(20-04-2014, 10:45 PM)ongweehiang Wrote: Interested parties transaction: The transactions consist of short term loans to Taixing Jinyan amounting to RMB 333 million, the purchase of assets on behalf of RMB60 million, sale of chemical products of RMB180 million, and the transfer of land use rights of RMB20 million.
- a possible red flag when mgt is using Sunvic cash to finance their own operations.
Fund houses may not taken these factors into their initial valuation and should be lowering their fair value for Sunvic.
Related party transactions are not new to Sunvic.
In its Jan 2007 IPO prospectus, Sunvic indentified several related parties with whom it carried out a range of transactions.
Sunvic has been tardy in seeking shareholders' approval for the new related parties it is dealing with.
Sunvic disclosed in April 2013 that its transactions with "Yixing Danson" had crossed the threshold. Auditor has pointed out that Sunvic has appointed the relevant professional advisor in preparation for an EGM to ratify the transactions.
Sunvic's founder has no stake in "Yixing Danson", but is its Chairman. "Yixing Danson's" shareholder is a Malaysian party buying acrylic acid from Sunvic for production of super absorbent polymer used in baby diapers.
Purchase of assets on behalf of "Taixing Jinyan" (previously known as "Taixig Dantian") has been a recurring item. This is the first time auditor highlights it.
Founder's brother has "influence" over "Taixing Jinyan".
Can one take comfort in Sunvic's declaration that before 2013 ended, "Taxiing Jinyan" had paid, in full, the RMB 59.7m incurred by Sunvic for the asset purchase.
In 2012, Sunivc loaned RMB 10m to "Taixing Jinyan", and this was not highlighted by auditor. Of the RMB 333m loaned out in 2013 and now highlighted by auditor, the outstanding amounts as at the end of 2013 were RMB 94m.
Details revealed before the EGM may shed light on whether these transactions were beneficial to Sunvic. Is Sunvic extending assistance (from its RMB 1,100 m untapped credit lines) to related parties to facilitate its sales of products?
The acrylic acid business is on solid footing. Utilisation of new capacity of the 320,000 tonnes at Taixing (against 205,000 tonnes at Yencheng) was nearly full. Moreover, it seems that higher sales were achieved with due regard to credit risks. At the end of 2013, bank-issued notes of RMB 1,125 m (against annual sales of RMB 6,326 mlion in 2013) produced by clients were being held by Sunvic. Default risk is minimal as banks are the payees. Of the (unsecured) trade receivables of RMB 346 m, around RMB 0.5 million was impaired.
The uncertainty about MTBE plant has been discussed before in this forum. Time will tell whether Sunvic Chairman's assessment that the plant will be profitable is correct.
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