Sino Grandness Food Industry Group Ltd Has Averted a Potential Crisis

Sino Grandness Food Industry Group Ltd (SGX: T4B), a vegetable and fruit canning outfit, was supposed to have a RMB100 million convertible bond come due later this week on 19 October 2014. According to the company’s latest financials, it had RMB60 million in cash as of 30 June 2014; redeeming the bonds might thus be difficult for the company based on that information. Fortunately, there were two developments which allowed Sino Grandness to avert a possible crisis.

The first development concerned an announcement made last Friday. According to Sino Grandness, bondholders representing 80.5% of the principal amount of the convertible bonds have allowed the company to extend the maturity date of the bonds from 19 October 2014 to 30 June 2015. The remaining 19.5% of the convertible bonds (which works out to be a sum of RMB19.5 million) have been repaid, thereby reducing the outstanding principal amount of the bonds from RMB100 million to RM80.5 million. Sino Grandness had to pay RMB37.9 million to repurchase RMB19.5 million worth of the convertible bonds.

The next development dealt with a private placement deal the company had announced back in 2 October 2014. Sino Grandness had issued 86 million new shares to two investors at a price of S$0.61 each, raising more than S$52 million through the exercise. The issue price for the private placement represents a rough discount of 7.94% from the weighted average price of S$0.66 for the company on 30 September 2014. The new shares make up 14.64% of Sino Grandness’ share count just prior to the deal and thus represent a significant amount of dilution for the company’s shareholders.

The two investors in the deal are PM Group Company Limited and Thoresen Thai Agencies Public Company Limited; both companies are based in Thailand and are related entities as the Honorary Chairman of the latter is also the Chairman of the former. With the issuing of the shares, Thoresen Thai Agencies and PM Group would hold 9% and 3.77% of Sino Grandness respectively (the former would actually become the second largest shareholder of Sino Grandness). Thoresen Thai Agencies is one of the largest conglomerates listed in Thailand while PM Group is a privately-held conglomerate with huge interests in many consumer product businesses in the same country.

With the first development, Sino Grandness was able to extend the repayment date for its debts; with the second, the company was able to raise cash which could help with its debt-repayment as well as business-funding requirements.

Foolish Summary

Sino Grandness would thus be able to concentrate on its business operations again with the two developments. But, investors need to watch what the company does with the proceeds of the placement. It’s stated that 60% of the S$52 million the company has raised would be earmarked for capital expenditures and the expansion of its distribution network. The company would need to earn a good rate of return on these investments in order to compensate for the dilution suffered by its shareholders.

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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 contributor Stanley Lim doesn’t own shares in any companies mentioned.