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Three Shares That Lost To the Market Today

It was a strong day for the blue chips in Singapore as the Straits Times Index (SGX: ^STI) climbed by 1% to 3,246 points. Within the index’s 30 constituents, some 22 shares had made gains while only five others had slipped. CapitaMalls Asia (SGX: JS8) had the biggest move, jumping some 21.3% to S$2.19 on the back of a potential takeover by its parent, CapitaLand (SGX: C31).

But while Singapore’s bigger shares were doing fine, there were smaller companies that did poorly and had lost to the market. Let’s take a look at some of them.

SunVic Chemical Holdings (SGX: A7S) declined by 13.1% to S$0.53. The chemical products manufacturer had made known yesterday that its auditor, Foo Kon Tan Grant Thornton LLP, had released a “qualified opinion and an emphasis of matter” on SunVic’s financials for 2013.

Regarding the contents of the auditor’s comments on SunVic’s financials, there were three main issues. The first two dealt with uncertainties relating to: 1) the validity of RMB1.078 billion worth of property, plant, and equipment assets that SunVic had recorded on its balance sheet as of 31 Dec 2013; and 2) interested person transactions (i.e. business transactions that SunVic had made with entities controlled by the company’s insiders).

The third comment though, could be a little more noteworthy. Foo Kon Tan highlighted how SunVic’s current liabilities were some RMB622 million more than its current assets as of 31 Dec 2013 and this “may cast significant doubt about [SunVic’s] ability to continue as a going concern”. In other words, there’s a risk that the company may not be able to survive financially.

SunVic’s directors has tried to allay the fears though, by stating that the company’s expecting fresh flow of funds of up to RMB3.9 billion arising from the sale of certain assets (RMB1.45 billion out of the sum of RMB3.9 billion is “expected to be received before 31 December 2014”). Meanwhile, SunVic also highlighted that it’s “receiving continuing support from its bankers” and pointed out that it has unused bank facilities of up to RMB1.1 billion. These facilities (i.e. debt) can be used by the company to fund its current liabilities if there are any shortfalls. Nonetheless, the market’s still spooked by what it has seen, judging from SunVic’s fall.

Property developer and infrastructure engineering services provider TriTech Group (SGX: 5G9) fell by 11.5% to S$0.23 after announcing a major potential acquisition involving a China-based water treatment company.

The acquisition target in question is Jining Zhongshan Public Utility Water Company Limited which is currently owned by Shandong Jining Water Supply Group Company Limited and Zhongshan Public Utility Company Limited in a 51:49 ratio. TriTech has the intention to purchase Zhnongshan’s 49% stake and has signed a non-binding document to work in concert with Shandong Jining in regards to Jining Zhongshan.

Jining Zhongshan’s principal business activities revolve around the treatment and supply of drinking water as well as the treatment of waste water. It has a 30-year license (started in 2009) to service the water treatment needs of Jining City in China, an area with a Gross Domestic Product (GDP) of RMB350 billion (approximately S$70 billion) and population of 8.43 million.

The dollar-size of the deal’s yet to be confirmed and would only be teased out following discussions between TriTech and Zhongshan. Nonetheless, the sale amount would have to take into account the acquisition target’s book value of RMB0.64 billion and Zhongshan’s investment of RMB0.35 billion into the target.

While TriTech believes that there is “significant growth potential in the water-related business in [China]”, it’s funding the acquisition with potentially-expensive capital. A consortium of lenders and investors are in discussions with TriTech regarding a possible loan of S$42 million which can be converted into ordinary shares of the company at a price that falls between S$0.20 and S$0.28 each depending on prevailing market conditions. The loan carries an annual interest rate of 12% and the interest payments would be paid for using newly-issued shares of TriTech.

In addition, TriTech would be paying S$2.1 million in commissions to the middle-man for the loan in question in the form of new shares. On top of that, the middle-man would be granted options to purchase 30 million new shares of TriTech at a price of S$0.2308 each.

Considering 1) a market capitalisation of S$201 million just prior to the aforementioned acquisition; and 2) the extent of new amounts of shares that could be issued; existing investors of TriTech are looking at a potentially huge dilution of their stakes in the company. They can only hope that there’d be material growth in TriTech’s per-share intrinsic value if the acquisition’s eventually made.

Sysma Holdings (SGX: 5UO) rounds up the trio with its shares down by 1.7% to S$0.295. Last week, the real estate developer announced that it would be issuing 23.5 million new shares in a private placement at a price of S$0.27 each. The company had earmarked its net proceeds of S$6.10 million for use in acquisitions, investments, general working capital, and the likes. It was revealed on 11 April 2014 that the company has completed the placement exercise and those new shares would be listed and made available for trading at a later date.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.