When one loss-making company buys another that is barely profitable from its controlling shareholder at two-times asset value, discerning investors might step back. But shares in Vanda Systems & Communications Holdings jumped 37 per cent yesterday to $1.52 on news it would acquire Hutchison Global Communications (HGC) from Hutchison Whampoa, which holds a controlling 37.05 per cent stake in the systems integrator. In return, Hutchison receives 4.87 billion new Vanda shares at 80 cents each - worth a total of $3.9 billion and more than doubling its stake. Hutchison also receives a $3.2 billion note through the transaction, which it can convert into Vanda shares at 96 cents each and brings the deal's total value to $7.1 billion. But before Hutchison can receive its coveted one-off gain, it needs to sell its Vanda shares to third-party investors. Will there be ready buyers in this game of pass-the-asset? For when the music stops, investors who come to the party last may find this hastily wrapped parcel contains an unpleasant surprise. Vanda, after all, is essentially paying $7.1 billion for HGC assets valued at $3.9 billion, and Hong Kong accounting rules dictate it has 20 years to make up the difference from its bottom line. That is potentially a $200 million hit each year until 2023. Hutchison was indeed quick off the mark, placing out two billion of its newly acquired shares to investors yesterday at 90 cents - representing a 40.8 per cent discount to yesterday's close. The placement will also conveniently reduce Hutchison's stake in Vanda to just under 50 per cent. As a result, Vanda qualifies as a Hutchison associate rather than a subsidiary - meaning its debts and losses can be kept at arm's length. In theory, tempting profits await those who dare to buy what Hutchison is so keen to dispose of. The catch is that the shares are not deliverable for 45 days, and by then a few more investors may have had time to digest the 36-page transaction announcement on the Hong Kong stock exchange's website. One of the advantages of back-door listings such as that engineered by Hutchison and Vanda for HGC is that they do away with the need for burdensome roadshows or glossy prospectuses. One eye-catching detail buried in those three-dozen pages is the $3.9 billion HGC itemises as its net asset value, despite Hutchison's claim to have invested $10 billion in HGC's Hong Kong fixed-line network alone. It seems a little careless to let assets depreciate that quickly. Following HGC's asset trail back a bit sheds some light on its disappearing balance sheet. Four years ago Hutchison sold a 50 per cent stake in HGC for Global Crossing shares worth $3.1 billion. The later bankruptcy of the US behemoth allowed Hutchison an opportunistic buy-back of its stake at a knock-down $933 million two years on. But only in last year's interim results did Hutchison finally write off its $3.1 billion worth of Global Crossing shares, plus an additional $225 million for losses relating to international bandwidth capacity. This explains some of the missing book value. Given Hutchison's fondness for such complicated financial engineering, perhaps the 96-cent conversion price of its $3.2 billion note is ultimately shareholders' best guide to the future performance of Vanda's shares. Convertible after one year, the note could effectively put a floor under Vanda's share price. Still, the risk to new investors looks considerable.