Published October 22, 2009

Why UOB-KH put trading curbs on Transcu stock

Source cites high trading volumes, 'rapid, inexplicable' price jumps

By JAMIE LEE

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HIGH trading volumes coupled with 'rapid and inexplicable' price jumps by shares of Transcu Group over the past seven days prompted UOB-Kay Hian to restrict trading on the stock, a source familiar with the matter told BT yesterday.

The move was to prevent heavy contra losses that might come about from a sharp correction and was not a judgement of Transcu's management, said the source, who declined to be named.

Shares of bio-medical company Transcu plunged 20.5 per cent on Tuesday on high trading volume as talk of the trading restriction prompted investors to dump the stock. The sell-down wiped out about $69 million from the stock's market value.

Share trading, which was halted by Transcu yesterday, resumes today.

The brokerage - the largest in Singapore - had noted very high trading volumes over the past one week, said the source.

'This was accompanied by very rapid and inexplicable share price increases from about 12 cents per share to 21 cents over the same period,' he added.

The source said that the huge volume could be explained by 'rumour-driven speculative trading' or leaked information of impending contracts that the brokerage was unaware of.

The brokerage also did not 'clearly understand' the rationale behind the issue of one per cent convertible notes to Advance Opportunities Fund and the placement of 320 million shares to raise $29.4 million.

There was some concern that if the bullish expectations were unfounded, a major correction would follow, he said.

Based on Monday's closing price of 19.5 cents, the brokerage derived some valuations, including a price-to-book of 9.85 times, that did not seem merited, the source said.

'There was basis for prudential and urgent credit steps,' he said, adding that this was to limit any uncollectible losses that would be underwritten by the house.

With the trading curb, any investor who buys at least $30,000 worth of Transcu shares must now put down a deposit.

The move by UOB-Kay Hian also comes amid market talk that a handful of investors who took up the share placement were also clients of the brokerage, which may also explain the house's high exposure.

Dealers from other houses, including CIMB-GK Securities, DBS Vickers and OCBC Securities, said no trading restriction has been placed on Transcu.

Transcu said yesterday that it has terminated the convertible notes issue - of which $5 million in notes have been issued and fully converted. It has also completed its private share placement.

'As announced today, the company will be terminating the one per cent unsecured equity-linked redeemable structured notes due 2014 with an aggregate principal amount of up to $80 million. The successful placement will thus serve as replacement financing...in place of the convertible notes and the personal loan from (CEO) Akihiko Matsumura,' said Transcu.

Transcu plans to cut business operating costs by 20 per cent by the end of the year and expects to at least triple its sales in the cosmetics segment in the next two years, said Mr Matsumura in a press statement.