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Holders of China Sun Bio-chem’s USD 100m convertible bonds are expected to select a financial adviser, sources familiar with the matter told Debtwire.
Led by Goldman Sachs and Liberty Harbor, a unit of Goldman Sachs Asset Management, the bondholders have held beauty parades for the mandate to advise the creditors in their negotiations with China Sun to restructure the convertible bonds, the sources said.
As reported, if, as is likely, the CB holders exercise a put option on 4 October this year, the Chinese processor of corn starch and manufacturer of modified starch products will need to pay USD 122.57m. The put premium on the zero coupon bonds is 122.57% of par.
A person close to the talks with the noteholders told this news service that China Sun Bio-chem Technology Group is considering using Bio-Treat Technology’s proposed restructuring as a template for its own workout, as reported. It is therefore looking at the possibility of redeeming the CB via a series of payments instead of a one-off bullet payment, the person said. However, the company has not decided on any restructuring proposal yet given that talks with creditors have only just begun, the source said, as reported.
Observers noted that China Sun’s discussions with bondholders follow a series of announcements from China Sun’s independent directors that focus on CEO, Sun Gui Ji’s failure to convincingly explain questions surrounding the company’s accounts.
In a 25 March announcement made via the Singapore Exchange, China Sun stated its external auditor, PricewaterhouseCoopers (PwC), had questioned the authenticity of a CNY 592m (USD 86.6m) payment China Sun had purportedly made to purchase corn and questioned the CNY 337m in trade receivables that the company had reported. Consequently, PwC stated that it was not able to “ascertain the reliability of the sales revenue and trade receivables recorded by the Group for the FY 2008,” the 25 March announcement stated.
Given PwC’s inability to verify these accounts, KPMG was appointed appointed on 22 March to conduct an independent review, the announcement stated.
However, in a 4 May announcement, China Sun’s Independent Directors stated “the intended objectives of the Independent Review by KPMG could now no longer be meaningfully achieved” because a number of incidents had prevented the consulting firm from carrying out is work.
These incidents, recounted in the 4 May announcement, include: attempts by China Sun staff in Suzhou to remove computers on which KMPG was to perform forensic procedures; a power outage that occurred 15 minutes after KPMG began its forensic audit of the computers; and - on the following day when the power supply had been resumed and KPMG returned to the office - the absence of a disk drive on one of the computers that was to be audited.
In addition, the 4 May announcement states that, while it was in Suzhou attempting to conduct the audit, KPMG was told that all the accounting records since 2002 had been moved to the company’s Shenyang office for purpose of an audit. The company did not provide details as to when the accounting records were removed or the rationale for doing so, the 4 May announcement stated.
The announcement also states:
“…KPMG was apprised that the accounting records of the Company’s Tongliao office were not available for review as the truck that was transporting the relevant accounting records back to the Tongliao office from the Shenyang office was stolen on 1 April 2009, when the driver was having his dinner. The CFO informed KPMG that he was not aware that the accounting records of the Tongliao office were moved to the Shenyang office in the first place. In this regard, the Company had lodged a police report relating to the stolen truck (and the missing accounting records).”
In the 4 May announcement, China Sun’s independent directors also stated that the CEO, in a 30 April email, objected to the independent directors’ proposal to issue the announcement detailing, among others, the incidents surrounding KPMG’s attempts to conduct the audit in China. The announcement also states: “The CEO further threatened to hold the Independent Directors fully responsible for any costs or expenses suffered and incurred should the proposed Announcement be released without the consents of the Executive Directors.”
The independent directors noted in the 4 May announcement that the CEO had not been able to justify his objections to the announcement and stated “the Independent Directors shall continue to discharge their fiduciary duties and act in the best interests of the Company without fear or favour notwithstanding the CEO’s threat.”
Sun has since the 25 March announcement reiterated to the board that the CNY 592m funds were used to purchase corn, and that the company had been paid most of the CNY 337m accounts receivable.
However, as reported, the source close to the talks with noteholders said that, even though the company announcement on 26 May reports the CEO’s “confirmation” of the corn payments and the receipts of accounts receivable, the independent directors of China Sun are still in the process of authenticating the accounts that have been called into question. As a consequence, China Sun still does not have a fixed timetable to release the long delayed full year financial results for 2008, which was due 31 March, said the source, as reported.
The USD 100m CBs have not traded recently while price indications for the issue have been hard to come by, traders said. However, one trader said the bonds were indicated at a bid of around 20 two weeks ago.
Sole bookrunner and manager for the USD 100m CB, which was issued in 2006, was JP Morgan. The principal paying, conversion and transfer agent for the CB is JPMorgan Chase Bank, N.A.; J.P. Morgan Corporate Trustee Services Limited is the trustee.
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