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Long Term Value Researcher

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  • The Odd Case Of Gold Reserve [View article]
    According to the UN, enforcement can only take place when the country is a party to the convention, which Venezuela is not. Enforcement is not that simple, either. see the way HK courts refused to enforce a judgement against NIger when funds flowed via HK. Also, if this were the case, why would so many many plaintaiffs be willing to settle for far lower amounts when Venezuela or PDVSA have clearly been in the wrong? Because enforcement against states is extremely difficult.
    May 29 06:16 PM | Likes Like |Link to Comment
  • The Odd Case Of Gold Reserve [View article]
    I think the recovery will be far lower, and the dilution will be significant. CB holders are creditors, and will likely rush for the exits.
    May 28 05:57 PM | Likes Like |Link to Comment
  • The Odd Case Of Gold Reserve [View article]
    I think you are missing the cash burn issues, the fact that not all bondholders have agreed, shareholders have not agreed, and that Venezuela has pulled out of the ICSID. Recoveries against Venezuela are often far lower. The current bondholder agreement would actually be pretty bad for shareholders, putting them on thin ice. I have recently submitted a bearish article on GRZ that should be published shortly.
    May 28 05:55 PM | Likes Like |Link to Comment
  • Greece's Bond Exchange: It's Official [View article]
    true, but see my comment above. what do you get out of the auction? CDS buyers could be in for a huge surprise. ISDA has never had to deal with default under collective action.
    Feb 26 10:47 PM | Likes Like |Link to Comment
  • Greece's Bond Exchange: It's Official [View article]
    CDS may get triggered due to collective action, but how do you determine what the payout is? The problem is that none of the old paper is going to be outstanding, so what is delivered into the CDS auction? what is the reference security? Where the auction settles and the value received as a result of holding the CDS is very unclear.
    Feb 26 10:45 PM | Likes Like |Link to Comment
  • Cautious on Yurun: Expecting Shares to Be Under Pressure as Situation Unfolds [View article]
    If share prices reacted in line with my view immediately every single time, then I would be sitting on a yacht right now instead of responding to your comment. I responded to almost every single comment I received on EDS. Now the company has decided to buy back, but we will see how the situation pans out.
    I think Yurun is a short until they can improve disclosure, and I have serious concerns about their accounting. That has gone in the right direction. the stock is down another 8% during HK trading and a full 16% since this aritcle was published.
    I want to be clear that I am not providing advice on short term trading opportunities, but looking at real fundamentals and expressing my opinion based on that. EDS is down big, but less than 500K USD has turned over in the last two days so I am not particualrly alarmed.
    Aug 19 01:45 AM | Likes Like |Link to Comment
  • Exceed: A Real Business Trading at an Unreal Valuation [View article]
    warrants are too expensive. because there's no borrow for volatility capture, and the level of dilution you would face upon them exercising in the money, i think far too expensive. The implied vol should be max 20%. At the current price of the underlying, i would not pay above .02. If you are bullish the story, you are far better off buying the stock.
    Aug 12 01:40 PM | Likes Like |Link to Comment
  • Exceed: A Real Business Trading at an Unreal Valuation [View article]
    I think they believe they are being shareholder oriented by not forcing dilution. They could also be planning for a privatization to walk away with the cash. if done, it would probably be above current levels (as it would be tough to get a fairness opinion otherwise) and occur soon after warrants expire. It would be unfriendly, but you still profit.
    Aug 12 01:37 PM | Likes Like |Link to Comment
  • Exceed: A Real Business Trading at an Unreal Valuation [View article]
    rato-
    you bring up a number of points. allow me to address them:
    1) Actually most Chinese journalism is quite poor. The articles asked lots of questions, but without answers or any evidence at all.
    2) D.B. never says when they pulled the SAIC files, just that they had obtained 2008 files which do not match. This might be true, but it's hard to believe they began researching this 2 years ago only to publish a report when the stock is at all time lows.
    3) Very good question. Cash onshore is a completely different asset from offshore cash. Chinese companies often have to refinance offshore because of the complex process of converting RMB into USD. This can take 6 months or longer and requires central government approval. You can read about the process on the SAFE website. At the time, China was in a massive lending expansion program, and it was extremely difficult to move cash offshore, essentially trapping liquidity to stave off domestic recession. It would have been incredibly difficult to move the cash offshore to pay. In addition, the company would not have been able to grow without all of that working capital. As I say above, the growth comes from extending receivables, and without the cash, that would be very difficult.
    4) Fair point. I think they did the deal at a tough time when relying on earnouts was a way to incentivize shareholders to approve the deal. In theory, it is a good way to penalize managment for false promises. On the point of hitting the numbers, receivable days ticked up a lot. I think it comes from pseudo channel stuffing, honestly. the valuation already compensates for that weakness, though.
    5) The big reason for volatility in the competitors margins has been heavy discounting because of expanding too quickly and having to take back inventories from distributors (Anta has nearly 9000 stores now) and having self-operated stores mixed in (which require them to carry inventory much longer). The pure distrbutor model, trade fairs with only manufacturing AFTER receiving pre-orders, and outsourcing most of production is substantially different. The company will have growing pains if it ever gets to that level, and margin volatility will follow. these margins are similar to those experienced by the other companies at a similar size.
    6) There would be some difference due to business models, but these numbers look way off. Could you send your calculations? i do not get numbers like this at all.
    7) CCME was totally different. It's easy to put IR videos out there. Having distributors and operating stores is much more difficult and involved. CCME really did not have a business. WCTBills seemed complicit in the fraud if you ask me. I think he would set up the screens then film it. No competitors had ever heard of them, neither had the large ad agencies. CCME seemed totally made up. They named customers that had never used them. I have yet to find a claimed endorsement or partner for EDS that turns out false. I would change my opinion, if I did though. I actually saw the ads for the company on Channel [V] China. I suppose that advertising to Chinese teens to make them believe it is a big company and buy a US listed stock is possible, but it seems unlikely.
    8) Depends on your size or your horizon. I cannot guarantee the opprtunity will last. the company cannot force the stock below 5.25, just as if it rises above and dilution occurs, it can still be cheap. Given how low the volume is, you would need to start buying now to build a decent position at these levels. It looks totally under-owned. despite the market sell off, there has not been the same type of action in the price. It looks as if totally off the radar. In fact, I am surprised how many comments this post has received!
    Aug 12 10:33 AM | 1 Like Like |Link to Comment
  • Exceed: A Real Business Trading at an Unreal Valuation [View article]
    all of that effort including defrauding Wen Jiabao's son just to get some growth capital (and a pretty small amount at that)? If the company had raised a couple of billion dollars in the market, your argument would go a lot further, but the risk/reward based on the motives you describe just don't add up. If they were going to steal from Wen's son, at least they would relocate the CEO/CFO to US or Canada like TRE did.
    Aug 10 11:50 PM | Likes Like |Link to Comment
  • Exceed: A Real Business Trading at an Unreal Valuation [View article]
    Michael-
    Re: your response and the messages you sne to my private inbox:
    Actually, because of the public nature of our disagreement, i prefer for our discussions to be in the public domain.
    I hope you realize that refusal to provide anything in a publicly viewable format does create suspicion. As well, you mentioned obtaining SAT files in your original writeup and response, and the US securities counsel that assisted us in this investigation advised us that SAIC files are in the public domain (as per the stated purpose of the SAIC), but that SAT files would contaminate our ability to trade in the stock since they would run afoul of the SEC's rules on material non-public information, so I am reticent to be in a discussion with you that is not in the public domain since i do not wish to receive said information. If you posted it online, then I could see it and we could discuss it. I enjoy the lively debate though.

    With respect to my theory about driving the stock down, the management actually insinuated this being their plan in a meeting i had with them last March. It was not said explicitly, but definitely implied. It's certainly the most capital markets savvy i have seen from a Chinese management team. We actually waited to get involved until the stock moved below the warrant strike price for this reason.
    Aug 10 11:44 PM | Likes Like |Link to Comment
  • Exceed: A Real Business Trading at an Unreal Valuation [View article]
    I think they understand capital markets TOO well, unfortunately. As long as they can be considered a fraud, they get the stock below warrant strike. This fraud hunt (which I have participated in), has been hugely beneficial to them. We looked at a lot of these. There were very few that seemed real, this one stuck out because it actually made perfect sense as I could clearly see that management has no incentive for the stock to go up in the near term. If you can stomach it, and if you have a long term horizon, this is a very good entry point.
    Aug 10 01:05 PM | Likes Like |Link to Comment
  • Exceed: A Real Business Trading at an Unreal Valuation [View article]
    In addition, what do you think would happen if they went out and bought 10% of the warrants? the stock would shoot up and they would get diluted on the balance. If after the warrant maturity the management maintains a similar position on the 4Q call, then i would agree with you. That would be really fishy. However, they will probably say "market conditions and the financial performance now give us the flexibility...to begin a dividend policy".
    Aug 10 01:03 PM | Likes Like |Link to Comment
  • Exceed: A Real Business Trading at an Unreal Valuation [View article]
    Michael-
    happy to see your store count stuff. After talking to store managers about inventory actually moving through and not seeing the whole place on discount (like the Anta or Dongxiang stores), it helped convince me. If they were barely selling anything that would stink a lot more and add to your case, but that was not what we observed.

    Unless you can prove the SAIC files are being amended, it's a pretty tough claim to make. If I saw something or had comments from a government official saying he assisted in the forgery, then I would certianly reverse my opinion. It is very possible that you cannot trust Chinese paper, I'll give you that. However, that mistrust is priced in to a lot of the stocks and is a more general "country risk" claim to make. A fair point, but it applies generally, not evidenced specifically in this case. You could do the same writeup claiming the same thing about Baidu or PetroChina. There has to be some kind of proof somewhere other than an insuating article.

    The inability to do an IPO while the financial system was melting down in June 2008 hardly is evidence that fraud must have occurred.

    Makes perfect sense to not buy back the warrants. Most of the holders are tiny PIPE funds that are pushing for convoluted cashless restructuring arrangements. If they are not deep in the money, most of these guys will not exercise. Also if you wanted to privatize the comapny and not trigger a cahs payment in the warrants due to change of control, why not let the stock float down? The major shareholder deifnitely suffers if those warrants get exercised. In Hong Kong, it is typical that leading into a bond maturity a company purposely goes silent hoping the bonds trade well below par to buy them back. Not caring about your stock price in the short run is the hallmark of the Chinese family owned comany.

    If they have X dollars to spend on a div per year, then why on earth would you purposely create a scenario where rather than get your full share of future dividends, you only get 70% of it??? If the market cap is $100mm greater tomorrow, the chairman is not going to sell, so why does he care? It's paper profit that is meaningless to him.
    Aug 10 01:02 PM | Likes Like |Link to Comment
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