China Essence

[Underdogger]

agreed that we are going to see a MASSIVE loss for the full year results due end of today.

By 3Q12, the loss was already at a staggering 281mil RMB vs loss of 136mil last FY.

Full year loss would likely hit 400mil . NAV will drop to probably 30 cents.

Since the company has not provided any update on CB and DBS loan, we could only assume that they have not made any payment at all.

Does the company have any chance of "survival"?
Should the companies just shut down their operations and liquidate?

They have difficulty raising cash to start the next cycle, and even if they manage to start, the production volume will be so small that the unit cost of production will be very high, resulting in further losses again...


**********

Extract from Q3 result
Convertible Bond and Bank Loans
The Group is currently in discussions with the Bondholders and the Trustee to postpone the
repayment of HK$30 million of the convertible bonds that came due on 31 December 2012. In
addition, the management team has heightened efforts to recover its receivables in a bid to
raise sufficient cash for the repayment. The Group will provide an update on any material
developments at the appropriate time.
The Group is currently in discussions with DBS Bank with respect to the refinancing of the
US$38.5 million term loan and will provide an update on any material developments in due
course. .

[Underdogger]

The loss turned out to be much higher than expected. probably, company has to comtemplate scaling down operation fully and close down...

cannot believe that this company once used to be one of the "Dragon Head" in its sector...

[xlandjy]

The loss turned out to be much higher than expected. probably, company has to comtemplate scaling down operation fully and close down...

cannot believe that this company once used to be one of the "Dragon Head" in its sector...

The END is near.

[potatolover]

cannot believe that compay is still saying things like " remain positive on long term outlook".... they cannot even live past this year...


"The Group is working tirelessly to resolve these matters. As the financial markets continue to be difficult, the Group needs time to settle these matters with the relevant parties. As at the date of this report, negotiation on these matters still carries on and the Group will provide an update on any material developments in due course."

Financial markets are not difficult - the problem is with the company and not the market....the fate is sealed. They have already maxed out their borrowing from local banks, based on the NAV of their PPE. And the cash was still stuck in A/R.

Even if u added up inventory and A/R, u got only $310mil RMB.
On the other hand, their local bank borrowing and CB was already more than $820mil. If we add on DBS ($38.5mil USD), total debt is 1000mil RMB.
There is a GAP of approx 700mil RMB. it would be a miracle if they can pull thru this year...

Does the local govt want to let this zombie company continue?

[Stockerman]

rest assured that those cowards Chinaman will not be holding the AGM in Spore!
Else they would be mobbed to death by angry shareholders....they would like do a similar thing as last year, in the safety of their own country!


内蒙古扎兰屯市金百灵酒店 (JINBAILING HOTEL, ZHALANTUN CITY, INNER MONGOLIA, CHINA) WITH A SIMULTANEOUS VIDEO CONFERENCE AT MANDARIN ORCHARD SINGAPORE, MEETING SUITE 834, LEVEL 8 - MAIN TOWER, 333 ORCHARD ROAD, SINGAPORE 238867

[potatolover]

with so little cash on hand, how do they even pay their workers? Essence is on death row now, waiting to be executed...

it is very strange indeed that there are still buyers at 3 cents...

[jzk]

Sad but true. We are heading towards inevitable bankrupcy. In my opinion, the only way to salvage any shareholder value is chopping the company to pieces. They have five production facilites, of which they currently only use three. They have some patents and facilities in animal feed product line. Should there be any possible ways to sell those assets, they would recover even some amount of cash. With current working capital they are in a very quick death spiral ending in either current fiscal year or 2015.

Selling assets with reasonable prices may prove to be tricky, since all potential buyers know, that the assets would be fire-sold very soon. After selling animal feeds and unnecessary production facilities well below book prices the company would still be in difficulties, and the business volume would be just a fraction of what it used to be.

The other possible exit is teaming up with another company. Especially in this case it seems really unplausible, that mr. Zhao would ever find an ally to offer decent prices/conditions for merger.

I am preparing myself for writing this one down. But that's just investing. The only way to avoid all mistakes is to do nothing.

[potatolover]

over the years, Essence has been well supported by the local banks.
Do u think the local banks will continue to lend them more money to tide over this extremely challenging period?

Tks.

***************

Sad but true. We are heading towards inevitable bankrupcy. In my opinion, the only way to salvage any shareholder value is chopping the company to pieces. They have five production facilites, of which they currently only use three. They have some patents and facilities in animal feed product line. Should there be any possible ways to sell those assets, they would recover even some amount of cash. With current working capital they are in a very quick death spiral ending in either current fiscal year or 2015.

Selling assets with reasonable prices may prove to be tricky, since all potential buyers know, that the assets would be fire-sold very soon. After selling animal feeds and unnecessary production facilities well below book prices the company would still be in difficulties, and the business volume would be just a fraction of what it used to be.

The other possible exit is teaming up with another company. Especially in this case it seems really unplausible, that mr. Zhao would ever find an ally to offer decent prices/conditions for merger.

I am preparing myself for writing this one down. But that's just investing. The only way to avoid all mistakes is to do nothing.

[Stockerman]

whether the local banks still want to continue lending money to Essence really depends on the level of "cronyism" between the bank and essence. Honestly, no decent bank in the right frame of mind will want to lend to Essence. Just look at the market starch price and the input raw material cost. U can simply calculate that the business model is Doomed to fail. there is no way to breakeven!

anyway, people who have believed and bought into this counter are still trying hard to convince themselves that company will make it through...
we just have to wait and let the data speaks for itself. Time will tell !

[Stockerman]

There are views that there is difficulty for starch price to recover back to its former heights of more than 10,000(RMB per tonne) as govt is keeping a tight rein on food prices.
Even if the govt did not directly control the prices of starch, the fall in prices of other main food staples will impact on price of starch..

Hence, starch producers are squeezed from both ends.
a. High raw material prices (need to support farmers who grow potatoes)
b. Low starch price

Hence, the business model is inherently flawed right from the start? Shareholders have paid up a heavy price so that company can continue to support farmers by buying their potatoes...

Any views pls? tks.

---

Nov 2010 Reuters -

China will unveil food price controls and crack down on speculation in agricultural commodities to contain inflationary pressure that its central bank governor highlighted as a risk on Tuesday.

With consumer prices rising at their fastest pace in more than two years, the National Development and Reform Commission, the country's top planning agency, is preparing a "one-two punch" of actions to rein in food costs, official media reported.

Such direct intervention would mark an escalation of the government's efforts to tame inflation and underline its worries over the rapid run-up in food prices.

Possible steps include price controls, subsidies for shoppers, a crackdown on hoarding and price gouging as well as a system whereby mayors are made responsible for a basket of food items, the China Securities Journal reported.

Those found speculating on corn or cotton will also be punished severely, it added.

"Price increases, particularly overly rapid food price increases, are the main economic problem faced by the country at present," the report cited an unidentified source as saying.

"The policies that are being considered aim to contain the momentum and will be delivered in combination as a one-two punch," it added.

Consumer price inflation sped to a 25-month high in October, with prices rising 4.4 percent from a year earlier. Food, which makes up about a third of China's consumer price index, led the way, climbing 10.1 percent. Non-food items increased just 1.6 percent.

However, unlike past bouts of food inflation in China, there have been no major droughts or diseases to drive up prices this year. Instead, fast money growth appears to be the primary culprit.

At a regular briefing on Tuesday, the commerce ministry pointed its finger at factors beyond China's borders.

"Imported inflationary pressure has contributed to the big rise in China's food prices. Global prices of grains, cotton and edible oil have been rising noticeably," spokesman Yao Jian said.

China used food price controls to limited effect when inflation flared up at the end of 2007. With market forces dominant in the agricultural sector, the government struggles to steer the cost of food, though the announcement of controls can help to anchor inflationary expectations.

WATCHING PRICES

China's economy is growing in line with the government's road map, but price rises are a concern, central bank chief Zhou Xiaochuan said on Tuesday.

"Upward pressure on prices needs to be watched. We will continue to maintain appropriate growth of money and credit," he said.

Zhou said that a two-speed global recovery posed complex challenges.

"Recovery in developed economies is slow. Monetary conditions are loose," Zhou told a forum. "Growth of emerging market economies is accelerating but they face capital inflows."

Chinese officials have warned that loose monetary policy in developed economies -- and, in particular, a new round of quantitative easing in the United States -- could send waves of cash toward its borders, compounding its inflationary problem.

Although China has a comprehensive system of capital controls, hot money can still work its way into the country through normal trade and investment channels.

Yao, the commerce ministry spokesman, warned that Beijing would ferret out any speculative inflows disguised as foreign direct investment.

Judging by the numbers, though, there is little evidence so far of that kind of illicit investment.

China drew $7.7 billion of foreign direct investment in October, about $500 million less than its monthly average in the first three quarters.

(Writing by Simon Rabinovitch; Editing by Neil Fullick)