Celestial - Bargain basement or Potential time bomb

Hi everyone, The persistent 2 weeks slide in Celestial has been alarming to say the least. It\'s gone beyond any fundamentals and it is trading at levels not seen since it\'s IPO or close to it\'s all time low inspite of Celestial being a much larger company now. To be honest my confidence has been shaken and I am beginning to wonder whether I\'m staring at a permanent loss of capital here with Celestial un-able to refinance their CBs. I know that much has been said about the amount of cash they have on hand but I do have some doubts as to the ability to generate enough FCF assuming that they need additional funds for working capital and also capex. Would a rights issue at a huge discount be in the works?? That would some dilution at this depressed levels but at least that will put Celestial back into strong footing.

It will be impossible to determine if a rights issue is on the cards unless we have access to top Management, but even then it would constitute insider information. If re-financing is a major issue, then the market will probably factor in the worst-case scenario, which probably can explain part of the drop. Another possibility could be a fund unloading its stake which will cause share price depression. Since I don\'t know more about the company, I can\'t relly comment on its business or financials. Cheers.

Someone is definitely shorting the counter big time expecting a worse than expected news this coming week when Celestial releases it\'s earnings. Or if your prognosis is correct about the fund selldown they must have insight as to news that has not been released yet to the general public.

Assuming the auditors sign off the accounts, there is no corporate govt issue with the company and the reduction in cash is fully accounted for. The bond was issued to finance their growth in introducing new products and building new plants for these new products. The key issue for Celestial is the refinancing of the bond. They generated RMB 543m cash flow (before capex) a year in 2008 - which is almost half the outstanding bond - and this cash flow should grow in 2009 with new stream of income from their new products. The products are in demand and are in line with govt policy to promote healthy eating, the chance is they will be able to re-finance. Premier Wen visited the plant and the local govt has helped the company to grow. Why would the central and local govt let such a strong and growing companies fail? In fact their bond was borrowed in S$ when exchange rate was 4.9 to 1. They have picked up a 10% exchange gain so far. The effective yield of the bond if held to 5 years is 5.27% p.a. I can\'t find the early redemption terms in their 2006 announcement. Does anyone know the terms of the early redemption?

Bid red flag over the resignation of their CFO...this is a typical prelude to a total meltdown...given up on Celestial...expensive tuition fee.

According to the 2007 annual report, there are 3 financial controllers in Celestial: GENG HONGTAO - PRC Chief Financial Controller and Chief Accountant Mr. Geng manages the overall finance and accounting function of the Group\'s PRC operations. He is also the Financial Controller supervising the daily operations of the Finance and Accounting Department of Daqing Sun Moon Star Co., Ltd and Daqing Weitian Energy Co., Ltd. Mr. Geng graduated in 1987 from Heilongjiang Food School with a degree in accountancy and has accumulated about 20 years of experience in PRC finance, accounting and taxation matters. JIANG YONGJUN - PRC Financial Controller Mr. Jiang is responsible for managing the finance and accounting function of Daqing Celestial Sun Moon Star Protein Co., Ltd. He oversees the daily operations of the Finance and Accounting Department of this subsidiary company. After graduating from Nehe Technical School, majoring in accountancy in 1983, Mr Jiang has accumulated over 20 years of experience in PRC finance, accounting and taxation matters. TAM CHING HO - Group Financial Controller Mr. Tam oversees the Company’s corporate finance and administrative matters. He also maintains the accounts of the Group’s non-PRC companies. Graduating with a first class honors degree in Accountancy from City University of Hong Kong in 1993, Mr. Tam has accumulated extensive experience in the areas of listing proceedings and continuing compliance, corporate finance, financial accounting, auditing and corporate administration. He is also a certified public accountant registered with the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants in United Kingdom. It sure looks like Tam messed up the re-financing and is now replaced by a new hire. Looking at the timing of the resignation and hiring, he was allowed to serve some notice period for the replacement to start on 1 Mar. There is still 3 months to go before the early redemption option kicks in. For me the price is simply too low to give up. I still think (and hope) a solution will be found. According to DBS report, there is no interest penalty on early redemption (at 116.65% after 3 years) - still 5.27% p.a. interest. The only reason why bond holders don\'t redeem in June is that the reinvestment yield for the money they redeem is lower than 5.27%.