We learned today (after last night’s market close in Asia) that a discounted rights offering proposed by Sino Grandness Food Industry Group (T4B.SI) (OTCBB: SFOOF) has been reduced in price significantly, to the tune of 32%, furthering a case that we made in October that the company may have seen its Hong Kong IPO of its beverage business hit a wall — and that the company may be more in need of capital than it has let on. We believe that shares will continue to drift lower, eventually to the S$0.21 per share rights price that the company is offering, an additional 28.8% downside from current market price.
Recall on October 25, 2016, we issued a critical report asking whether Sino Grandness Food Industry Group was “rotten at its core”. In the report we provided our findings from our on the ground due diligence at Sino Grandness facilities and drew the conclusion that the company should be looked at through a very critical eye. Subsequently, the company issued a response on October 30, which we responded to in an October 31 article available on our website. The company then issued a follow up on November 1, 2016, which we commented on the morning of November 3, 2016.
In our original report, we questioned the company’s need to perform a proposed rights offering in Singapore to sell new shares to existing stockholders at a 28.7% discount to the stock’s price at the time. We stated:
“We believe that this could mean that the company’s plan of raising capital through a Hong Kong IPO of its beverage business may have hit a wall, and the issuance of shares through the rights offering in Singapore tells us that the company is currently in need of capital.”
“To us it seems strange that the company is proposing this rights offering at a 28.7% discount to its recent market price, despite reporting more than RMB500 million in cash and cash equivalents on its balance sheet while its net profit reportedly grows at a very high rate. This issuance will increase the company’s total share count by up to 33%. We believe this action could indicate that the company’s real financial condition may not be what has been reported. We also think this could mean that the company needs a capital injection in order to sustain its business operations, especially if it isn’t going to be able to raise capital from an IPO of its beverage business.”
In today’s revised announcement, the company stated it will now be offering shares at S$0.21 per each rights share, versus a previous price of S$0.31 per each rights share.
While this price remains only a 28.8% discount to the current market price — a discount we still find to be disturbing — it is a whopping 51.7% lower than the stock price when the original rights offering was proposed.
This action should be yet another red flag for Sino Grandness shareholders and, equally, it reiterates to us that our concerns about the company’s access to capital may be warranted. We continue to monitor Sino Grandness and will update our members, as well as the public, with new developments should they occur.
Disclosure: No Position in SGX:T4B at time of this writing
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