Quintis Update - Shares Still Halted

by: Matt Geiger

Summary

Shares halted since May 14th.

Company at risk of debt default.

Debt and/or equity transaction likely in next 30 days.

Quintis Ltd (OTCMKTS:TFSCF)

Featured In: July 2015

Partnership Average Cost per Share: AU$1.16

Current Market Price (August 2, 2017): AU$0.295

This has been a disastrous year for Quintis, plain and simple. Shares are down 82% YTD and have been halted from trading since May 14th. The company’s founder and largest shareholder abruptly quit four months ago. And, particularly after the events of the past month, there are now worries of a debt default.

How did we get here? Put simply, over the past 5 months the company has betrayed the trust of the market and has paid the price.

The first shoe to drop was a short attack by the US-based hedge fund Glaucus in late Q1. While the report was hyperbolic in many respects, it was timed perfectly to coincide with an ill advised rebranding from “TFS Corporation” to “Quintis Ltd”. The company’s response was inadequate and the share price dropped from ~A$1.50 to ~A$1.10 in the days following the short attack. The original Glaucus report can be viewed here.

Next came the sudden resignation of Managing Director Frank Wilson on March 27th. There were rumors in the weeks after his resignation that Wilson was preparing to acquire the entire Quintis business alongside a deep-pocketed partner. This however has yet to transpire, and it has since been disclosed that Wilson is in fact in payment default under an A$11m loan from a wholly owned finance subsidiary of Quintis. Wilson is reportedly refusing to pay the company back.

Then came the news that one of the company’s main Chinese customers had yet to purchase any sandalwood in 2017. This was completely contrary to market expectations and, adding insult to injury, was disclosed 2-3 months after it should have been. This disclosure can be seen at the top of page 5 in the following news release.

Finally, just within the past few weeks, the company revealed that it is facing major liquidity issues due to (1) the potential exercise of a US$34m put option whereby Quintis is obligated to buy 400 hectares of plantations from Asia Pacific Investments and (2) a bi-annual interest payment of US$10.9 million that was due to senior secured bondholders on August 1st.

On July 31st, one day before the US$10.9 was due, Quintis made the following announcement:

“Quintis has until 30 August 2017 to either make this interest payment or receive a waiver to prevent an “event of default” under the indenture governing the Notes… In such event, the principal amount of the Notes could be accelerated. Quintis remains in constructive and ongoing discussions with noteholders with respect to the interest payment in order to resolve the default by 30 August 2017, alongside broader multi-party discussions in relation to potential debt and equity transactions that would have the effect of achieving a recapitalisation of the Company.”

This language is worrisome and suggests to me that debt default is now a possibility. While I still firmly believe that the company’s 13,000 hectares of sandalwood represent at least $A500m in value, it is now clear that the company has been mismanaged and has taken on excessive debt.

If/when a resolution to the above issues is announced and QIN shares begin trading again, I will evaluate whether to cut our losses or give the company’s new management an opportunity to right the ship.

Disclosure: I am/we are long TFSCF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.