Raking muck, Part 5
11 March 2012
As you will recall from Part 4, this series has covered transactions by 9 listed companies so far:
- China Outdoor Media Group Ltd (COMG, 0254)
- China Post E-Commerce (Holdings) Ltd (CPEC, 8041)
- China Railsmedia Corp Ltd (Railsmedia, 0745)
- China Yunnan Tin Minerals Group Co Ltd (CYTM, 0263)
- CNC Holdings Ltd (CNC, 8356)
- Hycomm Wireless Ltd (Hycomm, 0499)
- Inno-Tech Holdings Ltd (Inno-Tech, 8202)
- Simsen International Corp Ltd (Simsen, 0993)
- Wo Kee Hong (Holdings) Ltd (WKH, 0720)
In this article we will focus on the latest transaction by Railsmedia, which also involves CPEC and COMG, and we will introduce a 10th listed company to the story:
- Zhi Cheng Holdings Ltd (Zhi Cheng, 8130)
Railsmedia to buy Huge Leader (FingerAd)
On 27-Oct-2011, Railsmedia conditionally agreed to buy Huge Leader Development Ltd (Huge Leader, BVI) from Huge Leader Holdings Ltd (HL Vendor) for HK$690m, to be satisfied with $200m in a 2% 2-year promissory note and $490m in preference shares convertible @$0.07. The deal is still pending and on Friday the circular was delayed again until 14-Mar-2012. The domicile of HL Vendor was not disclosed. HL Vendor is owned 40% by Ms Chan Ka Wai (this name is so common that there are 19 in our database), 30% by Mr Xiao Baoyan (about whom we know nothing), and 30% by Anthony Tang Tsz Hoo (Anthony Tang). Anthony Tang was co-founder and an Executive Director of Heng Xin China Holdings Ltd (Heng Xin, 8046, then known as "Tiger Tech Holdings Ltd") until 14-Nov-2005.
Incidentally, in the Heng Xin IPO prospectus, Anthony Tang was an "MBA candidate in Newport University of the US", a diploma mill our readers have heard about before. He made no further mention of the MBA in post-IPO annual reports. Also, one of the INEDs of Heng Xin from the IPO until 10-Mar-2006 was Allan Kwok Ming Fai, who featured in Part 2 of this series.
Huge Leader has no track record. It has a single subsidiary, FingerAd Media Co Ltd (FingerAd), incorporated in HK on 18-Jul-2011, and consolidated net liabilities at 30-Sep-2011 of just HK$2,669. Huge Leader group is:
"currently engaged in providing advertising and value added services in Hong Kong through mobile devices and digital media network of LCD and flat panel screens in retail chain network."
Does that sound familiar? Yet another TVs-in-shops venture, but with a new gimmick. The announcement continues:
"FingerAd has teamed up with Amazing World Corporation Limited...trading under the name of "Tera Age", for the supply of solutions for mobile platforms... FingerAd has entered into a legally binding agreement dated 15 September 2011 with Tera Age pursuant to which Tera Age shall supply exclusively to FingerAd solutions for mobile platforms with online advertising capability for the food & beverage industry for an initial term of five years. Tera Age also granted to FingerAd the first right of refusal for the exclusive supply of similar solutions for the travel industry and apparel industry for an initial term of five years...
"Currently the key solution to be provided is the Dining App. The Dining App is not just a software, but a whole new platform for the food & beverage industry to market and promote their business and to keep connected with their customers...The Dining App...includes 3 key modules, the Mobile App for both Apple iOS and Android, System Administration Tool and Content Management System...The Dining App services has been launched on 15 September 2011. In order to create market awareness and the momentum for market penetration, FingerAd is offering a free trial period to new subscribers. Therefore as at the date of this announcement, no revenue is recorded for the Dining App services." (links added)
FingerAd also has a web site here. That site claims that FingerAd is already a subsidiary of Railsmedia - but the deal hasn't closed yet, so that is false. Now, take a look at the Apps at the links above - would you pay HK$690m for the right to operate this "whole new platform"? How much do you think FingerAd is paying Tera Age? But wait, there's more: our old friend iKanTV Ltd (iKanTV) enters the picture. As you will recall from Part 2, iKanTV is now 53% owned by CPEC and 47% by COMG. CPEC bought 4% of iKanTV from COMG for HK$9.2m cash, and 49% from Mr Kwok Ming Fai and Vicky Yu, for a total of HK$116.84m in shares, while COMG paid only US$47 for its stake in the startup. Railsmedia says:
"FingerAd has entered into a legally binding cooperation agreement dated 15 September 2011 with iKanTV Limited ("iKan") pursuant to which iKan shall refer clients exclusively to FingerAd for the Dining App services for an initial term of two years...iKan operates the "babybamboo.com.hk" website and is one of the main online group purchasing market player in Hong Kong. It focuses on the food and beverage market with a strong sales force and large customer base. FingerAd and iKan shall share the revenue generated from those clients referred by iKan. As at the date of this announcement, iKan has secured 43 restaurants subscribing for the Dining App services..."
Underwhelmed we are. BabyBamboo looks like another Groupon me-too. The Railsmedia announcement tell us that iKanTV will be selling its installed screens to FingerAd:
"FingerAd will also provide advertising services through digital media networks of LCD and flat panel screens in retail chain network. FingerAd has entered into a legally binding agreement dated 26 October 2011 with a leading chain retail group for household goods in Hong Kong (the "Chain Store Group") pursuant to which FingerAd has the right to install and operate a digital media network of LCD and flat panel display units at the retail stores under the Chain Store Group in Hong Kong. Currently the Chain Store Group has approximately 200 retail stores in Hong Kong selling a wide range of household products. It is expected that FingerAd will establish a digital media network of flat panel screens at over 100 stores under the Chain Store Group. The network of flat panel screens has been installed and is currently operated by iKan. FingerAd will acquire the installed screens and other hardware from iKan and roll out the digital media network upon commencement of the agreement on 27 November 2011" (emphasis added)
Billy Chan Kai Sing is the CEO of Huge Leader group, as well as being the COO of iKanTV over at CPEC - so it is not clear where he will end up sitting. He seems to be running two start-ups simultaneously which are now pooling their interests. Only one other person is mentioned, a "chief technical consultant" of Huge Leader group, who is also the COO of Tera Age, so he won't be an employee of Huge Leader or FingerAd. Notably CPEC has not made any announcement about the apparent sale by its subsidiary, iKanTV, of the network to FingerAd. Nor has COMG, which still owns 47% of iKanTV.
Railsmedia says that FingerAd and iKan have agreed that iKan shall "provide management services to FingerAd in respect of the digital media network under the Chain Store Group such as video production, processing and upload, operation of program, playlist and maintaining the hardware." In return, "FingerAd shall allow iKan to use a portion of the the advertising air time and certain advertising space on the digital media network free of charge."
A bit of checking reveals that FingerAd and iKanTV are so close that the domain FINGERAD.COM.HK is actually registered to iKanTV and they share the same address at 17/F Bangkok Bank Building, 18 Bonham Strand West, HK.
Nothing is said about how Ms Chan Ka Wai, Mr Xiao Baoyan and Anthony Tang came to invest in FingerAd (or HL Vendor). They initially invested a grand total of HK$7,980 for the shares, based on the net liabilities of $2,669 plus the start-up loss of $10,649. They do not seem to be part of its management. We call on the SFC to investigate whether these people are really acting independently of CPEC, COMG, Railsmedia and their respective directors.
So far, the iKanTV story has involved COMG, CPEC and Railsmedia. But there is one more listed company involved...
On 4-Apr-2011, Zhi Cheng agreed to buy Unique Smart Group Ltd (USG) from one Mr Wong Sin Lai (SL Wong) for HK$33m in cash. The BVI company was incorporated 5 months earlier, and "carries on the business of program production for advertisements or for television and other forms of media". It's main asset was an agreement with - can you guess - iKanTV, for "exclusive advertising agency rights for certain airtime slots on display televisions commercial broadcast in a Hong Kong retail chain store for a period of 10 months" with an option on either side to renew for 3 years. USG would receive 30% of the advertising fees as an agency fee.
Stop and think - a 10-month contract, or 46 months at best, with a presumably-normal rate of agency fee for work done - why would that be worth paying $33m for? The deal was supported by another ample valuation from Ample Appraisal Ltd, who put the value of USG at HK$38m. The deal completed on 19-Apr-2011.
Up to 1-Apr-2011, USG had zero turnover and zero profit or loss. It had not traded. Citing the increasing number of mainland shoppers in HK, Zhi Cheng said that "movie motion advertisements" (surely, a tautology) can directly influence buying decision "in particular to mainland China visitors". Are they particularly more gullible than HK shoppers?
So who is SL Wong? The only person by that name in our database, Wong Sin Lai, formerly known as Wong Sin Lei and Wong Tam Yee, is an INED of China Zenith Chemical Group Ltd (China Zenith, 0362), the largest shareholder of which is Jimmy Chan Yuen Tung, brother of George Chan Yuen Ming, who in turn featured extensively in Part 3 of this series in relation to Hycomm. SL Wong was appointed by China Zenith on 29-Apr-2011 to replace Peter Yau Chung Hong, who resigned on 8-Apr-2011 and has been rather busy with an inquiry into his conduct by the market misconduct tribunal. SL Wong is also an INED of National Investments Fund Ltd (1227), which is a member of what we call the Chung Nam Network. He changed his name to Wong Sin Lai effective 22-Feb-2011. We don't know why.
Zhi Cheng has a history of value-destroying transactions. From 11-Jan-2007 onwards it has consolidated its shares 5 times by a total of 200,000:1, and still only trades at $0.365. If you had bought fewer than 200,000 shares any time before 11-Jan-2007, and not taken up the 3 subsequent open offers, then you would now have been rounded down to zero.
4 listed companies, 3 shells
So now you have yet another party (USG), along with FingerAd, dealing with iKanTV, and 4 listed companies involved. How many times can you slice and dice the same business to generate new shell deals?
- Railsmedia, via FingerAd, is acquiring the hardware from iKanTV;
- CPEC and COMG, via iKanTV, are going to manage the hardware for FingerAd in return for "a portion" of the advertising airtime; and
- Zhi Cheng, via USG, is going to get an agency commission for selling the airtime given to iKanTV.
and all that has been wrapped in shells and sold to 3 listed companies by individuals with no apparent role in the businesses:
- CPEC paid $116.84m to Kwok Ming Fai and Vicky Yu for 49% of iKanTV
- Railsmedia is paying $690m to Ms Chan Ka Wai, Mr Xiao Baoyan and Anthony Tang for FingerAd
- Zhi Cheng has paid $33m to SL Wong for USG
That's a total of about $840m that has gone to these individuals - all of whom were purportedly independent third parties, plus $28.8m from Railsmedia to Vicky Yu for 7% of CNMHK as mentioned in Part 1.
In Part 6 today, we will return to COMG and its latest transaction, amongst others.
© Webb-site.com, 2012
Organisations in this story
- AMAZING WORLD CORPORATION LIMITED
- AMPLE APPRAISAL LIMITED
- China National Culture Group Limited
- Dadi International Group Limited
- FingerAd Media Company Limited
- Heng Xin China Holdings Limited
- Huge Leader Development Limited
- Luxey International (Holdings) Limited
- Luxey Online Solutions Limited
- NATIONAL UNITED RESOURCES HOLDINGS LIMITED
- Unique Smart Group Limited
People in this story
- Chan, Billy Kai Sing
- Chan, George Yuen Ming
- Kwok, Allan Ming Fai
- Tang, Anthony Tsz Hoo
- Wong, Tam Yee