I think it’s time to start to think cautiously about NagaCorp (3918 in Hong Kong, NGCRF on the pink sheets) if you’re one of the Irregulars who is lucky enough to have held the shares for a few years. The stock has done extraordinarily well, better than any other pick I’ve profiled for you, and I’ve continued to like it because of the dividend policy, the flexible management that has steered them well through several different business environments for Asian casinos, and the general conservativeness of the company.

But the capitalization of NagaCorp is going to change in a pretty big way sometime over the next three years, as they built their new expansion in Phnom Penh that seems to be called CityWalk – a hotel, entertainment and casino expansion right next to their current NagaWorld casino, which is the only legal large casino and one of the few meeting-class hotels in the city. They’re buying this project from their majority shareholder, which is always a little sketchy (he’s a huge Malaysian investor with tight connections to the Cambodian government, which is how he got the casino monopoly for the city and surrounding region), and it looks like they’re paying for the purchase with extremely dilutive shares or convertible bonds. So he’s being paid $369 million for the completed project when the closing happens, which isn’t expected for a couple years, but he can take that payment in equity at the price of HK$1.8376 per share. That’s just about 1.5 billion shares, which if he bought them on the open market today would cost about three times that much. The current price is HK$5.53, or 71 cents US, so $369 million at today’s prices should get you roughly 500 million shares instead of the 1.5 billion he’ll receive.

Now, this is the risk of a control shareholder who is running the company well and has the board and shareholders behind him – he can sneak through extremely advantageous deals. It might still end up working out fine for NagaCorp since they’ll be dramatically expanding their successful property, and perhaps it’s worth what they’re paying for it. But since Tan Sri Dr. Chen Lip Keong, our controlling shareholder, will apparently be getting shares equivalent to 75% of the existing share base in exhange for his property (there are about two billion shares outstanding now), it strikes me as likely ...