Eratat Lifestyle

UB40 wrote: The other side of the story is why LJC who owns 25.34% stake (about 4 times the amount to YSZ used to own) willing to pledge his entire stake to secure the bond warrant issuance?

The other side of the story is, at 13.8 cents following your numbers, LJC pledged almost 88mil RMB (at 13.8 cents and 4 times that of YSZ) to borrow 100 mil RMB.

Following your numbers, it makes even less sense to borrow at 32% effective interest rate given he had pledged 88mil RMB.... unless SHK some how thinks that 88mil RMB isn't really worth that much?

It doesn't make sense to borrow at such high interest rate as even put the entire share under margin account you would not be charge with such high interest rate (norm at 6% in Spore) and you get to have more leverage (3 times at least)!? Something is very wrong here.

in china borrowing int 6-8%, if u get fr pboc, ccb, icbc..etc
if fr local community lending, trust co etc lending can go to 30-40%

Another disturbing issue is during the holding period the director can actually unload at /or above 14.5 or even 15.7 cents but did nothing and only unload ALL at 13.8 cents ? does it make sense ? It can only be explained during those high price period the outlook still remain positive and suddenly there is a change in his assessment so decide to run ? Remember he sell ALL at 13.8cents do not look at need 'some' cash only.

From www.ifrasia.com/eratat-seals-dim-sum-abs/21097640.article

"The company placed Rmb134m of 12.5% bonds with 82.5m warrants to SWAT Securitisation Fund, a SPV of Sun Hung Kai Financial. SWAT, in turn, offered a Rmb106.8m senior tranche of ABS to investors and a Rmb27.2m junior tranche to Sun Hung Kai Financial."

The effective $$ that went out to Eratat was RMB 100.5m from SHK pocket.

By retaining RMB 27.2m, SHK bears minimal risks as all risks have been offered as ABS (Asset Backed Securities) to other investors.

SHK is really very smart. If the company turns out well, they earn big. If it doesn't, their loss, if any, is minimal.
Hats off to them.

UB40 you got to learn to read between the lines and not take everything literally. Essentially what my words meant is that you got to do your fundamental analysis of the company and not just say 'oh the stock price seems so low now - that means the probability of it going higher is high' - this is not logical - whether a stock goes up or down depends on the fundamental performance of the company. If look at a stock price and its implied market cap and compare it to the fundamental performance of the company and decide a company is undervalued, then I would tell myself the probability of upside is greater than downside and perhaps worth an investment. In the case of Eratat, I will not touch it because I see too many red flags.

What's low can go even lower. It's not as if all stocks tend towards some fictitious equilibrium number over time regardless of fundamental performance. If fundamentals do not matter, we might as well go out there and put our life savings every stock that is selling for 0.5 cents - after all the 'potential upside' is so great right? Will you do that without considering the fundamental performance of the company? If you put 100k in stock selling for 0.5 cents and the company goes bust or gets suspended indefinitely - you stand to lose the entire 100k no matter how low its stock price was. Therefore low price is not necessarily an indication of good value.

You are right, Lin Jiancheng did indeed purchase shares in May 2009. His stake went up from 0% to 29%. But let me tell you what actually happened. Before May 2009, Lin Jiancheng had 0% shares in the company. So why was he the CEO? Simple. His mother in law, Mdm Chong Shuk Ching, and brother-in-law, Mr Ho Wing Fai actually owned 52% of the company after the IPO. In May 2009 they decided to sell their ENTIRE 52% stake. So 29% went to Lin Jiancheng, 7.8% to Ye Sanzhi, and the remaining 14.5% or so was sold to 'sophisticated investors'. Well we know what Ye Sanzhi has done with his shares since. Also, what you can conclude from this is that after this major transaction, the founding shareholders, essentially Lin's family, were net sellers of the company in May 2009 - their stake as a whole was reduced from 52% to 29% - nearly a 50% reduction. I don't want to say too much, make of this what you will. All I can say is that there was huge reduction in stake in the family as a whole, so if you want to look at this through rose-tinted glasses feel free to do so, but be aware of the facts.