Don-n-ABQ

China Natural Gas: Deeply Undervalued

PS: I forgot to mention that: If you raise capital in China from the Chinese you receive one type of scrutiny. If you raise it in the U.S. it is another. There is less pressure to perform here than there. The "pressure factor" has to be factored in too.

CORRECTION: I meant "accountants" not "accounts".

China Natural Gas: Deeply Undervalued

#1: Why buy a shell company?

It is actually cheaper to "go public" by buying a company in bankruptcy than it is to do an IPO and pay for the listing fee.

If you add up all the fees by accounts, attorneys, the exchange, the SEC, it is not cheap to go public from scratch. But, if you can get another company, to pay for all of those fees to do an IPO (with other investors money) and then go Chapter 7. You can purchase those same fees at a discount.

That is just smart business.

Back years ago in New England there were two dress shirt manufactures who fell on hard times, they then merged thinking that would help their poor business model (they couldn't compete on labor because the competition went overseas years before). They eventually had to file for Chapter 7 and a savvy investor bought the bankrupt company to obtain a public listing at a discount. These two dress shirt makers were Hathaway and Berkshire.

#2 Why list in the U.S. over China

If you are a businessman in China, and you can raise $100 million dollars in the U.S. faster and cheaper, wouldn't you do it?

China may do a lot of things better than the U.S., but capital formation is not one of them yet. It is faster and easier to raise a pot of capital here than it is there. How many big hedge funds, big insurance companies, big banks, big retirement plans, big mutual funds do they have in China? If you have to raise the same amount over there, your marketing costs to raise funds would be a lot higher, maybe double. This is money that you could be doing something else with, like building a new CNG station to service your customers.

Bottom line, it is still a better business decision to raise capital here than it is there.

Both of these decisions are smart decisions and show intelligent management at the helm. If you were in China you would look to do the exact same thing that these guys did.

Once you have gone through some early rounds in the U.S., and once your company has matured, along with the Chinese financial markets which broadens the investor base there, you then come back for an offering there. From zero to 10 you use "other peoples" money, ours in the U.S., then once you reach a certain threshold, you come back to the home market.

How they have executed in raising capital and obtaining a public listing have been brilliant. If they can do they same in marketing natural gas to customers in China, this is a winner.


On Sep 21 07:20 PM Ricard wrote:

> Interesting pick, agreed with the majority of the comments that this
> stock has a lot going for it.
>
> However, I am deeply suspicious of Chinese shell companies - it seems
> to be too much trouble to buy a defunct listing just to get hot money
> from the US into China...if anyone has an opinion on this I am all
> ears.