Last week, the Wall Street Journal Asia reported that (of all things) a Hong Kong-listed "lighting-equipment manufacturer" Bright International Group, will purchase 8 Chinese gold mines. The deals are valued at US$956.1 million. You might ask yourself why this is happening. In our opinion this is a combination of raw opportunism and dollar devaluation fears.
Bright International claims that "gold has high commercial value" and the firm believes that it is time to diversify its business from manufacturing to commodities and natural resources. Prior to the gold purchase, Bright also entered the timber business in China's southern Guangdong province (April 2009). Bright was founded by Taiwanese businessman Hsu Chen-shen. Mr. Hsu and his brother, Hsu Shui-sheng, own roughly 23% of the company. The Hong Kong-listed company's stock rose 29% on Monday alone, driven by speculative investors who see the potential benefits of Bright's exposure to the gold market. The Company's market cap is relatively small--around HK$500 million. Bright plans to fund the purchases mainly via the issue of convertible bonds and promissory notes to the owners of the mining assets. These assets are controlled by BVI companies owned by unnamed Chinese individuals.
So why is this transaction significant? In itself it isn't really. I write about it to highlight the furor over gold that we've been seeing here in China. As mentioned in a previous blog posting, our firm SinoLatin Capital has been getting inundated with requests from Chinese firms seeking to go outbound to buy gold mines. The mania is palpable, and when a firm that has been focused on lighting projects since 1983 decides to spend a billion dollars to buy gold mines, you know that there's something in the air.
Bright's stock, by the way, is up 79% from Aug. 31 through its close on Monday.