11-03-2011, 11:50 PM (This post was last modified: 12-03-2011, 08:59 AM by potatolover.)
I happened to chance upon this company China Essence.
China Essence is one of the largest integrated producers of potato products in the People’s Republic of China. Nestled in the fertile potato production plains of Heilongjiang and Inner Mongolia, PRC, it utilizes modern technology to process the abundant supply of potatoes present in these regions and harness the goodness of each component – the starch, protein and fibre – to produce a range of primary, downstream and by-products.
China Essence Group Limited has been recognized as one of China’s fastest-growing companies, ranking 25th out of 200 companies in the Forbes China Most Promising Companies 2010 list. The integrated producer of potato products edged out some 8,000 small-and-medium enterprises (SME) surveyed across 26 provinces in China.
It perturbs me as to why Avebe (Netherland) though a much bigger set-up than China Essence in terms of market capitalization, scale, technology, is raking in a much lower profit margin...
For Avebe, the net profit for FY10 is only euro 2.8mil out of net revenue of $521.8mil or a mere 0.54%.
[1 euro is about 8 RMB]
On the other hand, China Essence had revenue of RMB $834mil for FY10, with net profit of $136mil or 16.3%. And this was already the lowest net profit margin to date. [FY07 – 28%; FY08 – 28%; FY09 – 19%.]
FY11 (9mth) = 18%
I happened to chance upon this company China Essence.
China Essence is one of the largest integrated producers of potato products in the People’s Republic of China. Nestled in the fertile potato production plains of Heilongjiang and Inner Mongolia, PRC, it utilizes modern technology to process the abundant supply of potatoes present in these regions and harness the goodness of each component – the starch, protein and fibre – to produce a range of primary, downstream and by-products.
China Essence Group Limited has been recognized as one of China’s fastest-growing companies, ranking 25th out of 200 companies in the Forbes China Most Promising Companies 2010 list. The integrated producer of potato products edged out some 8,000 small-and-medium enterprises (SME) surveyed across 26 provinces in China.
It perturbs me as to why Avebe (Netherland) though a much bigger set-up than China Essence in terms of market capitalization, scale, technology, is raking in a much lower profit margin...
For Avebe, the net profit for FY10 is only euro 2.8mil out of net revenue of $521.8mil or a mere 0.54%.
[1 euro is about 8 RMB]
On the other hand, China Essence had revenue of RMB $834mil for FY10, with net profit of $136mil or 16.3%. And this was already the lowest net profit margin to date. [FY07 – 28%; FY08 – 28%; FY09 – 19%.]
FY11 (9mth) = 18%
Holders have extended the 5-year convertible bonds issued by China Essence in Dec 2006 for another three years. Before the release of this news, many thought that the company would have to cough out some RMB 260m, jeopardising its operations.
The favourable terms of the new 3-year bonds are surprises against the current difficult market conditions.
When the 5-year bonds were issued, the conversion price was fixed at 77.75c, slightly above the price of China Essence share then. Given that the share has been trading well below 20c lately, the 70c conversion price for the 3-year bonds beats all expectations.
The interest rate of 4.5% of the new 3-year bonds is also very low compared with the effective rate of 9.49% of the 5-year bonds.
More importantly, the amount owed to bond holders will be restated at a lower amount of some RMB 220m.
Will those who are experienced in corporate finance matters shed light on the leniency displayed by bond holders?
The three bond holders are Morgan Stanley, Pond View Credit and Evolution Master Fund.
"We are pleased with the Bondholders’ continued support and belief in our business model and growth prospects despite the macroeconomic uncertainties which impacted our performance in the last two quarters. We are confident that long-term demand for potato starch remains robust given it is a vital raw material used in consumer staples and an additive that is increasingly applied to industrial products in China.", according to the company's news release quoting its CEO.
freedom Wrote:got haircut and did not ask for massive discount conversion price and higher coupon rate?
what's the catch?
One (cynical) point of view: it was essentially blackmail. You want the money, come and get it. Try fighting your way through the Chinese courts. No chance, right? Want to seize the assets? Welcome, you just inherited a starch factory. Don't want that either? Then take your haircut and shut up.
21-12-2011, 10:03 AM (This post was last modified: 21-12-2011, 10:30 AM by potatolover.)
So the CB is just behaving like a bond, with fixed repayment schedules. The upside potential from share price appreciation is tantalising but simply out of reach..
Near impossible for share price to even appreciate beyond 20 cents, let alone reaching 70 cents...
freedom Wrote:got haircut and did not ask for massive discount conversion price and higher coupon rate?
what's the catch?
One (cynical) point of view: it was essentially blackmail. You want the money, come and get it. Try fighting your way through the Chinese courts. No chance, right? Want to seize the assets? Welcome, you just inherited a starch factory. Don't want that either? Then take your haircut and shut up.
potatolover Wrote:So the CB is just behaving like a bond, with fixed repayment schedules. The upside potential from share price appreciation is tantalising but simply out of reach.
In this case it is much worse than a normal bond because there is an asset/liability domicile mismatch. The assets are in China, the liability is in the Cayman Islands. That's probably one of the key reasons the bondholders agreed to restructure - because there was no realistic way they could get their money back, nor take over the company.
All they can hope for is either a Ponzi-refinance i.e. a new group of banks/bondholders is dumb enough to lend the company new money so they can get paid, or the stock market goes crazy and they manage to either sell off the CBs or convert the CBs and sell the shares.
This kind of domicile mismatch is extremely common among S-chips as the company is usually incorporated in the Cayman Islands, BVI, Bermuda etc. Of course, few investors think about this until there are signs of trouble, at which point it is often too late.
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