Turning S$ 98K into S$ 876M in one month time?

Article on the website of Channel News Asia:

"US firm buys Singapore instant messaging developer HotApps for S$876m"

• United States company Fragmented Industry Exchange (FIE) will be buying Singapore eDevelopment's (SeD) subsidiary, HotApps International, for US$700 million (S$876 million).
• SeD had acquired HotApps International, a Singapore-based virtual startup, for S$98,000 in August this year.

That looks like a pretty impressive return in such a short while. Is it possible that HotApps is really that hot?


In a press release on Thursday (Sep 4), the Singapore Exchange (SGX) Catalist-listed SeD said FIE will acquire HotApps for 1 million new shares at US$10 each and US$690 million worth of zero-coupon perpetual bonds - for a total of US$700 million. Once the deal is completed, FIE will hold HotApps - an instant messaging software developer - as a wholly owned subsidiary, it said. SeD, in turn, will own 99.84 per cent of FIE, assuming full conversion of the bonds and the exercise of a call option, it added.


And that seems to be the explanation, there is no cash changing hand, it is purely a paper transaction. The parties did confirm a valuation of US$ 700 million, they basically could have chosen any valuation, especially a valuation close to the S$ 98K for which HotApps was bought just a short while ago. But that would not sound that sexy of course.

David Webb wrote about the CEO of SeD, Chan Heng Fai, in his capacity as Managing Chairman of Xpress Group Ltd, an article that I found so interesting that I mentioned it before. Minority shareholders of SeD might want to take note of that article, after fastening their seatbelts.


"Taking the 15 years together, the Chan family has taken pay of $492.8m, and the total profit attributable to shareholders was...well, there wasn't any. It was a total loss of $247.5m. And let's be clear, none of this pay was a breach of the Listing Rules - because the Listing Rules contain no constraints on such atrocious behaviour. During the same 15-year period, the Webb-site Total Return on the shares was -69.15%."