Sound Global (0967)

[CityFarmer]

Amazing SGX managed to dodge a bullet... IIRC Sound Global had a toxic derivative deal with CS when it was listed in SGX, which suppressed the share. Funny why they reported to Singapore MoF.


Sound Global Says Auditors Discover About $323 Million Shortfall
2015-04-29 22:27:20.816 GMT

I am surprised on the news. I was a shareholder before it was listed in SEHK. Good to follow-up with the news.

Toxic derivative deal with CS? I am not aware of it, can elaborate?

(not vested)

[specuvestor]

Firstly i have to admit that i do not follow water stocks closely after my experience with Hyflux and Hyflux Water Trust.

Nonetheless i had a strong impression of this stock as a DBS analyst was looking closely at this undervalued stock and wondering why the discount to peers plus the management wanted a higher share price. After some discussion she said something about a toxic derivative ie the exercise price keeps adjusting downwards as the share price declines. It might be this CB that you guys were talking about in the old thread:
http://www.valuebuddies.com/thread-615-p...l#pid30178

My suggestion was simple: do what the Indonesians did in 97 crisis. Buy back the bonds cheap from Mr Market. Think that was what happened.

[CityFarmer]

Firstly i have to admit that i do not follow water stocks closely after my experience with Hyflux and Hyflux Water Trust.

Nonetheless i had a strong impression of this stock as a DBS analyst was looking closely at this undervalued stock and wondering why the discount to peers plus the management wanted a higher share price. After some discussion she said something about a toxic derivative ie the exercise price keeps adjusting downwards as the share price declines. It might be this CB that you guys were talking about in the old thread:
http://www.valuebuddies.com/thread-615-p...l#pid30178

My suggestion was simple: do what the Indonesians did in 97 crisis. Buy back the bonds cheap from Mr Market. Think that was what happened.

IIRC, the company had financed its water assets, mainly by debts (simple CB, and notes, rather than complex derivatives), while its peer are mainly via equity raising (placement)

One issue with the CB, is the conversion price formula, IMO. May be it is what you meant by "toxic". The CB was fully redeemed after shifted to SEHK, and share price appreciated more than double than previous SGX average price level.

(not vested)

[specuvestor]

Thats probably the CB we were talking about... Do u have the conversion formula? CB with declining exercise price is toxic cause the delta hedging creates a vicious cycle, though on paper it looks reasonable. Thats the disparity between those who know the market.

My suggestion 3-4 years back about removing the overhang from the CB through buy back looks justified

[opmi]

"CB with declining exercise price is toxic cause the delta hedging creates a vicious cycle"

toxic CB are those with conversion prices referenced to share prices, usually at a discount. Once share prices dropped, the dilution
get worse and CB holders started converting and dumping. Causing a vicious spiral down from massive dilution.

[CityFarmer]

"CB with declining exercise price is toxic cause the delta hedging creates a vicious cycle"

toxic CB are those with conversion prices referenced to share prices, usually at a discount. Once share prices dropped, the dilution
get worse and CB holders started converting and dumping. Causing a vicious spiral down from massive dilution.

I guess in SGX Sound Global case, it is not the same. The initial conversion price is at a premium above average market price.

IMO, the real issue is at the terms and conditions of the CB on conversion adjustment. The conversion price was adjusted from around 92 cents initially, to around 68 cents on the following years, till around 67 cents when delisted was offered.

The conversion price has pulled down the market share, due to dilution concern, IMO.

[newyorkcityboy]

Not a great outcome with so much cash missing. Company would move from net cash to net debt position.

Perhaps the other S-Chips have set the bar fairly low with their poor governance. But one positive is the steps taken so far by Sound Global. The appointment of the investigator and provision of dates for the report and even the approximate losses estimated.

We note that the Chairman is also cashed up with stake sale at sister entity, so could be in a position to buy out Sound Global should it tank after restarting trading.

[specuvestor]

Amazing SGX managed to dodge a bullet... IIRC Sound Global had a toxic derivative deal with CS when it was listed in SGX, which suppressed the share. Funny why they reported to Singapore MoF.


Sound Global Says Auditors Discover About $323 Million Shortfall
2015-04-29 22:27:20.816 GMT


By Joshua Fellman
     (Bloomberg) -- Sound Global Ltd., the water-treatment
company accused of accounting irregularities by a group calling
itself Emerson Analytics Co., said auditors had identified a
shortfall of about 2 billion yuan ($323 million).
     Auditors found the discrepancy between Sound Global’s bank
and book cash balances as of Dec. 31 while working on the
company’s 2014 earnings, according to a Hong Kong stock exchange
filing on Wednesday. The auditors reported their findings to
Singapore’s Ministry of Finance, Sound Global said.
     Sound Global’s shares plunged a record 29 percent on Feb.
16, the first day of trading after Emerson released a report
questioning the company’s revenue. It issued two subsequent
notes. Sound Global denied the accusations, saying Emerson’s
reports were “misleading, groundless and full of hyperboles and
logic flaws.”
     The company’s independent review committee will early next
week hire a professional corporate-investigation firm to look
into the matter, probably returning a final report by late May,
according to the Wednesday statement.
     Assuming the auditors will resume work after the final
report is issued, Sound Global expects to publish 2014 earnings
in late June, according to the filing. The company’s shares will
remain suspended until further notice.

"Securities and Futures Commission (SFC) has directed the Stock Exchange of Hong Kong Limited to suspend"
http://aastocks.com/en/stocks/news/aafn-...pular-news

I think the end is probably near... after a year...