Sino Grandness

[BlueKelah]

Hi debronic,


I probably made a mistake with that. It's not my first. Definitely wont be my last. I say probably, not because i dont want to own up to it, but its because I have a different interpretation of how Taobao works and I'm not vested enough to research more to prove im definitively wrong and you are definitively right. As for why I didnt "own up" earlier, I dont read the threads post to post, definitely will miss out posts when a thread gets busy ( and it was at that time)

I just felt that I had to speak out because first, it seems like not a few people were really just taking pot shots at Sino Grandness, from just a cursory look, or a cursory survey and were "uninformed skeptics". Also, I wanted to point out some flawed thinking / circular reasoning that some skeptics have, the root issue of which is that Sino is an schip. 

But such is life, in the end some of the skeptics could well turn out to be "correct", even though their reasoning is wrong. Its like playing a poker hand well but still losing, and the stock market is very much like poker.

My own take is this, there is good enough evidence that Sino sales is legit and not an outright fraud. The behaviour of convertible bond holders, their due dilligence, TTA's involvement and due dilligence, DBS as sponsor ( they have to take responsibility should facts turn out to be wrong according to recent HK laws; ie go to jail), market research by two separate reputable firms, circumstantial evidence in carry of products in supermarkets in china etc. 

Of course, Sino could turn out to be a fraud but based on the evidence is it probable? If it is, than it will be a fraud on the level of a Bernie Madoff scam or Enron. And that kind of fraud can happen to ANY stock. Although I have to say, it is much easier to verify figures of product like a drink vs the opaquness of a investing scheme ala Madoff or the complexities of the spv / marking to market of exotic products in the case of Enron. The way I protect against this kind of fraud is to invest only what I can afford to lose or the percentage I can make back through the performance of my other stocks in a year whichever is lower.

"the stock market is very much like poker", well only if you are gambling or speculating in the short term and making oversized bets on few individual stock picks, otherwise it has proven to be a good investment vehicle over the longer term with a well diversified portfolio or even an index tracking one.

"fraud can happen to ANY stock" , to big a generalisation. There is no way stocks with proven 20 or 30 past year history of prudent management and good dividend payouts be fraudulent. rather "fraud can happen to ANY S-chip" should be more reasonable.

And if Sino is a fraud, its just on the level of the other previous Schip listed here. Madoff and Enron were multi billion dollars. Sino hasn't reach the size of even 1 billion USD yet so not the same level.

Your other points are otherwise reasonable. It is good to speak out, but sometimes our fellow VBs can be very detailed in their analysis so be prepared for some critical comments

good luck with your SG investment, if the IPO does happen soon then things should be good...

[specuvestor]

Babyblue u sound like a reasonable forumer. But this time u were too quick to post your remarks without finding out more. Less haste more speed

Let me try to answer you with an answer to portuser as well. I seriously believe garden fresh is real. And if u look at their subidiary one can be very sure they are active in Guangdong and Sichuan. Question is the magnitude of sales and their cashflow

As portuser mentioned, without the EB they might not be able to reach this scale now. I dont disagree with this. What i disagree is that a rational businessman will risk default and >20% interest penalty to grow his business. Would u borrow ah long to invest capex to grow your biz? Working capital maybe yes, not long term capex.

The 2011 EB was delayed to 30 June originally and then delayed to 25 July again to be inline with 2012 EB holders. Why? What do u think the EB holders were thinking when they delayed to 30 June originally?

Then the chairman represented he will fully pay the EB but will likely pay partial as the EB holders wanted a stake. But instead of paying EB holders he again used more than RMB 500m cash for expansion. Would it not make sense to pay back partial debt say RMB 150-200m and use RMB300m for capex which are not going to affect the 2016 IPO PE anyway. To date the existing EB holders have not received a single $ back. Chinese say 有借有还 再借不难. He could have easily done a refinancing (not restructuring)

And then we have this restructuring into not 1 but 2 straight bonds of different maturity when their cashflow is so strong. Why?

We know they raised about US$25m from TTA about 18 months back and now looking for another US$20m from TTA in form of convertible loan instead of placement like last time. Why? Prima facie we can guess the cash burn rate is roughly US$18m a year.

How do we know to look at cashflow like this rather than simple finance / accounting 101? Cause we been through dot com where reality can be more bizarre than dreams

[babyblue]

Hi debronic,


I probably made a mistake with that. It's not my first. Definitely wont be my last. I say probably, not because i dont want to own up to it, but its because I have a different interpretation of how Taobao works and I'm not vested enough to research more to prove im definitively wrong and you are definitively right. As for why I didnt "own up" earlier, I dont read the threads post to post, definitely will miss out posts when a thread gets busy ( and it was at that time)

I just felt that I had to speak out because first, it seems like not a few people were really just taking pot shots at Sino Grandness, from just a cursory look, or a cursory survey and were "uninformed skeptics". Also, I wanted to point out some flawed thinking / circular reasoning that some skeptics have, the root issue of which is that Sino is an schip. 

But such is life, in the end some of the skeptics could well turn out to be "correct", even though their reasoning is wrong. Its like playing a poker hand well but still losing, and the stock market is very much like poker.

My own take is this, there is good enough evidence that Sino sales is legit and not an outright fraud. The behaviour of convertible bond holders, their due dilligence, TTA's involvement and due dilligence, DBS as sponsor ( they have to take responsibility should facts turn out to be wrong according to recent HK laws; ie go to jail), market research by two separate reputable firms, circumstantial evidence in carry of products in supermarkets in china etc. 

Of course, Sino could turn out to be a fraud but based on the evidence is it probable? If it is, than it will be a fraud on the level of a Bernie Madoff scam or Enron. And that kind of fraud can happen to ANY stock. Although I have to say, it is much easier to verify figures of product like a drink vs the opaquness of a investing scheme ala Madoff or the complexities of the spv / marking to market of exotic products in the case of Enron. The way I protect against this kind of fraud is to invest only what I can afford to lose or the percentage I can make back through the performance of my other stocks in a year whichever is lower.

"the stock market is very much like poker", well only if you are gambling or speculating in the short term and making oversized bets on few individual stock picks, otherwise it has proven to be a good investment vehicle over the longer term with a well diversified portfolio or even an index tracking one.

"fraud can happen to ANY stock" , to big a generalisation. There is no way stocks with proven 20 or 30 past year history of prudent management and good dividend payouts be fraudulent. rather "fraud can happen to ANY S-chip" should be more reasonable.

And if Sino is a fraud, its just on the level of the other previous Schip listed here. Madoff and Enron were multi billion dollars. Sino hasn't reach the size of even 1 billion USD yet so not the same level.

Your other points are otherwise reasonable. It is good to speak out, but sometimes our fellow VBs can be very detailed in their analysis so be prepared for some critical comments

good luck with your SG investment, if the IPO does happen soon then things should be good...

Hi bluekelah,

Well there is probably more similarities between poker and the stock market. poker is not gambling for professionals : - its not a game of pure luck and skilled players have an Edge over the non skilled over the long run. skilled players make money consistently from poker. I was refering to the fact that you can do the right things but the OUTCOME might not be the right one. Simply because of probability. Of the idea that there might be alternate realities, a word either coin or popularised by Nassim Taleb. And by the way, not a few investment legends have made this analogy. I dont like to win arguments by quoting/ referencing authority figures but well sometimes it saves me lots of time.

When i refer to level, i wasnt refering to amount of money, im refering to the disingenuity of the fraudalant scheme. What i was trying to say is based on existing information, for Sino to turn out to be a fraud, so many things have to go wrong, so many actors have to be complicit in ways which are either illegal or detrimental to their self interests,  so many checks and balances have to fail, so many times Sino have to pull the wool over goldman's, dbs, established market research companies like euromonitor, tta and their various attempts at due diligence. For instance, the consequences for the team at dbs if Sino is a fraud is likely to be jail time.

But points taken.

Hi specuvestor,
I know your attitude is "show me the money". If i have a choice, obviously i will be more comfortable if the money is shown. But on the flip side what are you suggesting? That sino grandness/ garden fresh is faking their sales by orders of magnitude? and to make up for short fall in cashflow they are either over-inflating their capex by orders of magnitude or by other means? It will be more meaningful if you can draw out your analysis in its entirety (so we can learn and discuss) rather than casting a cloud of doubt and suspicions and stop there.

I too had similar train of thought but what is your conclusion after weighing the other side of the story, closely related to what i mentioned above, for this to be a major fraud (because if its not major than obviously the consequences are quite inconsequential), so many things have to go wrong, so many actors have to be complicit, so many checks and balances have to fail. Can such a fraud can be pulled off in a company with a simple business model of selling drinks.

As for the questions you have below, there are reasonable explanations. Which is that growth momentum was strong so capex had to be spent to feed that momentum. that interest was high and was acceptable was because garden fresh at that time was really zilch. he had no choice at the start. but as growth continued to be strong, a rational businessman had two choices, return the loan( and sacrifice investing for growth) or use all financial resources at his disposal to grow. i do get your point about working capital vs capex though. its a very nuanced point. in a vacuum i'll definitely agree with you but in a competitive world, it is rational to want to be one step ahead of your competitors, to have control, have your own production. long term capex may reap rewards only 2 years down the road. but delay doing it means you reap the rewards 2 years plus delay down the road and you reduce your flexibility in shaping your competitive environment.

thanks for both of your discourse so far. i know you are just trying to share for the buddies benefit.

[piaopiao]

What if the IPO doesn\'t go through?What is your assessment?

Hi debronic,


I probably made a mistake with that. It's not my first. Definitely wont be my last. I say probably, not because i dont want to own up to it, but its because I have a different interpretation of how Taobao works and I'm not vested enough to research more to prove im definitively wrong and you are definitively right. As for why I didnt "own up" earlier, I dont read the threads post to post, definitely will miss out posts when a thread gets busy ( and it was at that time)

I just felt that I had to speak out because first, it seems like not a few people were really just taking pot shots at Sino Grandness, from just a cursory look, or a cursory survey and were "uninformed skeptics". Also, I wanted to point out some flawed thinking / circular reasoning that some skeptics have, the root issue of which is that Sino is an schip. 

But such is life, in the end some of the skeptics could well turn out to be "correct", even though their reasoning is wrong. Its like playing a poker hand well but still losing, and the stock market is very much like poker.

My own take is this, there is good enough evidence that Sino sales is legit and not an outright fraud. The behaviour of convertible bond holders, their due dilligence, TTA's involvement and due dilligence, DBS as sponsor ( they have to take responsibility should facts turn out to be wrong according to recent HK laws; ie go to jail), market research by two separate reputable firms, circumstantial evidence in carry of products in supermarkets in china etc. 

Of course, Sino could turn out to be a fraud but based on the evidence is it probable? If it is, than it will be a fraud on the level of a Bernie Madoff scam or Enron. And that kind of fraud can happen to ANY stock. Although I have to say, it is much easier to verify figures of product like a drink vs the opaquness of a investing scheme ala Madoff or the complexities of the spv / marking to market of exotic products in the case of Enron. The way I protect against this kind of fraud is to invest only what I can afford to lose or the percentage I can make back through the performance of my other stocks in a year whichever is lower.

"the stock market is very much like poker", well only if you are gambling or speculating in the short term and making oversized bets on few individual stock picks, otherwise it has proven to be a good investment vehicle over the longer term with a well diversified portfolio or even an index tracking one.

"fraud can happen to ANY stock" , to big a generalisation. There is no way stocks with proven 20 or 30 past year history of prudent management and good dividend payouts be fraudulent. rather "fraud can happen to ANY S-chip" should be more reasonable.

And if Sino is a fraud, its just on the level of the other previous Schip listed here. Madoff and Enron were multi billion dollars. Sino hasn't reach the size of even 1 billion USD yet so not the same level.

Your other points are otherwise reasonable. It is good to speak out, but sometimes our fellow VBs can be very detailed in their analysis so be prepared for some critical comments

good luck with your SG investment, if the IPO does happen soon then things should be good...

[BlueKelah]

piao piao, 


without my first assessment would be -> "SinoG jialat liao lah"

Obviously the stock price will adjust downwards accordingly as much as it has been adjusted upwards recently and likely even lower since many more investors will be further disillusioned. to put a price, below 20cents within a few months  Company will likely ask for more money again. Maybe they might even do an OSIM to shareholders  and delist after that ;P

[CityFarmer]

Babyblue u sound like a reasonable forumer. But this time u were too quick to post your remarks without finding out more. Less haste more speed

Let me try to answer you with an answer to portuser as well. I seriously believe garden fresh is real. And if u look at their subidiary one can be very sure they are active in Guangdong and Sichuan. Question is the magnitude of sales and their cashflow

As portuser mentioned, without the EB they might not be able to reach this scale now. I dont disagree with this. What i disagree is that a rational businessman will risk default and >20% interest penalty to grow his business. Would u borrow ah long to invest capex to grow your biz? Working capital maybe yes, not long term capex.

The 2011 EB was delayed to 30 June originally and then delayed to 25 July again to be inline with 2012 EB holders. Why? What do u think the EB holders were thinking when they delayed to 30 June originally?

Then the chairman represented he will fully pay the EB but will likely pay partial as the EB holders wanted a stake. But instead of paying EB holders he again used more than RMB 500m cash for expansion. Would it not make sense to pay back partial debt say RMB 150-200m and use RMB300m for capex which are not going to affect the 2016 IPO PE anyway. To date the existing EB holders have not received a single $ back. Chinese say 有借有还 再借不难. He could have easily done a refinancing (not restructuring)

And then we have this restructuring into not 1 but 2 straight bonds of different maturity when their cashflow is so strong. Why?

We know they raised about US$25m from TTA about 18 months back and now looking for another US$20m from TTA in form of convertible loan instead of placement like last time. Why? Prima facie we can guess the cash burn rate is roughly US$18m a year.

How do we know to look at cashflow like this rather than simple finance / accounting 101? Cause we been through dot com where reality can be more bizarre than dreams

One important and useful knowledge that I have learned from Mr. Specuvestor, is the cash flow. I learned a balance cash flow of ($100 inflow - $100 outflow), is vastly different from($0 inflow - $0 outflow), not on the perspective of fraud, but on perspective of general business sense.

(not related, but a sharing of an important point)

[brattzz]

piao piao, 


without my first assessment would be -> "SinoG jialat liao lah"

Obviously the stock price will adjust downwards accordingly as much as it has been adjusted upwards recently and likely even lower since many more investors will be further disillusioned. to put a price, below 20cents within a few months  Company will likely ask for more money again. Maybe they might even do an OSIM to shareholders  and delist after that ;P

SG no more money leh, maybe TTA will just buy-over SG lah...

[piaopiao]

piao piao, 


without my first assessment would be -> "SinoG jialat liao lah"

Obviously the stock price will adjust downwards accordingly as much as it has been adjusted upwards recently and likely even lower since many more investors will be further disillusioned. to put a price, below 20cents within a few months  Company will likely ask for more money again. Maybe they might even do an OSIM to shareholders  and delist after that ;P

[BlueKelah]

piao piao, 


without my first assessment would be -> "SinoG jialat liao lah"

Obviously the stock price will adjust downwards accordingly as much as it has been adjusted upwards recently and likely even lower since many more investors will be further disillusioned. to put a price, below 20cents within a few months  Company will likely ask for more money again. Maybe they might even do an OSIM to shareholders  and delist after that ;P

ask more from thais? more convertible bonds? rights issue? warrants issue? issue new shares to SAM GOI?

what do you think? 

wait and see?

[weijian]

Hi bluekelah,

Well there is probably more similarities between poker and the stock market. poker is not gambling for professionals : - its not a game of pure luck and skilled players have an Edge over the non skilled over the long run. skilled players make money consistently from poker. I was refering to the fact that you can do the right things but the OUTCOME might not be the right one. Simply because of probability. Of the idea that there might be alternate realities, a word either coin or popularised by Nassim Taleb. And by the way, not a few investment legends have made this analogy. I dont like to win arguments by quoting/ referencing authority figures but well sometimes it saves me lots of time.

When i refer to level, i wasnt refering to amount of money, im refering to the disingenuity of the fraudalant scheme. What i was trying to say is based on existing information, for Sino to turn out to be a fraud, so many things have to go wrong, so many actors have to be complicit in ways which are either illegal or detrimental to their self interests,  so many checks and balances have to fail, so many times Sino have to pull the wool over goldman's, dbs, established market research companies like euromonitor, tta and their various attempts at due diligence. For instance, the consequences for the team at dbs if Sino is a fraud is likely to be jail time.

But points taken.

Hi specuvestor,
I know your attitude is "show me the money". If i have a choice, obviously i will be more comfortable if the money is shown. But on the flip side what are you suggesting? That sino grandness/ garden fresh is faking their sales by orders of magnitude? and to make up for short fall in cashflow they are either over-inflating their capex by orders of magnitude or by other means? It will be more meaningful if you can draw out your analysis in its entirety (so we can learn and discuss) rather than casting a cloud of doubt and suspicions and stop there.

I too had similar train of thought but what is your conclusion after weighing the other side of the story, closely related to what i mentioned above, for this to be a major fraud (because if its not major than obviously the consequences are quite inconsequential), so many things have to go wrong, so many actors have to be complicit, so many checks and balances have to fail. Can such a fraud can be pulled off in a company with a simple business model of selling drinks.

As for the questions you have below, there are reasonable explanations. Which is that growth momentum was strong so capex had to be spent to feed that momentum. that interest was high and was acceptable was because garden fresh at that time was really zilch. he had no choice at the start. but as growth continued to be strong, a rational businessman had two choices, return the loan( and sacrifice investing for growth) or use all financial resources at his disposal to grow. i do get your point about working capital vs capex though. its a very nuanced point. in a vacuum i'll definitely agree with you but in a competitive world, it is rational to want to be one step ahead of your competitors, to have control, have your own production. long term capex may reap rewards only 2 years down the road. but delay doing it means you reap the rewards 2 years plus delay down the road and you reduce your flexibility in shaping your competitive environment.

thanks for both of your discourse so far. i know you are just trying to share for the buddies benefit.

I do not think Specuvestor is saying SG/GF's business is a fraud. He has clearly mentioned the business is REAL. Similarly, I do not think SG/GF's business is fake after the due diligence and ground work done by the folks here. Actually this means more to me, as most of these people here are risking their own money, compared to (the bankers) who are not. One can argue that some of these bankers are liable for prosecution if things go wrong but I have observed enough to see a difference between law and enforcement

One could also similarly argue that bondholders and TTA have done their due diligence and are in the same boat. It's ironic if people profess to do their homework in investing, but yet defer the decision decider to the decision of others. IMHO, it is sheer irresponsibility. I am even more amazed by the fact that people may actually sub-consciously find comfort in losing money together! I wouldn't feel much comfort if I had invested in SinoForest and lost together with the "legendary" John Paulson.

Specuvestor once talked about "Asset, business and structure". All in all, I believe SG has the asset and business, but the most important ingredient of this mix for the OPMI, is the 'structure'. This is the main difference that keeps us apart from TTA and the bondholders, OPMIs like us are more dependent on structure than TTA and have weaker structure (or protection) than the bond holders.

Forumer Boon's table of the historical annual cashflow basically summarized a track record that shows a cash guzzling machine. Reversion to the mean teaches me that high profit margins will not last forever, even more when u open your accounts for all to see in an IPO in capitalistic (what irony!) China. The recent bond conversion delay and TTA's CB investment looks like red flags to me, and further weakens the 'structure' that I look for when I invest. In essence, we need to ask ourselves - what is the incentive to reward the free loafing (faceless) OPMI and what is the disincentive to not run away from its obligations (that have been delayed a few times and is growing bigger n bigger).