To secure these 2 facilities, HZX had pledged 18.86% of his shareholding in the company. The 1st lender had required HZX to settle his debts in installments, failing which it has the right to dispose off his pledged shares in the open market. This happened on 2 Apr ’09 where the creditor sold 500,000 shares at 17 cents each.
Since early 2009, HZX had been in discussions with both creditors to settle his outstanding debts without them resorting to force selling his pledged shares, however, as at 12 Apr ’09, HZX had not been able to obtain any written confirmation from them.
As a result, further force-sale of shares could potentially result in a change of substantial shareholder and possible change of CEO as well. In the meantime, HZX remains in negotiations with his creditors for an amicable settlement.
The above suggests more force selling of shares can be expected in the near term. The first creditor have only raised S$85,000 when they sold 500,000 at 17 cents each on 2 Apr ’09. The second creditor has yet to announce any force sale.
This fiasco in itself raises more concerns about the company’s real financial position as it has a strong cash position of RMB880mln versus debts of only RMB64.151mln but chose to omit its final dividend payment (last year they paid 2 cents a share, amounting to S$16mln or RMB79.34mln).
If HZX (being CEO, ED and largest shareholder controlling the company) is in financial difficulty, he could logically have voted to force the company to pay dividends as they were still profitable last year (RMB393mln, albeit down from RMB651mln the previous year). And the company’s current market cap of about S$150mln is even below its last reported net cash position of S$163mln.
Although we do not have an official rating on the stock, the numerous abrupt suspensions of problematic S-Chips suggest that investors should remain extremely cautious on China Sky .
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