Completion of Solomon meeting summaries during visit in Sweden last week.
(For sticky post)
From the meeting
Let's just go ahead with this. Although material information is not disclosed during closed meetings, I think we should all have access to the same information as soon as possible. Some of the information I received is personal, and I will use my own judgement of what is appropriate to post. Finally, although the source of information is reliable, it shouldn't be relied upon.
I will add comments between brackets. [that is mine]
The 32% TRW shares owned by SIAF HK belongs to the former fish farm owners. [confirming what I said previously].
The fish pond worth $18M will be settled, together with other debt owed to SIAF, resulting in net total remaining debt of $18M owed to SIAF. That will be repaid to SIAF and used for the collateral shares after TRW gets the loan. Details in the Q-3 report. [Not sure how the $45M A/R fits in. Part of that may be owed by MF partners]
The loan to TRW will be very substantial, more than TRW needs. $100M+. The timeline of 2 months has already been given by C-MF. [although we should always anticipate more delays]
Same timeline for the F-1 filing. It's not as complex as we think it is. [although we should always anticipate more delays]
The company will try to time share buybacks and cash dividends with the ex-date. If buybacks don't work they will move on to cash dividends. [Possibly] the dividends will come from TRW while growing at the same time.
CA is working on a number of deals abroad [although some of it may be early stage]. India, Vietnam and Malaysia. [India could be the big one].
They expect CA to be listed before TRW even, within 2 years. For TRW the target is 2019/2020.
Pre-IPO planned for mid 2018 but they may not need the money. Total dilution post-IPO perhaps 30M shares.
One APM module can produce 40 tons of prawns during the first year, 80 tons the second year and 120 tons the third year. One problem they had to deal with at the MF was lack of (sun)light. The prawns didn't grow beyond a certain size.
The MF, when it ramps up, will ramp up fast. Estimated to be completed within 66 months. First year ODRAS, 2nd year 6 buildings, 3rd year 9 more buildings.
The collateral shares. Solomon is convinced they are not being sold. 2 loans were provided by state-owned enterprises. He believes that the stock is being shorted. [but he was wrong in the past as well].
That's the important stuff.
It's all about the TRW loan. and CA.
Summary of my 2 h discussion with S last evening in Stockholm: (post 1 of 2)
Divest: I asked him if he would consider divesting some of his assets and use the money the support the stock. I interpret his answer that it would be difficult to find a buyer due to the condition/mess of the assets. After that I asked him why he didn’t write down the value, but he said that the auditors among others confirms the values. The truly great assets belong to Tri-way and they are closer than ever to obtain substantial founding. I’ll get back to this later. He emphasized that they have put all CAPEX on hold for the other assets.
I told him that the former CFO, Bertil, spoke of the land leases as hidden gems since the prices had increased a lot since SIAF signed up for it. So why don’t they sell it? The only industrial zoning is HAS and they have buildings there already. Rest of the land is agricultural land.
I asked him if they have plans to defend the stock after they announced the X-date regarding the Tri-way distribution. His answer was that there would be no need to protect the stock (I interpreted that he expects some of the additional game changers in addition to financing for Tri-Way would have occurred during within that time).
I asked him if they have signed any new board members in Tri-way but apparently, they only have that Indian guy (former CEO of a listed IT consultancy). The reason for signing him is that they have exiting stuff going on in India. Of course, they are engaged in discussions with other candidates.
What happens when Solomon decides to step down? I mentioned that I have been a shareholder since pink sheet and that I’m not very impressed of my returns so far and that it seems likely that I need to stick with this investment a few additional year until I’ll be rewarded for my patience. He told me that he will only be a regular board member in Tri-Way with no role in the operations. As a following up question on this, I pointed out that the potential value for the other assets won’t realize full value any time soon. Then he told me they have a few candidates that they are testing but it is tricky to find the right candidate (Solomon is an engineer, finance trained, almost a law degree and have a life time of experience in the fields that concerns SIAF).
I told him that shareholders have sold out due to that they don’t trust the communication from the company. I also pointed out that I sold some of my share due to the recent mess with Tri-way distribution and asked him how they could miss that they had to fil the form F-1. His answer was that that they have had discussions with five layers about this and 3 of them said that they would not need to fil the Form F-1, another didn’t have any clear answer. When they asked SEC, SEC told them that they didn’t have the fil the F-1. However, once they got back to SEC at a later stage, SEC refused to give them a free letter, hence, to not risk the company, the management team with advice from the advisors, decided to fil the F-1 anyway, hence the delay. My replay on this was why the hell don’t you tell the market about this, that the reason for the delay in not because you are incompetent but rather that SEC can’t give you straight answers. Then he replied that he is not interested in engaging in a conflict with SEC. Fair enough for me at least.
If anyone wonders, the weird item on the balance sheet, within the line construction in progress, fish pond USD 17m is work that SIAFA/CA performed for Tri-way. This receivable will be settled when Tri-way obtains financing (which I personally expect to happen within the next two months). Some of the money will be used the reduce the collateral shares but we won’t get rid of all the collateral shares until perhaps mid-2018.
I asked him, since Tri-Way will grow very heavily the coming years, is it CA that will provide SIAF with operational cash-flow that will be used for dividends? He said that due to the very high amount of the debt financing that they are negotiating for now, and due to the constructor deals that they are discussion with, and later pre-IPO money, Tri-Way will be able to both pay dividends and grow at the same time.
More coming in my next post (2-2).
Summary of my 2 h discussion with S last evening in Stockholm: (post 2)
Megafarm status of financing:
It was the leader of the bank syndicate of five banks that ordered the credit rating report/study from Dun & Bradstreet (D&B). Apparently, it was not appreciated that SIAF released this information since they didn’t ask the bank in advance. Since then, the lead bank has conducted several other studies operational DD (Tri-way outstanding vs peers) etc, not released to the market, which I understood are finalized by now. Solomon mentioned that he hopes that he could release the reports in a not very distant future. As I understood it, they have been answered an extreme amount of questions from an auditor that was hired by the lead bank and that they only have one question left.
I interpret the discussions that the will finalize this within a couple of days. Then the lead bank will need to sign the agreement at the head office. My bet, within the next 2 months, Tri-way will obtain financing of USD 150m and that Tri-way will use some of this to settle debt to SIAF.
Regarding the loan from Agricultural Bank of China, apparently this is a working capital credit facility that can only be used utilized in China and not to finance the CAPEX for the mega farm.
I’ll get back with some exciting stuff regarding CA and performance of the mega farm. Capital award is the reason why you don’t want to sell your SIAF shares after the X-date of the Tri-way distribution btw.
A few impressions from the meeting with Solomon
Personally he came across as a nice man: friendly, likeable and pleasant.He was informally dressed and gave the impression of being very energetic. My impression is that Solomon did not try to mislead by giving a too rosy picture of the situation. He did mention that they were experimenting (they way I undersood him) to find a good solution to growing the freswater prawns that appear to be quite demanding to deal with in a good way. The problem is the last phase of the growth. The prawns stop growing because of too little sunlight. One type of solution is moving to open-air water pools.
He mentioned that a storm had done some damage to one of the aqua farms. The cost of putting things right again is expected to be less than a quarter of a million dollars. It is very difficult to lie in a consistent way. My impression is that Solomon is quite open and truthful when talking about SIAF and its activities. I noticed nothing that suggested the opposite. Solomon was very willing to try to answer all kinds of questions until no more questions were asked. I had however a problem with understanding a good deal of what he said because of his way of speaking English. I guess those who have listened to the CC's can partly understand me.
Quite a few of the things I had planned to bring up had already been covered in the summaries from his Swedish meetings, and I am therefore only going to touch on a few things.
To Emptyone: I asked the question you mentioned you wanted to be raised. Solomon thought it would be a bad idea to have Triway listed on another stock exchange where it would be easier to obtain listing before Hong Kong because he believed that the p/e ratio that was realistic in such a scenario would be much lower than what ex thinks will be the case in Hong Kong. He feared that modest valuation at a different stock exchange would affect negatively the valuation in Hong Kong when Triway is later listed there. (I guess the experience from the otc versus Merkur market may have been noticed by Solomon. If there had been no prior quotation I think there is at least some chance that the pps at Merkur might have been at a higher level than it is now.)
To RD: Solomon confirmed that shares sold at the IPO in Hong Kong had to be new shares and that it did not suffice to sell an equal number of shares by existing shareholders. I asked about the expected future expenses in expanding the Mega Farm. He suggested that he hoped that it would be even a bit cheaper to expand than 4 dollars per kilo capacity, which you have expected but that the pace of expansion had a big impact in this context.
I raised the question of the use of the technology of Capital Award in other Asian countries. I got the impression that SIAF through CA would have no stake in these ventures but would receive revenues related to selling licenses and services to them more or less as it will do to Triway. These will at least to some extent give a lasting source of income. The way I understand this the implication is that there will be little need for investment by CA/SIAF to achieve this source of income. I would expect CA to be nicely cashflow positive because of the income from Triway and later from similar businesses in other countries.
I also raised the question of cash dividends. Øne alternative is for SIAF to pay so high cash dividends that these in themselves will keep the pps at a decent level because of a good dividend yield, for instance 5 to 10 %. My impression is that Solomon still has the view ventured before that the rational way to act is to consider the return on capital that SIAF can expect to achieve versus what shareholders can expect to achieve on cash dividends that are invested. The idea seems to be that if SIAF can expect to get a high return on its investments it is not in the interest of shareholders to pay a high cash dividend.
Solomon hopes or expects that when a Triway, Capital Award, SJAP have their separate listings the discount SIAF trades at will be much lower than the current market cap versus the book value. If this is the case there will be no need for a high cash dividend to keep up the stock price. This relates to the fairly distant future though. My impression is that the steps that may he needed to keep ut the pps immediately after the ex-date of the Triway stock dividend will be evaluated and decided if there is a need to to something then to raise the pps. Buying back shares could be one option in that situation.
We were three people asking questions. One of them pressed Solomon quite hard regarding collateral shres that may or may not have been sold. I got the impression that Solomon has a strong conviction that it has not happened but I got the impression that he admits that nobody has 100 % certain knowledge as to whether it has happened or not. I also got the impression that it is not possible for him to ascertain whether some of those shares have been sold or not, but I did not understand his reasoning when he explained why he was convinced such shares had not been sold. I got the impression that he thinks there has heen a good deal of shorting of SIAF on the otc.
Solomon Meeting Part 1 HU Flowers http://investeraiaktier.se/wp/2017-09-08/solomon-meeting-part-1-hu-flowers/
Solomon Meeting Part 2 Beef http://investeraiaktier.se/wp/2017-09-09/solomon-meeting-part-2-beef/
Solomon Meeting Part 3 Capital Award http://investeraiaktier.se/wp/2017-09-09/solomon-meeting-part-3-capital-award/
Solomon Meeting Part 4 Tri-way http://investeraiaktier.se/wp/2017-09-10/solomon-meeting-part-4-tri-way/