- Jul 28 2017 at 11:00 PM
- Updated Jul 28 2017 at 11:00 PM
Sandalwood growers unite as Quintis rescue plan drags on.
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Sandalwood grower Teague Czislowski believes investors like him need to unify. Trevor Collens
by
Vesna Poljak
The Indian sandalwood growers who have remained voiceless until now in the Quintis debacle believe the company's business model is undermined by its complexity and want a greater share of the value chain if Quintis survives.
Teague Czislowski is the leader of a growers' collective, Sandalwood Growers, representing the interests of mostly small investors who have backed Quintis' Indian sandalwood plantations.
Quintis shares have not traded since May and the company is persisting with a desperate recapitalisation strategy that has dragged on for weeks. It is tangled in a web of liabilities and competing interests: shareholders, bondholders, and plantation investors are all vying to protect their capital.
"The deeper we look, the more problems we're going to find, I know that. But we need to take care of the bigger priorities first. Who is acting in the interests of growers?" Czislowski asks.
To make things more complicated, it is common for growers even in the same project vintage to be on different payment schemes, where some may have paid management fees upfront and others deferred for the life of the project. Some are financed.
Rent needs to be paid
Sandalwood trees growing in a tropical environment need to be properly irrigated and maintained, and this work is conducted by Quintis-owned forestry services. The land the trees grow on is leased and rent needs to be paid, but that is not in the hands of growers.
"This all gets to the point that underneath all these financial structures and the skulduggery that's gone on at Quintis, there's a really good story," the growers' advocate says.
Czislowski acknowledges correcting these problems will not be easy and there is a risk of loss. But he argues passivity is unacceptable.
On Thursday, Quintis disclosed that
a $34 million put option has been rolled, again, now exercisable between August 2 to 4. The put is
held by hedge fund and plantation investor Davidson Kempnerand it enables the holder to force the company to buy back its trees at an agreed price.
Davidson Kempner was granted the option
when it invested in 400 hectares of trees in 2014, in effect a guaranteed return. For years it was just a footnote in the company's annual accounts. Now, the put threatens to tip the company into collapse without a cash injection.
Quintis remains hopeful of negotiating a recapitalisation.
It has already averted outright default once; the company obtained a waiver from bondholders that got it out of its reporting requirements when it failed to lodge accounts on time.
Growers don't have the same share of voice as a Davidson Kempner. That has not troubled them until the company became embroiled in a war with short sellers, lost its founder, and
ultimately exposed its disclosure failures costing it the support of the capital markets.
"The growers have not had any communications from Quintis throughout this troubled time. We're genuinely concerned that Quintis will mismanage our interests while it fights for survival," Czislowski says. He is personally an investor in eight lots, and is a retired lawyer with historical links to the company.
Inherent conflict
"If we can work with Quintis, that's fantastic, that's our priority. If we can't we need to plan for that," he says. "I still think that underneath all this we need a good surgeon to go and clean up the financial structures around Quintis and that will emerge. People say, 'bloody sandalwood, why would you invest in it?'"
Czislowski has been invested in projects since 1999, and he has seen returns on his capital.
If the current impasse can be resolved, he will make a case for correcting what he believes to be an inherent conflict of interest between Quintis and its growers where the company tends to be the end buyer of the annual harvest.
This is a fact seized on by short-sellers as a fundamental flaw in its model prohibiting price discovery for an already opaquely traded commodity.
"Quintis is in the business of growing trees as well, of harvesting them, of adding value via the distillation of the oil and marketing that for their own objectives," Czislowski says. "They make more money when they capture more value up the chain, they want to acquire the growers' sandalwood at the cheapest price they can. Our responsible entity has the obligation to get growers the best price for our harvested trees.
"For me, it's a hopeless conflict and always has been. There needs to be a restructure, that simple."
Sandalwood Growers is talking to other parties that can get more competitive outcomes for growers.
