We piece together disclosures by 4 listed companies in the Enigma Network to reveal a pseudo-fund which held a single 55% stake in a social media company, posing new questions for the regulators.

Enigma fallout: the social media fund
28 April 2019

Another piece of debris from the Enigma Network has come to light. At least 4 of the listed companies, and possibly more, have or had stakes in a purported "fund" managed by another network member, Convoy Global Holdings Ltd (Convoy, 1019). The so-called fund made a single investment in 55% of an unidentified HK social media company, before disposing of it, causing nearly-complete impairment losses to at least 2 of the investors. And now, after the impairments, Convoy has offered to buy out some or all of the shares, on deferred payments over 33 months.

Power Financial

On 6-Mar-2019, Enigma member Power Financial Group Ltd (PF, 0397) announced that it had disposed of 4,075.809 shares in an unnamed Cayman fund to an unnamed company incorporated in HK for HK$36.59m ($8977.87/share), with only 1/12 payable on 29-Mar-2019 and the rest in 33 equal instalments at the end of each month up to Dec-2021. On the evening of the announcement, Webb-site complained to SEHK that PF had failed to identify the fund, the purchaser and the beneficial owner of the purchaser.

On 11-Mar-2019, PF announced that the fund is named Promising Social Media Private Equity Fund (PSM) and its manager is Convoy Fund Management Ltd (CFM), which had represented to PF that the only asset of PSM at 31-Dec-2017, valued at approximately HK$87m, was:

 "its 55% equity interest in a company which operated in the field of multi-media, social media and internet-related business in Hong Kong".

Not so much a fund as a holding company then. According to the calendar 2017 audited financial statements of PSM (dated 7-Dec-2018, which makes them pretty late), after the end of 2017, PSM "had disposed of its 55% equity interest in the said company." CFM had not provided PF with any details of PSM's investments subsequent to 31-Dec-2017.

PF states that it had 3,522.108 shares in PSM at the end of 2015 and 2016, and 4,075.809 shares at 31-Dec-2017, so it must have acquired an extra 553.701 shares in 2017. It was carrying the position in its books at $9,040.79/share at 31-Dec-2017 and PSM had a net asset value of $8,977.87/share at that date.

The second announcement named the buyer as Convoy Collateral Ltd (CC), a 100% subsidiary of Convoy. It didn't mention that Convoy also owns 100% of CFM.

China Demeter

On 15-Mar-2019, another Enigma member, China Demeter Financial Investments Ltd (CDF, 8120), announced that it had sold 736.217 shares in PSM to CC, on the same terms that PF had announced. The 2017 audit report on CDF had been qualified because of the uncertainty over the valuation of its shares in PSM, although the fund had not previously been named.

So that makes 2 sellers revealed.


Now we go back to an announcement on 21-Jun-2017 by Finsoft Financial Investment Holdings Ltd (Finsoft, 8018) coughing up details of its investments which it had failed to include in its 2016 annual report. This disclosed that it had originally subscribed 360 shares in PSM for HK$3.5m ($9,723.399/share) as part of an offering of 4,990,000 shares and that PSM's net asset value at 31-Dec-2016 was $9,763.622/share. It would appear that either the total number of shares in the offering was wrong, or they were trying to raise the enormous amount of HK$48.52bn. The announcement stated that PSM was previously named "Convoy Social Media Private Equity Fund".

Finsoft's interim report at 30-Jun-2017 put the NAV of PSM at $9,040.793 per share. Finsoft's 2017 annual report states that "due to the uncertainty in the prospect of this investment" it had fully impaired it during 2017.

Universe Entertainment

Now we turn to the 31-Dec-2017 interim report of Universe Entertainment and Culture Group Co Ltd (UEC, 1046). This reveals (p65,68) that it held 1,982 shares (then 21.03%) of PSM, which it valued at $17.92m with no impairment. It also discloses that PSM was incorporated on 5-Feb-2014 and "commenced operation" on 29-Apr-2015.

However, in its annual report at 30-Jun-2018 (p13-14), UEC made an impairment charge of $17.34m, reducing its valuation of the 21.08% PSM stake to $0.581m. There was no mention of PSM in the next interim report at 31-Dec-2018, probably because it was then too small.


If UEC has its percentage stake right, then there are about 9,425 shares in issue. The holdings in PSM were (rounded to the nearest share):

Holder Shares Stake %
0397 PF 4076 43.25
1046 UEC 1982 21.03
8120 CDF 736 7.81
8018 Finsoft 360 3.82
  Others 2271 24.09
  Total 9425 100.00

Questions for regulators

  1. The PF announcement states that the offer for the PSM shares was conditional on 6 holders (including PF) accepting on the same terms. We've only found 2 of the sellers and 4 holders, so that's the first question - who were the other sellers and holders?
  2. What was the single investment of PSM, a 55% stake in a "company which operated in the field of multi-media, social media and internet-related business in Hong Kong"? At what price did PSM dispose of the 55% stake after 2017, and to whom, given that this seemed to cause a massive impairment in the value of PSM, according to both Finsoft and UEC?
  3. Given that Finsoft totally impaired its investment in 2017 and UEC impaired almost all of its investment on 30-Jun-2018, in each case, is Finsoft/UEC one of the 6 sellers to Convoy's subsidiary, CC? If so, will it record a gain on the sale? If not, then did Finsoft/UEC already sell its PSM shares to someone else, and on what terms? Has anyone else benefited from the impairment followed by the sale of shares to Convoy?
  4. Why is Convoy taking 33 months to pay for the PSM shares? Given the timing of the sales announcements, was this simply a way of cleaning up the balance sheets of the listed companies to avoid a qualified audit report for 2018?

© Webb-site.com, 2019

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