Game Theory on private placement on SGX and its insight sharing

This coming weekend I will be sharing on this interesting topic. There is NO Free Lunch in this world and anyone who can invest huge money in a company through private placement believe they can make money. Hence using economic game theory to understand the insight is a good way to analyse the chances whether after private placement will the shares go up or not. The amount invested by each investors and the motive behind placing out shares and to whom(especially big) are IMPORTANT FACTORS to take note. For me, for every deal, there must be a REASON for the placement in the company point of view (Fund raising for expansion or pare down debts?) and also for the Investors who are rich usually, usually is to make money. Some could be for short term, while others who invest could have a longer horizon (Geunine good investors).

Sam Goi, Koh Boon Hwee, Oei Hong Leong, Peter Lim and Tommie Goh are some of my favourite investors who when take up private placement on SGX listed shares, I will take a look at the company fundamentals and link to recent companies that are linked to them. "Wind' is a very important factor as sometime when placed out to investors that just invest with a long term view of the company, the shares cannot move up short run. You need news and play by the BBs in order for the stock to move. To access placement shares, you need the right connections, and usually it will not reach the retail investors. Do note that recent private placement deals are not small (exclude IPO placement deal) due to certain reason. The norm is to place out at least SGD $1 million to the investors as if the company place out to these rich ultra networth with $1 million spare cash, these investors usually aim to make at least 20-30% before letting go and buy the company growth story. Do note usually the discount could be up to 10% discount on the average 5 days traded price and usually there is no lock in period and these placement shares can sell anytime. Hence dealmakers and company want to place out to people who can hold the shares and provide stability. Sometimes, private placement shares are also place out to BBs using names we are not familiar with as these BBs could invest under a new investment company. But the definition of BBs is for us retail investors to define as after buying and the share go up, we tend to associate it with the work of BBs. Do note under corporate announcement they are just investors who want to invest in the company so BBs or investors is subjective and hard to prove they are under which category. BUT one thing for sure, they all believe they can make money from their investment :)

In my opinion, private placement is good as the company can raise fund and achieve its objective and investors who invest could get the shares cheap and at a discount. It is not always the case that the placement price is at a discount because some strategic investors just want a pie of the company but there is not enough shares in the market for him/her to accumulate, so they pay a premium instead. Hence I love corporate action such as private placement as my philosophy in all equity deals is as such:- When it involve big money, no one want to lose, so there is a chance there may be action in the share price after the placement of shares. It could be justifiable for the price movement as if the shares are placed out to well known names, the company can justify the share rise and attribute it to euphoria(feel good) factors. Another way that the company can justify should the share price rise as if placed out shares to well connected people like Oei Hong Leong, as Mr Oei could use his China connection for instance to bring in business or get strategic alliance for the company he just invested with his strong connections. Is a win win situation for him and the company he invested because the share price move up and he makes money from it. On the other hand the company raises capital and may get good opportunities from their new investors. BUT BEWARE, not everything will turn out to be what you anticipate, as I have seen after investing, people may quarrel and things may turn awry and sell out. Investment have risks so always do your due diligence.

For IPO private placement, is good to see who the shares are place to, especially if investors cannot apply through ATM and in mist cases all must be done by private placement. In the scenario where all the shares are held in their hands of these close knitted group, and public got no access to the shares, most likely the price of the share will be up on opening. But a note of caution, if fundamentals are not there, beware of PUMP and DUMP as once the BBs exit this counter, we will never know when the counter will play up again. Some shares may go up for years after IPO hence I have no fixed formula to determine when to buy and sell. Is good to scrutinize the investors who invested if it is all private placement and ensure they do not offload. As long as the shares are not flooded, there is "hope" that the share price may continue to go up further.

Some would like to ask how to get private placement that is not publicly available. My answer is through connections and relationships. That is why the rich get richer. Warren Buffett can access to private deals because he is rich and well connected. Same for private placement, companies look for strong and rich investors who can hold their shares as most of the time they are selling cheaper than current trading price.

Have a good coming weekend all. For more discussion and sharing. Hope this is educational for all.

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26 likes 11 comments
ergkmaslowcari

Game theory. Ezion is a good example.
I am newbie https://www.investingnote.com/posts/32377.

WongLokTim

For retailer viewpoint to judge private placement good or bad is very easy.
In bull market private placement is bad because private syndicate use this excuse to unload shares to you, Ezion 1.7 placement is a good example .
In bear market private placement is good because shares price down move is limted

WongLokTim

china call private placement 為定向增發

WongLokTim

anyone know the stocks performance after half year or one year private placement.
This is important to know whether private placement ready help listed companies

micklimsowch

thank you sir. This post help me understand a lot more on private placement

Berlin

nice. thanks.
however some placements are tools to gain control of a company.
Moya is an example.
Some are meant to create a sense of confidence in the company and may not work at all ; eg Ezion when they placed out to KLC at $1.94

Li_Guang_Sheng

Reply to @Berlin : Yup you are correct. Issue right also another way to gain control like Moyà case. :)

creme

Existing shareholders' approval needed for ALL private placements? Thanks.

Li_Guang_Sheng

Reply to @bgting : Thanks bgting. Thanks for the teaching as have not encounter those without mandate or exceeding the limit as usually those that do already plan to do. There is a plan or motive hence all plan way ahead. You are good bgting :)

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