Sino Grandness

[portuser]

I have so far confined myself to presenting facts that there will be a beverage factory in Anhui. 

There have been discussions on the DEG loan, loans in general and beverage capacity.

DEG is a development bank. Development banks' main mission is poverty alleviation. According to Sino CEO, DEG, in its due diligence, obtained data from government agencies to assure itself that fruit growers had benefitted from juice production by Garden Fresh. Development banks dread negative publicity arising from loan defaults. The DEG loan is secured by layers of guarantees.

In preparation for possible bond redemption, Sino had, by 10 March 2017, secured RMB 583m unutilised bank credit facilities.

Sino has not borrowed much from Chinese banks -- RMB 264m at end-2016, RMB 161m at end-March 2017 and RMB 132m at end-June 2017.

An aggregate loan exposure of some RMB 700m by Chinese banks is a far cry from 2011 and 2012 when Garden Fresh had to contend with RMB 323m net proceeds from issuing bonds that carried 25% and 20% interest rates.

SMEs in China are straved of bank credits, as explained in article " 银行为什么不给中小企业贷款？银行不给中小企业贷款原因有哪些?"  
http://www.southmoney.com/yinhang/daikuan/qiyedaikuan/201705/1326406.html

The bonds are burdensome; but without them, Garden Fresh could not have grown. The bright spot is bondholders' original potential 24.7% stake in Garden Fresh will be whittled down to 16.9% if approval is obtained by 30 Sep 2017 to remit SB2 to oversea bondholders. The remittance will also result in the residual bonds being converted into preference shares carrying 9% interest rate.

In 2015, contract manufacturers accounted for 54% of beverage sales. Garden Fresh aims to reduce reliance on contract manufacturing as in-house production fetches higher margins and affords more assurance. The completion of juice factory in Anhui will not result in over-capacity.

[budgetier]

I have so far confined myself to presenting facts that there will be a beverage factory in Anhui. 

There have been discussions on the DEG loan, loans in general and beverage capacity.

DEG is a development bank. Development banks' main mission is poverty alleviation. According to Sino CEO, DEG, in its due diligence, obtained data from government agencies to assure itself that fruit growers had benefitted from juice production by Garden Fresh. Development banks dread negative publicity arising from loan defaults. The DEG loan is secured by layers of guarantees.

In preparation for possible bond redemption, Sino had, by 10 March 2017, secured RMB 583m unutilised bank credit facilities.

Sino has not borrowed much from Chinese banks -- RMB 264m at end-2016, RMB 161m at end-March 2017 and RMB 132m at end-June 2017.

An aggregate loan exposure of some RMB 700m by Chinese banks is a far cry from 2011 and 2012 when Garden Fresh had to contend with RMB 323m net proceeds from issuing bonds that carried 25% and 20% interest rates.

SMEs in China are straved of bank credits, as explained in article " 银行为什么不给中小企业贷款？银行不给中小企业贷款原因有哪些?"  
http://www.southmoney.com/yinhang/daikuan/qiyedaikuan/201705/1326406.html

The bonds are burdensome; but without them, Garden Fresh could not have grown. The bright spot is bondholders' original potential 24.7% stake in Garden Fresh will be whittled down to 16.9% if approval is obtained by 30 Sep 2017 to remit SB2 to oversea bondholders. The remittance will also result in the residual bonds being converted into preference shares carrying 9% interest rate.

In 2015, contract manufacturers accounted for 54% of beverage sales. Garden Fresh aims to reduce reliance on contract manufacturing as in-house production fetches higher margins and affords more assurance. The completion of juice factory in Anhui will not result in over-capacity.

Good morning, Portuser
 
Re the sentence "In preparation for possible bond redemption, Sino had, by 10 March 2017, secured RMB 583m unutilised bank credit facilities", may I ask as to where you obtained the information. Thank you.

[portuser]

The 7-page auditor's report (dated 31 Mar 2017) made reference to the RMB 582m unutilised bank ccredit facilities.

Page 45 of Sino's 2016 annual report states:
"As at 28 February 2017, the Group has collected approximately RMB 432.4 million from its customers. As of that date, the Group has cash and liquidity resources totaling approximately RMB 839.59 million consisting of cash and bank balances of RMB 357.1 million and unutilised bank credit facilities of RMB 482.49 million. On 10 March 2017, the Group further obtained a new bank credit facility of RMB 100 million, thereby increasing the Group’s cash and liquidity resources to RMB 939.59 million as of that date."

In the same page, the auditor stated that it had "examined the unutilised bank credit facilitiesas at 28 February 2017 and 1 March 2017 against the credit facilities agreement".

The RMB 582m unutilised credit facilities are standby money for possible bond redemtion. In the ame page, Sino stated:  
"the Group will have sufficient cash resources to settle the SB2 and the EB and pay its other liabilities as and when due on the back of the cash and liquidity resources that are available to the Group and taking into account its working capital needs and considering that the payment for certain capital expenditures that are contracted for to be discretionary."

The auditor stated that it considers "management's assumptions and conclusions to be consistent with the available evidence and information."

The auditor also stated that it "discussed with management and a majority of the SB2 and EB holders on the redemption status of the straight bonds and the exchangeable bonds, and understood that negotiations by both parties to restructure and/or settle the EB and SB are still on-going as of the date of our report."

There are five bondholders. Goldmans Sach holds 61% of the outstanding amounts and CDIB (a Taiwanese financial group) 32%.  

[specuvestor]

I have so far confined myself to presenting facts that there will be a beverage factory in Anhui. 

There have been discussions on the DEG loan, loans in general and beverage capacity.

DEG is a development bank. Development banks' main mission is poverty alleviation. According to Sino CEO, DEG, in its due diligence, obtained data from government agencies to assure itself that fruit growers had benefitted from juice production by Garden Fresh. Development banks dread negative publicity arising from loan defaults. The DEG loan is secured by layers of guarantees.

In preparation for possible bond redemption, Sino had, by 10 March 2017, secured RMB 583m unutilised bank credit facilities.

Sino has not borrowed much from Chinese banks -- RMB 264m at end-2016, RMB 161m at end-March 2017 and RMB 132m at end-June 2017.

An aggregate loan exposure of some RMB 700m by Chinese banks is a far cry from 2011 and 2012 when Garden Fresh had to contend with RMB 323m net proceeds from issuing bonds that carried 25% and 20% interest rates.

SMEs in China are straved of bank credits, as explained in article " 银行为什么不给中小企业贷款？银行不给中小企业贷款原因有哪些?"  
http://www.southmoney.com/yinhang/daikuan/qiyedaikuan/201705/1326406.html

The bonds are burdensome; but without them, Garden Fresh could not have grown. The bright spot is bondholders' original potential 24.7% stake in Garden Fresh will be whittled down to 16.9% if approval is obtained by 30 Sep 2017 to remit SB2 to oversea bondholders. The remittance will also result in the residual bonds being converted into preference shares carrying 9% interest rate.

In 2015, contract manufacturers accounted for 54% of beverage sales. Garden Fresh aims to reduce reliance on contract manufacturing as in-house production fetches higher margins and affords more assurance. The completion of juice factory in Anhui will not result in over-capacity.

1) Unless I understood wrongly, you are saying there will be a Garden Fresh (Anhui) in 2017 AR as a production factory, besides Garden Fresh (Hubei) and Garden Fresh (Sichuan) as per 2016 AR page 79. Just to be specific.

2) "Development banks dread negative publicity arising from loan defaults" Is this also a presentation of fact given development banks usually lend to developing economies with inherently higher risk?[/size]

3) There is bank credit facilities and there is Guaranteed bank credit facilities. The proof of the pudding of the former is when you try to activate it. Those who follow Noble will understand this better. @Budgetier it can also be found on 2016 AR page 111

4) Soooo........ AFTER Garden Fresh HAD grown, why does it not redeem the burdensome bonds but choose to restructure the CB after listing was not possibly on schedule? And as per GreedAndFear's query, I reiterate my hypothetical question here: " 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" I am open to anyone keen to borrow $91k at a discounted 10% interest because I trust you, by pledging $100k cash with me. PM me.

I remembered very well Mr Huang back then said during AGM they can repay all CB, yet it restructured. Note again the difference between restructuring and refinancing.

5) Are you expecting anymore large capex end 2017 such that the cash doesn't like in past few years somehow all goes to "Deposits paid for non-current assets" at year end?

6) Are you expecting the convertible loan to be exercised or repaid in May 2018 (without further capital raising)?

Thank you.

[portuser]

Specuvestor wrote: "I remembered very well Mr Huang back then said during AGM they can repay all CB, yet it restructured."

Mr Huang did say that.

Before the AGM, I read the auditor's report in the annual report and knew of the unutilised bank credits of RMB 582m.

After the AGM closed, I sought confirmation from Mr Huang that the RMB 582m was meant for full bond repayment. He said his own assessment is that bondholders are still eyeing stakes in Garden Fresh, but to be safe, the standby credits were secured.        

The annual report was released on 7 April 2017 while negotiations with bondholders, which ended on 28 June 2017, were still in progress. Bondholders would have read the report and asked for full bond repayment if that was their intention.
 

That there is no Garden Fresh (Anhui) has already been addressed in my earlier posts.

(a) 25 Sep

Garden Fresh is in Anhui.

Page I-31 of Garden Fresh draft prospectus states the following:

"As at 31 December 2015, deposit of RMB 246,800,000..........had been paid to independent third party suppliers for acquisition of production equipments in Anhui Province, PRC............"

(b) 26 Sep 6.22 pm

The diagram you refer to shows only three beverage subsidiaries -- Garden Fresh (Hubei), Garden Fresh (Shenzhen) and Garden Fresh (Sichuan). There is no Garden Fresh (Anhui). I believe your conclusion that beverage will not be produced in Anhui is based on this.

The Anhui beverage facilities comes under Garden Fresh (Shenzhen). 

The RMB 246,800,000 advance (page 82 of Sino's 2016 annual report) attributed to Garden Fresh (Shenzhen) is the deposit paid to suppliers for beverage production equipment in Anhui (page 1-31 of Garden Fresh draft IPO prospectus). 

Garden Fresh (Shenzhen) itself does not directly own beverage production facilities.

That beverage will be produced in Anhui is also stated in page 102 of Sino's 2016 annual report:  
"In financial year 2013, the Group has entered into a Cooperation Agreement with Guzhen (固镇) Municipal Government of Anhui Province, PRC whereby the Group principally agreed to invest RMB 600.0 million to construct a production plant to produce canned products and beverages." 

© 27 Sep 7.42pm

Page 182 of Graden Fresh draft IPO prospectus sets out the following annual caps for lease payment:

...........................Lessor...............Lessee...Annual cap on lease payment
Anhui...........Grandness.... Garden Fresh............RMB 996,000

[budgetier]

Portuser,

Thank you, for answering my question as to where you obtained the information that Sino had secured RMB582m banking credits in March 2017 ahead of possible bond redemption later in the year. I must confess that I gave the auditor report a miss, thinking it was a standard auditor report.


The auditor report was released together with Sino’s annual report in early April 2017. Negotiations on the status of the bonds were finalised end June 2017. So, I can only conclude that bondholders would have read both reports and would have known that they could have full redemption if that was their intention.

Are there other points that I would find helpful or interesting in the auditor report? The mass of data/technical information can be daunting to the layperson such as I am.

[specuvestor]

^^I see where this is going. I can only conclude that you know the full redemption could have occurred since Oct 2014 yet restructured year after year.

It is now almost the end of Oct 14, and some 2011 CBs were redeemed recently. There is no announcement/update on the proposed IPO of Garden Fresh. What exactly is the timeline/s for the IPO?

[portuser]

Portuser,

Thank you, for answering my question as to where you obtained the information that Sino had secured RMB582m banking credits in March 2017 ahead of possible bond redemption later in the year. I must confess that I gave the auditor report a miss, thinking it was a standard auditor report.


The auditor report was released together with Sino’s annual report in early April 2017. Negotiations on the status of the bonds were finalised end June 2017. So, I can only conclude that bondholders would have read both reports and would have known that they could have full redemption if that was their intention.

Are there other points that I would find helpful or interesting in the auditor report? The mass of data/technical information can be daunting to the layperson such as I am.

The auditor also stated that its audit on revenue recognition included:
(a) corroboration of "revenue against transport costs and verified corporate income taxes and value added taxes payments to online government submission portal for selected subsidiaries of the Group".
(b) "revenue analytical procedures including applying data-analytics on revenue from distributors, beverage production channels (in-house production and by external subcontractors) and detailed analysis of product and customer trends;"  (page 43 of Sino's 2016 annual report)


Unutilised bank credit facilities secured by Sino Grandness on the following dates were :

.................................RMB m
29 February 2016......247
31 December 2016....307
28 February 2017......482
10 March 2017...........582

The RMB 582m has not been tapped as loans from local banks stood at RMB 132m only on 30 June 2017 (RMB  (RMB 161m on 31 March 2017, RMB 264m on 31 December 2016).

Unrestricted cash amounted to RMB 505m on 30 June 2017 (RMB 407m on 31 March 2017, RMB 132m on 31 December 2016). 

Clearly, Sino had prepared for possible full bond redemption. 

[PkNanas]

Assuming Sino has no ability to pay, and yet in its Annual Report 2016 it expresses it has, wouldn't Sino Grandness asked for trouble if bondholder indeed asked a full redemption?

Unless Sino is playing game of Poker, I tends to believe Sino indeed has the ability and prepare for full redemption.

Yet, bondholder choosed to restructure the bond.
The logical conclusion is these bondholders still want the option to convert the debt into Garden Fresh shares, when the conditions is right/met.

Note that the restructuring benefit Sino as SB2 has only 10% interest as compared to original bonds that has 25% and 20% respectively.

[specuvestor]

I know of people with 24% credit card debt restructured to 4%(?) Sounds like the banks trust them and they got good deal then

This thread has provided all the info necessary. You can't say you were ignorant investors. How the cash flows already show the original CB holders' intent. Note that the accumulated interest cost is larger than the original CB which they are still not repaying and somehow happily reducing to smaller stakes of GF. And the US$25m bank loans are secured against the book value US$100m properties PLUS personal guarantee. So much about trust.

Fool me once shame on you. Fool me twice shame on me. They restructured again in July 2017. Fourth or fifth time but who's counting. Always raising capital just before PARTIAL redemption yet they are always "ready" and TTA trust them as much as DBS trust Ezra.

That's why I said from a pure capitalistic point of view you have to salute Huang.