$60 million convertible preferred SBT stocks offered to foreign strategic investors

The TTC Sugar facility can produce 1,000 tonnes of sugar per day

On December 12, 2018 the Board of Management at leading sugar maker Thanh Thanh Cong-Bien Hoa JSC officially announced selling preferred convertible stock equal to nearly 8 per cent of its stake after a successful issuance through private placement to foreign strategic investors.

Accordingly, the company (SBT) envisages selling to foreign strategic investors more than 44.4 million convertible preferred stock, equal to nearly 8 per cent of its total stock after successful issuance.

The lowest proposed price was set at VND30,000 ($1.3) apiece and the highest was VND45,000 ($2) apiece, meaning that the company might raise at least $60 million through this stock issuance.

The preferred dividend duration will last for 6.5 times, with a fixed dividend ratio of 5.5 per cent per annum in the first 1.5 years with the dividend rate negotiated between SBT and the investor in the successive years.

The entire preferred stock volume does not have voting rights, but they can be converted into common stock upon the investor’s request anytime after the placement. The stock price will be later negotiated between the company and the investors at the date of conversion, but must not exceed VND38,000 ($1.6) apiece.

Based on the company’s potential, the strategic investors assess the SBT ticker’s value in the long-time might be nearly 90 per cent higher than the price it closed on the December 12, 2018 trading session. This attests to not only SBT’s immanent strength, but also the strategic investors’ expectations for the company’s future development and that of the Vietnamese sugar industry.

The preferred stock volume will face transfer restrictions for at least one year after the date of placement. SBT is in the legal setup stage with the State Securities Commission (SSC). The private placement is expected to be completed within 90 days after being approved.

Financial restructuring to optimise the firms’ capital structure might take place via many forms, such as loan rescheduling or raising new loans via diverse models such as borrowing from banks or issuing bonds or convertible bonds. These methods, however, fail to tackle the root of the problem, as loan rescheduling could not bring positive changes to businesses.

SBT’s management, therefore, has chosen to selling preferred stock to strategic partners. The company’s Board of Management hopes the strategic investors will go abreast with the company in the long haul, willingly supporting the company in executing its development strategy, offering management expertise, capital, insights on operation method and business operation, while simultaneously helping the company take the proper steps for sustainable development.

For the first time, a Vietnamese sugar company boldly takes on a strategic capital raising deal of international significance, as this hand-shake is meaningful not only for SBT’s development, but also that of the domestic sugar industry.

The entire proceeds raised from the private placement the company will use to refinance part of the loans it has borrowed to conduct activities, such as buying the material growing area and a sugar plant in Atttapeu (Laos), and to cover investment cost for mechanising and expanding production of organic sugar at this plant.

As a top performer of Vietnam’s sugar industry and with the ambition to bring the SBT brand outside Vietnamese borders to reach the regional level when the ASEAN Trade in Goods Agreement (ATIGA) comes into force from 2020, SBT has foreseen the high potential of Laos’ Attapeu material area and decided to embrace an M&A with Hoang Anh Gia Lai Sugar Limited in 2017.

The material area in Laos has high sugar content and is near to the sugar refining facility, helping to save on transportation costs. Besides, the land area is ideal to develop an organic sugar line of high added value to serve the hi-end customer segment and has a better profit margin compared to other sugar products, perfectly fitting the company’s strategy to focus on organic sugar line development during 2018-2021.

SBT's Attapeu sugarcane growing area in Laos

The TTC Attapeu sugar refining facility, with a sugarcane pressing capacity of 7,500 tonnes and producing 700 tonnes of sugar per day, is only second to the largest TTCS facility which has a sugarcane pressing capacity of 9,800 tonnes per day and produces 1,000 tonnes of sugar per day, with an associated material area reaching 7,000ha in Laos’ Attapeu region.

With its prevailing comparative advantages, SBT’s leaders expect the Attapeu merger to become an important link to perfect the company’s value chain. The Attapeu sugar segment will contribute to diversifying the company’s product portfolio, lower production costs by virtue of advantageous material area, high sugar output, and integrated warehouse and distribution system, gradually boosting SBT’s edge in the race against Thai sugar products in its journey to reach out to the regional market.

After a period of careful preparation to modernise its management system, on December 5, 2018 the first organic sugar batch produced at the TTC Attapeu sugar facility was packed to break into the European market, in anticipation of the sugar industry’s rebound.

This stands behind the strategic co-operation contract SBT has signed with the UK’s ED&F Man Sugar Company on selling organic sugar produced at TTC Attapeu and other sugar products in the 2018-2019 season to Europe.

SBT’s sugarcane industrial complex in Laos continues receiving big incentives in tax and land rent from the Lao government. Besides, Laos is one of the countries benefitting from export preferences when exporting to the EU market based on a new tariff preference programme applied to the lowest developed countries. Vietnam no longer belongs to this group as the country has moved to the group of developing countries.

The EU reportedly has a big demand for sugar products to serve both the food and non-food industries. This proves that SBT’s move to acquire Hoang Anh Gia Lai Sugar Limited in Laos will help the company firmly realise its strategy for market expansion to avoid reliance on traditional sugar consumer markets which includes Vietnam and 14 sugar export markets in America, Europe, Asia, Africa, and the Pacific Islands.