Hong Kong Building and Demolition
10th December 2009
Hong Kong Building and Loan Agency Ltd
(HKBLA, 0145) has been a perennial cash shell, bouncing around
the market between different controlling shareholders for several years without
doing very much inbetween. Now,
its foundations appear to be under threat as its cash pile gets depleted on
dubious transactions. It appears to have become part of a network of companies
which also involves:
Investors should avoid all these stocks.
First, a brief recap of the changes of ownership.
On 18-Jun-05, Lippo China Resources Ltd (0156)
agreed to sell 74.8% of HKBLA to United Asia Finance Ltd (UAF)
for HK$184m, or about $1.0932 per share. UAF was a private HK company which
was 50.91% owned by Allied Group Ltd (0373), 7.27% owned by
Sun Hung Kai & Co.
Ltd (0086) and the rest by 4 other shareholders. SHK was in turn 74.99% owned by
Allied Group. The price represented a premium of about $20m, or
about 12%, to the net asset value of about $0.97 per share at 31-Dec-04. The
completed on 12-Sep-05, triggering a general offer.
On 11-May-07, UAF
agreed to sell 74.99% of HKBLA for $1.475 per share, or about $248.9m, to Mercurius Partners, LLP (Mercurius), which was wholly-owned by
John Zwaanstra and his family. The price was a premium of about $75m, or about
43.2%, to the net asset value of HKBLA at 31-Dec-06 of $1.03 per share. $20m was
paid on signing, and the rest on
completion on 31-May-07, triggering a general offer.
On 21-Aug-09, Mercurius
agreed to sell 75.00% of HKBLA to
Nelson Tang Yu Ming (Mr Tang) for $308.8m, or $1.83 per
share. 10% was paid on signing, 30% a week later, and the rest on
completion on 25-Sep-09, which triggering a general offer. The price was a
premium of about $137m, or 79.4%, to the net asset value of
$1.02 per share at 31-Dec-08.
As you can see from the above 3 deals, the listing value of a shell in HK, in
terms of the premium over book value, has been on the rise.
Mr Tang is the MD of Shikumen Capital Management Ltd and a responsible
officer of Shikumen Capital Management
(HK) Ltd (Shikumen). Until 31-Jan-07, he was a licensed
representative of PMA Investment Advisors
Ltd. Shikumen was incorporated on 1-Jun-07 and commenced licensed operations
on 7-Sep-07 with 3 Responsible Officers: Mr Tang, Ulric Leung Yuk Lun, formerly
an RO of SAIL Advisors Ltd, and Jeffrey Lau Chun Hung, formerly a
Representative RO of Och-Ziff Capital Management Hong Kong Ltd.
Under new management
When the takeover was first announced, Mr Tang intended to become an
executive director of HKBLA, but on 2-Oct-09 (when the offer document was
posted) he was
appointed as a non-executive director. He also nominated two EDs,
Mr Chan Chun Wai and
Wilson Lau Yu Fung, and three
INEDs: Lawrence Yu Kam Kee (Mr
Yu), Mr Chan Chi Yuen and
Au Tin Fung (Mr Au)
who were appointed on the same day.
Two of these people have a connection to
CPP: Mr Chan Chun Wai and Mr Au were both appointed as INED of CPP on
27-Aug-07. We warned readers about CPP in our
article on 3-Jul-09. Mr Chan resigned on
7-Aug-09 "due to the increase in his own business commitment". Mr Au
resigned on 30-Sep-09
"due the the pursuit of his own business". They weren't too busy to join HKBLA
Mr Au was also an INED of China Fortune (formerly China
Conservational Power Holdings Ltd) from 23-Dec-05 to 10-May-06. Mr Chan Chi Yuen
is also an INED of AEL (formerly China Sciences Conservational Power
Ltd) since 30-Sep-04. As you can guess from the former names, the two companies were once
On 20-Oct-09, 3 days before the offer closed, 56m shares were
withdrawn from CCASS from the account of Sun Hung Kai Investment Services
Ltd (SHKIS), which is a fellow subsidiary of Sun Hung Kai
Financial Ltd, which made the offer on behalf of Mr Tang.
Mr Au wasn't independent of HKBLA for long - he became an executive director
on 23-Oct-09, as soon as the takeover offer
closed, leaving the company with only two INEDs. The Listing Rules require
three. Mr Tang became non-executive Chairman on the same day. Only 0.26% of
HKBLA was tendered to the offer, giving Mr Tang 75.26%. He only needed to sell
the 575,000 tendered shares to restore the float, but on 4-Nov-09 he
launched a placing via SHKIS, selling 56.5m shares (25.12%) at $1.83,
cutting his stake to 50.14%.
It appears that SHKIS passed the entire placing on to
Kingston Securities Ltd
disclosed an interest in 56.5m shares effective 6-Nov-09, disposing of it on
completed on 10-Nov-09, when our
CCASS Analysis shows shares moved from SHKIS to Kingston. However, on
6-Nov-09 Kingston had already
taken delivery of about another 56m shares from SHKIS, possibly shares which
belong to Mr Tang. So as a result, 73.89% of the company is in CCASS, but the
top 10 CCASS accounts hold 68.53%. We suspect there is very concentrated
The withdrawal from SHKIS on 20-Oct-09 and the transfer from SHKIS to
Kingston on 6-Nov-09 suggest that Mr Tang
may have pledged all his shares - otherwise why not leave them with SHKIS?
Unsecured advance of $58m to a BVI shell
On 9-Nov-09, HKBLA
made an unsecured advance of HK$58m as "earnest deposit" to a BVI company,
the owner of which was not disclosed, in relation to a possible investment in
the equity or debt of New Smart Financial
Group Ltd (NSFG, HK), for which there is not yet any
contract, only an MoU. NSFG is purportedly "part of a credit guarantee joint
venture in the PRC". This appears to be a start-up, because a check of the HK
registry shows that it was a shelf company incorporated on 27-Mar-09 and
adopting its present name on 19-Jun-09, less than 5 months before this
You might think that HKBLA should at least have obtained security over
Target's shares, but it didn't, and nor was the money placed in escrow.
Investment of $70m in Byford
On 30-Nov-09, HKBLA
acquired 119.3m shares (4.97%) of Byford "in the open
market" for $70.4m, or about $0.59 per share. We warned readers on 1-Jun-09 about the
Byford Bubble and on 18-Sep-09 about
a 100% margin loan it had made to an
anonymous BVI company. The stock remains in a bubble, closing on Friday with a
share price of $0.62 and a market cap of $1.49bn compared with net assets of
just $90.9m at 31-Jul-09, or about $0.038 per share.
Our CCASS Analysis service shows that the shares purchased by HKBLA
moved from the custody of Fortune (HK) Securities Ltd (Fortune
Securities, which is owned by China Fortune) to Kingston Securities Ltd
on the settlement date of 2-Dec-09. The controlling shareholding in Byford is
pledged to Kingston Finance Ltd, a sister of Kingston Securities.
The gross assets of HKBLA at 30-Jun-09 were $232.5m, so the investment
acquired represents 30.3% of gross assets, which is more than 25%. You might
think that would make it a Major Transaction under the Listing Rules, but it
doesn't, because when the company is buying shares, the Listing Rules look at
the attributable gross assets underneath the shares, and since Byford is a bubble stock,
the attributable assets are far less than the purchase price.
Policy issue: this is a yawning
gap in the Listing Rules - the class tests in
Chapter 14 should look at the purchase price relative to the listed
company's assets - that's what costs shareholders their money.
So why did HKBLA buy Byford shares?
"In consideration of the possible investment in energy and
natural resources related business and the recent market price of Byford, the
Directors consider that the Acquisition would enable the Group to generate a
good return and capture the potential capital gain in the future."
Byford is no PetroChina. The most that can be said about the shell's "energy
and natural resources related business" is that on 19-Aug-09 it
signed a non-binding MoU with a BVI company called New Success Asia Ltd, the
owner of which was not disclosed, in relation to "making equity investment,
setting up joint venture, financing and/or providing technical assistance in the
Projects". And what are the "Projects"? This word was defined as "NSAL has
entered into an exclusive option agreement with [an entity, for which no
English name was given] in relation to an investment in energy and natural
resources related business". Over 3 months later, nothing more has been said
Ni Rong Kun
On 1-Dec-09, an individual called "Ni Rong Kun"
acquired 11m shares (4.91%) of HKBLA in an off-market transaction at $3.20,
increasing his/her stake from 4.80% to 9.71%. Ni Rong Kun is also a
subscriber of $25m of convertible bonds (with an option for $25m more) in
the $300m/$600m issue by Value
Convergence Holdings Ltd (VC, 0821), in which China Fortune is also a
$100m/$200m subscriber. For more on VC, see our
separate story today.
Mr Yu resigns for a novel reason
On 2-Dec-09 Mr Yu
resigned as INED of HKBLA "due to his intention to concentrate on his own
business for unexpected engagements". What on Earth does that mean? Is he in the
business of unexpected engagements? He only served for 2 months. His departure
left only one INED. Whatever the reason for his resignation, he's still got 4
other listed company directorships.
Cash dwindling fast
At 30-Jun-09, before the change of management, HKBLA's
interim report shows net assets of $231.7m or $1.03 per share, including
$189m of cash and $34m of mortgage-backed securities. That cash has been rapidly
depleted by the unsecured "earnest deposit" and the investment in Byford's
bubble stock, absorbing about $128m, so there's probably only about $61m of cash
left, or $95m if they have liquidated the mortgage-backed securities. Of course,
HK does not have quarterly reporting, so the next time you see a balance sheet
will be some time in the spring of 2010.
Despite this, HKBLA closed yesterday (9-Dec-09) at $3.45, valuing the company at
HK$776.3m, or about 3.35 times the last published net assets.
© Webb-site.com, 2009