Qingmei

Erelation has expressed a pessimistic view of Eratat's share placement. That is, Eratat needs capial urgently to resolve some unknown problem.
Let me provide a more optimistic and speculative view of Eratat's share placement.
Eratat may need capital to expand its distribution network. Eratat prefers lengthening credit terms to distributers and not giving discounts. This lengthening credit terms and the expansion of distribution network leads to increased capital needs.
Eratat management may have chosen to increase its distribution network more rapidly, or it may have made the decision more recently. Hence it opts for the quicker share placement method and not share listing or dual listing. It may have thought of rights placement. While rights placement may be fairer to minority shareholders, rights placement has the downside of even more dilution.
As for bank loans, it may be difficult to borrow. China's banks may be curtailing their loans, as the Chinese government increases the reserve ratio.
With the unsucessful share placement, I guess that Eratat may either slow down its expansion plans or raise capital again.
 

Eratat has already made it clear that they are extending credit and trade receivable terms to selected distributors in order to faciliate the increase in speciality Eratat stores - meaning stores set up in Eratat's name and selling Eratat products exclusively. This is an essential and may well be an instrumental step to building up its brand recognition and taking Eratat to the next level of being an established top tier brand in casualwear. This process of lengthening trade receivables terms is only possible because Eratat has been producing strong profits and has leftover cash to help the process through. 
Brand recognition and visibility is a very intangible and unquantifiable factor but if built successfully like with Nike, Adidas or even Kappa, can result in exponential increases in revenue that a B to B business like Qingmei cannot hope for, so we should not understimate the importance of what Eratat is trying to do now in facilitating the increase in exclusive specialty stores. 
Also, unlike Hunter Halle which is a passive non-controlling shareholder in Qingmei, CMIA was being entered into the Eratat board to be involved in management affairs. Considering the volume of shares that they were intending to purchase - in the region of 60 million (not feasible to buy at one go from the open market when the daily volume is barely a few million) and the fact that they were going to be involved in management, it seemed only a case of common goodwill among business partners that CMIA be allowed a placement at a slight discount. 
 

err... just a note of catious, I will be careful of companies extending the length of credit to their customers, It should not be viewed as a plus, as this might result in inflated or confusing receviables and inflat the balance sheet.
Whether this is a strategic move, I have no comments, but in terms of transparency and strength of accounting, I have my misgivings

err... just a note of catious, I will be careful of companies extending the length of credit to their customers, It should not be viewed as a plus, as this might result in inflated or confusing receviables and inflat the balance sheet.
Whether this is a strategic move, I have no comments, but in terms of transparency and strength of accounting, I have my misgivings

Hi Ethan999, I think there is always two side of a coin. Take Aussino for example, they did very well sending to department store and then they adopt the same strategy going to open their own specialty store. Are they opening their own specialist store? Or going through the franchise model? If it is their own, Profit will likely to slow down as capital expenditure balloon up with new expenses like renovation, shop rental, retail staff, etc... Their expertise is not in retail. This represent a change of strategy which may mean bring good long term profit but at the same time it is not proven but tested. Extending credit in good time if okay, but when time bad, they will end up in trouble in event that their client can't make good on their payment.
For Qingmei, they remain focus in what they do increasing their manufacturing capacity and there is no new skillset involved. Furthermore, the new capacity is also in production and in the mist of ramping up. Impact to bottomline will be more immediate as compare to Eratat. Just my point of view.

the chairman's hands are tied as he alreadi owns 29+% of the company and is just a whisker from 30% takeover level. No point for him to buy a few hundred lots - doesnt prove anything.
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[erelation 20-02-2011]:

Hi Observer2, I share all the concern that you have listed down for Eratat. I do not see the urgent need for that capital at the expenses of minority shareholders. Also i have not seen any insider buyback over the past one year. If the shares is so undervalued, why isn't insider buying back and instead they opt to raise capital from the market at great discount to the already depressed price.