Sino Grandness

[Boon]

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.

Hi crubs,

My point is without the cap, the total maximum dilution could possibly be more than 50%. The mechanism to control CB1 from owning more than 19.9 % of the total shares is to pay CASH. Hence, there is a price to pay which needs to be taken into consideration in assessing the overall benefit to SG from the proposed IPO.
   
__________________________________________________________________________________________________________________________
Page 13 of CB1 document dated 28-Sep-2011

Notwithstanding anything contained above, if the Conversion Right in respect of one or more Bonds is exercised pursuant to the condition set out under paragraph 9 of this Annex A such that the Shares to be issued on such conversion would otherwise represent greater than 19.9 per cent. of the issued share capital of the HK Issuer (taking into account the share capital issued upon listing of the Qualifying IPO, if applicable), the number of such Shares to be issued in respect thereof shall be calculated by the HK Issuer on the basis that such Shares will be issued to each converting Bondholder (on a pro rata basis) in such number such that they shall represent no more than 19.9 per cent. of the issued share capital of the HK Issuer (taking into account the share capital issued upon listing of the Qualifying IPO, if applicable), rounded down to the nearest whole number of Shares. In such event, the HK Issuer will upon conversion of such Bonds pay in cash (in Renminbi by means of a Renminbi cheque drawn on a bank in Hong Kong) a sum equal to (1) such portion of the Principal Amount of the Convertible Bonds (the “Cash Portion”) evidenced by the Certificate deposited in connection with the exercise of Conversion Rights, aggregated as provided in the condition set out under paragraph 9 of this Annex A, as corresponds to the number of Shares not issued as a result of such issuance representing greater than 19.9 per cent. of the issued share capital of the HK Issuer (taking into account the share capital issued upon listing of the Qualifying IPO, if applicable) and (2) the product of the Upside Amount multiplied by the Cash Portion determined pursuant to (1).
“Upside Amount” means (1.25)^X, where X is the number of calendar days from and including the Issue Date to but excluding the Redemption Date divided by 365. 
____________________________________________________________________________________________________________________________________________

[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.

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 ?
___________________________________________________________________________________________________________________________________

 
Reference net profit is 2013 profit (see Sino's circular dated 4 July 12).

The conversion proportions were already fixed when Garden Fresh achieved a reference profit exceeding RMB 250m in 2013.

The conversion proportions are 5.4% for CB1 and 18% for CB2, totaling 23.4%, under existing terms.  

As to whether the reported profit of RMB 117.3m (in the circular) or the adjusted profit of RMB 334.9m (derived from annual report) is the true reflection of profitability in 2014; the answer is very simple.

2013 reported profit was RMB 153.5m. The adjusted figure was RMB 284m (=153.5m + 130.5m). 

The adoption of RMB 284m (> the reference profit of RMB 250m) has resulted in CB1 and CB2 holders collectively having a claim of 23.4% stake in Garden Fresh. 

Adopting RMB 153.5m (< RMb 200m) would allow bondholders to collectively claim a 46% stake in Garden Fresh; and Sino Grandness will guilty of misrepresentation when it stated in the 5 Feb circular that "CB1 Holders and CB2 Holders will collectively hold approximately 23.4% in the Listco." 
 

[leeeta]

Boon,

You keep harping on the point that RMB 1,500m is the valuation for IPO. You also doubt "if Mr. Market would ultimately ascribe a value of RMB 1,500 m to ListCo"

The minimum capitalisation in Hong Kong is HK$ 2 billion, equivalent to RMB 1,686m.

You should read 'The Hong Kong Stock Exchange – IPO Overview':

2.3.2 The market capitalisation/revenue/cash flow test

This test requires the applicant to have:
(i) market capitalisation of at least HK$2 billion at the time of listing;
(ii) revenue of at least HK$500 million for the most recent audited financial year; and
(iii) positive cash flow from the operating activities of the listing applicant or its group of at least HK$100 million in aggregate for
the three preceding financial years.

2.3.3 The market capitalisation/revenue test

This test requires an applicant to have:
(i) an expected market capitalisation of at least HK$4 billion at the time of listing; and
(ii) revenue of at least HK$500 million arising from the principal activity of the applicant for the most recent audited financial year.

or you can find them here..
the basic listing requirements for equities..https://www.hkex.com.hk/eng/listing/listreq_pro/listreq/equities.htm

[Young Investor]

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.

Hi crubs,

My point is without the cap, the total maximum dilution could possibly be more than 50%. The mechanism to control CB1 from owning more than 19.9 % of the total shares is to pay CASH. Hence, there is a price to pay which needs to be taken into consideration in assessing the overall benefit to SG from the proposed IPO.
   
__________________________________________________________________________________________________________________________
Page 13 of CB1 document dated 28-Sep-2011

Notwithstanding anything contained above, if the Conversion Right in respect of one or more Bonds is exercised pursuant to the condition set out under paragraph 9 of this Annex A such that the Shares to be issued on such conversion would otherwise represent greater than 19.9 per cent. of the issued share capital of the HK Issuer (taking into account the share capital issued upon listing of the Qualifying IPO, if applicable), the number of such Shares to be issued in respect thereof shall be calculated by the HK Issuer on the basis that such Shares will be issued to each converting Bondholder (on a pro rata basis) in such number such that they shall represent no more than 19.9 per cent. of the issued share capital of the HK Issuer (taking into account the share capital issued upon listing of the Qualifying IPO, if applicable), rounded down to the nearest whole number of Shares. In such event, the HK Issuer will upon conversion of such Bonds pay in cash (in Renminbi by means of a Renminbi cheque drawn on a bank in Hong Kong) a sum equal to (1) such portion of the Principal Amount of the Convertible Bonds (the “Cash Portion”) evidenced by the Certificate deposited in connection with the exercise of Conversion Rights, aggregated as provided in the condition set out under paragraph 9 of this Annex A, as corresponds to the number of Shares not issued as a result of such issuance representing greater than 19.9 per cent. of the issued share capital of the HK Issuer (taking into account the share capital issued upon listing of the Qualifying IPO, if applicable) and (2) the product of the Upside Amount multiplied by the Cash Portion determined pursuant to (1).
“Upside Amount” means (1.25)^X, where X is the number of calendar days from and including the Issue Date to but excluding the Redemption Date divided by 365. 
____________________________________________________________________________________________________________________________________________

Wow!

When Crubs pointed out that you were not aware of certain fact and calculated wrongly, instead of acknowledging the errors, you quoted here and there to show that you are knowledgeable. 

[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 ?
___________________________________________________________________________________________________________________________________

 
Reference net profit is 2013 profit (see Sino's circular dated 4 July 12).

The conversion proportions were already fixed when Garden Fresh achieved a reference profit exceeding RMB 250m in 2013.

The conversion proportions are 5.4% for CB1 and 18% for CB2, totaling 23.4%, under existing terms.  

As to whether the reported profit of RMB 117.3m (in the circular) or the adjusted profit of RMB 334.9m (derived from annual report) is the true reflection of profitability in 2014; the answer is very simple.

2013 reported profit was RMB 153.5m. The adjusted figure was RMB 284m (=153.5m + 130.5m). 

The adoption of RMB 284m (> the reference profit of RMB 250m) has resulted in CB1 and CB2 holders collectively having a claim of 23.4% stake in Garden Fresh. 

Adopting RMB 153.5m (< RMb 200m) would allow bondholders to collectively claim a 46% stake in Garden Fresh; and Sino Grandness will guilty of misrepresentation when it stated in the 5 Feb circular that "CB1 Holders and CB2 Holders will collectively hold approximately 23.4% in the Listco." 
 

Hi portuser,

Thanks but I couldn't find the circular dated 04 July 2012 on SGX website.

Page 13 of circular dated 05 Feb 2016:

"It is envisaged that the CB1 Holders and the CB2 Holders will likely convert part or all of their respective 2011 Bonds and 2012 Bonds to new ListCo shares prior to the Proposed Listing of the ListCo Group. Any that are not converted will be redeemed. 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." 

My point is, if the conversion proportion is already fixed, how could "if the agreed valuation is higher" would increase SG's shareholding in Listco? Hence my earlier question on is "agreed valuation = MV (100% Listco).
______________________________________________________________________________________________________________________________________

[alex]

So, the conversion is: bond holders will convert at a valuation of 1,500m Rmb. Anything more, the company will take. Anything less, the company has to top up.

Am i right?

[portuser]

Boon

Go to prospectus/circular (not announcement), click Sino Grandness on the drop-down list, the 4 July 2012 circular is there. Circulars/prospectus are separated from announcements.

4 July circular is very clear about conversion proportions: bondholders will collectively have claim on a 23.4% stake in Garden Fresh based on the RMB 350.5m outstanding principal amounts of CBs.  

5 Feb circular states that discussions are going on but Sino Grandness "does not expect the conversion ratio of the 2011 Bonds and the 2012 Bonds to be materially different as a result of the Reorganisation or the restructuring of the 2011 Bonds and the 2012 Bonds in relation to the Proposed Listing."

The same circular also indicates "ongoing discussions with third parties for the issue of similar exchange bonds or other instrument to complement or replace CB1 and CB2."

We have no details of discussions as they are likely conducted on a confidential basis. 

You have earlier expressed the following concerns after reading 5 Feb circular:

"In the renegotiation of CB1/CB2, who is in a better bargaining position – bond issuer or bondholders?

Without the CB issues being fully finalized and settled – would  shareholders be in a position to make the correct voting decisions ?"

I do not think Garden Fresh is in a weak bargaining position. Garden Fresh performance has exceeded bondholders expectations:

...................................(RMB m)
..........Bondholders' profit target....actual profit
 
2011.....................70...........................86.4 (see 4 July 2012 circular)
2012...................140.........................167.1* 
2013...................250.........................284.0

2014.............out of scope.................334.9

* Net profit for 2012 was not disclosed. The figure was after applying 25% tax on pre-tax profit of 222.9m

Being a new beverage, loquat juice is still in the early phase of product life cycle. Garden Fresh, having the dominant market share, should reap the lion share of overall sales growth in the next many years. Bondholders cannot be unaware of this.

Bondholders are also aware that they had snatched a good deal, in 2011 and 2012, when banks spurned Garden Fresh for it was then a start-up.

If "ongoing discussions with third parties for the issue of similar exchange bonds or other instrument to....replace CB1 and CB2" results in new instruments that value Garden Fresh very much higher than RMB 1,500m, shareholders will rejoice.

[Boon]

Boon

Go to prospectus/circular (not announcement), click Sino Grandness on the drop-down list, the 4 July 2012 circular is there. Circulars/prospectus are separated from announcements.

4 July circular is very clear about conversion proportions: bondholders will collectively have claim on a 23.4% stake in Garden Fresh based on the RMB 350.5m outstanding principal amounts of CBs.  

5 Feb circular states that discussions are going on but Sino Grandness "does not expect the conversion ratio of the 2011 Bonds and the 2012 Bonds to be materially different as a result of the Reorganisation or the restructuring of the 2011 Bonds and the 2012 Bonds in relation to the Proposed Listing."

The same circular also indicates "ongoing discussions with third parties for the issue of similar exchange bonds or other instrument to complement or replace CB1 and CB2."

We have no details of discussions as they are likely conducted on a confidential basis. 

You have earlier expressed the following concerns after reading 5 Feb circular:

"In the renegotiation of CB1/CB2, who is in a better bargaining position – bond issuer or bondholders?

Without the CB issues being fully finalized and settled – would  shareholders be in a position to make the correct voting decisions ?"

I do not think Garden Fresh is in a weak bargaining position. Garden Fresh performance has exceeded bondholders expectations:

...................................(RMB m)
..........Bondholders' profit target....actual profit
 
2011.....................70...........................86.4 (see 4 July 2012 circular)
2012...................140.........................167.1* 
2013...................250.........................284.0

2014.............out of scope.................334.9

* Net profit for 2012 was not disclosed. The figure was after applying 25% tax on pre-tax profit of 222.9m

Being a new beverage, loquat juice is still in the early phase of product life cycle. Garden Fresh, having the dominant market share, should reap the lion share of overall sales growth in the next many years. Bondholders cannot be unaware of this.

Bondholders are also aware that they had snatched a good deal, in 2011 and 2012, when banks spurned Garden Fresh for it was then a start-up.

If "ongoing discussions with third parties for the issue of similar exchange bonds or other instrument to....replace CB1 and CB2" results in new instruments that value Garden Fresh very much higher than RMB 1,500m, shareholders will rejoice.

Hi portuser,
 
Thanks.
 
Page 10 of the 04 July 2012 Circular:
 
“QIPO” means an initial public offering (i) on an Approved Exchange, (ii) in which the Investors have a right to participate to sell such shares (converted from the Convertible Bonds) in an amount to be determined between the HK Issuer and the Investors, and (iii) in which the Investors have a veto right over the choice of initial public offering underwriters.
 
CB2 holders have a right to participate in the IPO.
 
“Issuing of similar exchange bonds or other instrument to....replace CB1 and CB2" is equivalent to removing CB2 holders’ right. I am not saying it could not be done, it is a matter of "price" !  
 
CB2 holders have a veto right over the choice of IPO underwriters.
 
These are good examples demonstrating who is in a better bargaining position.
 
The July 4 circular did not mention the use of “adjusted” net profit. If the “net profit” in Feb 5 circular were adopted, they did not meet bondholders’ net profit target in 2012 and 2013.

It is in the interests of the bondholders to use “unadjusted” net profit. That's obvious !
 
It is in the interests of the bond issuer to use “adjusted” net profit. That's obvious too !
 
The bond issuer and the bondholders could be disputing over this matter in a similar way you and I have been debating over it. Ha-ha!
 
...................................(RMB m)
..........Bondholders' profit target....actual profit
 
2011.....................70...........................86.4
2012...................140.........................167.1*  (103.4) 
2013...................250.........................284.0   (153.5)
 
2014.............out of scope.................334.9    (117.3)
____________________________________________________________________________

[portuser]

Boon wrote:

"The July 4 circular did not mention the use of “adjusted” net profit. If the “net profit” in Feb 5 circular were adopted, they did not meet bondholders’ net profit target in 2012 and 2013.

It is in the interests of the bondholders to use “unadjusted” net profit. That's obvious !
 
It is in the interests of the bond issuer to use “adjusted” net profit. That's obvious too !
 
The bond issuer and the bondholders could be disputing over this matter in a similar way you and I have been debating over it. Ha-ha!"




If 2012 profit were in fact RMB 103.4m (< RMB 140m), there will be no conversion of bonds into Garden Fresh shares, and no EGM will be held on 23 Feb.

[leeeta]

Boon, the following statement suggests you did not check circular before entering into debate.

"Hi portuser,

Thanks but I couldn't find the circular dated 04 July 2012 on SGX website."

Thot your motto is research, research, research. lol.

anyway Gong Xi Fa Cai.