The 'Softpower' Connection
Quote:
Originally Posted by
iceman
Agrarinvestor, there is an article written by Tim Hunter behind the paywall in the National Business Review today
https://www.nbr.co.nz/opinion/stage-...-pgg-wrightson
The headline is "What's going on at PGG Wrightson". It talks about a transfer of $10 million between related parties of Softpower International in Hong Kong. I think you will find the article interesting to read but you may have to buy a 1 month subscription. Anyway, thought I'd let you know as you are obviously following these developments closely
Alan Lai has long had an interest in trading pipes and plumbing supplies in Hong Kong, via a company called 'Brothers Capital Limited' that controls 'Softpower' (http://www.softpower.hk) the plumbing suppliers. 'Brothers Capital' is not by co-incidence also the controlling entity of 'Agria Corporation'. The fact that this company 'Softpower' is now described as an 'investment company' as well is a bit of a surprise to me. Softpower’s main businesses include "the wholesaling, retailing and logistics operation of pipes and fittings in Hong Kong and Macau". I am guessing that describing 'Softpower' an investment company legitimizes transfers of capital from one 'Brothers capital' controlled entity to another?
The up to $US10m loan to Softpower as referred to by NBR's Tim Hunter (http://www.aastocks.com/en/stocks/ne...87/latest-news) seems to have been set up originally on 12-05-2016. 'China Victory International Holdings' was the lender. But after the more recent Softpower transaction (proposed 05-02-2018, voted on 23-02-2018) (http://www.softpower.hk/UserFiles/Fi...94d3e48b8e.pdf) it seems that Agria is now the lender to Softpower. At least Agria should be getting a good return for taking over this loan!
"The interest rate for each interest period shall be prime rate plus 7% per annum."
The net effect of this 'loan transfer' looks to have strengthened the positive cashflow into Agria. But this impression would be wrong. 'China Victory International Holdings' was already an Agria subsidiary, whose operating asset is "an enterprise established in the People's Republic of China principally engaged in the research production and marketing of corn seeds." So all that has happened is that the loan has been transferred from a subsidiary of Agria Group to the parent. Why this was done is unexplained. But it does mean that the potential sale of these Chinese assets by Agria has become an easier task.
If we look at the declared historical debts of Agria, we must consider that PGW is a full subsidiary of Agria, So the PGW debt is consolidated into the Agria accounts. To get the true underlying debt position of Agria, we have to take out the PGW debt. The last date for which this was declared for both companies was FY2017 balance date (30-06-2017). The figures in the table below are a snapshot from that date.
Agria Corp USA report filings can be found here:
https://www.last10k.com/sec-filings/gro
(Note 15 in Agria 20-F net interest bearing debt was $US117.823m)
Balance Date 30-06-2017 |
NZD |
Exchange Rate (30-06-2017) |
USD |
Reference |
Agria Net Interest Bearing Debt |
|
|
$US117.823m |
Agria 20F filing FY2017, note 15 |
PGW Net Debt |
$NZ128.241m |
0.7330 |
$US94.000m |
PGW AR2017, note 10 |
Underlying Agria Debt |
|
|
$US23.823m |
Tim Hunter highlights the $US25.8m former 'New Hope' 'shareholding' - representing 12% of the company 'Agria Asia'. That shareholding 'New Hope' sold back (date 30-06-2017) to 'Agria Corporation' (the formerly listed US parent of Agria Asia) -was also a defacto paying back of a loan, if you consider the 'supplemental agreement' that was attached to it.
" Under the supplemental agreement, Agria Group agreed to provide a guarantee to New Hope International for a minimal level of dividends to be distributed by Agria Asia Investments to New Hope International." (p19, 20F filing for Agria for FY2017)
I got the impression at the time that New Hope was always a 'headline shareholder', brought on board to bring more legitimacy to Agria's operations, because of 'New Hope's connection to the Chinese government. The 'New Hope' 'shareholding' seemed to be more akin to a preference share arrangement with regular cash payments from Agria to New Hope being required.
Alan Lai's selling down of 25% of his 'Softpower' stake on 25-01-2018, raised $US15.4m ($HK120m, converted at $US1- $HK7.818), an amount that if shifted to Agria could go a long way to paying back 'New Hope', albeit belatedly (the sell down by New Hope was some time ago on 30-06-2017). But there is no reason that Alan Lai should shift this money to Agria.
I was at last years PGW AGM and got quite a different impression of PGW's proposed 'capital review' to that of Tim Hunter. I certainly didn't see such talk as referring to Agria's PGW stake. The comment at the AGM was made IIRC, in the context of selling surplus property to reinvest in the PGW business over FY2017. Now that nearly all surplus PGW property has been sold, my take was that raising new capital to continue to invest in the PGW business was to be looked at seriously. Could it be that Alan Lai is simply positioning himself, via the Softbank share sale, to take part in a small upcoming cash issue at PGW without diluting/losing Agria's 50.1% controlling stake in PGW? Perhaps I am naive. But I don't see anything sinister in these 'behind the scenes' transactions, highlighted by Tim Hunter, involving Mr Lai's holding companies.
SNOOPY