Sino Grandness

[CY09]

Either receivables or cash will be inflated to fake sales. Read up on China eratat who did this

[Max12345678]

I think, it may be shown in:
- growing trade receivables
- 'big' investment in new equipment, plant and land which may not worth that much
- growing 'fake' cash deposit amount in banks, and earn very little interest

If revenue/sale is inflated, somewhere in the balance sheet will also be inflated because of double entry in accounting.

Are there any corresponding loopholes in the balance sheet?

[portuser]

Garden Fresh booked the following sales in recent periods:
2012……………………………RMB 865m
2013……………………………RMB 1,382m
First half 2014……..……..RMB 879m

If it inflated sales 2x, then it had to hide RMB 1,563m (half of the sum of RMB 865m, RMB 1,382m and RMB 879m) of fictitious sales in its balance sheet.

Reported assets of Sino Grandness (RMB 1,585m as at 30 June 2014) were not large enough to hide RMB 1,563m.

Short-seller’s claim is that sales inflation is 5x at least. In which case there was RMB 2,500m to hide in the RMB 1,585m balance sheet.

[CityFarmer]

Garden Fresh booked the following sales in recent periods:
2012……………………………RMB 865m
2013……………………………RMB 1,382m
First half 2014……..……..RMB 879m

If it inflated sales 2x, then it had to hide RMB 1,563m (half of the sum of RMB 865m, RMB 1,382m and RMB 879m) of fictitious sales in its balance sheet.

Reported assets of Sino Grandness (RMB 1,585m as at 30 June 2014) were not large enough to hide RMB 1,563m.

Short-seller’s claim is that sales inflation is 5x at least. In which case there was RMB 2,500m to hide in the RMB 1,585m balance sheet.

I don't know much about the company, let alone the detail of company account.

Let's take a hypothetical case, If I am tasked to hide an inflated sales, the best option to clean them out, is by inflate expenses/cost, rather to "hide" in balance sheet.

There might be many way to do so, inflated regular expense, write-off, write-down, one-off-expenses, etc etc.

Disclaimer: I am not an expert of the task, thus many more innovative options are available, rather than restricted by the list above.

[specuvestor]

^^^A/R hides sales but cash and FA hides EARNINGS. It is incorrect to just use the asset to approximate the "fake sales".

If you clean them out your earnings will be affected. In fact thats why u see some dubious companies go for disastrous acquisitions for "one-time write offs"

Yes, Sino Grandness might have planned to “just raise RMB260m with 40% earmarked as working capital and RMB60m cash on hand is about nice to repay SHK, and with such coincidental timing to boot?”

It will take time for SGX to approve issue of new Sino placement shares, and Thai investors to subsequently apply for approval to remit funds to pay. Sino Grandness should have been aware of this, and could not have made the assumption that the placement money will be available for redemption in Oct.

On 6 Oct 14, Garden Fresh paid RMB 38m to bondholders who wanted their money before the maturity date of 19 Oct 14.

Payment doesn't necessarily be on the dot as long as debtor shows willingness and capacity to pay within a reasonable timeline. Approval from SGX is paperwork while i dont think approval from thai shareholders are needed? Nonetheless it is a risk if SGX for whatever reason disapprove the placement and the cascading effect will kick in.

They have already proactively shown willingness to settle some bond holders RMB38m using their cash at hand. That shows they are at least setting some agenda. Still the timing of the placement is too uncanny not to get skeptical.

The fat lady is going to sing in the next 9 months. This will be an interesting space to watch only because the Thais are involved.

[chinafarmer]

I have some doubts. I am neither short nor long this loquat.

1. Goldman did not redeem bonds when it could as highlighted by portuser. Does it mean that investors should be comforted that since Goldman has not abandoned ship, it means the loquat is not rotten?

Firstly, how do you know Goldman is the ultimate bondholder. Could they just be the arranger and have earned their fees? Did they offload the bonds to their clients? I understand these investment bankers like no risk business. They simply earn their fees. Someone please clarify if I am wrong.

Secondly, 80% of the bondholders not redeeming even when the option was available does not mean they have high hopes of the IPO or they think the loquat is real. If you were the bondholders of a company XYZ and know that XYZ is a fraud, you would of course know that they have no ability to repay. You realize you have been a sucker and a fool. The BEST recourse is to EXTEND and play dumb and keep it as quiet as possible and sing along the song hoping for other suckers to come in to refinance.

I recall episodes like China Essence. They also announced extensions of convertible bonds redemption dates / bank loan deadlines. This was not because the borrowers/bondholders had confidence in the company. rather they had no choice. China Essence is now a NEGATIVE NTA company FYI.


2. Sung Hung Kai.

Sung Hung Kai was also involved in some CB issue for China Eratat which went bust. I read that Sung Hung Kai was also involved in some fund raising for the loquat. Is this the same Eratat Sung Hung Kai? If so, this meant that the due diligence done on the loquat by Sung Hung Kai carries little weight.

3. Trade Receivables / Revenue

Please go do some simple calculation. Take past 3 years revenue growth rate and compare it with trade receivables growth rate. You would even be more shocked if you do this exercise right from the IPO of the stock.

http://www.fool.sg/2014/10/24/is-there-a...s-company/

4. The Mystery of the Thai Investor

I read some commission amounting to more than a million bucks was paid out to the introducer for the Thai.

Who introduced this Thai? Is he a friend of someone who is heavily vested in the loquat? Who is the introducer who earned the comms?

I also read that the Thai will become loquat honorary chairman IF the deal completes. It brings to mind the recent Blumont saga. In the dark days of Blumont, Mining businessman Alexander Molyneux said on 7 October 2013 he will acquire a 7.8 percent stake in Blumont Group and become its chairman.

http://www.sharesinv.com/articles/2013/1...-chairman/

http://www.reuters.com/article/2013/10/0...F420131008


4. A nice novel to share, The Emperor's New Clothes

After so many scandals, investors still have not really learnt the root of their mistake. I recommend reading a storybook i always read to my little boy. The title of the book is The Emperor's New Clothes. Probably one would glean some simple lessons from this classic.

http://www.amazon.com/Emperors-Clothes-H...0618344209

[portuser]

I don't know much about the company, let alone the detail of company account.

Let's take a hypothetical case, If I am tasked to hide an inflated sales, the best option to clean them out, is by inflate expenses/cost, rather to "hide" in balance sheet.

There might be many way to do so, inflated regular expense, write-off, write-down, one-off-expenses, etc etc.

Disclaimer: I am not an expert of the task, thus many more innovative options are available, rather than restricted by the list above.

The suspicion is the profits of Garden Fresh have been inflated to enable Sino Grandness to retain a larger stake of Garden Fresh. Inflating expenses lowers profit and goes against this objective.

[specuvestor]

Chinafarmer points are valid. The simple conspiracy theory is to ask whether the Thais are the ones holding the CB. In any case the count down has started

PS just to be factually correct, Goldman tranche is not the one that can redeem the CB this month right? Their maturity is next year sept

[chinafarmer]

another 2 more points.

1. Grant Thornton as auditor

Loquat said since Grant Thornton has audited me and sent a customary letter saying my accounts are ok and reflect true state of affairs blah blah (i am lazy to copy / paste .. go read the SGX announcement), the loquat is then real.

Grant Thornton. I laughed when I read that. Honestly, how many rotten s chip eggs were under Grant Thornton? China Essence a Negative NTA company was audited by them. How about those suspended ones that went to zero? All these companies also got the customary letter from the auditor to certify they were ok. What happened then?

2. Count the loquat trees.

I do not have figures with me. Neither am i familiar with the loquat company.

But my point is this. If the loquat claimed that they are so huge, all you need to do is count how many loquat trees are required to produce so many bottles of loquat juice? And what is the number of hectares required.
Does the result pass a simple common sense test?

[chinafarmer]

http://en.wikipedia.org/wiki/The_Emperor...s_an_idiom

The phrase "emperor's new clothes" has become an idiom about logical fallacies.[29] The story may be explained by pluralistic ignorance.[30] The story is about a situation where "no one believes, but everyone believes that everyone else believes. Or alternatively, everyone is ignorant to whether the Emperor has clothes on or not, but believes that everyone else is not ignorant."[31]