Byford bubble
1st June 2009
Shareholders and potential investors in
Byford International Ltd (Byford,
8272) should beware of a bubble. At lunchtime today, the underwear seller and licensor (for now at
least) closed at
$0.66, valuing the company (including a pending placement) at
HK$1,585m (US$204m), or 13.9 times its pro forma net assets.
Controlling shareholder
The largest shareholder is Winky Chan Yuen Fan (Ms Chan),
who owns 58.40% of Byford (before the current placing), of which 50.44% has been
pledged to Kingston Finance Ltd since 11-Nov-08. She is not on the board of
directors and we cannot find any other trace of her. We wonder whether Winky has
a brother called Noddy ;-).
On 29-Jul-07, Ms Chan
purchased 149,254,990 shares (74.63%) of Byford for $0.63 per share ($0.063
split-adjusted), or
HK$94.03m in total. Ms Chan's purchase triggered a mandatory general offer at
$0.63, made on her behalf by Get Nice
Securities Ltd, although she did not wish to privatise Byford. According to
the
offer document dated 17-Aug-07, she "has over 20 years of extensive
experience in trading and managing garment business and had previously owned a
garment factory." At the time, she did not have "any concrete plan on the
appointment of Directors to the Board" - even though it was expected that all
the incumbent directors would resign on the closing date of the offer.
The share price took off after Ms Chan's purchase was announced, prompting a
concentration warning on 22-Aug-07 that, as of 30-Jul-07, Ms Chan and 14
other investors held 95.72% of Byford, according to the SFC. Not surprisingly, with the share price at
$5.25,
nobody accepted the offer when it closed on 7-Sep-07. That day, all the
directors duly
resigned, and a new board was installed. Ms Chan obviously decided to take a
"hands off" approach and did not join the board.
Ms Julissa Fong Man (Ms
Fong) was appointed as Chairperson, Ms
Jeremy Wong Yuet May (Ms
Wong, yes, a girl called Jeremy) was appointed as CEO and executive
director, and the required 3 INEDs were appointed. The announcement failed to
mention that Ms Fong was a Responsible Officer of Ms Chan's financial adviser on
the offer, Veda Capital Ltd (Veda
Capital). The independent financial adviser on the offer was
Partners Capital International Ltd.
On 25-Sep-07, Byford, advised by Veda Capital,
announced a 10:1 stock split which took effect on 30-Oct-07.
Unlisted warrants
On 15-Oct-07 Byford
announced a placing of 200m unlisted warrants via
Excalibur Securities Ltd (Excalibur)
and advised by Veda Capital. The issue was
expanded to 400m warrants on 26-Oct-07. The warrants had an exercise price
of $1.20 per split share and 18-month maturity, and were issued for just $0.015
each, raising $6.0m gross and $5.7m net, despite having an intrinsic value of
$0.80 per warrant based on the market price of $2 (split-adjusted) immediately
before the placing was announced. According to the 30-Apr-08 annual report, the
warrants went to 9 individuals. 1m warrants were exercised on 24-Dec-07 and
another 1m on 21-Jan-08. The warrants will expire on 12-Jun-09 and are currently
underwater.
Pharmaceuticals MOU
In between the two tranches of the warrant placing, on 23-Oct-07, Super
League Investments Ltd (Super League), a BVI company owned by
Byford,
signed an MOU regarding a possible purchase of an undetermined stake in
Wisdom First Investments Ltd (Wisdom First), a BVI company,
from Cherry Yeung Chiu Lan, an "independent third party". We cannot find any
trace of her online. Wisdom First was "principally engaged in pharmaceutical and
related business in the PRC". The MOU had a 90-day exclusivity period, but the
purported due diligence dragged on, racking up $766k in expenses up to 30-Apr-08 and another $430k in the quarter to 31-Jul-08. Finally on 13-Nov-08,
Byford agreed to sell Super League to Sina Dragon Group Ltd (Sina Dragon)
for $10,000. This wasn't disclosed until the interim results
announcement on 11-Dec-08, and even then, no mention of the MOU was made.
The owner of Sina Dragon was not disclosed and we cannot find any trace of it
online. Perhaps Wisdom First should be renamed "Phantom Pharmaceuticals".
Tycoon investors
Byford's stock reached an all-time intra-day high of $3.00 and daily high of
$2.65 on 30-Oct-07, the same day the HSI reached its daily record of 31,638.
That spike briefly valued Byford at $6bn. On that day, Ms Chan
sold 110.45m split shares at $1.70 per share through Excalibur, cutting her
stake to 69.10%. 110m of these (or 11m at $17 pre-split) were
taken up by Angela Leong On Kei,
one of the wives of casino tycoon Stanley Ho Hung Sun (Mr Ho).
On 15-Nov-07, Ms Chan
sold another 132m shares at $1.70 per share through "a placing agent"
(our
CCASS Analysis shows that it was Excalibur),
cutting her stake to 62.5%. 110m of these were
taken up by New World Development tycoon
Cheng Yu Tung, who is also a long-time
shareholder in Mr Ho's private flagship STDM. The deals implied a valuation of
$3.4bn on Byford. At the time, it had shareholders' equity (net of a recent
dividend) of just $18.2m. You
might wonder why two such savvy investors were each willing to take a
discloseable 5.5% shareholding in a listed company for more than 186 times its
net asset value, assuming that they paid what they said they did without any
undisclosed put option.
We've analysed Ms Chan's dealings in Byford. We had to make two estimates
based on CCASS movements and volume-weighted average price (VWAP), because she
is not a director, so she only has to disclose dealings which move her holding
through a 1% boundary. On the face of it, we estimate that Ms Chan has, up to
the quarterly report of 31-Jan-09, raised net cash from her Byford trading of
about HK$344m. So she has more than got her money back, if you believe the
figures. Despite this, her shares are still pledged to Kingston Finance
Ltd:
On 22-Nov-07 Ms Rainbow Chan Lai Kwan was
appointed as executive director and CEO, replacing Ms Wong who remained as
an ED. On 23-Apr-08, Ms Fong
resigned as Chairman and ED. As far as we know, Byford has not had a
Chairperson since then. On 2-May-08, Mr Chan Fu Kei was
appointed as an ED.
On 27-Oct-08, Lawrence Woo Hing Keung
(Mr Woo) was
appointed as an ED. He has achieved some minor
fame in a court case against VC Brokerage Ltd (then CEF Brokerage Ltd) when he
claimed that the broker owed him for an inability to complete a short sale of
China Mobile shares in the pre-IPO grey market in 1997. The Court of First
Instance and the Court of Appeal rejected his claim.
Pending placing
On 9-Apr-09, Byford
launched a best-efforts placing of 400m new shares at $0.20 per share
through Fortune (HK) Securities Ltd
(Fortune Securities)
"to strengthen the capital base and to explore potential business and take up
investment opportunities in the future". The placing would raise $80m gross
($77.8m net) for 16.65% of the enlarged share capital,
exhausting the general mandate. The placing has not yet been completed. Fortune
Securities is owned by China Fortune
Group Ltd (China Fortune, 0290), which also owns 51% of
Excalibur and, advised by Veda Capital, it has
agreed to acquire the rest.
On 6-May-09, Byford
agreed to sell its core business for HK$45m, for net proceeds of $43m and a
gain of $27.5m. The advisor is Veda Capital. The announcement coyly stated that
"The Company will review the situation of Rule 19.82 of the GEM Listing Rules
upon Completion". You all know what that rule says, right? Of course not, and
the company should have explained it. What the rule
says is that if a company becomes a cash shell then it will not be regarded
as suitable for listing and its shares will be suspended.
At 31-Jan-09, Byford had equity of just $8.6m. Assuming that the placing and
sale of the core business completes, then Byford would have 2,402m shares
outstanding, and net assets of about $114m, or $0.047 per share. But the current
market price of $0.66 implies a valuation of $1,585m, or 13.9 times the
net asset value. If the placing does not complete, then NAV will be just $36.1m
or $0.018 per share.
Shareholders sell
On 31-Mar-09, China Bio-Med
Regeneration Technology Ltd (CBRT, 8158)
announced that it was selling a portfolio of listed shares and unlisted
warrants for $17m gross ($16.5m net) through Excalibur. These included 10m
shares of Byford. This portfolio was probably acquired at some point after 31-Jul-08, as
CBRT did not suffer any gain or losses on financial assets until the quarter
ended 31-Oct-08. Incidentally, Joseph
Orr Wai Shing is an INED of both Byford and CBRT.
On 4-May-09, PME Group Ltd (PME,
0379), which was also the largest shareholder of CBRT,
sold 50m shares (2.5%) of Byford in the market at $0.35 to raise $17.5m
gross ($17.4m net). Our
CCASS Analysis for the settlement date shows that these shares probably
moved from the custody of Kingston Securities Ltd to Fortune Securities.
To be continued
Byford is just part of a web of companies and transactions which
Webb-site.com is investigating, including PME, CBRT and China Fortune,
amongst others. Stay tuned for part 2.
Copyright Webb-site.com, 2009
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