Replies to post #39796 on Sino Agro Food Inc (fka SIAF)

[RealDutch]

I don't see how the common shareholders can affect you when you own preferred. I don't think you guys own enough shares to make this plan viable.

Perhaps this helps. Hopefully it's not completely irrelevant :-)
http://www.blaserinvestmentmanagement.com/recapitalization-to-raise-capital-for-your-business.html

What are the disadvantages of recapitalization?

Recapitalization is an extremely complex and expensive process

Recapitalizations have become extraordinarily complex and technical, thanks, in part, to the IRS. To structure and document a recapitalization, you need to hire attorneys, tax advisors, valuation experts, and other professionals to guide you through the statutory maze. Unfortunately, none of these professionals work cheaply.

Adverse tax consequences may result

Distribution of preferred stock through recapitalization may cause adverse tax consequences under Sections 305 and 306 of the Internal Revenue Code. Section 305 deals with the tax treatment of distributions by a corporation of its own stock, which may be taxable as a dividend. Section 306 applies to stock that has been distributed as a tax-free dividend to existing stockholders. Only a competent tax attorney should attempt to analyze the tax impact of recapitalization. In addition, you should be aware that an ordinary loss deduction is available only for common stock. Thus, a loss that occurs on the sale or transfer of preferred stock cannot be claimed as an ordinary loss.

Preferred stock dividends may drain the company of needed cash

In a typical recapitalization, a large, cumulative dividend has to be paid on the preferred stock to boost the value of this class of stock. For many corporations, the payment of these dividends every year may severely drain the company of needed cash. In many instances, it may not make business sense to put the future health of the company at risk just to raise capital. Furthermore, dividends payable to the preferred shareholders are not deductible by the company. Therefore, the money used to pay the dividends will be taxed twice, once at the corporate level and then when the individual receives the dividends.

[Traderfan]

Do you have any experience with an exchange of common for preferred by a corporation to reduce common O/S?
Perhaps our group would consider something like this if the
conditions were acceptable, but we would not like to become the Fall Guy as the company fortunes improve.
Worst case scenario? Just curious, would we get left in the dust by common shareholders?

My first question would be this. What is the reason that you would like to take preferreds? I have seen companies where officers or other related people change common to preferreds, but they have other intentions for doing this. What would be your intention? To reduce the common O/S? Why? The problem is that for a fully diluted share count, all the preferreds need to be counted as well so from that side I don't see any advantage doing this. Unless you have got another reason to do it.