Yesterday's trading in Pacific Century CyberWorks, 1186, reached a climax. This Tech wonder accounted for 30% of the Hong Kong market's total turnover, at over 5 billion shares. This was the heaviest turnover ever for any share, except for those who have had a placement. This was all in market turnover, and without any special or report transactions. This also put the capital of this company at over $150 billion, a figure that most people cannot envisage and therefore one that passes them by. But when one considers that this is equivalent to more than $2,000 for every man, woman and child in Hong Kong, including visitors, one must wake up and think. In order to service this capital one must expect, at some date in the not so remote future, each man woman and child would need to use PCCW's services and to leave them with a $200 profit each year.
Henderson Land, 12, a company which had last year earned $5.5 billion last year, is now valued at only half the alleged worth of PCCyberWorks. If the promised profit were only at that level, say $10 billion, then in 5 years times, if that is the length in time that it will take PCCyber to reach this level, Henderson, doubled, would be at least $20 billion, and one wonders where this level of profit could actually ever come from.
So one knows that the price is ridiculous, and it is moving not with any logical expectation of ever reaching such a profit level but on technical considerations, and that means that there is somebody acutely short in this share; an institution, because it could not be even an accumulation of individuals. The first finger points at the five derivative warrants on this stock, warrants that were issued in haste as soon as the exchange authorities could condone the issuance. So if these covered warrants were not covered, which despite the terms used does seem to happen, they would therefore leave a gaping contingent liability in the accounts of the issuers, at December, 31 st when these have to be shown to their banking parents and to their directors and to their original investors.
Can you not imagine the Hong Kong manager of Deutsches Bank, for instance, e-mailing through to his Frankfurt headquarters that he has a rather large contingent liability running into billions of deutschemarks or euros through a small little operation in convertibles. This would be reminiscent of Nick Leeming's warning to Baring Bros that there might be a little problem with a position in the Japanese futures market. On can only imagine the stentorian roar at the other end, 'Get the ¡K¡Kthing covered at all and any cost, and do not ever do such a ¡K¡K stupid thing again.' And by the way your position is now vacant.
The second finger points at the distribution of shares in PCCW at the placing in September, and whether these shares were placed to parties outside the scope of connected parties. Because on the face of it one must harbour suspicions that this could be a cornering situation leaving only a smaller than 25% with the general public. But of course we all know that the SFC is very hot in enforcing such restrictions, especially when it is a member of the Li family.
Anyway the movement yesterday was indescribably wild. PCCW rose over 50% at one stage to $18.20, before falling to $15.60, up $4.55 or a 40% rise on the day.
The Tech boom also took the acolytes along with it, Founder, 418, up by $1.45 to $9.80, Great Wall Technology, 74, up 70 cents to $8.35, NW Cyberbase, 276, up 20 cents to $2.725, and Stone Elec, 409 higher by 50 cents to $6.15.