How much damage can a HK main board company do to its share price within the first year of listing? Try 79.6%, with two full-sized placings under the generous general mandate, one of them at a discount to net cash per share, neither of which was necessary. For Time2U (1327) one year was time enough.

Time2U's time to FU
25 January 2016

Here's another perfect example of why investors should avoid IPOs. If a company is going to abuse minority shareholders then it usually doesn't take long to get started. Time2U International Holdings Ltd (Time2U, 1327), a Zhangzhou, Fujian-based maker of cheap (sorry, "economical") quartz analogue watches, was listed on 30-Jan-2015, less than a year ago, after an IPO at $1.10 per share. The IPO was sponsored by Cinda International Capital Ltd and the "Joint Lead Manager" was Convoy Investment Services Ltd, whose name should now be familiar to our readers.

In the IPO, 104m shares were sold by existing shareholders (seldom a good sign) and 156m new shares were issued, although we should note that no dividends were paid during the 3-year track record period. The initial CCASS positions on the first day of trading show the largest brokers as Gransing Securities Co Ltd (Gransing) and Win Fung Securities Ltd (Win Fung).

In the 30-Jun-2015 interim balance sheet, Time2U had net cash of CNY220.2m (HK$275.3m), or $0.344 per share, and net tangible assets (NTA) of CNY583.0m (HK$728.8m) or $0.911 per share.

The Webb-site CCASS Analysis shows that on 31-Jul-2015, a block of 166,367,020 shares (20.80%) were deposited into CCASS via Black Marble Securities Ltd (Black Marble), which is owned by Lerado Group (Holding) Co Ltd (1225). These could only have come from the controlling shareholder, Visual Wise Ltd, which is 62% owned by Time2U Chairman Lin Zhiqiang and 38% by his wife, Yan Xiaotong (Ms Yan).

On 5-Aug-2015, Time2U launched a placing of 160m shares via Black Marble at $0.40 each (19.8% below the 5-day average closing price), raising $62.0m net. This was a "top-up" placing in which, for speed of placing settlement, the controlling shareholder sells existing shares and then subscribes the same number of new shares at the same price. Our system shows that when the placing settled on 11-Aug-2015, about 108.8m of the shares went to clients of Emperor Securities Ltd, Win Fung and Gransing. That raised pro forma net cash at 30-Jun-2015 to $337.3m, or about $0.351 per share, but diluted NTA to about $0.824 per share.

Ms Yan resigned as CEO on 24-Sep-2015 and her husband took over her role.

The placing completely exhausted the 20% "general mandate" allowed by HK Listing Rules, so on 30-Oct-2015 Time2U called an EGM and asked "independent" shareholders to approve a new issue mandate, accompanied by a letter from "Independent Financial Adviser" Hercules Capital Ltd, signed by its MD Louis Koo Fook Sun and director Amilia Tsang Wing Yee.

Of course, institutional shareholdings in such stocks are minimal, and retail investors don't normally vote because their banks and brokers don't have to seek voting instructions (read the small print of client agreements). So it is easy for friendly shareholders to sway the outcome. With a turnout of 9.43% of the issued shares (or 14.95% of the shares not held by the controlling shareholder), the mandate was approved on 16-Nov-2015.

On 4-Jan-2016, Time2U launched another placing, blowing the new 20% mandate (192m shares), again via Black Marble Securities, at the lower price of $0.23 per share (18.8% below the 5-day average closing price), raising $43.06m net. That's 79.1% below the IPO price in less than a year. The placing completed on 18-Jan-2016, and our system shows that 37.5% of the stock was placed to clients of Luk Fook Securities (HK) Ltd, 26.25% Haitong International Securities Ltd, 21.25% Gransing and 15% Win Fung.

The second placing raised pro forma net cash to $380.4m but, as the shares were issued below the existing net cash per share, that was diluted to $0.330 per share. The placing also diluted net tangible assets to $0.724 per share. Time2U closed today at $0.225 per share, 79.6% below its IPO price, but whether that huge discount both to net cash and NTA is sufficient to offset the risk of further abuses is debatable.

©, 2016

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