Sandalwood company Quintis on the nose as credit rating downgraded further, and possible class action ahead
ABC Rural
By
Matt Brann
Updated yesterday at 12:28
The weekend cannot come quick enough for the embattled Perth-based sandalwood company Quintis.
On Wednesday, the world's largest producer of Indian sandalwood
announced that one of its major customers had terminated its contract — back in December.
Quintis chairman Dalton Gooding said the current board had been unaware the deal with Galderma had ended, describing the "communication breakdown" as "unacceptable".
If the board was shocked, the stock market was in utter disbelief.
Quintis shares fell 43.9 per cent on Wednesday and down a further 23 per cent on Thursday, at one stage bottoming out at $0.36 a share, its lowest price since 2012.
In early trade on Friday it had recovered slightly to $0.47 a share.
The drama has damaged the company's credit rating, and on Friday morning, Moody's downgraded Quintis from B2 to B3 — one of the lowest investment ratings that can be assigned.
Meanwhile Bannister Law has announced that it is investigating a potential class action on behalf of shareholders against Quintis.
In a statement, Bannister Law said it was investigating whether the directors and officers were in breach of the company's continuous disclosure obligations in only announcing the Galderma contract termination to the ASX on May 10, 2017.
Principal Charles Bannister said the inadequate disclosure of this type was "simply unacceptable in Australia".
"Continuous disclosure is at the heart of buyers' confidence in the share market and impacts directly on the share price of listed entities, as this news demonstrates."
Embed: The Quintis share price has fallen off a cliff this week
Have short-sellers cashed in?
The
rot for Quintis started back in March, when it became the target of an American activist short-seller group called Glaucus Research.
Glaucus published a damning assessment of the Quintis business model, likening it to a Ponzi-scheme and valuing the company at $0.00.
Director of research at Glaucus,
Soren Aandahl, said the announcement by Quintis this week was "a bombshell" which vindicated his company's scrutiny of the sandalwood producer.
"I think the announcement destroyed any last shred of credibility that Quintis had in the market," Mr Aandahl said.
"Not only did the company admit this important customer contract was cancelled, but perhaps the most surreal part of the announcement was the implication that the board of directors were kept in the dark.
"I'm not sure how they didn't know, because wouldn't they have seen that Galderma had stopped purchasing oil from the company? Wouldn't that have been a sufficient red flag?"
Before Glaucus released its report into Quintis, the company's share price was about $1.46 and this week it fell to a low of $0.36.
Mr Aandahl said his company would not discuss trading dynamics, but said: "yes, we did recover some of our position but we still have some on".
While a range of short-sellers have cashed in, others are buying up, with the global investment firm Black Rock Group becoming a major shareholder and increasing its stake to more than 20 million shares.
What happens next?
ABC Rural understands Quintis is planning to carry out further sandalwood plantings in the Northern Territory over the coming weeks and the annual harvest in Kununurra is expected to be carried out as scheduled.
Mr Aahndahl believes heads will roll at Quintis after the Galderma blunder.
GlaucusResearch @GlaucusResearch
And down goes Quintis...
https://wcsecure.weblink.com.au/pdf/QIN/01856010.pdf …
9:42 AM - 10 May 2017
"Given the gravity of the misrepresentation and that such a material change was concealed from the market for nearly six months, I'd expect significant management resignations or terminations," he said.
"I also expect a number of director resignations because I think this announcement and failure to disclose this material change will bring significant regulatory liability and class actions and I don't think directors will want to hang around and deal with that."
Former managing director of Quintis
Frank Wilson resigned from the company in March to assess potential takeover bids and is yet to speak publicly about how those negotiations are progressing.
Communities in northern Australia who rely heavily on the sandalwood industry are watching the drama closely and hoping Quintis does not follow the path of failed MIS companies Timbercorp and Great Southern.
In a statement to ABC Rural, Western Australia's Minister for Forestry Dave Kelly said he had not been approached by Quintis and they had not sought to brief him on the matter.
"It is not appropriate for me to make comment on the commercial matters of a private company," Mr Kelly said.
"This is a matter for Quintis, their shareholders and the ASX.
"What I will say is that I am keeping a close eye on any developments on this issue."
http://www.abc.net.au/news/rural/20...is-on-the-nose-as-credit-rating-falls/8517000
