Shares of the former TFS fell 14¢ to 46¢ for a loss of 23 per...

Shares of the former TFS fell 14¢ to 46¢ for a loss of 23 per cent on Thursday after its biggest fall on record, a 44 per cent drop, in the previous session.

Investors have lost confidence in Quintis after the company admitted the board and top management were unaware that a supply deal with a key customer lapsed in December 2016.

That customer was Galderma, which is owned by Nestle Skin Health. In March Quintis told investors that it had a 20-year pharmaceutical-grade Indian sandalwood oil supply contract with Galderma, signed in 2014 at the equivalent of $US4500 ($6105) a kilogram, adjusted for inflation, albeit at no fixed volume.


The Australian Financial Review learnt on Tuesday that Galderma "terminated" its licence with Quintis, having discontinued the specific formula for skincare line Benzac that contained Quintis' refined oil.


The Quintis-owned subsidiary Santalis was aware Galderma had walked away from their deal, but that information was not conveyed to the upper levels of Quintis management, according to Wednesday's confession.

Canaccord had previously recommended the shares as a "speculative buy" and had a $3.38 price target on the stock. It helped Quintis raise $60 million selling new shares in April 2016.

"Given the apparent lack of transparency and internal control processes, we are suspending coverage of the stock," the broker said in a note to clients.

Although Galderma is said to have not placed an order in 2017 – making it the second major customer to do so after Chinese timber client Shanghai Richer Link – the company was of the view that the relationship was still intact.


However, there was no alluding to the absence of orders from the Swiss group in Quintis' March rebuttal to short-seller Glaucus, or at its half-year results in February.

The Benzac deal was billed as a bullish development for the company and a sizeable future source of demand.

Even Canaccord had previously assumed $US3 million in annual royalties to Santalis from the Benzac line. And although Santalis is distanced from its parent being based in San Antonio, Texas, all of Quintis' refining is conducted at its Mount Romance facility in Albany, Western Australia.

The interim results noted the sale of 1 million Benzac units in calendar-year 2016. Quintis has not adjusted its earnings or product sales forecasts for 2016-17.


Value plunge
The value of founder and former managing director Frank Wilson's stake has fallen to about $22 million, from $52 million on Friday.

It is understood the sell-off in the equity market has no bearing on high-yield debt issued by the company. Quintis raised $US250 million in the bond market in 2016, about $US200 million of which was for refinancing purposes.

Those bonds, sold in July and maturing in August 2023 with a non-call period of three years, are not believed to contain any maintenance covenants, including those related to leverage ratios, the share price or a minimum cash balance. That means bondholders cannot move to call in their debt in light of the company's admission this week.


Following Mr Wilson's resignation to pursue a takeover proposal in March, credit ratings agency Moody's downgraded its outlook on Quintis debt to "negative", reflecting "uncertainty in the company's strategic direction".

Quintis' liabilities are somewhat unique, with the company having historically issued put options to plantation investors where the holder can force the company to buy back their trees. On April 30, a mystery plantation investor agreed to extend a put option worth more than $30 million in cash, which under the new terms cannot be struck until July 10 at the earliest.

Mr Wilson is the holder of a put worth $14.8 million and exercisable in September next year.



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