Abaci's Common Sense Investing

I've always read successful people are proactive in life and pursuit of everything, and they never wait for things to happen. So this may be one fine inspiring example, how about growing a company by 150 times in capitalization from $20m to $3b in less than 4 months?

Here is a company which used to be in the telecom software business. It was listed on GEM in 2002 and shares were held by management shareholders Tsang, Lam, and Lau. It even had attracted a fund, Pacific Technology Partners, as a strategic investor. But things apparently turned bad after listing as financial performance deteriorated in the next few years. Then at some point in time things became discouraging enough that the owners decided to sell their stakes, one by one.

First, Lau, the COO, exited and sold his shares at 9.2 cents in July 2005. But lucky was he there was a buyer (Century Dragon) for his minority interest and the deal was done off-market. 9 months later in April last year, Lam, the co-founder, exited and he was also lucky to find a buyer (Gorgeous Overseas) for his shares at 8.75 cents off-market. One month later in May last year, Pacific Technology Partners probably sensed trouble and wanted out, but be not desperate as it too found a buyer (Homerun Business) and sold out off-market at 6 cents. Finally in November last year, Tsang, the remaining co-founder, sold out his stake at 8 cents to, how hard could it be, yet another off-market buyer, Well Support. Well Support was indeed very well supported as the name Kingston Finance and Ms. Chu showed up in the SFO disclosure. My guess is they were the financier because their names were subsequently cleared off the shareholders' record in February this year.

Bear in mind the 4 buyers were unrelated and we must give praise to whoever the broker was because it was one hell of a job to clear those GEM stocks in 4 non-controlling blocks. In total, 139.7m shares (60%) were changed hands at an average price of 8.2 cents for $11.4m, more or less the price for a GEM shell.

Now the proactivity began, trading volume and price started to go up in the same month of November, with no apparent reason. By this time Gorgeous Overseas must be feeling gorgeous as it was selling down its stakes (from 40m shares to 23m shares) at 28 cents, making more than 3 times of cost or 200% profit. A placing was then done at 24 cents raising $46.4m. No names of the placees were disclosed.

Things continued to go wild after the placing and before anyone knew it, the price was up by 400% to over a dollar in the 2nd trading day into December. Remember proactive people don't wait for things to happen. An announcement then came out and mentioned talks were being held with some companies under the China Railway department about potential co-operation in logistics and transportation. It then settled down for a while, but for not long, before climbing by 400% again to $4 in this January! But it didn't stop there and continued to reach $7 this month! $7 was 87 times of the original investment cost of 8.2 cents! Early birds must be very full by now.

Full details about the co-operation and the agreements eventually came out on 12 March. The company will be injected a 49% effective interest in a JV with China Railway (HK), GD Railway, Pacific Telecom and Networks, and BJ Run Tong as partners on two shareholding levels. The business will be railway cargo transportation operator. I wrote 'will be' because the JV is not yet in operation and is still trying to obtain the necessary regulatory approval to operate. But that didn't apparently deter anyone. The consideration was $680m which will be 99% satisfied by issue of new shares at $7.11, yes, seven-eleven. And so another shareholder Cheung emerged. There are now 5 shareholders introduced into this company and they don't know each other! Maybe proactive people have a tendency to find one another.

Okay you might say it's just a rubbish for rubbish deal since there's little cash involved. But 7-11 is never a quiet place, under the same deal 55m new shares were also placed at $7.11 via China Construction Bank to a number of institutional investors including at least two investment funds, Indus Capital and Gandhara Master Fund. UBS's name showed up too but it's more likely to be a broker of either of the fund. So now there's real money backing this surreal railway venture.

Apparently you should know by now I'm not the proactive type since I only brought to you this company when its price is over $7. So don't expect me to tell you what'll happen next.

What's the purpose of this post? Of course I'm jealous of others getting immensely rich! I'm all red eye now.

And what's the name of this company? Proactive Technology Holdings (8089).

DISCLOSURE: I don't hold 8089 at time of writing.