Overseas Union Enterprise’s (OUE) controlling shareholder, Lippo Group, has stopped a derivative transaction cited as the probable cause of market confusion and a further overhang on OUE’s share price.
Lippo, which retains shares of OUE via Golden Concord Asia Limited (GCAL), began a financial transaction at the start of 2011, involving the delivery of 53.3 million OUE shares to Credit Suisse, “with a right of return to GCAL”.
According to a Dow Jones report, the financial services firm then sold 42.6 million shares through a block trade on 19 January at between S$3.35 and $3.50 per share, which yielded up to S$149 for GCAL. The remaining shares were held by Credit Suisse for a hedging exercise.
Kin Chan, Non-Executive Non-Independent Director at OUE, noted that the transaction that allowed the sale was kept confidential as per agreement with the bank.
“We thought it was a good trade at that point in time. We believe that the company is worth more than the share price, and the structure of the trade gave us a bunch of call options. If the share price went up, we could benefit by calling the shares from Credit Suisse at a below-market price,” said Chan, who is also the Co-Founder of Fund Management at Argyle Street Management, which owns 14 percent of GCAL.
OUE shares have been on a downtrend and have fallen 35 percent since the start of 2011. It last traded at S$2.14 per share on 23 August.
Chan said that Lippo President Stephen Riady decided to stop the derivative transaction a day before the events. This means that GCAL will gain over 10 million shares from Credit Suisse. Thus, GCAL’s total interest in OUE has dropped by 4.1 percent to 63 percent.
Currently, GCAL has no derivative transactions or has any intention to enter into any transactions relating to OUE shares.
“We have learnt our lesson. We will never do derivatives again,” said Chan.
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