Wednesday, July 01, 2009

Devil lies in the details

Devil always lies in the details. Recently, the IPO of BaWang International (Group) Holding Limited (1338) becomes very "hot" in the stock market. When you look through the propectus of this company, you will find that this company is carefully packaged to give a good image to the public which is common for new IPOs. In the past, we have discussed how to read through the propectus in evaluating IPO. Bawang now gives us one typical example why we say "Devil lies in the details".

When we turn to page 7 of the propectus of Bawang, we have the "Consolidated Balance Sheet" with :

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,441 102,830 298,148

Of which the three figues represents the cash and cash equivalents up to 31st Dec of 2006, 2007 and 2008 respectively. Wow, the company has a cash and cash equivalent of 298,148,000 before 2009. You may start to think that how generous it is for Bawang's boss to leave such cash in the company before IPO. Oh, wait a moment. Devil lies in the details. When you turn to page 8 of its prospectus, you will find the following paragraph :

"Our Company declared to our sole shareholder, Fortune Station, two dividends of HK$166.7 million and HK$116.7 million on 7 January 2009 and 23 May 2009,respectively, based on the distributable profits at the end of 2008, and the same were paid in January 2009 and May 2009, respectively. For the avoidance of doubt, the holders of Offer Shares will not beentitled to any of the aforesaid pre-IPO dividends."

Oh, that's where the truth is. After the two dividends, the cash and cash equivalents has dropped to HK$14.748 million excluding the cash flow in the period between 1st Jan 2009 to 23rd May 2009. This looks more likely to a general behavior of IPO. Bawang's boss is no special to the others.