GOING by the portents so far, the Year of the Earth Rat promises to be a busy one for mergers and acquisitions activity around the globe.

Even as Chinese New Year is being ushered in, the corporate scene all over the world is being spiced up by a flurry of takeover attempts.

In the United States, Microsoft's bid for Internet company Yahoo diverted investors' attention from their pre-occupation with the fast faltering economy.

In Singapore, competing offers for The Straits Trading Company by Tecity and the Lee Rubber family is the talk of the town.

Takeovers are not confined to big companies with plum assets which predators may find alluring.

Investment bankers are predicting that there will be many mid-sized deals in the range of $200 million to $300 million this year. And rather than fund the purchases entirely with debt, buyers will be using cash to make at least part of the payments.

So while the US mortgage mess and its grim aftermath is grabbing all the attention and souring investors' appetite for risk, traders are hoping that as the buyout fever heats up, trading in penny stocks will liven up again too.

Just six months ago, when a super bull run was at full clip on the stock market, it became commonplace for many penny stocks to register double-digit percentage gains as tales swirled of them tying up with some alluring set-ups in China which offered spectacular growth prospects.

Indeed, many of them became reverse takeover targets, with businessmen offering to inject fresh businesses to revive what had become moribund listed companies which had been bled dry by years of losses.

To top it all, these businessmen even offered generous profit guarantees on the businesses - a rich prize which even the most churlish of shareholders at financially- strapped firms would find hard to refuse.

Alluring prospects

TRADING became so frenzied that one counter - Ban Joo & Company - even attracted a staggering volume of 581 million shares. This was the highest number of shares to be traded on a single counter in one day and roughly equivalent to almost half a day's overall trading on the Singapore Exchange (SGX) recently.

For those who loaded up heavily on penny stocks, it seemed as though the sky was the limit and that nothing could stop the charging bulls.

What could be accomplished with a counter was literally constrained only by the imagination of those promoting it - whether it involved running hydro-electric power plants in China, a lottery venture, or a new generation of solar energy panels.

So, it must have come as a rude shock to many retail investors that these penny stocks, in which they had invested their nest eggs, should crash spectacularly.

As the US mortgage mess sent a chill through the global financial system from last August, various profit guarantees melted away, and the deals linked to penny stocks fell through because conditions could not be fulfilled purportedly.

So even though some of the counters involved in the reverse takeover deals , such as Jade Technologies Holdings, Rowsley, Ban Joo and Alantac Technology, are now trading at a fraction of their 12-month peaks, there are few investors keen to take a further look at them.

For the investors who mistakenly believed that they had discovered a sure-fire way to quick riches, it is a case of 'once bitten, twice shy'.

But as traders who have experienced the many booms and busts in the stock market can attest, such bitter memories will fade away, as a fresh round of buyout fever sweeps through the market again.

So it is gratifying to note that the next time the trading in penny stocks turns frothy, small investors will at least get to enjoy additional safeguards as the SGX gears up its efforts to attract small, fast- growing firms from overseas to list in Singapore.

One glaring feature of many of the proposed reverse takeovers last year was the absurdly large number of shares - sometimes in the billions - to be issued by a small-capitalised company to pay for the new businesses.

But as the SGX observed in a note last week, such low-priced reverse takeover targets were 'more susceptible to trading frenzy and vulnerable to market manipulation'.

Where these counters are concerned, investors also tend to focus more on the 'price affordability' of the shares, rather than the business fundamentals of the company, it added.

Control measures

TO ENSURE a more orderly market, SGX now wants to raise the minimum issue price for a reverse takeover to 20 cents, to bring it in line with the practice now adopted for initial public offerings.

This is surely a long overdue move which should be applauded by those who have long complained that the Singapore bourse behaved more like a 'Mickey Mouse' market in the trading of penny stocks.

With the establishment of Catalist, SGX may also have solved another thorny problem voiced by many investors - wild profit guarantees, not backed by any form of cash or assets, which were made by some businessmen when they wanted to inject their businesses into a listed company.

Some would argue that Catalist - which replaced Sesdaq last December - is the perfect recipient for such reverse takeovers, since it does not require a listing hopeful to produce a business track record, or a profit guarantee.

Small investors can sleep a little easier knowing that the company's management will have a 'sponsor' from a bank or a reputed law firm to be their mentor while they are listed on Catalist.

Already, the new regime is taking place. The operator of Singapore's largest nightspot St James Power Station is set to be the first company to be listed on Catalist, after completing its reverse takeover of information technology firm JK Technology Group.

SNF Corp is adhering to SGX's proposed guidelines on the minimum pricing for a reverse takeover by doing a two-into-one share consolidation first, before it issues new shares at 20 cents apiece to buy Healthway Medical Services.

Clearly, the safeguards made during the Year of the Earth Rat will prove to be a boon for small investors in time to come.

Gong xi fa cai.

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