Sino Grandness

[Oldman9]

Hi Boon

oh crap. You mean Garden Fresh is only SGD0.37/share. Don't kid me.
All the while I thought I could make a pile. Truly disappointed if that is the case.

no more cheers
oldman9

[Boon]

Hi Boon

oh crap. You mean Garden Fresh is only SGD0.37/share.  Don't kid me.
All the while I thought I could make a pile. Truly disappointed if that is the case.

no  more cheers
oldman9

Hi Oldman9,
 
No, that’s not my valuation.
 
It was a scenario quoted on page 13 of the Circular – I was just trying to figure out the value per share under such scenario.
 
I don’t know if Mr. Market would ultimately ascribe a value of RMB 1,500 m to ListCo ?
 
The value per share would be even lower based on FY 2014 net asset of RMB 504.2 million
 
If it is based on 25 x FY2014 NPAT = 25 x 117.3 = RMB 2,932 million, it would be much higher.
 
Mr. Market will have the final say on the valuation of ListCo.
 
The other factor that needs to take into consideration is the reduction in SG’s shareholding in ListCo, resulting from the conversion of CB1 and CB2.
 
__________________________________________________________________________________________________________________________________
 
On page 12 of the Circular
 
“Profit for the year/period” which I interpret to be “NPAT” or net profit after tax of the ListCo Group was actually falling from RMB 153.5 million in FY 2013 to RMB 117.3 million in FY2014.
 
Profit before income tax looks fine.
 
Net Assets/ Total Equity = RMB 504.2 million in FY2014
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[portuser]

Boon

Holders of CB1 and CB2 had wanted to own more of Garden Fresh.  Back in 2011 and 2012, they imposed three 'valuations' tied to Garden Fresh 2013 profit as follows:

(1) RMB 1,500m (= 6 times RMB 250m), if 2013 profit is RMB 250m and above;

(2) between RMB 1,100m and RMB 1,375m, if profit is RMB 200m and above but below RMB 250m; and

(3) 5 times profit below RMB 200m.

Bondholders' 23.4% stake in Garden Fresh is the result of dividing the aggregate outstanding principal amounts of CB1 and CB2 (RMB 350.5m) by the RMB 1,500m 'valuation'.

As lower 'valuation' results in higher ownership of Garden Fresh, bondholders had strong incentives to drive down 'valuation'.

If RMB 1,500m were in fact the 'market value' of Garden Fresh, CB2 holders' stake would be worth a mere RMB 270m, which is CB2's principal amount. They would be wise to redeem on 25 July 2015 (the maturity date) to receive a hefty sum of RMB 480m. 

The main asset of Garden Fresh is brand value, which is not reflected in NAV. The circular has made it clear that NAV was just for illustrative purposes.

Your have observed that 2014 profit fell:

 “Profit for the year/period” which I interpret to be “NPAT” or net profit after tax of the ListCo Group was actually falling from RMB 153.5 million in FY 2013 to RMB 117.3 million in FY2014."

If 2013 profit were in fact RMB 153.5m, bondholders' claims on Garden Fresh will not be 23.4%; they would own close to half of Garden Fresh [see (3) above].

In page 6 of annual report, Sino Grandness provides its adjusted profits. For 2014, adjusted profit was RMB 467.1m, against reported profit of RMB 249.5m. The huge difference (RMB 217.6m) was non-cash expenses related to CB1 and CB2 issued by Garden Fresh. 

Garden Fresh 2014 profit is therefore RMB 334.9m, which is likely a major determinant in pricing IPO shares.    

[Boon]

Boon

Holders of CB1 and CB2 had wanted to own more of Garden Fresh.  Back in 2011 and 2012, they imposed three 'valuations' tied to Garden Fresh 2013 profit as follows:

(1) RMB 1,500m (= 6 times RMB 250m), if 2013 profit is RMB 250m and above;

(2) between RMB 1,100m and RMB 1,375m, if profit is RMB 200m and above but below RMB 250m; and

(3) 5 times profit below RMB 200m.

Bondholders' 23.4% stake in Garden Fresh is the result of dividing the aggregate outstanding principal amounts of CB1 and CB2 (RMB 350.5m) by the RMB 1,500m 'valuation'.

As lower 'valuation' results in higher ownership of Garden Fresh, bondholders had strong incentives to drive down 'valuation'.

If RMB 1,500m were in fact the 'market value' of Garden Fresh, CB2 holders' stake would be worth a mere RMB 270m, which is CB2's principal amount. They would be wise to redeem on 25 July 2015 (the maturity date) to receive a hefty sum of RMB 480m. 

The main asset of Garden Fresh is brand value, which is not reflected in NAV. The circular has made it clear that NAV was just for illustrative purposes.

Your have observed that 2014 profit fell:

 “Profit for the year/period” which I interpret to be “NPAT” or net profit after tax of the ListCo Group was actually falling from RMB 153.5 million in FY 2013 to RMB 117.3 million in FY2014."

If 2013 profit were in fact RMB 153.5m, bondholders' claims on Garden Fresh will not be 23.4%; they would own close to half of Garden Fresh [see (3) above].

In page 6 of annual report, Sino Grandness provides its adjusted profits. For 2014, adjusted profit was RMB 467.1m, against reported profit of RMB 249.5m. The huge difference (RMB 217.6m) was non-cash expenses related to CB1 and CB2 issued by Garden Fresh. 

Garden Fresh 2014 profit is therefore RMB 334.9m, which is likely a major determinant in pricing IPO shares.    

http://infopub.sgx.com/FileOpen/Proposed...eID=101604
 
Page 10/11:
11  Aggregate Conversion Shareholding and Aggregate Conversion Proportion

“Aggregate Conversion Shareholding” is equal to the Relevant Share Capital (defined below) multiplied by the Aggregate Conversion Proportion (defined below).
 
“Aggregate Conversion Proportion” means a proportion, expressed as a percentage, calculated as follows:-

(i)  if (a) the Reference Net Profit exceeds RMB 250,000,000, and (b) the Performance Requirement is satisfied (for the avoidance of doubt, both (a) and (b) must be satisfied), the Aggregate Conversion Proportion shall be equal to :
Principal amount of all Bonds outstanding as at the date of delivery of the Conversion Notice
divided by
RMB 1,500,000,000;

(ii)  if (a) the Reference Net Profit exceeds RMB 200,000,000 but is equal to or less than RMB 250,000,000, and (b) the Performance Requirement is satisfied (for the avoidance of doubt, both (a) and (b) must be satisfied), the Aggregate Conversion Proportion shall be equal to :
Principal amount of all Bonds outstanding as at the date of delivery of the Conversion Notice
divided by
5.5 Times Valuation,
where “5.5 Times Valuation” = 5.5 * Reference Net Profit;

(iii)  if neither sub-paragraph (i) or (ii) above is applicable, the Aggregate Conversion Proportion shall be equal to :
Principal amount of all Bonds outstanding as at the date of delivery of the Conversion Notice
divided by
5 Times Valuation,
where “5 Times Valuation” = 5 * Reference Net Profit,
______________________
Page 13:
 
“Reference Net Profit” means the Projected Net Profit (or if available, the Net Profit) for the financial year of the HK Issuer commencing on 1 January 2013, provided that such Projected Net Profit is as disclosed in the prospectus relating to the Qualifying IPO or has been approved by the Bondholders.

Page 12:

“Net Profit” means, with respect to a financial quarter or a financial year of the HK Issuer, the consolidated net profits of the HK Issuer and its subsidiaries after taxation, interest, depreciation and amortisation with respect to such financial quarter or year, as applicable, as confirmed by the audited accounts of the HK Issuer. For the avoidance of doubt, costs and expenses incurred in connection with the Qualifying IPO and any extraordinary items shall not be taken into account in determining “Net Profit”. 
______________________________________________________________________________________________________
 
Hi portuser,
 
Who doesn’t want to have a high valuation in the IPO pricing of ListCo? Oldman9 wants to make “pile”, so are the bondholders. Ha-ha!
 
The higher the valuation Mr. Market is willing to ascribe to ListCo, the better it is for all stakeholders.
 
Market Valuation (MV) for IPO of ListCo would be determined by Mr. Market - and this has got nothing to do with how much CB1 and CB2 holders are entitled to convert their loans into shares, IMO.
 
According to the above CB1 document dated 28 Sep 2011:
 
Aggregate Conversion Proportion (ACP) is a function of
 
(a)       Reference Net Profit and
(b)       Performance Requirement
 
(for the avoidance of doubt, both (a) and (b) must be satisfied)
  
Net Profit of ListCo (RMB million):
FY2012 = 103.4
FY2013 = 153.5
FY2014 = 117.3
 
Net Profit < RMB 200 m 

(a) is not satisfied, therefore, no need to look at (b)
 
Therefore (iii) applies:

Aggregate Conversion Proportion shall be equal to :
Principal amount of all Bonds outstanding as at the date of delivery of the Conversion Notice
divided by
5 Times Valuation,
where “5 Times Valuation” = 5 * Reference Net Profit,

Using FY2014 NPAT:

For CB1:
ACP (CB1) = 80.5 / ( 5 x 117.3) = 13.7%

ASSUME the above apllies to CB2 (I have to check on this)

ACP (CB2) = 270 / ( 5 x 117.3) = 46.0%

That is my intepretation.

How do you get RMB 334 million ?
_______________________________________________________________________________________________________

[portuser]

Boon

Unfortunately, your interpretation is not correct.

The stakes that holders of CB1 and CB2 are entitled to were already fixed by 2013 profit.  2014 profit is not featured in the loan agreements. 

I have said:

 "If 2013 profit were in fact RMB 153.5m, bondholders' claims on Garden Fresh will not be 23.4%; they would own close to half of Garden Fresh [see (3) above]."

The distinction between reported profit (as shown in the circular) and adjusted profit, as well as how the difference was caused by CBs, should be understood. 

In my earlier post, I explained how RMB 334.9m was arrived at:

"In page 6 of annual report, Sino Grandness provides its adjusted profits. For 2014, adjusted profit was RMB 467.1m, against reported profit of RMB 249.5m. The huge difference (RMB 217.6m) was non-cash expenses related to CB1 and CB2 issued by Garden Fresh. 

Garden Fresh 2014 profit is therefore RMB 334.9m,"
 

[newborn1000]

Wow, congrats to those that are making profits.....

Those still hanging on from very high prices, hope at least can get back your capital......

Happy CNY

[crubs]

Boon,

As postuser have said, net profit figures need to be adjusted to get the right number.

and

"For CB1:
ACP (CB1) = 80.5 / ( 5 x 117.3) = 13.7%

ASSUME the above apllies to CB2 (I have to check on this)

ACP (CB2) = 270 / ( 5 x 117.3) = 46.0%

That is my intepretation. "

Is your interpretation right ? Then how come in page 86 of the annual report it states

"a cap that limits the number of shares that the entity is required to deliver no more than 19.9% of the total issued share capital of Garden Fresh (HK) in order to prevent excessive dilution of the existing shareholders through the issue of new shares" for the 2011 CBs

and page 90 it says

"a cap that limits the number of shares that the entity is required to deliver no more than 30% of the total issued share capital of Garden Fresh (HK) in order to prevent excessive dilution of the existing shareholders through the issue of new shares" for the 2012 CBs

This total 49.9% maximum dilution, compared to yours of 59.7% (46%+13.7%). This issue of maximum dilution was clarified in a 2012 EGM already.

[Boon]

Page 13 of the Circular dated 05-Feb-2016:
 
Assuming full conversion prior to the Proposed Listing and on the basis of an agreed valuation of RMB1,500,000,000, the Company will hold 76.6% in the Listco and CB1 Holders and CB2 Holders will collectively hold approximately 23.4% in the Listco. Prior to the Proposed Listing, the shareholding of the Company in the ListCo will be higher if only part of the 2011 Bonds and 2012 Bonds is converted, or if the agreed valuation is higher; and conversely, the shareholding of the Company in the Listco will be lower if in addition to the 2011 Bonds and 2012 Bonds the Company issues other exchangeable bonds that are converted, or if the agreed valuation for the 2011 Bonds and 2012 Bonds are lower.
 
Hi portuser/crubs,
 
Let’s put the numbers/figures aside first and try to make sure we have a common understanding of the issues at hands.
 
Assumed MV(100% ListCo) = Market Value or IPO pricing ascribed by Mr. Market for 100% of ListCo.
 
Question:
Is the above “agreed valuation” same as MV(100% ListCo) ?
____________________________________________________________________________________________________________________________________

[portuser]

Boon

Obviously, market value is not the same as agreed valuation of RMB 1,500m.

Bondholders want their investments in Garden Fresh to have a higher value. They will leave it to underwriters to determine the market value of Garden Fresh for listing.

Their desire for higher valuation was made clear in the bond agreements: They will redeem their bonds if the price-earnings ratio is less than 9 (see pg 88 and 91 of annual report)

The agreed valuation of RMB 1,500m is around 4 times 2014 profit of RMB 344.9m. The bondholders will abandon Garden Fresh if IPO is launched on the agreed valuation of RMB 1,500m.

[Boon]

Boon

Obviously, market value is not the same as agreed valuation of RMB 1,500m.

Bondholders want their investments in Garden Fresh to have a higher value. They will leave it to underwriters to determine the market value of Garden Fresh for listing.

Their desire for higher valuation was made clear in the bond agreements: They will redeem their bonds if the price-earnings ratio is less than 9 (see pg 88 and 91 of annual report)

The agreed valuation of RMB 1,500m is around 4 times 2014 profit of RMB 344.9m. The bondholders will abandon Garden Fresh if IPO is launched on the agreed valuation of RMB 1,500m.

Hi portuser,
 
“9 Times Valuation” means the product of 9 multiplied by the Reference Net Profit.
 
9 x “unadjusted net profit” = 9 x 117.3 = RMB 1055.7 m
9 x “adjusted net profit” as per your number = 9 x 344.9 = RMB 3,104 m.
 
I am still not convinced on the issue of “adjusted net profit”, but assuming that the underwriter is willing to underwrite at RMB 3,104 m
 
ðMV (100% Listco) = RMB 3,104 m, to which both bond issuer and bondholders agreed.
 
My question is, would the “agreed valuation” of RMB 3,104 m then become a factor or an input in determining the Aggregate Conversion Proportion of CB1 and CB2 ?
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