Offshore Private Placements
Through our correspondent brokers, investment firms, and project developer contacts, we sometimes offer our clients the opportunities to invest in certain Private Placement Offerings. Offshore Private Placement investments are high risk, however, they can many times result in high yield investment returns.
Definition of a Private Placement Investment
Private Placements are investments in companies that are privately owned. In other words, they are companies that are not traded on a public stock exchange (such as the NYSE, NASDAQ, AMEX, etc.).
Advantage of Private Placement Investments
The main advantage that most investors seek when investing in privately held companies, is that one can normally buy shares of the company for very low prices while it is still a privately held company. The ideal investment in a privately held company is to buy shares just before the company goes public. Once a company begins trading its shares on a public stock exchange, stock prices tend to rise dramatically, enabling the Private Placement investor to sell his/her stock at much higher prices.
In some cases, private placements are not meant to go public. The investor purchases shares of a privately held company that has no intention of going public mainly because its business model does not require public capital. These are generally real estate developments for construction of office buildings, condos, apartment buildings, malls, airports, ports, or any other type of development. The investor invests in a share of the project, and when the project is sold (generally over several years), then the investor receives his investment back, plus a percentage of the profits of the development project.
The Risk Factors
Privately held companies can sometimes be very good, solid, and fruitful investments. However, there are high risks associated with investing in privately held companies (private placement investments).
The main risk factor is the "uncertainty" of whether or not the company will actually "go public" (be traded on a major public stock exchange). There are a number of issues that can affect, delay, or even deny a privately held company from going public:
Many privately held companies are family business that have grown beyond the "mom and pop business" stage, and have become major players in their respective markets. However, it is often difficult for the owners of these privately held companies to release control, which is what happens when the majority of the company shares are sold on a public exchange. Therefore, in many cases, the underwriters (the brokerage firm responsible for arranging the public offering on the public stock exchange) run into major difficulties with the original owners of the companies in taking the company public because there may be conflicts of interest, conflicts in decision making, etc. This factor generally creates major delays in taking a company public.
Another issue that can affect a company going public is if the company's financial health, accounting records, or tax declarations are not in order. A company must submit a wide range of documentation to the regulating body of the stock exchange in order to obtain permission to trade its stock on the public stock exchange. If the companys financial health is not up to par, if its books are not in order, or if there are any discrepancies, this can also create delays or even deny a company from going public.
Another risk factor that investors should beware of are "selling restrictions". In many cases, private placement offerings carry certain selling restrictions, in which the private placement investor is restricted from selling (all or a portion of) their shares of stock, once the company goes public. Sometimes they impose selling restrictions for a certain number of days, or even up to years after the company goes public. The risk in this case is that if the company goes public, the stock may go up (when most of the non-restricted stock owners sell), and by the time you are able to sell your restricted stock, the price may have fallen even below the price that you bought it for (or possibly it could have gone up).
Finally, if the private placement is in a company that has no intention of going public (a develpment project, etc.), then the risk is mainly associated with the development projects success.
In conclusion, private placement investments can be a very solid, fruitful investment, or they can be a gamble. The wise investor will do extensive research on both the company's product/service, ownership, management, market, and overall business strategy, as well as its underwriters strategy for taking the company public.
you are interested in Private Placement Investments, or any other type
of offshore investment, please contact us for updates on the latest available
offshore investment opportunities.
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