George is a private entrepreneur from the mainland. He has listed his business in Hong Kong. The first thing he does on listing here is not improving his business, but pushing up the price of the stock.
Not that he is terribly interested in the share price per se. He only wants a multibillion-dollar company so that he can borrow from mainland banks. Now, that is where the real honey is.
To push up the price, he has to corner the shares in the market. He needs some unconnected parties to hold the shares on his behalf to stay out of the regulators' radar.
Things like this used to be quite difficult and would be done by fund managers under the table. Thanks to the hordes of mainland financial institutions and private funds coming to the Hong Kong market these days, deals like these can now be done in broad daylight.
Some of these institutions even have teams screening such proposals. In the current buoyant market, a team like that can easily be sitting on eight to ten proposals, each asking for US$30 to US$50 million.
George signs an agreement with a private fund. It buys a stake in George's company from the market. In return, George promises to buy back the stake within 12 months, with a guaranteed return of 20 per cent. In some cases, deals like these are done through convertible bonds.