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"E-book" by AK

Second "e-book".

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Could this be the way to financial freedom in 5 years?

Friday, July 22, 2016

Hello AK,

I have been reading and following your blog. I have just started my investment journey and hopes to attain financial freedom within 5 years.

Recently, I have been given an investment offer which I would like to share with you and seek your help  by listening to your opinions. I shall not share with you where and who offered me the opportunity as I want to prevent any accidental bias.


I received an offer to join a club opened by a company (it is a reputable company, which is why I do not want to share with you the name of the company now as I believe you would have heard of the company before.) in Singapore. In order to join this club, you have to commit a 5-figure sum for a few years. 

One of the businesses of the company is to help other company IPO. 

Basically, in point form, I shall name the company I am talking about as IPO Services Ltd. 

1) Herbal Tea Ptd Ltd wants to IPO on SGX, so they approached IPO Services Ltd for help. 

2) IPO Services Ltd will check through Herbal Tea Pte Ltd's finances and other legal requirements that SGX requires in order for a company to be listed on SGX.

3) Herbal Tea Pte Ltd passed all the financial and legal requirements. Next, Herbal Tea Pte Ltd needs enough public interest before they can be listed. (If not they won't be a PUBLIC listed company.)

4) This is where members of the club comes in. IPO Services Ltd will show members this company and interested members will form the bulk of the "interested public" and be issued shares at pre-IPO prices. (For eg. $0.50)

5) With everything in place, SGX approves and Herbal Tea Pte Ltd is listed on SGX. The IPO price is $1. So members of the club can

  • Sell off their shares to the "enthusiastic public" and make a 100% profit.
  • Hold onto their shares if they believe in Herbal Tea. (Bearing in mind that the shares was initially purchased at pre-IPO price)
Therefore, effectively, the club allows me access to IPO opportunities BEFORE IPO.
 
I have read in many books to avoid IPO as IPOs are often over-priced and there are simply too many uncertainties. The way this offer was portrayed to me sounds "quite" secure. However, being the skeptic that I am, I wonder what is the catch? 

I am showed many videos of members giving testimonial of their 100%, 200% or even 300% profits within months (this should be a red flag,  but hey, this is not some shady gold buyback company I am talking about but a reputable PLC).

That 1 question alone is sufficient enough for me to not make any commitment, however, if it is genuine, I wouldn't want to miss out on an opportunity like that. 

Therefore, I am emailing you to ask you for your opinions on this "investment opportunity"

Hope you can help me.

Cheers

Hi,

If I were able to list a company at $1 a share, why should I sell to you at 50c a share? I might do it to incentivise employees and insiders but members of an IPO club to show that there is interest from the public? I don't think so.

Also, in order to join this club, you have to commit a 5 figure sum for a few years? For me to part with so much money for such a long time, an investment has to be a highly transparent and tangible. This does not sound like one.

There is no free lunch. This has to be a highly rewarding scheme for the owners of the IPO club. How are they rewarded?

This is not an investment opportunity to me. It is, at best, an invitation to speculate.

Best wishes,
AK


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NOTE: The first step in converting from private to public is to undertake a process called due diligence. Due diligence is the analysis and valuing of a company and it is usually performed by a professional accountancy firm. It will involve a comprehensive look into almost every area of the business. This due diligence is the foundation upon which all information disclosed to the public is based. A value is then assigned to the company and an appropriate number of shares are issued. At this stage,the investing public is offered an opportunity to buy the shares. This is called the Initial Public Offering (IPO). (Source: Taking your venture public in SG.)

7 comments:

Solace said...

I have worked in start up companies before in the past. One of The start up company that i worked in has the intention to IPO one day.

Such scheme was offered to some managers and directors to hold company shares at a attractive price before the company went public. They could then profit a lot if the IPO is successful.

Eventually, the company went into operational difficulties, right now, they are still struggling. And of cos, all talks of IPO are shelved indefinitely.

Two observations here
1. Such schemes are only offered to senior management usually.
2. All talks of IPO can remains as Talks for indefinitely. Fortune telling anybody?

Solace said...

AK,

Btw, that's a nice collection of annual report. Lol

AK71 said...

Hi Solace,

Thanks for weighing in on this topic. Always good to hear from an "insider". ;)

redponza said...

My take is that this kind of investment schemes is real and is profitable. But they are structured in the following way with legal contracts:
-the outside investor is buying the shares in a pre-set price
-minimum per share IPO price
-deadline to IPO or otherwise company needs to pay back investors with guaranteed profit
-pre-IPO investors can sell in the IPO exercise
-usually open to big misers only

The idea is quite like a CB, just that the underlying company has to be listed. Usually these are on deal basis.

I do not know whether there is any guarantee by your "club" on no. of deals and their returns. Paying an entry fee to just to have the opportunity seems ridiculous though.

If the "club" is free to join, and you can choose from its pool of IPO with the aforementioned structure, and then the "club" charges you some management fee, I think it can be considered.

AK71 said...

Hi redponza,

If there is something this good that is guaranteed to turn in a profit of 100% to 300%, it won't trickle down to the masses. Usually, it would be available only to the towkays, families and friends of the towkays and, in more enlightened establishments, to the employees.

An IPO club? That just sounds unreal to me.

Of course, I could be totally wrong. I am just a frog in a well. ;p

SMK said...

what redponza suggested is just the tip of the iceberg.

a big question is the valuation of the company.
who does it?
is it done by the same club who holds the flag of value investing and says they want to turn you into a millionaire investing genius?

AK71 said...

Hi SMK,

Seems like you know something?

Which club is that?

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