I cannot help thinking how syndicates operate in stock market. What I am writing here is solely my personal view and I do not have evidence to support my view. Trader88 will not be liability for any consequences.

Genting Singapore hit the lowest level at 41 cents in Feb 2009. Since then it has been on the rise all the way to as high as 91 cents just 2 days before announcing sale of shares by a major shareholder, after a whopping gain of 122% in 3 months!

Has there been much changes fundamentally in the past 3 months? Was it that Genting Singapore was pressed down so much that suddenly investors realize it was too undervalued? I guess none of the two was true.

It is apparently the work of syndicates behind, namely UBS and JP Morgan, who were joint book-runners for the placement.

It all started with Genting Singapore’s major shareholder’s intention to raise more funds for their rumoured acquisition in Macau’s gaming industry. The best way to raise funds is to sell existing shares which will dilute seller’s ownership.

But if the share price is jacked up, the increase in total value of diluted shares is still better off than dilution of shares. Take for example,

Initially, L owns 100 shares of GT valued at $4 a share => Total value = $400

Subsequently, the share price was pushed up to $9, new total value is $900.

Then L sells 20 shares at $7 a share to a 3rd party, L receives $140 cash, with existing 80 shares now worth $560.

The 3rd party is happy as they are getting a hefty discount of 22%, paying only $7, instead of $9.

The result: L’s total shares in GT is $560, on top of $140 cash he received, meaning his net worth at $700 is still way above his initial $400.

All these cannot be achieved without the help of big players like UBS and JP Morgan, who not only made their professional fee as book-runners, they also made tons of money churning up the stock.

So the big winners are Genting’s major shareholder who sold their shares, the book-runners and the related parties who churned up the stock. (As of today, the identity of the 3rd party has not been revealed though.)

The big losers are retail traders, especially those latecomers.

Sounds unfair? Well, that is the way it is. Like the saying goes, if we cannot beat them, join them and make sure we join them earlier so that we have more profit to spit out if situation turns out bad.