ABH deal put under question

SOME questions have been raised over listed investment house Asset Backed Holding’s decision to buy China-based Norwest Chemicals, a company part owned by ABH director David Argyle for a proposed $6.4 million consideration of both cash and scrip.

ABH has also agreed to acquire Norwest’s wholly owned subsidiary Sichuan Mianzhu Norwest Phosphate Chemical Company.

The sale price will be raised through the issue of 21.4 million Asset Backed shares and $2.1 million in cash.

The sale is still conditional on share-holder approval and ABH conducting due diligence.

Norwest is a major phosphate rock operation and SMNPCC is its down-stream processor.

Company chairman Mark Caruso said the deal would give ABH a foot-hold in the lucrative Chinese market.

He said the fact that SMNPCC owns all of its phosphate resources, something of an anomaly for companies in China where the Government usually keeps some equity in resources, means that it has a sound future.

Mr Caruso also said that the company’s location in the Sichuan province meant it was not as affected by power and water shortages that blighted other companies in other parts of China.

However, a look at the figures provided to the market on Norwest and its entities does sound a note of caution.

It has total current assets of $2.9 million and total liabilities of $20 million.

It has total liability of negative $3.5m.

ABH company secretary Susmit Shah said the company had a $7.34 million liability lodged within its payables that would convert to a $7.34 million asset when the sale went through.

"That will leave us with net assets of positive $3.8 million," he said.

"That still leaves us with some large liabilities.

"The largest of that is $8.4 million in bank loans.

"Under Chinese law they have to be shown as current liabilities."

Mr Shah said the bank debts were not being treated as payable on demand but rather interest bearing instruments.

"Provided we get approval [for the purchase] we will go to the banks and discuss repayment options," he said.

Mr Caruso said SMNPCC’s projected net profit was $1.7 million and its earnings before interest tax depreciation and amortisation was $2.98 million.

That EBITDA is drawn from revenue of $13.5 million.

"We are confident, given the prices the company is getting, that we can service those debts," Mr Caruso said.

"All in all it’s a pretty reasonable asset. It makes money. There are very few companies that have invested in resource assets in China that are making money."

As a company ABH has not been travelling as well as some of its shareholders would like.

According to its annual report, the company made an after tax loss for its January to December financial year of $605,996. The report says that loss came after the company took a share of losses from its investments in associates of $359,714.

It also records three major changes in the state of affairs of the company that included increasing its share in Christmas Island phosphate miner Phosphate Resources Limited to 32.6 per cent; divesting in non-core asset Aliquot Asset Management for $266,848; and withdrawing from its North West Express Lines joint venture with Zetner Shipping, West-link Logistics and Nordana (Asia).

The sale of Aliquot resulted in a pre-tax loss of $567,019.