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Post by oldman on Oct 19, 2013 7:42:44 GMT 7
There is an article written on this in 2005 which is still very relevant today. Definitely worth reading and re-reading: webb-site.com/articles/toxicon.asp Yes, this is known by various names. In Singapore, they simply call it convertible bonds or convertible notes. Whenever I hear these words, I usually shy away from the companies that have agreed to take these. Simply put, the issuers are usually given the option to convert these notes into shares and these shares are then issued in tranches at a discount to the existing share price. As the issuers sell the shares in the open market, the shares will usually fall in price and the issuers will get more and more shares issued to them at lower and lower prices. Hence, the nick name of toxic convertibles. So folks, do be careful of any company that takes on such convertible bonds.... even though these may be amongst the top volume counters currently.
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Post by oldman on Mar 13, 2015 5:47:46 GMT 7
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Post by zuolun on Mar 13, 2015 7:54:43 GMT 7
oldman, There is a thread on Toxic convertibles, here.
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Post by hope on Mar 13, 2015 8:29:10 GMT 7
Gd Morning Oldman
Your favourite counter halted today ah? got good new? Congrats.
But I no buy... too chicken.
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Post by oldman on Mar 13, 2015 8:38:08 GMT 7
Thanks zuolun. I have consolidated both the threads into this one. Thanks. oldman, There is a thread on Toxic convertibles, here. |
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Post by oldman on Apr 8, 2015 13:39:45 GMT 7
When I first started ShareInvestor, I was pretty naive about the market. I recall that I once congratulated one of the listed company CEOs for being able to attract a "fund" to invest in his company. He then pulled me aside and gave me an education that I will not forget. He told me that if a listed company needed money badly and cannot borrow from the bank or its major shareholders, then they have to resort to these toxic convertibles. Management knows that their share price is likely to spiral downwards as the business model of these funds is not to keep the shares but to immediately sell these into the market. They are able to do so because these funds will be able to buy shares at a discount of 10-50% to the current market price and it makes sense for these funds to sell immediately into the market. But this will cause a collapse in the share price. Management is well aware of this but they really have little choice as they need the money badly. 2 things that I learnt from this. One, stay far far away when any company subscribes to toxic convertibles. The company will usually dress this up by stating that XYZ Fund is investing in them. All one needs to do is to zoom into the details and find out at what price these funds are investing. If it is always at a discount to the market price, you know that you are looking at toxic convertibles. Running such funds is a really profitable business. You don't need $100 mil. All you really need is just the money for the initial tranche. So, if the initial tranche is $500K worth, then the fund will lend $500K, convert these into discounted shares and then sell these shares in the open market and make the money and repeat the cycle over and over again. What a splendid business model!..... as you have guessed, if the business model is so good, such funds are unlikely to be listed.  Secondly, management will not do this deal unless they really are strapped for money which is another very good reason for staying far far away from such listed companies ..... |
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Post by zuolun on Apr 8, 2015 15:02:59 GMT 7
oldman, I first read about toxic convertibles in 2009 and the stock, Contel has since changed its name via RTO, now known as YuuZoo. From Contel to YuuZoo = 换汤不换药 = the same gameplay is being played over and over again. Smart money make tons of money from aggressive gamblers who love this kind of "BAD (buy and die)" stocks in the stock market over and over again; the rich gets richer while the poor gets poorer.  "Do not believe in anything simply because you have heard it. Do not believe in anything simply because it is spoken and rumored by many. Do not believe in anything merely on the authority of people who are above you. Do not believe in anything simply because it is found written in books. But after observation & analysis, when you find that anything agrees with reason and is conducive to the good and benefit of one and all, then accept it." New Dog, Old TricksWhen I first started ShareInvestor, I was pretty naive about the market. I recall that I once congratulated one of the listed company CEOs for being able to attract a "fund" to invest in his company. He then pulled me aside and gave me an education that I will not forget. He told me that if a listed company needed money badly and cannot borrow from the bank or its major shareholders, then they have to resort to these toxic convertibles. Management knows that their share price is likely to spiral downwards as the business model of these funds is not to keep the shares but to immediately sell these into the market. They are able to do so because these funds will be able to buy shares at a discount of 10-50% to the current market price and it makes sense for these funds to sell immediately into the market. But this will cause a collapse in the share price. Management is well aware of this but they really have little choice as they need the money badly. 2 things that I learnt from this. One, stay far far away when any company subscribes to toxic convertibles. The company will usually dress this up by stating that XYZ Fund is investing in them. All one needs to do is to zoom into the details and find out at what price these funds are investing. If it is always at a discount to the market price, you know that you are looking at toxic convertibles. Running such funds is a really profitable business. You don't need $100 mil. All you really need is just the money for the initial tranche. So, if the initial tranche is $500K worth, then the fund will lend $500K, convert these into discounted shares and then sell these shares in the open market and make the money and repeat the cycle over and over again. What a splendid business model!..... as you have guessed, if the business model is so good, such funds are unlikely to be listed. Secondly, management will not do this deal unless they really are strapped for money which is another very good reason for staying far far away from such listed companies .....
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