Bad timing and risks taken on S-chips behind huge losses at CMIA and Abax
By Goh Eng Yeow 2 May 2009
They were Asia’s hot-shot fund managers a few years ago with people beating a path to their door, but they have been left bloodied by huge bets on S-chips and penny stocks that turned toxic in the financial crisis.
Local boutique fund manager CM Investment Advisers (CMIA) and Hong Kong-based Abax Global Capital - once described in the Western media as a milestone in Asian hedge funds - both lost tens of millions of dollars last year.
Market observers noted that a combination of bad timing and excessive risk-taking could have been responsible for the horrendous losses suffered at both firms.
An employee at CMIA, who answered The Straits Times’ call, said managing partner Lee Chong Min was not in Singapore while chief financial officer Yong Ho Hsiang ‘was in a meeting’.
In a 2004 interview, Mr. Lee, now in his 40s, described the impressive comeback he made after being down on his luck - losing almost all of the $30 million in paper profit he made when he was 35 years old.
He had started the boutique fund management firm to manage his own funds and those of rich individuals in the region.
Based on a Bloomberg search, CMIA’s crown jewel was its 14.01 per cent stake in steel coil maker FerroChina.
Part of its stake came from a swop of shares it had owned in another mainland steel firm, Changshu Everbright.
The FerroChina stake was worth $240 million in December 2007, when the shares were trading at $2.12. But the holding is now effectively worth nothing.
FerroChina was suspended from trading last October after its business collapsed, apparently because banks refused to roll over its short-term loans.
Around the same time when FerroChina collapsed, CMIA had joined a buyout to delist mainland fibreglass products maker Midsouth Holdings from the Singapore Exchange.
This led some traders to wonder if Mr. Lee had misread the market as the transaction took place just after the collapse of US investment bank Lehman Brothers.
CMIA had been a substantial shareholder in Midsouth.
Given the depressed state of S-chips, some traders felt the 80 cents a share paid to Midsouth investors might be too much, even though it was only at a modest premium to its then traded price.
Times have been just as cruel to Abax.
One market observer noted that when the fund was launched in 2007, with a focus on China and South-east Asia, ‘everyone and his dog wanted in on these guys’.
The enthusiasm enabled it to raise US$300 million (S$443 million). It also attracted US investment bank Morgan Stanley as a shareholder.
Among its founders was a young Taiwan-born fund manager, Mr. Chris Hsu, who stepped down as Abax’s chief executive last November.
But Abax’s head of business development, Mr. Benjamin Happ, said in a telephone interview from Hong Kong that ‘like many Asian funds, the fourth quarter of 2008 was challenging’.
However, his firm is optimistic about the prospects of the companies in which it had invested in.
‘Year-to-date, all of our funds are in positive territory, both the portfolio and the business have stabilised, and we’ve experienced net inflows of capital,’ he said.
One of its Singapore deals was a US$25 million convertible bond issue sold by timber play United Fiber System (Unifiber). It allowed Abax to convert the bonds into new Unifiber shares at 35.5 cents apiece.
Abax also promised to help Unifiber raise US$200 million to enable it to complete a pulp and paper mill in Borneo.
But with Unifiber now languishing at 3.5 cents, the likelihood of conversion is very slim.
Unifiber chief executive Jaka Prasetya told The Straits Times that his company had repaid part of the US$25 million loan but there was no way to proceed with the US$200 million fund-raising as global capitals markets were frozen.
‘Obviously, they (Abax) are not happy with the terms of the convertible bonds right now. But there is no mechanism in the agreement to reset the conversion price,’ he said.
1 comment:
Hot-shot fund managers burnt by crisis
Bad timing and risks taken on S-chips behind huge losses at CMIA and Abax
By Goh Eng Yeow
2 May 2009
They were Asia’s hot-shot fund managers a few years ago with people beating a path to their door, but they have been left bloodied by huge bets on S-chips and penny stocks that turned toxic in the financial crisis.
Local boutique fund manager CM Investment Advisers (CMIA) and Hong Kong-based Abax Global Capital - once described in the Western media as a milestone in Asian hedge funds - both lost tens of millions of dollars last year.
Market observers noted that a combination of bad timing and excessive risk-taking could have been responsible for the horrendous losses suffered at both firms.
An employee at CMIA, who answered The Straits Times’ call, said managing partner Lee Chong Min was not in Singapore while chief financial officer Yong Ho Hsiang ‘was in a meeting’.
In a 2004 interview, Mr. Lee, now in his 40s, described the impressive comeback he made after being down on his luck - losing almost all of the $30 million in paper profit he made when he was 35 years old.
He had started the boutique fund management firm to manage his own funds and those of rich individuals in the region.
Based on a Bloomberg search, CMIA’s crown jewel was its 14.01 per cent stake in steel coil maker FerroChina.
Part of its stake came from a swop of shares it had owned in another mainland steel firm, Changshu Everbright.
The FerroChina stake was worth $240 million in December 2007, when the shares were trading at $2.12. But the holding is now effectively worth nothing.
FerroChina was suspended from trading last October after its business collapsed, apparently because banks refused to roll over its short-term loans.
Around the same time when FerroChina collapsed, CMIA had joined a buyout to delist mainland fibreglass products maker Midsouth Holdings from the Singapore Exchange.
This led some traders to wonder if Mr. Lee had misread the market as the transaction took place just after the collapse of US investment bank Lehman Brothers.
CMIA had been a substantial shareholder in Midsouth.
Given the depressed state of S-chips, some traders felt the 80 cents a share paid to Midsouth investors might be too much, even though it was only at a modest premium to its then traded price.
Times have been just as cruel to Abax.
One market observer noted that when the fund was launched in 2007, with a focus on China and South-east Asia, ‘everyone and his dog wanted in on these guys’.
The enthusiasm enabled it to raise US$300 million (S$443 million). It also attracted US investment bank Morgan Stanley as a shareholder.
Among its founders was a young Taiwan-born fund manager, Mr. Chris Hsu, who stepped down as Abax’s chief executive last November.
But Abax’s head of business development, Mr. Benjamin Happ, said in a telephone interview from Hong Kong that ‘like many Asian funds, the fourth quarter of 2008 was challenging’.
However, his firm is optimistic about the prospects of the companies in which it had invested in.
‘Year-to-date, all of our funds are in positive territory, both the portfolio and the business have stabilised, and we’ve experienced net inflows of capital,’ he said.
One of its Singapore deals was a US$25 million convertible bond issue sold by timber play United Fiber System (Unifiber). It allowed Abax to convert the bonds into new Unifiber shares at 35.5 cents apiece.
Abax also promised to help Unifiber raise US$200 million to enable it to complete a pulp and paper mill in Borneo.
But with Unifiber now languishing at 3.5 cents, the likelihood of conversion is very slim.
Unifiber chief executive Jaka Prasetya told The Straits Times that his company had repaid part of the US$25 million loan but there was no way to proceed with the US$200 million fund-raising as global capitals markets were frozen.
‘Obviously, they (Abax) are not happy with the terms of the convertible bonds right now. But there is no mechanism in the agreement to reset the conversion price,’ he said.
Post a Comment