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Bestway share sale runs into storm

Plastic manufacturer's second placement in a year draws warnings that investors would be putting their money at risk

Analysts are warning investors to 'steer clear' of Bestway International Holdings after the plastics firm announced a share placement to finance its $120 million investment in Shanghai-listed Cangzhou Chemical Industry.

Bestway's share price was inflated and that its plan for a second share placement within a year was not a healthy sign, the analysts said.

At a press conference yesterday, Bestway chairman Tang Kuan-chien said: 'The alliance with Cangzhou Chemical will be mutually beneficial. The surge in world oil prices boosted the price of PVC (polyvinyl chloride) resin, resulting in an increase in the company's production costs. Cangzhou Chemical offers the company an alternate source of PVC resin to stabilise its supply.'

Hong Kong-listed Bestway manufactures and trades in plastic products made from PVC resin.

On December 13, Bestway signed an agreement to acquire 12 per cent of Cangzhou with the right to buy another 4.88 per cent, the company announced on December 21.

The sale is contingent on several conditions, including approval from the China Securities Regulatory Commission and Bestway shareholders.

To finance the deal, Bestway plans to place up to 1.286 billion new shares priced possibly around 15 cents, the firm said.

On April 22, Bestway issued 682 million new shares at four cents each, raising $24.9 million that was used to repay part of its debt to a shareholder, Wealthguard Investment.

Bestway's two share placements within 12 months was imprudent moves, said Raymond So Wai-man, an associate professor at Chinese University of Hong Kong. 'The company is still recovering from reducing its debt, yet it is eager to make an acquisition so soon. This is not a healthy sign,' he said.

'A company doing one share placement after another suggests it is interested in getting money from shareholders. [It] is asking for money from the market, showing investors a dream (of benefits from investing in Cangzhou). This is risky.'

Corporate governance activist David Webb also warned: 'It appears to me this stock is in a bubble and investors should steer well clear of it.'

Bestway was loss-making for the past five fiscal years except 2003. For the first half to September, it posted a net profit of $14.53 million.

Annualising Bestway's interim results, excluding one-off items, shows the company has a price-to-earnings ratio of 166 times and a price-to-book ratio of 13 times, noted Mr Webb. 'These figures are not supported by fundamentals.'

Bestway's share price moved relatively little from February to April, but had soared from 4.6 cents on April 22, the date of its earlier share placement, to 22.5 cents yesterday. Trading has been heavy in recent days, with 156.5 million shares changing hands yesterday, 147.3 million on December 23 and 548.1 million on December 22.

Mr Tang was evasive when asked if Bestway would abandon its Cangzhou investment if the share placement failed. He replied only that the firm must fulfil various conditions before it could proceed with its share placement.

The placing agent, VC Brokerage, is owned by Value Convergence Holdings, whose chairman is Macau gaming tycoon Stanley Ho Hong-sun and the president his son Lawrence Ho Yau-lung.

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