SINO-ENVIRONMENT - How Much More To Go?

As Mr Sun Jiangrong, Chairman and CEO of Sino Environment is in default of debts owing to Stark Investments (a Hedge Fund based in Hong Kong), another 67,786,436 or 20% of Mr Sun’s shareholding in the company has been transferred to Stark Investments in accordance to their “enforcement agreement”. As a result, Mr Sun’s stake has been reduced from 51.23% to 31.23% (at current price this would be worth S$19.05mln).

On 5 March ’09, it was revealed that Mr Sun was not able to meet the requirements of Stark Investments for S$65mln of his debts outstanding to them and that they would seize his real estate worth about RMB10bln (S$2bln) and his shareholding in Sino Environment.

On 10 March ’09, 17,138,000 or 5.0565% of Mr Sun’s shareholding in the company were transfered to Stark Investments which they disposed off in the open market on 16 and 17 March ’09 between 7 to 10 cents a share. If they were willing to dispose then at such depressed prices, with the current price at 18.5 cents, we believe Stark Investments would be looking to dispose off their newly received 67,786,436 shares.

Only problem is that with average trading volume in the last 2 weeks ranging about 14-15mln shares, it would likely take them a while to dispose of the entire holding, unless done via an off market deal. Assuming it is done in the open market, it would likely depress the share price in the near term.

Besides, we do not know how much more does Mr Sun owe Stark Investments, as the 2 tranches so far amounts to an estimate of $14-15mln (versus his indebtedness of S$65mln) and while the pledged real estate amounts to about S$2bln, it was valued by Jones Lang LaSalle as at 30 Apr ’08 and one would have to estimate the residual value assuming Stark investment sells them in the open market currently.

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