The Uni-Asia Fiasco

As many market watchers and investors would know by now, the company Uni-Asia is currently in the middle of an investigation by SGX, brought about by 33 retail investors who stormed towards SGX to complain about possible share price manipulation. This action is unusual in that there have been previous cases of share prices soaring and crashing within weeks for no apparent reason, yet somehow, for this case a group of people actually stepped forward to protest ! So what’s going on actually and what can we learn from this incident ?

First, the background scoop on the company. Uni-Asia is a company an Asia-based structured finance arrangement and alternative assets direct investment firm. The company provides transport-related finance arrangement and investment/management of alternative assets such as ships, distressed assets and real estate. In other words, this is a finance company which earns income based on returns from asset investments and divestments. It is not in a “sexy” industry and neither does it have a compelling growth story; but it does have pretty high margins of abut 50% when I reviewed the IPO prospectus prior to listing. Still, with no definite growth prospects, I had a desire to monitor the company first to see what it planned to do post-IPO.

Suffice to say that Uni-Asia made a relatively lackluster debut on SGX, dropping at one point to 50 cents versus its 55 cent IPO price. However, in the recent 3 weeks or so, the price (for apparently no reason at all) skyrocketed nearly 400% to a high of about S$2.79, then crashed about 30-40% to the current S$1.59. SGX had queried the company on two occasions regarding the surge in the share price, but of course the company replied in the negative because after all, they were NOT the ones trading their own shares, but rather institutional investors, retail investors as well as brokerage firms. Investors and punters were totally in the dark about what was happening, and someone even asked me on another forum a week ago (before the crash) what I thought about the company and its share price. Lacking suitable catalysts, I replied that this kind of “greater fool game” was bound to end someday and the price would crash. Sure enough, brokerages such as Kim Eng and CIMB GK Goh started to institute trading curbs to control speculation in the counter, causing a massive crash of 60 cents in a single day ! Subsequent to that, the share price has lost nearly 50% of its value from its peak, leaving many punters and speculators with massive losses.

There are several points to note in this entire fiaso:-

1) Brokerages seem to have an amazing amount of “control” over trading curbs and one trader even commented that this was standard practice for counters which have been traded to “speculative proportions”. Brokerages are thus assuming that they know best and that such trading curbs will reduce volatility in prices and “force” people to think of why they are buying into a company in the first place. Thus, it seems that investors will be left to their own devices when such fiascos break out.

2) SGX has the “normal” practice of querying a company when its share price goes north too suddenly or rapidly. This is standard procedure on the part of SGX and is part of its corporate governance code but usually, such queries do not lead to any form of enlightenment of information for the retail investor. The companies concerned are in the dark about their share price (which they should rightly be) and no one wants to take the “blame” should anything bad occur. Regulators could do more to come up with more stringent procedures to ensure there is no price manipulation or insider trading. At the least, this issue should be discussed and debated amongst an expert panel to review existing procedures to see if they could be beefed up.

3) Finally, the burden lies on the retail investor himself to ensure that he is not paying for more than he can handle. As mentioned in a report in BT, most of those who complained were CONTRA TRADERS. Hence, they intended to make money from price movements within the T+3 period without having to cough up capital for their shares. Such speculative and dangerous practices should be labeled as highly risky, thus these “investors” should not cry and complain when prices suddenly slump. I had warned of the many dangers in engaging in contra trading, even during a bull market when any share you buy seems to be rising. A further point is that it was mentioned that some of these “investors” were on margin, and any further drop in price may render them bankrupt. This is another point I cannot stress further; do NOT gamble on margin for contra purposes ! It’s like you already stab yourself in the foot (by doing contra), and now you proceed to take a gun and shoot yourself further in the same foot (by using margin to contra). It’s double damage when the price suddenly plunges, and can leave a speculator licking his wounds for many months of years to come.

Comments will be welcome regarding this highly controversial saga. I think we will soon see more news on Uni-Asia in the coming weeks before the curtain is finally closed on this drama.