PP - SEC's Caveat Emptor or Buyers Beware Warning

[riskreturn]

You may please wish to read and act on the warning just issued by SEC (see the links below):

www.leadershipnigeria.com
BusinessDay... the voice of business - SEC draws attention to unregistered private placements

[balaliyu]

I posted this earlier in another thread.., reposting for emphasis...

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I have curiously observed an unprecedented increase in the number of PPs or prospective PPs over the last few months, and I think it is useful that all investors - and forum users approach cautiously.

The recent SEC cautionary statement is just one reference, but more importantly is whether there may be more factors behind this. If we understand that Company ownership is fundamentally a very Capitalist inclination, and an enterpreneur is only willing to share ownership when it will accrue him MORE corresponding benefit, then maybe we can get all this in the right perspective.

There should be mainly two drivers for expanded owndership:

1. A genuine need for capital injection to drive business expansion and
2. The availability of an opportunity to 'sell' part owenership for more that it is really worth. The current high liquidity/bullish run in the market presents this opportunity.

This means - while there are a few good PPs,....id advise we all be careful with most. Let me share some of my simple tests for a good PP:

1. Have you heard of the Company at least upto a year preceding its PP?
2. Are you familiar with its business?
3. Is the business sustainable?
4. Are the owners well known - for competence and intergity?
5. Is there a clear business plan for the future?

If you asnwer more than one NO - then please take a second look, or better still consider the alternative opportunity of a 'better PP'.

Just couldn't help sharing my thoughts on this and I welcome comments.

Cheers...B

[riskreturn]

Readers may find this informative to read (see below):

The Punch: Private placements worry issuing houses

[solainvest]

culled from Proshare:

Posted Wednesday, April 30, 2008
- Realigning the Perspective on Key Issues of Doctrine and Policy


By George C. Nnona, Associate Professor of Law†



I INTRODUCTION

There has been a visible increase in the last few years in the number of private placements in Nigeria.1 This increase coincides with the arrival on the scene of venture capital and private equity firms who are typically the major players in the private placement market. Many of the private equity and venture capital firms are international institutions intent on tapping the Nigerian capital market, in the wake of the liberalization of the country’s investment regime that has been afoot since 1995.2 The need for efficient regulation of private placements has in this context become heightened.



The aim of this article is to delineate the true meaning and requirements of private placements under a proper interpretation of relevant statutory provisions and case law. In so doing the article shows in particular that the Nigerian regulatory scheme is convoluted, largely because it is an amalgam of two divergent approaches to the regulation of private placements – the approach under the United States securities laws and that under traditional English company law– and because it embodies additional measures grafted unto the basic framework, which measures impede regulatory optimality. The article suggests adjustments to the regulatory scheme to align it with the essence and policy underpinning of private placements.

Click on the link below for the full article

Proshare Nigeria - Sign In to Proshare

[riskreturn]

To prevent this thread from becoming disuse, the link below is posted for readers' attention and "entertainment" reading.

BusinessDay... the voice of business - Investors risk huge losses over flurry of private placements

[BLUEMONEY]

Originally Posted by riskreturn

You may please wish to read and act on the warning just issued by SEC (see the links below):

www.leadershipnigeria.com
BusinessDay... the voice of business - SEC draws attention to unregistered private placements

Thanks for the info

[Babsman]

All,

Follow on to the earlier SEC warning, NSE also issued a public notification in Punch today to warn the investing public further on the risk of PP investment especially with respect to their early listing promise and listing at higer price premium. It indicated that listing will now be strictly at the listing requirements at the PP price!!!!

Pls see attached.

Pls be guided accordingly.

[BLUEMONEY]

Originally Posted by Babsman

All,

Follow on to the earlier SEC warning, NSE also issued a public notification in Punch today to warn the investing public further on the risk of PP investment especially with respect to their early listing promise and listing at higer price premium. It indicated that listing will now be strictly at the listing requirements at the PP price!!!!

Pls see attached.

Pls be guided accordingly.

THANK YOU VERY MUCH. very interesting.
The Secondary market will soon experience a Bull run. Becuase Believe it or not these PP we have seeing over the past few months contributed to the Bear session we saw in the Secondary market.

[balaliyu]

Will fixing the listing price really deter investments in PPs....? Personal experience makes me skpetical, mainly because I could care less what the listing price is...rather, im usually waiting for the effective trading price, which comes after some rally (and of course price increase) due to demand for the newly listed stock....

So if I buy a PP for N2, knowing that when listed it could rally upto N6-N10, then it doesnt really matter to me if the NSE wants to make sure it is listed at N2....Alternative views please..??

Cheers...B

[BLUEMONEY]

Originally Posted by balaliyu

Will fixing the listing price really deter investments in PPs....? Personal experience makes me skpetical, mainly because I could care less what the listing price is...rather, im usually waiting for the effective trading price, which comes after some rally (and of course price increase) due to demand for the newly listed stock....

So if I buy a PP for N2, knowing that when listed it could rally upto N6-N10, then it doesnt really matter to me if the NSE wants to make sure it is listed at N2....Alternative views please..??

Cheers...B

It may not fully deter investments in PP but it will go a long way in discouraging investors from buying overpriced, high risk PP just because the issuer or issuing house promise to list at a higher price.
It is becuase of this promise to list at a higher price that is why PP has suddenly become an alternative to the secondary market to some investors and the NSE is not happy about it because the market is affected.

[zainabusman]

Originally Posted by balaliyu

Will fixing the listing price really deter investments in PPs....? Personal experience makes me skpetical, mainly because I could care less what the listing price is...rather, im usually waiting for the effective trading price, which comes after some rally (and of course price increase) due to demand for the newly listed stock....

So if I buy a PP for N2, knowing that when listed it could rally upto N6-N10, then it doesnt really matter to me if the NSE wants to make sure it is listed at N2....Alternative views please..??

Cheers...B

The likelyhood of such runaway gains happening when listed are probably a thing of the past. The latest 3 PP's listed are already suffering.

Even FIDSON closed on offer today and the price closed same as yesterday. It was listed at N7.5 and by N9.55 it is on offer. Both Aso savings and Invesment and Allied are on offer. Only the current on embargo on falling prices have prevented them from falling. None of them are currently selling twice the listing price.

So u may have to reconsider ur strategy in light of current reality. Furthemore PP's are no longer that attractive cos of return money. People who applied for the minimum in Omatek ended of getting only 40%.

[richestowealth]

Originally Posted by BLUEMONEY

It may not fully deter investments in PP but it will go a long way in discouraging investors from buying overpriced, high risk PP just because the issuer or issuing house promise to list at a higher price.
It is becuase of this promise to list at a higher price that is why PP has suddenly become an alternative to the secondary market to some investors and the NSE is not happy about it because the market is affected.

It might discourage folks a bit if coys are listed at PP price because companies need to trade 100k worth of units for shares price to move in either direction unlike before when share scarcity was the primer mover in newly listed shares.

[Babsman]

Also, NSE might create road blocks when such companies want to get listed, hence prolonging their listing date making early exit impossible for hapless investor within reasonable lenght of time. I'm sensing these companies promising early listing of 6 months or so of their PPs might end up unable to get listed on NSE in 3 years, if NSE punitively apply their stringent listing rules against them.
What this portends for us as investor is that further invm in PP going forward shd factor in and assume long term right now and must be strongly justified based on critical evaluation, just in case listing becomes almost impossible for them.

[BLUEMONEY]

Originally Posted by Babsman

Also, NSE might create road blocks when such companies want to get listed, hence prolonging their listing date making early exit impossible for hapless investor within reasonable lenght of time. I'm sensing these companies promising early listing of 6 months or so of their PPs might end up unable to get listed on NSE in 3 years, if NSE punitively apply their stringent listing rules against them.
What this portends for us as investor is that further invm in PP going forward shd factor in and assume long term right now and must be strongly justified based on critical evaluation, just in case listing becomes almost impossible for them.

You are very correct. They have already started creating road blocks and from what i heard, this may be the beginning of things to come. some of these PP may soon look like money market instruments (UNATTRACTIVE).

[Abinishio]

I dont think NSE can keep to this thier new directive.
Price listing on NSE is based on valuation, not some random speculation.
The strategy of underpricing a company share at listing, is aimed at making the shares attractive to prospective investors, companies delibratly undervalue their shares at the start to gain acceptance, it is a practice adopted all over the world. NSE cannot just wake up and frustrate the mkt.
wat will happen to investors in IGI, GLOBE Re etc, so people that did not take part in the PP, will just start enjoying same price as those that have put out thier monies for several months.
I dont believ this.
I'm sure some clarifications will come in the days ahead.
Commets welcome pls

AB

[BLUEMONEY]

Originally Posted by Abinishio

I dont think NSE can keep to this thier new directive.
Price listing on NSE is based on valuation, not some random speculation.
The strategy of underpricing a company share at listing, is aimed at making the shares attractive to prospective investors, companies delibratly undervalue their shares at th