Celestial... again

I have been following on a thread in the forums under Channelnewsasia on Celestial and it has been interesting to see how contradicting some forumers may have for their own self interest and post conflicting posts and information.

[quote="hoegaandit" Posted: Fri May 01, 2009 2:58 am ]
It seems that the longists in this thread are not facing reality. The management has not been able to arrange any committed finance for the past six months and now there is only a month to go! This is despite the Chinese Government's massive stimulus and massively increased lending in China recently. It is all very well getting caught up in the Chairman's positive talk at the AGM - but where are the results?

In other words the recent price increase is completely speculative and just froth, which could collapse back suddenly.

The complete lack of any substantive progress on financing the CBs does not augur at all well for this company.

Thread: http://forum.channelnewsasia.com/viewtopic.php?t=240217&start=10

[quote="hoegaandit" Posted: Thu Apr 16, 2009 2:33 pm]
Ha ha friend - actually I was a long not a short. I try and do a more thorough job when I buy and post all the reasons not to buy and see if posters can counter them. Only problem was that I didn't buy enough.

No, haven't sold. Basically I am a fundamental investor who has been severely mauled by my "buy and hold" strategy in respect of small caps.

While not totally convinced against buy and hold I would like to recommend professor Mark who has a good track record with trends

http://www.asiawind.com/pub/hksr/mark/mark55.shtml

You will note he correctly forecast a major resurgence in stocks last year - but is also forecasting a further major downwave after that. That is also my own view.

So I will be looking to get out sometime - but not yet, as Celestial remains severely undervalued on almost all worst case scenarios.

Link: http://forum.channelnewsasia.com/viewtopic.php?t=234793&postdays=0&postorder=asc&start=60

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Hmm, I believe everyone has their own agendas when you publish certain information about a company or industry or whatsoever. As mentioned in my previous posts, the market is always very efficient in the short run and highly inefficient in the long run. Since I am in the topic of Celestial, let me cover some parts of it again.

What is the convertible bonds that is haunting this company?

Quote from Wiki:
In finance, a convertible note (or, if it has a maturity of greater than 10 years, a "convertible debenture") is a type of bond that can be converted into shares of stock in the issuing company or cash of equal value, at some pre-announced ratio. It is a hybrid security with debt- and equity-like features. Although it typically has a low coupon rate, the holder is compensated with the ability to convert the bond to common stock at an agreed upon price and thereby participate in further growth in the company's equity value.

From the issuer's perspective, the key benefit of raising money by selling convertible bonds is a reduced cash interest payment. However, in exchange for the benefit of reduced interest payments, the value of shareholder's equity is reduced due to the stock dilution expected when bondholders convert their bonds into new shares.

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Now, for Celestial's case, the S$235 million convertible bonds are due on 12 June 2009, and bond holders MAY exercise their options by redeeming their bonds at a total cost of S$274 million (assuming ALL holders exercise their options).

Next, what are the options then for Celestial? Finance this bonds from a loan. Here is one of the announcements from the CEO:

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CELESTIAL NUTRIFOODS LIMITED
(the “Company”)
(Incorporated in Bermuda)
UPDATE ON FINANCING FOR THE POTENTIAL EARLY REDEMPTION OF THE
S$235,000,000 CONVERTIBLE BONDS (the “Bonds”)

Reference is made to the announcement no. 00003 released by Celestial NutriFoods Limited
(the “Company”) on 23 March 2009 in relation to the Emphasis of Matter by Auditors on the
Financial Statements for the financial year ended 31 December 2008.

At the request of the Singapore Exchange Limited, the Board of Directors of the Company
wishes to update that the Company is trying to raise the necessary fund to finance the
potential early redemption of the Bonds. The Company has held discussions and negotiations
with several financial institutions, both in The People’s Republic of China (“PRC”) and outside
PRC to arrange for credit facilities to finance the potential early redemption of the Bonds but
has not been able to commit any fundings as of to-date. The financial crisis that has engulfed
the financial market has made this more difficult. The Management will continue to work hard
on this, and the Company will provide an update on the financing status via the SGXnet if
there is any material progress occurs between the monthly updates.

By Order of the Board
Ming Dequan
Executive Chairman
30 April 2009
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Does this add a twist to the bond conversion which is due soon in June? I believe it raises some concerns as investors do worry if they are unable to raise the funds needed. If they are unable to raise the funds necessary, the company may have to forced into insolvency. So what next?

Remember, their AGM has cleared all their resolutions:

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The Board of Directors of Celestial NutriFoods Limited (the "Company") wishes to announce that at the Annual General Meeting ("AGM") of the Company held on 28 April 2009, all resolutions relating to the matters as set out in the Notice of AGM dated 9 April 2009 were duly passed.
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Now, they have an option to issue rights up to 100% of the existing shares to raise capital in the open market. So what now?

I can't really answer for the bond holders, but in order to attract the bond holders NOT to exercise their bonds or further extend the redemption date, Celestial has to propose a very strong strategic plan moving forward. Also not forgetting I do have a vested interest in this company, I will be following closely on the announcements and the direction of the company.