Wednesday, October 19, 2005

Dear Readers, I think I might have to issue a correction on the previous post on Huijin buying so-called "put option" from foreign strategic investors of CCB and BOC. According to a knowledgeable insider, "There is no guarantee mechanism relating to the share price of these companies, rather it is relating to the initial (YE 2004) book value based on which the purchase took place. It is not a put option. Rather it is a (fairly common) provision that if the stated 2004 book value is revised down, the purchasers will be compensated with more shares and if it is revised up they will give up shares. This is basically a guarantee of the integrity of the financial statements at the time of sale, not something open ended." I find such a provision reasonable within a certain time frame. I am still awaiting words about the effective duration of this provision. I still think three years is a bit too long, but if it is common practice, then I stand corrected.

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