ANALYSTS were not particularly happy with the news that Giordano is increasing its hold over the group's China company Tiger Enterprises. It is fair to say the company is exercising an option made available to it at the time of an agreement whereby Giordano took a 20 per cent stake on June 10, 1992. This option, which was agreed at a special shareholders' meeting, enabled the public company to take 51 per cent of the private company, controlled by Giordano chairman Jimmy Lai Chee-ying. Until the option was exercised, Mr Lai owned 80 per cent of the firm and the public company owned 20 per cent. In general, institutional investors loathe this kind of circumstance, whereby an asset is shuffled from a private to a public holding. This kind of transaction raises questions about the value at which the asset is being passed, the motives behind the change in ownership on the part of the controlling shareholder and, on many occasions, many investors are left wondering in exactly whose interest the transaction takes place anyway. This deal has echoes of another more infamous attempted transaction when one of the Chiu family tried to sell a piece of privately held Shanghai real estate to a publicly listed member of the Far East group at a huge profit. The deal was withdrawn after some delay and a number of questions being asked by the stock exchange listing division. In the Giordano deal, Mr Lai was careful enough to establish an option arrangement at the inception to avoid any such difficulties in the future. Giordano reasoned yesterday that the connected transaction was part of a programme of development allowing a phased increase in exposure to mainland China retailing. An option in the purest sense is an entitlement, but not an obligation, to buy or sell something at a fixed price at some point in the future. The obligation part of the sentence is the key here. The public company was not obliged to act. At the time of the launch of Tiger Enterprises back in June 1992, when it appeared that China could do no wrong and billions in overseas investor money flooded into the country, the deal looked pretty cool for Mr Lai. Here he had his public company investing in his own private enterprise which was set to make a gold mine selling cheap clothes to the mainland Chinese. In the event, things did not work out quite the way some people might have hoped. In March last year, the company reported sales at Tiger were encouraging but, because of high start-up costs and a low mark-up policy designed to quickly establish a reasonable market share, Tiger suffered considerable losses in its first year of operation. ''Our results in 1992 have been impacted by the sum of $10.4 million because of Tiger's losses on an equity accounting basis,'' the company declared. In September, the company reported that Tiger experienced further losses. ''The group share of losses for the period in the joint venture amounted to $6.5 million,'' the company reported. In March this year, Tiger reported a loss of $68.9 million in the previous year, of which $13.8 million was to be met by the public company. Now we are told the company has turned around making a profit of $31,000 in the first half. Can we assume blue skies are really ahead? Can we assume that now, only two years after the deal was established, and one year ahead of the option expiration, that Mr Lai has allowed the public company in on the private company, having experienced the worst of the bad times himself? In this scenario, public shareholders are being given increased exposure to earnings at the bottom of the earnings cycle, with only the up and up to come. If this turns out to be true, this time next year Mr Lai deserves a medal for his services to public shareholders. There could be other explanations for the timing of this deal. Only time will tell whether or not it turns out to be a good one for Giordano public shareholders. It is a rare treat for public shareholders to be allowed to get in at the bottom floor. Under the change in circumstances, Mr Lai ought to be happy as the deal has certainly eased his debt burden for the time being. Meanwhile, at Giordano, the listed company, gearing has risen significantly. Are the public shareholders happy taking an even greater stake in a company whose track record would fail the profit means test in the stock exchange's proposed new listing rules?