by Vesna Poljak
The backer of a Chinese joint-venture in advanced talks with Quintis to become its new preferred buyer in China is a former director of the Australian sandalwood grower.
Graeme Scott has held board seats on Quintis' finance arm Arwon Finance, Quintis Forestry, Quintis Leasing and the parent Quintis, which was known as TFS at the time. Those directorships concluded in 2005 and 2006 and he remains a shareholder of the Perth-based group.
Mr Scott is one of the parties behind a joint venture in China that is in negotiations with Quintis to become potentially its biggest buyer in China, following a disclosure in March that Quintis' largest buyer had yet to place an order this year amid a crackdown on duty avoidance by mainland importers.
In an update on Monday, Quintis told shareholders that it struck an agreement with a mystery plantation investor at the 11th hour to extend the life of a put option worth more than $30 million. The put, which if exercised forces Quintis to buy back immature sandalwood trees off the investor at a fixed price of previously $33.9 million, was due to expire on April 30. It is the second time it has been rolled over.
Under the new terms, and "in light of the current corporate activity", it can be exercised between either July 10 to 14, or December 11 to 15 this year. If the investor exercises their option in the July window, the value of the contract is unchanged. If the investor elects to exercise in December, the value of the put increases by 6.25 per cent, a sweetener of 15 per cent on the equivalent annual rate.
In the event that the put option is exercised in neither window, "it may be exercised at any time prior to December 31, 2018, with a settlement value of $US34 million, but only following a change of control transaction", the company said in a statement to the ASX. Under that scenario, which has the higher conditional hurdle of a takeover bid materialising, the value of the option converts to US dollars which implies further uplift to about $45 million on today's exchange rates.
The unnamed plantation investor could also elect to keep their interest in the sandalwood trees, in which case the put expires. It is understood that Quintis will continue to treat the put option as a contingent liability within its accounts, which means that the company continues to believe that the probability of it being exercised is low given the value of the liability is exceeded by fair value of the trees.
Quintis shares on Monday opened at $1.18, down 2¢.
