The complex and chaotic financial structure underpinning troubled sandalwood group Quintis became even more evident yesterday, with the decision by the cash-strapped timber and oil company to issue writs against former managing director Frank Wilson for an $11.1 million unpaid loan.
The debt default by Mr Wilson, who founded and ran Quintis’s former corporate entity TFS for more than 17 years before quitting in May after a share price rout, relates to funds lent by Quintis’s wholly owned financial subsidiary Arwon to Mr Wilson as an individual investor to establish new sandalwood plantations before 2014.
The company claims Mr Wilson has recently defaulted on his debt and not made principal or interest repayments for several months.
Action is also being taken against another unnamed investor for a much smaller loan default.
The ASX announcement by Quintis, which has been in a repeatedly extended trading halt since May 17, highlights the murky financial and tree-and-land ownership structure underpinning the world’s largest commercial sandalwood growing business.
Quintis’s prospectus to prospective shareholders boasts of 12,000ha of thriving Indian sandalwood plantations located across northern Australia from the East Kimberley and Ord River irrigation scheme to Katherine and the Daly River in the Northern Territory and the Burdekin River irrigation zone in north Queensland. But the listed entity does not own much of the land and timber assets.
About a third of its trees — of which less than 10 per cent are mature enough to harvest — are owned by institutional investors including Harvard University and the Church of England, while another 30 per cent of the plantations have been funded, established and are owned by retail and high net worth individuals such as Mr Wilson, often using Arwon loans from Quintis itself.
Quintis owns less than one-third, or about 3500ha, of trees outright and about half of the land on which the trees are grown.
Its income has largely been derived in its establishment years from management fees paid by investors — often driven solely by tax-loss advantages — to tend, grow and harvest the plantations.
In the past two years the first commercial harvest of prized sandalwood timber and oil has begun, dribbling capital into Quintis’s sparse coffers.
But just how long the company can survive — and when its devalued shares will be traded again — will be determined before July 31.
Quintis also revealed it has managed to extend until July 28 a $35m “put” option with Asia Pacific Investments DAC, an affiliate of Davidson Kempner, to buy back 400ha of trees at a predetermined price that it sold to API in 2014.
If the option had expired without Quintis being able to afford to buy the trees back — and this still may happen after July 28 — API would be in a position to potentially force Quintis into receivership.
It now appears likely that API and BlackRock — which owns the majority of Quintis bonds — will together with other major investors force the company to recapitalise before the end of July if it is to survive, essentially diluting the value of stock held by remaining loyal Quintis shareholders.
QIN Price at posting:
29.5¢ Sentiment: Hold Disclosure: Not Held
