COMPANIES
Embattled Quintis sandalwood business suffers new credit hit
Quintis has been in a voluntary trading halt on the ASX since May 17
The financial woes of listed sandalwood farming business Quintis continued yesterday, with global ratings company S&P downgrading its credit rating from a B to a CCC-+.
Quintis has been in a voluntary trading halt on the ASX since May 17, which was extended last week for an extra fortnight — until Wednesday, June 7 — as the company said it continued to manage its continuous disclosure obligations and finalise its response to the ASX about its dramatic two-month share price plunge.
It is also considered possible that former chief executive and major shareholder Frank Wilson may late this week or early next week emerge with a takeover bid for the embattled company backed by overseas private equity funds.
Quintis, which formerly traded as TFS or Tree Management Services, was targeted by short selling firm Glaucus in mid-March. Glaucus issued a savage report that queried its production figures, sales contracts, managed investment scheme structure, debt load and financial projections.
The Perth-based company is the world’s biggest owner and manager of commercial plantations of Indian sandalwood — a timber, perfume and incense ingredient in short supply that it farms in the Kimberley, Katherine and Burdekin regions of northern Australia.
Since mid-March, the share price of Quintis has plummeted from $1.47 a share to just 29.5c, while its market capitalisation has spiralled from $500 million to just $100m.
The Glaucus report claimed the company’s shares were worthless and that its structure was reminiscent of a Ponzi scheme.
Yesterday S&P Global Ratings announced it had lowered its corporate credit rating on Quintis from B to CCC-+.
It also has placed the sandalwood producer on a credit watch with negative implications. Its recovery rating remains unchanged at a “four” setting.
S&P said its latest credit downgrade was a result of continued delays in the sale of Quintis’s Indian sandalwood products, which risk further denting the confidence of plantation investors and resulting in lower investment inflows for the company.
“This risk, combined with the prospect of the $37 million option on 400 hectares (of young investor plantations) being put back to the company, has heightened the probability of the company’s liquidity becoming stressed,” S&P said. “Should these delays in Quintis’ Indian sandalwood sales continue, we believe it will be more challenging for the company to attract investor inflows over the last two weeks of June, when typically most investor cash flows occur. Should all these events transpire, we believe the company will face significant liquidity pressure.”
S&P said that despite the “big-picture” shortage of sandalwood globally making it an attractive investment story, the timing of Quintis’ product sales to China — revealed in the Glaucus report to have been halted — remain unclear. “But it is our understanding that if the sale of Indian sandalwood products into China is progressed, and if executed, it will go a long way to restoring confidence in the company’s business model,” S&P said.
It said it would resolve its “credit watch” by June 30.
