying current shareholders’ equity.
- Also, the total amount of the placement, HKD 118 million, is actually quite little compared to the HKD 1.88 Billion cash that they have as of 30 June 2008. Passport Capital is arguing that since they have that much cash already for the Macau project, why would they need to raise further cash? Furthermore, I suppose that most projects in Macau are currently on hold.
- It is rumoured, according to Next Magazine, that the “actual” purpose for this private placement is to dilute the stake of Passport Capital. Passport Capital is currently the second-largest shareholder with 28%. And Lai Sun Development (0488), also controlled by Peter Lam, is the largest shareholder with 36%.
- The shareholding structure of eSun is very interesting too. There is a cross-holding structure. eSun and Lai Sun Development have cross shareholding of 36% of each other (i.e. eSun holds 36% of Lai Sun Development and Lai Sun Development also holds 36% of eSun). Maybe Peter Lam is worried that Passport Capital will control Lai Sun Development once they become the biggest shareholder of eSun, and therefore is using this private placement to dilute Passport Capital’s stake.
- Passport Capital has been accumulating eSun for quite a while already. They have started accumulating when the share price was around HKD 4 -5 (back in late 2007). Their stake in eSun is definitely still in the red. But with the big increase in the past few days, I won’t be too surprised that their stake starts making money!
The price of eSun will continue to be volatile in the next few days until the hearing is over. This stock will definitely be a very good stock for shorting trading!
