Fund Info: Abax Global Capital
Oh how the stars of yesteryear have fallen so swiftly to the Earth. Abax was THE hedge fund launch of 2007. Everyone and their mom wanted in on these guys… who were they?
Let’s put together the story:
Abax launched in early 2007 with USD300mm in capital, most of it chipped in by Morgan Stanley. MS gave them a hunk of money in return for 20% of the firm’s equity. The plan was to do Special Situations, a fancy name for putting hedge fund money in private equity deals and waiting to get it out.
They did a bunch of small private equity deals in China, and some in South East Asia. Most of these involved Abax putting USD20-30mm in the form of a private convertible which would then be converted to equity once the investee IPO-ed. Unfortunately CBs tend to be really unattractive if you just have to carry them as bonds, they are unsecured, have small coupons, and have tenors between 5-7 years. The stocks they are based on are usually illiquid small caps, so a lot of the more interesting hedging can’t be carried out.
Looking at the deal list, these guys basically bought into a bunch of small caps, with the idea that each one would use the cash to finish an expansion project or for growth capital, and then IPO. They were very thematic, making multiple bets on China water industry, China gas industry, commodities and China consumer. They were not afraid to touch the dodgiest of the dodge, and ended up with one of the crappiest books I’ve ever seen. There was zero downside protection for the investor. None of the companies had assets that could be seized to make investors whole if the promoters turned out to be cads.
Some of the deals they did:
China Natural Gas (OTC:CHNG) :- A Chinese LNG and CNG infrastructure company. Invested USD40mm, 5% coupon with warrants struck at USD7.3. As of March 2009, stock is trading at USD2.50. The intent with this one was to provide capital for CHNG to complete their LNG facility, potentially quadrupling their earnings, and realize the warrants when they went public on NYSE or one of the other big boards.
China Water Industry (HKSE:1129) :- USD50mm CB in Aug 2007. Conversion struck at HKD1.42, shares now trading (March 2009) at HKD0.126. This was a Chinese water treatment and sewage company.
United Fiber Systems (SP:UFS) :- The deal that would not die. This thing has been passed around South East Asia like a Hong Kong hooker in heat. You have an potentially incredibly lucrative pulp and paper mill, which no bank project finance group will touch with a stick because of environmental concerns. Abax puts in USD25mm, with a promise to secure an additional USD200mm to complete the mill. As far as I can tell, Stephanie Fried hit the nail on the head, when she said it was a form of money laundering. Basically Abax fronts an investment of American and European bank capital into the project, and gets paid out of the equity investment. Abax’s commitment was struck at SGS0.355 per share, while Mar09 prices are SGD0.02. That’s right 2 cents.
China Mobile Media Technology (OTC:CHMO) :- A mass marketer of digital knick knacks. Invested USD21mm in Jan08. Warrants struck as USD2.00/share, as of Mar09 price was USD0.013 per share. No interest first year and 9.5% interest in the year after. Looks like this was the crappiest deal they did. No hard assets to have recourse too..
Coastal Greenland (HK: 1124) :- Chinese real estate developer. USD45mm 8% notes with warrants due 2010. Invested Dec 2007, when share price was HKD1.50. Mar09 share price HKD0.27. They owned 17% + of this company and started to sell off in Oct08. Must have started liquidating stake.
Bio-Treat Technology (SP:BIOT) :- Another China water play. Fortunately for Abax, Bio-treat reneged on their borrowing agreement and never drew down the bulk of the cash. Whew what a relief. Case is in court now, with Abax suing to retrieve SGD5mm while if the investment had gone through they might have lost SGD100mm. Sigh. Strike was 0.76 on the deal, Mar09 price is, drum roll please… SGD0.03.
Who is Abax?
Chris Hsu: He was forced out in Nov 2008. Excerpt from Top Trader’s Under 30.
After graduating early from Stanford with a degree in engineering, this Taiwan native got a job at Aristeia Capital in New York, followed by gigs at JMB Capital in Los Angeles and Chicago-based Citadel. Working out of Citadel’s Hong Kong office, Hsu led the firm’s Asian special-situations group. Now one year into his $300 million launch, Abax Global Capital, Hsu is invading China with the zeal of a thirteenth-century Mongol.
Donald Yang: formerly managing director and head of Hong Kong and Greater China debt capital markets atMerrill Lynch
Frank Qian: formerly a trader and risk manager in Asia, Europe and the U.S. at Citadel Group.
Andy Shpiz: Managing Director of Abax Global Capital. Formerly of Mellon HBV/Fursa Alternative Special Situations. Looks like a typical Filth-er, came out to HK, loved it, rode the curve up during the China IPO boom. Doesn’t look that well qualified, I mean IB at Allen & Co, is like Equities in Dallas isn’t it. Excerpt from Mellon bio below:
Andrew G. Shpiz will lead the Asian research effort in Hong Kong to support Asian deals in the firm’s global multi-strategy discipline and to identify further event driven opportunities throughout Asia. Before joining the company in 2001, Mr. Shpiz was a Vice President of Allen & Company Incorporated (“Allen”). Mr. Shpiz was employed by Allen since 1995 and worked in investment banking, where he was responsible for advising corporate clients and investing the firm’s capital in new businesses. Prior to working in investment banking, Mr. Shpiz researched and monitored investments for several internal special situation investment and risk arbitrage funds. Prior to joining Allen, Mr. Shpiz worked for Fidelity Investments for three years in various sales and trading positions. Mr. Shpiz received a Masters in Business Administration from New York University’s Stern School of Business in 1996 and a Bachelor of Arts degree in economics from Colby College in 1991.
Benjamin Happ: Amherst ’98 Psych who’s a very reasonable qualified Investment Mgmt guy. Expertise is capital raising. Looks like speaks Chinese from the backgrounder.
Danny Yong Ming Chong, Chief Investment Officer of Abax: Singaporean and old SJI boy (go go St. Joe)
Lee Ka Shao managed both macro positioning and the South Asia special situations portfolio. Now at Cavenagh Capital
Bonita Choi : Low level analyst and investor relations. What is a religious studies major from Toronto doing in a hedge fund? A) She must be cute B) she speaks Chinese. Combi of one and two would be perfect for handling testy older Chinese gentlemen watching their money evaporate.
Known Abax Related Entities
Abax Arhat Fund
Abax Claremont Ltd
Abax Global Capital
Abax Global Opportunities Fund
Abax Lotus Ltd
Abax Upland Fund LLC
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