Ann: Exercise of put option, page-4

Quintis put holder, Davidson Kempner, pulls trigger on $37m

• Jan 19 2018 at 6:09 PM
• Updated 14 mins ago

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Quintis is considering its next step in light of the put option decision. Ralph Bestic
Quintis has confirmed a hedge fund investor pulled the trigger on a $37 million put option, endangering the future of the sandalwood grower.

Davidson Kempner elected on Friday to exercise its right to sell 400 hectares of Indian sandalwood trees back to the company at the agreed price of $37 million. It has held that put option since it acquired the plantation interest in 2014 and rolled it as recently as December 15, 2017 as the former TFS negotiated a months-long rescue via recapitalisation.

Under the terms of the deal, Davidson Kempner is supposed to see the cash by February 2. But Quintis is suffering liquidity problems and has relied on the goodwill of its bondholders for financing after it missed an interest payment in August 2017.

One of the conditions of a forbearance agreement keeping the company operating was that the put option is waived or deferred. That condition now appears to have been breached.

"The company is considering its position in light of the exercise notice and will update the market as soon as practicable in relation to its next course of action," Quintis said in an ASX statement.

Shares of Quintis have not traded since May 2017 and it is fighting battles on multiple fronts. It was facing the prospect of an extraordinary general meeting to unseat the three most senior board members including its current CEO, has jousted with growers over governance, engaged in a legal dispute with its founder and former boss Frank Wilson, and is targeted in two separate shareholder class actions.

Last week, it partially concluded its 2017 harvest of Indian sandalwood logs fetching the lowest prices in four years.

But the presence of Davidson Kempner has loomed as the biggest risk to the company's intensive rescue plan. Davidson Kempner was unmasked as the holder of the option in June 2017 but the liability lurked within Quintis' balance sheet for years.

Had Davidson Kempner held onto the put instead of exercising it on the last day of its applicable window on Friday, it was entitled to an escalated $US34 million ($42 million) payout if there were a change of control event at the company, any time before December 31, 2018.

When Davidson Kempner rolled the put option in April 2017, it extracted more favourable terms from Quintis by securing an increased strike value. The investor purchased the lots in June 2014 and the put was repeatedly extended, having been initially set to expire on June 30, 2016, when the contract was valued at $30.5 million.

That show of faith from the hedge fund followed an attack on Quintis' business model from short-seller Glaucus in March last year. Glaucus published its assertion that the company's stock was worth zero and made the contested claim that aspects of the business were akin to a ponzi scheme.

Glaucus' findings rocked the Quintis share price and led to the exit of Mr Wilson, who resigned with the intent to mount a privatisation plan and return to the business. He is a backer of the EGM proposal currently before the board, and remains the company's largest shareholder.

The stock was halted from trading in May 2017 after it emerged that Quintis did not disclose the loss of a high-profile oil supply contract and the market lost confidence in the group.