Boustead

[memphisb]

Support @ .74 . Look out.

Vested. Looking forward to div

[memphisb]

PROPOSED ACQUISITION OF
1% REDEEMABLE CONVERTIBLE NOTES OF
BIO-TREAT TECHNOLOGY LIMITED

Singapore, 15 June 2010 – Mainboard-listed Boustead Singapore Limited (“Boustead”
or the “Group”), a progressive global infrastructure-related engineering services and
geo-spatial technology group today announced that its wholly-owned subsidiary,
Boustead Knowledge Pte Ltd (“BK”) has entered into a sale and purchase agreement
(the “SPA”) with Giant Delight Holdings Ltd (“GD”), a company incorporated in the
British Virgin Islands, as vendor, and Chen Dawei, as guarantor for the performance by
GD of warranties, undertakings, covenants, agreements and obligations contained in the
SPA.
GD entered into a subscription agreement dated 11 December 2009 and a subsequent
supplemental deed dated 29 April 2010 (collectively the “Subscription Agreement”) with
Bio-Treat Technology Limited (“Bio-Treat”) pursuant to which Bio-Treat will be issuing
HK$290,084,400 (approximately S$55,817,664) in aggregate principal amount of 1%
redeemable convertible notes due within a maturity period of five years from the date of
issue (the “Notes”) convertible into ordinary shares in the capital of Bio-Treat (the
“Shares”) at the conversion price of S$0.04 per Share. Upon completion under the
Subscription Agreement, GD will be the legal and beneficial owner of the Notes.
Pursuant to the SPA, GD has agreed to sell to BK such part of the Notes as will be
convertible into 854,180,330 Shares (the “Sale Notes”) for a consideration of
S$42,709,017 (the “Consideration”). Upon full conversion of all the Sale Notes, the
854,180,330 Shares to be issued by Bio-Treat to BK shall represent approximately
20.4% of the issued share capital of Bio-Treat on a fully-diluted basis, resulting in Bio-
Treat becoming an associated company of Boustead. This represents an effective
conversion price of S$0.05 per Share for BK.
The Consideration was arrived at following arm’s length negotiations and on a willingseller,
willing-buyer basis and after taking into consideration, a) the five days average
closing price of the Shares on the SGX-ST commencing 8 June 2010 and ending 14 June
2010 (both dates inclusive), b) the aggregate face value of the Sale Notes and the
aggregate redemption value of the Sale Notes, and c) the prospects of Bio-Treat.
Should BK choose not to convert the Sale Notes, Bio-Treat and GDL shall in aggregate
repay to BK 110% of the Consideration on the date falling on the fifth anniversary of the
date of issue of the Sale Notes (“Maturity Date”).
Under the terms of the SPA and pursuant to a Deed of Subordination to be entered into
between GD and BK, a) the redemption of any Sale Notes held by BK will rank ahead of
the redemption of any Notes held by GD; and b) all of Bio-Treat’s assets which were
originally intended to be charged to GD pursuant to the issuance of the Notes and the
Subscription Agreement will now be charged to BK.
BK’s SPA with GDL is also accompanied by a put option which will allow BK to require
GDL to purchase an equivalent and proportional combination of up to 50% of the
outstanding Sales Notes and the Shares that have been converted and are held by BK.
Currently, Bio-Treat has an extensive portfolio of large-scale Built-Operate-Transfer and
Transfer-Operate-Transfer projects in the People’s Republic of China, including Beijing,
Jiangsu, Shaanxi, Hubei and Shandong. Upon completion of these projects, Bio-Treat
will have a daily treatment capacity of over one million metric tonnes of wastewater.
According to press releases, Bio-Treat currently has treatment capacity of 955,000
metric tonnes a day and currently treats approximately 800,500 metric tonnes of
wastewater a day.
The directors of Boustead are of the view that the acquisition is part of the Boustead
Group’s pursuit of strategic investments and the expansion of its investment portfolio.
The business of Bio-Treat has been viewed as being complementary and synergistic to
the Boustead Group’s water and wastewater engineering division.
Save for Mr. Yeo Ker Kuang, a director of Boustead, who holds 1,000,000 Shares in Bio-
Treat, none of the directors or controlling shareholders of Boustead has any interest,
direct or indirect, in the acquisition.
The completion of the SPA is conditional upon a number of conditions being satisfied,
including BK’s satisfactory due diligence, as well as BK being able to negotiate and
obtain certain warranties and covenants from Bio-Treat. There is no certainty that the
SPA will be completed.
-- End of media release --

[Musicwhiz]

Will need some time to digest this, wow a lot of technical terms.

[Musicwhiz]

Even though I am vested, I will evaluate this deal as objectively as I can. Thus, I can't understand why Boustead would go into this deal as I have evaluated the announcement and do not yet see any positives and so-called synergies.

1) The Convertible Note (CN) is paying interest of 1% per annum semi-annually; which to me seems like a really low return on that cash hoard. Most people can get 1% just dumping the cash into a long-term FD, with minimal risk. This CN carries the risk of default...

2) Bio-Treat's financials are not exactly impressive. For 3Q 2010, it registered a net loss, Balance Sheet was in NTL position, there was a Going Concern issue, and heavy capex showed up in the Cash Flow Statement. The only +ve was that operating cash flows were positive. I can't imagine why Boustead would want to own 20.4% of this company when it can't even get its finances straight.

3) Bio-Treat is currently issuing rights and raising funds to clear off its massive debts; and its indebtedness to secured creditors. It looks like a pretty messy affair and there's no guarantee that after all the re-structuring, the Balance Sheet can be cleaned up. The new enlarged share cap (assuming conversion of all the CN) is about 3.9 billion shares! Any earnings will be severely diluted once the share capital expands by so much......

4) Boustead is spending about S$42 million out of its roughly S$199 million net cash hoard to acquire these CN; and this is about 21% of the cas hoard. I question if they may be spending too much of the cash on a company which has yet to undergo proper and successful re-structuring.

5) I understand that Boustead intends to buy into 20% of Bio-Treat as their "gateway" into the China water and wastewater market. It mentions synergies between Salcon and Bio-Treat. However, FF Wong also did mention in 2008 that the Chinese wastewater industry was highly competitive and margins were very thin. Thus, am not sure why Boustead chose to buy into Bio-Treat; a more pertinent choice may be Sound Global (formerly Epure) as they are a larger player.

6) Noted that there are many warranties and covenents to protect Boustead in case of any default or problems, but this Giant Delight is an unknown entity and there is also not enough information on Chen Dawei, and whether they can honour their obligations should things go wrong.

Other than the above, the effective conversion price of S$0.05 looks attractive compared to the last-done market price of S$0.08 for Bio-Treat on SGX yesterday. I guess more information needs to be provided on this complex deal as the terms and conditions are very technical (even for me as an accountant), and FF Wong himself has not commented on this acquisition even though it is a material sum of money.

Best is to grill the Management on this during the upcoming AGM. At present, I am not pleased with this corporate move until more light can be shed on the merits of the deal.

[memphisb]

thanks for your insight, MW.

Strange that this hasn't been brought up or possible acquisitions in future by the management during last meeting. Indeed it came as a surprise.

Perhaps its a oppty.

[Musicwhiz]

thanks for your insight, MW.

Strange that this hasn't been brought up or possible acquisitions in future by the management during last meeting. Indeed it came as a surprise.

Perhaps its a oppty.

Well since it's a listco, they can't say too much I guess. FF Wong did hint he was "actively" looking for M&A, but trust me this came as a surprise too! And not a very pleasant surprise at that.......

[financecaptain]

MW, you are right.
Boustead is nuts.
Not only the investment target. But the way that it has been structured as well.
Either suicidal because they have too much money to spend or plain stupid.

[memphisb]

$.81 to $.85 with 4.9 % increase.

Insiders?

[Musicwhiz]

$.81 to $.85 with 4.9 % increase.

Insiders?

If you ask me, someone's trying to manipulate the stock price. It was trading around 85c prior to pre-close, and suddenly @ close it was a large order of 300 lots @ 87.5c? Looks fishy to me.

[Musicwhiz]

Dear all, Part 1 of my analysis of Boustead's FY 2010 Financial Statements is now up on my blog. Please feel free to visit and leave comments, thanks!