Seapower and Galileo Bubbles
9 May 2005
Seapower Resources International Ltd (SRI, 0269), involved in cold storage, had 6,246,587,084 shares in issue at 31-Mar-05, and at today's closing price of $0.184, the company has a market capitalisation of HK$1,149m (US$147m).
SRI has a sad history of abuse and neglect under previous management, and eventually went into provisional liquidation which resulted in a restructuring of the company. It emerged under new management on 5-Dec-03, headed by CEO Kenneth Chan Chun Hing (Mr Chan), a registered professional surveyor. Mr Chan subscribed HK$46m for 4.6 billion new shares at $0.01 each, most of which went to settle the creditors' claims, and he also received warrants to subscribe a further 957,764,514 shares at $0.01 each, or 20% of the post-restructuring capital. Incidentally, Mr Chan is also CEO of Magician Industries (Holdings) Ltd (0526).
On 7-Jan-04, SRI issued a convertible note to an "independent third party", Miss Wang Li Ping, for $5m, convertible into 500m shares at $0.01 each, a discount of 82% to the market price of $0.057 at the time. On 22-Dec-04, the convertible note was acquired by a person named Liu Feng Lei, at a reported price of $0.011 per underlying share. This we find puzzling given that the market price was $0.117 that day. He or she converted the note the next day, and has now cut the resulting shareholding from 500m to 355.9m shares as of 18-Apr-05 in a series of on-market sales from mid-March onwards.
Meanwhile, those warrants granted to Mr Chan were acquired by someone called Huang Weiling on 29-Nov-04, at a reported price of $0.006 per underlying share. We again find this puzzling given that the share price that day closed at $0.123, meaning the warrants had an intrinsic value of $0.113 each. On 6-Jan-05, he or she exercised 300m warrants, and the remainder were exercised on 7-Mar-05, by which time 27.7m of the resulting shares had been sold.
The SRI interim report for 30-Sep-04 shows that SRI had net asset value of just HK$8.2m. Since then, the notes have been converted and the warrants exercised, adding a total of $14.6m, so the pro forma NAV is about $22.6m, or about $0.0036 per share. So the shares are trading on about 51 times net asset value. Turnover in the half year was just $4.2m, and the net loss was $5.2m.
In our opinion, this stock is in a bubble and is probably being manipulated by unknown parties.
The board has seen a number of changes since the restructuring. The current independent non-executive directors (INEDs) include Mr Louis Liu Ka Lim (Mr Liu), appointed on 22-Sep-04, who is also Chairman of Wonderful World Holdings Ltd (WW, 0109) and Galileo Capital Group Limited (GC, 8029), both of which we have written about before. The company secretary of SRI is Miss Sharon Ngan Wai Kam, a solicitor who works for Louis K.Y. Pau & Company. That firm is a legal adviser to WW. What a wonderful world it is, in the words of another Louis. Another director of SRI is Mr David Tsang Kam Ching, who is also a director of Hooray Capital Limited and a Responsible Officer of Hooray Securities Limited.
Incidentally, GC is another stock trading on thin air at $0.07 per share, with a market cap of $56m and a shareholders' deficit of $0.22m at 30-Sep-04. When we last warned our readers about GC back on 19-Feb-01, it was at $0.58, but it crashed soon afterwards. The stock has risen 192% from $0.024 on 22-Mar-05 to $0.07 today without a single down-day. On 23-Mar-05, a Mr Joe Leong Sai Cheong acquired 20% of the company from Mr Liu for $0.024 per share, cutting Mr Liu's stake to 53.05%. We don't know whether or not the buyer is the same person as a Mr Leong Sai Cheong, who was suspended by the SFC for a month in Jul-00 in relation to wash-trading between his clients while he worked as a broker. Now that person works for Upbest Securities.
Gravity will eventually exert itself on Galileo.
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