On its first day of trading on Growth Enterprise Market (GEM) on 7 December, Trasy Gold Ex, developer and operator of a proprietary system for electronic trading of precious metals, saw it's share price jump by as much as 50%. Why? Because they say in Hong Kong that anything Li Ka-shing touches turns to gold. And Trasy Gold Ex (Trasy) has been very keen to associate itself with the tycoon.
However, Li Ka-shing's actual involvement in Trasy has been little more than an academic and PR exercise so far. Trasy Gold Ex, which listed yesterday, raised HK$51 million ($6.5 million) from placing 242.8 million shares at HK$0.21 per share. A further HK$21.43 million came from Chow Tai Fook Jewellery Company and HK$8 million from an individual investor. The implied market capitalization is approximately HK$499.8 million.
The relationship between Trasy and the tycoon is mutually beneficial. Whilst Trasy is eager to announce Li Ka-shing's "potential" involvement in the company, Li Ka-shing has a couple of fingers in a risk-free pie. This is how the "potential" partnership will work: on 21 February 2000, the Li Ka-shing Foundation (the Foundation) entered into a convertible loan agreement with Trasy's parent company, RNA Holdings, which now owns 58% of the company. That agreement was for an unsecured loan of HK$30 million, which stipulated that any outstanding amount of the loan at the time of listing would be converted to shares at 90% of the offer price (HK$0.21). The agreement further stated that the conversion will occur only if Trasy lists before 18 February 2001 and if the initial market capitalization of the company exceeds HK$1 billion.
But that is not the interesting part: the loan agreement, as summarized in the prospectus, has never been drawn, nor was there any intention of it ever to be drawn. Furthermore, the initial market capitalization of the company doesn't exceed HK$1 billion. It seems that the only point to the loan is the glory of having Li Ka-shing in Trasy's books. The more interesting part is the supplemental agreement to the loan which gives the Foundation share options in Trasy. Six months after the listing, the Foundation has the right to subscribe for new shares at 90% of the offer price up to a maximum of 7% of the issued share capital of Trasy on the listing date. Therefore, should the Foundation subscribe for less than 5% and sell at any price above 90% of the offer price, a quick and tidy sum can be made. This is because the six-month lock up period will not apply, as the Foundation will not be a "significant shareholder" according to GEM rules.
The other notable option holders, for obvious reasons, include Gold Stream Resources, a wholly-owned subsidiary of Cheung Kong (Holdings) Ltd and Hutchison International.
What then is the likelihood for these options being taken up, or rather, what is the outlook for the company? "The gold market is depressed and out of favor as an investment," admits Robert Beale, chairman of Trasy. "That is why something new is needed in the market."
That something new, hopes Beale, is the Trasy system. The Trasy system is a proprietary system for electronic trading of precious metals that seeks to link the retail and the inter-bank market by providing real-time tradable bid and ask prices and execution. Updates of trading positions and client portfolio, as well as credit risk management are available.
So far, since trading began through Trasy in March 2000, some 96% of Trasy's revenue has come from transactions through RNA, Trasy's parent company. Given that the initial revenue model of the company is based on transactional fees, capturing volume, especially independent third party volume, is an issue.
So far, Beale says that nine other market makers have signed up as principal partners of the company, including Rothschild Hong Kong, Macquarie Bank, Dresdner Bank, Standard Bank London, Delta Asia Limited and United Overseas Bank. Though any substantial trading revenue has yet to come from those partners, Trasy might need to be more than a name-dropper if it is to continue to shine. Trasy closed 9% above issuing price on its first day of trading.