Judicial management likely cure for Sino-Environment
This will safeguard firm’s assets while a debt repayment plan for bondholders is worked out
By Goh Eng Yeow 25 November 2009
Let us be blunt about the public squabble between the management and independent directors of Sino- Environment that is now engulfing the already beleaguered firm.
They should put a sock in it and get on with the biggest task at hand: straightening out the company’s finances.
They need to come up with a viable debt repayment plan to pacify the firm’s bondholders and get their shares traded on the Singapore Exchange (SGX) again.
Instead, investors are being treated to repeated displays of fireworks from the company’s management and its independent directors - through their various SGX announcements to justify the actions they have taken so far.
It is also difficult to see how a demand by the independent directors for the executive directors to quit is going to solve the problem, unless they have a ready team in place to run the company.
Sino-Env hit the headlines in March when founder and chairman Sun Jiangrong admitted he had put the company in danger as a result of heavy borrowings.
He had taken a loan of $120 million from hedge fund Stark Investments in August 2007, and pledged his entire 56.3 per cent stake in the firm as collateral.
His stake was seized by the hedge fund after he defaulted on a personal loan.
This threatened to plunge the firm into financial turmoil - as holders of $149 million worth of bonds issued by it were entitled to get back their money early if Mr. Sun was no longer in control.
Worse developments were to follow - including an attempt by the China-based top management to stage a walk-out in May, and a complaint by the independent directors that they were not consulted on the sacking of the company’s financial controller, Mr. Raynauld Liang, for alleged misconduct and breach of duties.
Investors were also treated to a string of shocking disclosures - such as the withholding of an interest payment to bondholders in July, huge payments made to professional advisers, and allegations that the sacked financial controller had enjoyed first- class air travel at a time when the firm was financially strapped.
Given the deadlock that now exists between management and the independent directors, it is only reasonable to ask if other steps can be taken to put the company back on track.
A check of the company’s 2006 initial public offering prospectus shows that Sino-Env is registered here, unlike most other S-chips whose holding firms are incorporated in offshore tax havens such as the Bermudas or the Cayman Islands.
And since the firm is Singapore-registered, this gives its shareholders and holders of its $149 million bonds a well-established process to get it back on the road to health - appointing a judicial manager to safeguard its business and financial resources while an orderly debt arrangement is being worked out.
Given the chaotic events so far, have the independent directors contemplated such a step? If they have, and ruled out such an appointment, they should explain the rationale for doing so.
Appointing judicial managers may seem a drastic step, but it is made a more reasonable option, given a frank admission the independent directors made in their latest eight-page salvo on Monday.
They said their efforts to establish prudent and effective controls had been constrained because they were unable to secure the cooperation of the company’s management.
If a judicial manager is running the business, he would be able to clear the air over the latest concerns raised by the independent directors - two large projects costing 189.64 million yuan (S$38.4 million) which had been made without their knowledge - since he is an independent party.
Appointing a judicial manager would also satisfy another of the independent directors’ demands - the resignations of the executive directors from the company’s board and its various China units - since the company’s management will have to start with a fresh slate.
This would also allow the independent directors to relinquish their own responsibilities, which would also be assumed by judicial managers.
The crisis at Sino-Env has also raised another question which needs an answer from the company’s management and the independent directors: Are shareholders getting good value for the money spent on professional advisers so far?
This includes $952,874 charged by PricewaterhouseCoopers to carry out the special audit on the firm’s cash balances and $3 million paid to nTan Corporate Advisory to help the company talk to bondholders. Given the company’s stretched financial resources, these are not small sums of money.
Despite the disclosures so far, investors are still none the wiser as to whether a stand-still agreement has been struck with bondholders over repayment of the monies and interest owing to them while the firm sorts out its finances.
And having a boardroom spat being aired in public is certainly not the best way to assuage bondholders’ concerns over whether they will be repaid.
So, rather than spend more time squabbling over what had happened in the past few months, management and independent directors at Sino-Env should get their act together and try to save the company.
Their shareholders will certainly thank them for that.
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Judicial management likely cure for Sino-Environment
This will safeguard firm’s assets while a debt repayment plan for bondholders is worked out
By Goh Eng Yeow
25 November 2009
Let us be blunt about the public squabble between the management and independent directors of Sino- Environment that is now engulfing the already beleaguered firm.
They should put a sock in it and get on with the biggest task at hand: straightening out the company’s finances.
They need to come up with a viable debt repayment plan to pacify the firm’s bondholders and get their shares traded on the Singapore Exchange (SGX) again.
Instead, investors are being treated to repeated displays of fireworks from the company’s management and its independent directors - through their various SGX announcements to justify the actions they have taken so far.
It is also difficult to see how a demand by the independent directors for the executive directors to quit is going to solve the problem, unless they have a ready team in place to run the company.
Sino-Env hit the headlines in March when founder and chairman Sun Jiangrong admitted he had put the company in danger as a result of heavy borrowings.
He had taken a loan of $120 million from hedge fund Stark Investments in August 2007, and pledged his entire 56.3 per cent stake in the firm as collateral.
His stake was seized by the hedge fund after he defaulted on a personal loan.
This threatened to plunge the firm into financial turmoil - as holders of $149 million worth of bonds issued by it were entitled to get back their money early if Mr. Sun was no longer in control.
Worse developments were to follow - including an attempt by the China-based top management to stage a walk-out in May, and a complaint by the independent directors that they were not consulted on the sacking of the company’s financial controller, Mr. Raynauld Liang, for alleged misconduct and breach of duties.
Investors were also treated to a string of shocking disclosures - such as the withholding of an interest payment to bondholders in July, huge payments made to professional advisers, and allegations that the sacked financial controller had enjoyed first- class air travel at a time when the firm was financially strapped.
Given the deadlock that now exists between management and the independent directors, it is only reasonable to ask if other steps can be taken to put the company back on track.
A check of the company’s 2006 initial public offering prospectus shows that Sino-Env is registered here, unlike most other S-chips whose holding firms are incorporated in offshore tax havens such as the Bermudas or the Cayman Islands.
And since the firm is Singapore-registered, this gives its shareholders and holders of its $149 million bonds a well-established process to get it back on the road to health - appointing a judicial manager to safeguard its business and financial resources while an orderly debt arrangement is being worked out.
Given the chaotic events so far, have the independent directors contemplated such a step? If they have, and ruled out such an appointment, they should explain the rationale for doing so.
Appointing judicial managers may seem a drastic step, but it is made a more reasonable option, given a frank admission the independent directors made in their latest eight-page salvo on Monday.
They said their efforts to establish prudent and effective controls had been constrained because they were unable to secure the cooperation of the company’s management.
If a judicial manager is running the business, he would be able to clear the air over the latest concerns raised by the independent directors - two large projects costing 189.64 million yuan (S$38.4 million) which had been made without their knowledge - since he is an independent party.
Appointing a judicial manager would also satisfy another of the independent directors’ demands - the resignations of the executive directors from the company’s board and its various China units - since the company’s management will have to start with a fresh slate.
This would also allow the independent directors to relinquish their own responsibilities, which would also be assumed by judicial managers.
The crisis at Sino-Env has also raised another question which needs an answer from the company’s management and the independent directors: Are shareholders getting good value for the money spent on professional advisers so far?
This includes $952,874 charged by PricewaterhouseCoopers to carry out the special audit on the firm’s cash balances and $3 million paid to nTan Corporate Advisory to help the company talk to bondholders. Given the company’s stretched financial resources, these are not small sums of money.
Despite the disclosures so far, investors are still none the wiser as to whether a stand-still agreement has been struck with bondholders over repayment of the monies and interest owing to them while the firm sorts out its finances.
And having a boardroom spat being aired in public is certainly not the best way to assuage bondholders’ concerns over whether they will be repaid.
So, rather than spend more time squabbling over what had happened in the past few months, management and independent directors at Sino-Env should get their act together and try to save the company.
Their shareholders will certainly thank them for that.
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