Published November 26, 2008

MAS tells Bright World of possible rule breach

Speculation of link to trading pattern surrounding offer

By LYNETTE KHOO

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BRIGHT World Precision Machinery said yesterday that it has received a letter from the Monetary Authority of Singapore on a possible breach of Section 203 of the Securities and Futures Act.

This section relates to a company's disclosure obligations under the Singapore Exchange listing rules. Bright World provided no further details of this possible breach, except to say that it intends to cooperate fully with MAS and will be providing the relevant information and documents sought.

An MAS spokesperson confirmed that it has written to Bright World in connection with an inquiry but noted that 'it is premature and inappropriate to give further details at the moment, in the interest of ensuring that the on-going inquiry is not compromised'.

Market observers are wondering whether there is a link of this inquiry to the wild share trading patterns surrounding the bid by a US-listed special purpose acquisition vehicle to take over Bright World.

China Holdings Acquisition Corp (CHAC), which is a blank cheque company formed last year to buy businesses with primary operations preferably in China, had proposed on July 21, to acquire Bright World.

It offered to issue to Bright World's majority shareholder World Sharehold Limited a promissory note automatically convertible to at least 19.9 million shares in CHAC in exchange for World Sharehold's 77.42 per cent stake in Bright World.

For the remaining stake of 22.58 per cent held by other shareholders, CHAC offered $0.70 in cash, and would raise it to $0.75 if more than 90 per cent of Bright World's shares are acquired.

Just one week before the offer was announced, trading interest in Bright World shares surged. The total trading volume rose from 33 lots on July 11 to 400-1,119 lots the following week. But at odds with news of the takeover, its share price plunged by as much as 35 per cent the following week from its peak of 66.5 cents on July 22.

Some brokers say the shares fell on concerns that given the current financial crisis, some pre-conditions of the offer pertaining to the offeror's redemption clause and Bright World's profit targets may not be met, putting the takeover offer at risk.

The takeover offer came with a host of pre-conditions which include among other things, approval by majority of CHAC IPO shareholders; less than 33.3 per cent of CHAC's public shareholders redeeming their shares for cash; and Bright World's profit after tax for six, nine and 12-month ending June, September and December 2008 respectively does not fall more than 10 per cent year-on-year.

'Judging by the share price pattern over the past week, it appears that some investors may not be confident that the deal will go through given the numerous hurdles,' Kelive Research said in a note then.

A dealer with a European brokerage told BT yesterday that 'there might be a good chance that it (the group) might just miss the profit target'.

For the first nine months of this year, Bright World net profit grew 19 per cent to 113.5 million yuan, after a 50 per cent jump in net profit to 78.87 million yuan in the first half. It would require a net profit of at least 16.9 million yuan for the fourth quarter to meet target.

When contacted, CIMB-GK head of corporate finance Mah Kah Loon said there is no change to the transaction at present, unless an announcement is made otherwise. CIMB-GK is the financial adviser to CHAC on the takeover deal.