What actually happened in ICON Offshore's recent rally of 583%?

ICON Offshore Bhd (5255) was one of the most traded counter in Bursa these three days, with more than 60 million shares traded per day. Its share price rose 580% to RM0.88, as of 5PM 24th January, from a mere RM0.12 on Tuesday 21st Jan. Just today before market is closed, Bursa issued a trading halt on ICON's securities which will take effect on January 28th, until further notice to prevent excessive speculation of the rocket stock. What actually happened to ICON to increase its market capitalization by four-fold, in just FOUR days? It is indeed, the king of the rocket.

I digged into Bursa's announcement and found this:

1) Share consolidation of every 50 existing ordinary shares in Icon Offshore Berhad ("Icon") ("Existing Shares") into 1 consolidated share in Icon ("Consolidated Share(s)") as at 5.00 p.m. on Thursday, 23 January 2020 ("Entitlement Date") ("Share Consolidation")

2) Renounceable rights issue of up to 2,354,370,200 new ordinary shares in Icon Offshore Berhad ("Icon") ("Rights Shares") on the basis of 100 Rights Shares for every 1 ordinary share in Icon held after the share consolidation, together with up to 588,592,550 free detachable warrants ("Rights Warrants") on the basis of 1 Rights Warrant for every 4 Rights Shares subscribed for, as at 5.00 p.m. on Thursday, 23 January 2020 at an issue price of RM0.105 per Rights Share ("Rights Issue with Warrants")

In 1),  basically if you own 5000 ICON shares @RM0.12 each, your total investment will be RM600 (5000 X 0.12). If you buy in the stocks before the ex-date (22nd Jan),  like 21st Jan (Monday), you will be entitled to a share consolidation of 50-to-1. If you only bought the shares on Tuesday, you basically are not entitled to the share consolidation.

Now, your 5000 share consolidated into 100 shares on the following Tuesday, but it will still show 5,000 shares in your account UNTIL THE ENTITLEMENT DATE (5pm, 23rd Jan). Now the share price whopped up 30 cents to RM0.42, and your total investment will be now RM2100. You've gotten a 250% increment! First thing that you thought, you cannot be greedy and you sell all your shares. You are allowed to sell more than 5,000, but actually you only have 100shares, but you are not informed by your remisier, or you have no idea what an entitlement date is, so you sell ALL 5000 shares, and got a RM1500 profit out of RM600 of your initial investment.

What happens next is your remisier called you and told you that you oversold your stocks by 4,900 ordinary shares, and asked you to buyback your stocks from the market. You might not realize initial because you are submerged in the joy of earning 250% over few days, but you might have put yourself into a pit of hell.

From the share consolidation starting Tuesday onwards, your 5000 shares has become 50. But it doesnt show untill the entitlement date on Thursday (23rd Jan 5pm). Now the share price has rallied further to RM0.70, and you are obligated to purchase 4950 stocks to actually return back your 'owed stocks'. RM0.70 X 4950 = RM3465. Considered that you profited RM2100 initially, now you made a loss of RM3465 -2100 = RM1365. Those who got tricked need to continue to buy in in order to "return back" the stocks, and those who initiated the trick will wait until the stock price is high enough before selling. Lesser supply than demand will move the price up. What wait why?

This is something that Bursa still lacks in, although they warned investors in an announcement that you SHOULD NOT sell more than number of shares after factoring in the 50-to-1 consolidation, you can still do it. So what happened is those who are not cautious and jump into the rocket before researching anything, sadly.. YOU GOT FOOLED.

In 2), ICON will issue 2.3 billion right shares that they can renounce (means take it back) anytime where 100 Right shares will be issued for ONE ordinary share. You might wanna ask, why reduce your total ordinary shares by 50 times and then increase it back by 2 times more than the original total? If a company needs capital and announce right issue, common knowledge is that the price will fall after the announcement, as investors will be concern about the company's cash flow. But if you use some financing tools and play around with the total number of shares, most people might not even realize its a bad thing! You know, most people are lazy to do homework.

 In the corporate finance world, there are a lot of dangerous tools that is created by the corporate world just to cover their ugly asses, like those who profited by dumping all the shares like some JV from some Tabung... you know who it is.. Remember to do some homework before you do any investment decision. Those who got some 'Angpao' money before Chinese New Year, congratulation and for those who got tricked.. You learn the fastest from experience..

That's all today! Stay Tune!

Note: All these are my opinions and I do not attempt to offense anyone. I might be wrong so leave a comment to discuss below!  If you find any information incorrect, please also leave a comment down below so I can learn together too!