Sinotronics is an electronics manufacturing company with has a NAV of over HKD$1/share, cash of ~$1.17/share, total debt of 0.81/share. At the time of writing Sinotronics had a market cap of $154m.
In summary:
The trouble started in Feb/April 2007 when they entered into two interest swap agreements with Douche bank with notational values of $390m and USD$100m. This was a disastrous deal, which while they received upfront payments of HKD$39m and USD$10m from Douche bank, they had to settle semi-annually with some index contrived by the bank ("Douche bank Pan-Asian Forward Rate Bias Index"). The "bias" in the name didn't set off alarm bells.
The controlling shareholder, Lin Wang Qiang, to his credit (or regret) subsequently offered to indemnify Sinotronics against derivative losses on Dec 2007.
The famous crusader of corporate governance in HK, David Webb purchases 880k shares avg 0.88/share giving him a total of 34m shares (6.09%)
Sinotronics decided the terms of the interest swap agreements were onerous and stopped paying interest on Oct 2008 and Douche bank sued and Sinotronics counter sued saying a Douching bank employee allegedly misled them.
Webb sells 600k shares @0.38 (-56% loss) and is below the 5% reporting threshold and has 27.7m shares left. Together with his other vehicle Preferable Situation has 3.4m shares or 6.04%.
Sinotronics and Douche settled on Nov 2009 with Sinotronics agreement to pay "less than US$23.7m" the original demand, the exact amount is not revealed.
To access the funds to pay this (keep in mind they have HKD$648m in cash):
- Lin Wang Qiang under terms of his indemnity agreement was now on the hook for HK$29.2m and to pay this he decided to sell all his shares (230m shares).
- Sinotronics decides to do a open offer of 1 share for 2 at a price of 0.18cents/share.
Friday 20 Nov 2009, Union Day Group files a notice saying they have 169m or 30% of the company.
Tuesday 24 Nov 2009. Stock is suspended from trading and reopened on Wednesday with the announcement that Mr Lin had sold all his shares to Upbest the unbelievable price of 0.18 each and with regulatory requirements will make a general offer for all outstanding shares at the derisory price of 0.18 each.
Stock opens at 0.45 (from the previous closing of 0.275), peaks at 0.59 and at this time trading at 0.44 giving it a market cap of $245m.
Now this is a company that for the last 5 years averaged over $100m/year in FCF. Why are they continuously raising funds when they have so much cash? Is the cash still there?
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