Wednesday, February 4, 2015

Lay Hong: The best form of defence is "Private Placements"

Time and time again we have seen that private placements have been misused. It can be issued to people you know but not related, your friendly party. It can also be a tool to be used for yourself by having shareholders as proxy. On top of that it is issued at discount (10%), in the name of hard to place out large quantities if it is not issued at discount.

Note that, I am not supporting either QL or the controlling shareholder of Lay Hong.

We know that QL Resources is having a go at Lay Hong by offering a General Offer for the shares of Lay Hong to minority shareholders. It has been acquiring Lay Hong shares at below RM3.45.

Based on the above, QL has acquired close to Lay Hong's controlling shareholders stake of around 43%.

What does the current management do in defence? Well, through private placements and director's shares options scheme - up to 45% that is (See below). Imagine how much dilution could QL's shares be affected?

Proposal by Lay Hong
See below on the approval - it will need to have approval from shareholders. Now, minority it seems is the king maker in this case i.e. the 15.42%.

Now, the case gets interesting. Would QL up the ante by offering the GO at even higher price just to make the acquisition pricey?


Bn911 said...

Hi Serious Investing, will u buy more Insas share at current price? Which u prefer, mother or Insas-PR? Thanks.

felicity said...

Hi Bn911

It is a very hard question. In any case, look at Insas for the long term. With PR, you are basically hoping that your small investment will grow exponentially through the warrant. Of course there is risk as well, as in what if the mother share trades below RM1. The holding in its preference shares although at 4% dividend is low, it should be safe. To replace FDs, I would even suggest buying the preference share if traded at RM0.90 as the return is more than 6%. Note that there are not many safe options for retailers to make more than 6% unlike institutionals.

If one opts for Insas itself, it is still undervalued but in the short run its price may drop even as people may want to concentrate on trading the warrants.

yhtan said...

Dear Feli,

It could be a double edge sword for Yap family after approval of PP, QL has the financial power to play around with it. After all, profit is essential for every investor.

I suspect prior GO, QL has a thorough plan. They are playing a chess game with upper hand right now.

The main point of PP is to fulfill Bursa ruling of 25% free float.