What's Afoot at Nority?
10 October 1999
Nority International Group is a small HK-listed footwear manufacturer 39% owned by South China Industries, which in turn is a listed subsidiary of South China Holdings. A further 26.5% of Nority is owned by Mr. Feng Shen Chuan, the Founder and Chairman of the firm.
The stock seldom trades, but recently burst into life, rising by 90% from $0.59 on 30-Sep-99 to $1.12 on 8-Oct-99 on low volume. The directors stated on 7-Oct-99 that they knew of no reason for the increase.
Webb-site.com can reveal that according to a disclosure under the Securities (Disclosure of Interests) Ordinance printed on 6-Oct-99, the directors have granted themselves options to subcribe 26.81m new shares, equivalent to 9.9998% of the issued share capital, at a price of $0.56 per share. The disclosure did not state (as we think it should) the exercise period for these options or when they were granted. However, we know from the interim report that there were no options outstanding at 30-Jun-99, the half-year end.
By granting these options, the board has exhausted the limit on the scheme of 10% of issued share capital, so If you are an employee of Nority, forget about receiving any options to incentivise your work for the time being.
The exercise price of these options is $0.56, so the recent increase in the share price puts them into a 100% profit, with an intrinsic value of of $15.01m. Of the options, 30% went to the Chairman, 20% to Mr. Hung Kun Fu (Managing Director), 20% to Ms. Kuo Shu Chen (Financial Manager), 20% to Mr. Feng Yung Chuan, (Executive Director and the Chairman's brother) and 10% to Ms. Wu Xiaoqin (Executive Director).
This reminds us somewhat of the recent increase in the share price of MAE Holdings, which followed a similar options-granting binge by the board.
The grant of the Nority options presumably had the consent of 39% and largest shareholder South China Industries (represented on the board by non-executive director Daniel Hui Chuen Kin, who is a director of South China Capital), despite the potential dilution when the options are exercised.
Nority Chairman Mr. Fung also recently increased his holding in 3 transactions on 3-Aug-99, 5-Aug-99 and 6-Aug-99, paying $0.70 per share for 4.4m, 4.6m and 4.5m shares respectively. The total purchase of 13.5m shares represents 5.04% of the company. Market volume on each of these days was never more than 201,000 shares, so the purchases must have been off-market. We don't know who the seller was. What we do know is that an unusually large 13.602m shares were traded through the market on 29-Jul-99, when the market price ranged from $0.58 to $0.60 per share, which is less than Mr Fung paid 5 days later. His last purchase took place on the last possible trading day before the one-month "closed period" prior to the announcement of unremarkable interim results on 8-Sep-99.
We wonder what makes the board of Nority so optimistic that they have chosen this time to issue the maximum possible number of options under the share option scheme?
© Webb-site.com, 1999
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