http://www.taiwanratings.com/en/news/Press_Release/SandP/2005/En_Mandra04132005.asp
Hong Kong's Mandra Forestry Finance Ltd. Rated 'B'; Outlook Stable
2005/04/13
Analyst:
Mary Ellen Olson, Hong KongJohn Bailey, Hong Kong
RatingsDirect publication date: 12- Apr- 2005Disseminated from Standard & Poor's RatingsDirect:http://www.ratingsdirect.com/
HONG KONG – Standard & Poor's Ratings Services said today that it had assigned its 'B' corporate credit rating to Mandra Forestry Finance Ltd. (Mandra Forestry). At the same time the ratings agency assigned its 'B' issue rating to Mandra Forestry's proposed US$235 million bond issue. The outlook on the corporate credit rating is stable. The proceeds from the issue will be used to acquire up to 270,000 hectares of forest located in Anhui province in mainland China.Covenants under the bond indenture help mitigate the start-up risks associated with Mandra Forestry. At issuance a portion of the proceeds, equal to 18 months of interest, will be placed in an escrow account. Furthermore, after funding the capitalization of mainland China's wholly-owned foreign enterprises, offshore operating expenses, and working capital, proceeds totaling about US$120 million will be placed in an offshore escrow account to fund the acquisition of additional plantations. Proceeds can only be distributed to acquire plantations once the plantations have been certified by independent consultant JP Management Consulting (Asia Pacific) Pte. Ltd. to ensure that they meet certain parameters, and that all the necessary regulatory approvals have been obtained. Foreign currency risk will be hedged for the first few years of the transaction through a forward currency hedging contract.Covenants that allow for equity distribution at 50% of accumulated net profit before the bond is repaid, however, could increase the refinancing risk on the bonds. Distributions may be paid 24 months after the bond is issued provided EBITDA to gross interest is 3x and that the total amount distributed does not exceed US$15 million in any one year and US$50 million before the repayment of the bond. Covenants also allow for the use of amounts remaining in the mainland China escrow accounts after all required transfers to the security accounts are applied, and the acquisition of the targeted 270,000 hectares are complete, to fund payments to acquire a further 50,000 hectares. There are no sinking fund provisions on the debt and there is no time limit for asset acquisitions although acquisitions are expected to be completed within a 24-month period.Mandra Forestry is a start-up company. The company was formed to acquire, grow, and harvest standing timber in commercial forests in Anhui province. Assets acquired by Mandra Forestry will be managed with the assistance of Sino-Forest Corp. (Sino-Forest; BB-/Stable/--) a commercial plantation company that currently operates in southern China.Mandra Capital Ltd., through its wholly owned subsidiary Mandra Resources Ltd., owns 75% of Mandra Forestry Holdings Ltd., Sino-Forest owns 15%, and Morgan Stanley Dean Witter Equity Funding Inc. owns the remaining 10%. Mandra Forestry Holdings Ltd. owns 100% of its subsidiary Mandra Forestry. Pursuant to the shareholders' agreement Sino-Forest has the right to purchase all outstanding equity in Mandra Forestry Holdings Ltd. at the earlier of the third anniversary of the shareholders' agreement or when Mandra Forestry acquires 300,000 hectares of forest.The 'B' rating on Mandra Forestry reflects the following risks:‧ Execution risks associated with the company's acquisition, harvesting, and replanting schedule. At present Mandra Forestry has no operating history. The company will begin acquiring assets only when proceeds from the issue are in hand. Although Mandra Forestry has established a credible business plan, given the magnitude of the operation about to be undertaken it is possible that current assumptions under the business plan may change. Completion of the plantation acquisition, and the harvesting and replanting of trees according to the assumptions in the company's business plan will be important milestones in terms of reducing execution risks.‧ Regulatory risk as the company does not currently possess the required government permits to own, harvest, and transport timber products. Mandra Forestry expects to secure the required land lease rights, harvesting, and transport licenses from authorities at the county level. The company will also need to secure an increase in its logging quota from the provincial and central governments before it can meet its planned harvest schedule of 3.2 million cubic meters per year beginning in 2006. Undertakings with forestry bureaus at the city level help mitigate some concern in terms of obtaining the required permits, however, it is recognized that regulation in mainland China is fragmented and unpredictable.‧ High leverage and limited access to further capital could pressure operations in the start-up phase. Mandra Forestry's ratio of debt to capitalization for 2005 is estimated at about 80%. This high level of debt will significantly reduce the company's financial flexibility if acquisition costs increase or product pricing comes in below estimates. Additional debt is restricted to US$25 million, which can be issued at the subsidiary level for working capital purposes.The main strengths of the transaction include the following:‧ Strong demand for wood products in mainland China should ensure a ready market for Mandra Forestry's product. This mitigates concerns about the cyclical nature of the industry. In particular, within a 200km radius of the land that is to be acquired there are many small sawmills, plywood factories, medium density fiberboard and particle board plants, and pulp and paper mills.‧ Sino-Forest's participation as a project manager brings creditable expertise to Mandra Forestry's start-up business plan. The company's participation as the off-taker of timber products also lends certainty to the timely sale of timber products and mitigates concerns about negative working capital associated with slow recovery of accounts receivable. Sino-Forest manages its own accounts receivable so that the outstanding period is 90 days or less. Finally, Sino-Forest's subordinated loan, although small at US$15 million, demonstrates the company's commitment to the Mandra Forestry acquisition.‧ Undertakings with certain forestry bureaus in Anhui province show regulatory support for the project. The undertakings grant Mandra Forestry scope to negotiate with collectives to acquire plantations in the area. Certain forestry bureaus have also committed to dealing exclusively with Mandra Forestry until the company acquires 270,000 hectares. Mandra Forestry has also been promised assistance in obtaining regulatory licenses and permits, including help in securing an increase in logging quotas required to complete the company's harvesting plan on schedule.‧ Potential for strong cash flows once the project is executed. The assets to be acquired will be immediately cash generative with standing timber gross margins of about 35%. Assuming the forecast assumptions are met, cash flows should allow Mandra Forestry to support interest payments on the bonds and repay them when due. Forecast assumptions on the price of logs, acquisition costs, and yields are expected to be achievable given strong demand for wood products in the region and limited competition.
http://www.taiwanratings.com//en/news/Press_Release/SandP/2005/En_Mandra04282005.asp
BULLETIN: Hong Kong's Mandra Forestry Rating Unaffected By Changes In Bond Condition
2005/04/28
Analyst:
Mary Ellen Olson, Hong Kong
RatingsDirect publication date: 28- Apr- 2005Disseminated from Standard & Poor's RatingsDirect:http://www.ratingsdirect.com/
HONG KONG – Standard & Poor's Ratings Services said today that changes to certain terms and conditions of Mandra Forestry Finance Ltd.'s (Mandra, B/Stable/--) bond issue of up to US$200 million have no impact on the rating on the company.Changes to the terms and conditions of the bond include:-- The institution of semi-annual cash sweep redemption whereby funds available in the security account on every interest payment date after the second year will be offered to purchase bonds outstanding on a pro rata basis at 102% of par value.-- Institution of an 18-month optional redemption whereby net proceeds in an offshore escrow account will be offered to purchase bonds outstanding if Mandra has not acquired at least 50,000 hectares of forest within 18-months of the bond sale.-- Reduction in the size of the deal from US$235 million to up to US$200 million.--Reduction in maturity to eight years from 10 years.-- Allocation to bondholders of detachable warrants.-- Institution of call provisions beginning 2010 at Mandra's option.Standard & Poor's acknowledges that the revised terms and conditions improve creditor protection and reduce refinancing risk. However, the fundamental risks associated with the transaction, including start-up and regulatory risks, have not been reduced.
http://www.taiwanratings.com//en/news/Press_Release/SandP/2006/En_Mandra03312006.asp
Mandra Forestry Finance Ltd. Rating Affirmed; Outlook Revised To Negative
2006/03/31
Analyst:
Mary Ellen Olson, Hong Kong, (852) 2533 3539 Bei Fu, Hong Kong, (852) 2533 3512
RatingsDirect publication date: 30- Mar- 2006Disseminated from Standard & Poor's RatingsDirect:http://www.ratingsdirect.com/
HONG KONG — Standard & Poor's Ratings Services said today that it had affirmed its 'B' long-term corporate credit rating on Mandra Forestry Finance Ltd. (Mandra). At the same time, it revised its outlook on the rating to negative from stable."The negative outlook reflects significant delays in a planned acquisition of up to 270,000 hectares of plantation lands in Anhui province, China. Other concerns include Mandra's failure to secure harvesting quotas from government officials in Anhui province and the increase in cost associated with the company's acquisition activities in Xuancheng," says Standard & Poor's credit analyst Mary Ellen Olson. Recent changes to Mandra's business model also need to be monitored, given the relatively tight restrictions on the use of proceeds under a bond indenture. To date, Mandra has acquired only 17,231 ha of land, with a harvest volume of 160 cubic meters.The negative outlook on the rating reflects concerns about Mandra's ability to accelerate acquisition activity and cash flow generation to meet covenants under the bond indenture. Before May 15, 2007, a downward rating revision of more than one notch may be warranted depending on the pace of acquisitions, harvesting and cash flow generation; or the occurrence of any technical default on bond covenants. Upside rating potential is limited over the short term.Mandra's acquisition of up to 270,000 ha of forestry assets in Anhui province is running about nine months behind schedule, and it is uncertain whether the company will make the required level of acquisitions in a timely fashion. It is also uncertain whether cash flows at the company will improve sufficiently to cover interest payments on bonds due on May 15, 2007. Under covenants in the bond indenture, Mandra must acquire at least 140,000 ha of forestry assets by May 15, 2007 or make an offer to purchase all outstanding notes at 100% of their principle amount. The May 15, 2007 interest payment on the bonds will be the first that is not covered by bond proceeds held in escrow.
http://www.taiwanratings.com//en/news/Press_Release/SandP/2007/En_Mandra04242007.asp
Mandra Forestry Finance Ltd. 'B-' Rating Affirmed On Compliance With Bond Covenants
2007/04/24
Contact:
Mary Ellen Olson, Hong Kong, (852) 2533-3539
RatingsDirect publication date: 16-Apr-2007Disseminated from Standard & Poor's RatingsDirect:http://www.ratingsdirect.com/
HONG KONG (Standard & Poor's) April 16, 2007--Standard & Poor's Ratings Services said today that it had affirmed the 'B-' corporate credit rating on Mandra Forestry Finance Ltd. (Mandra) after receiving confirmation that the company is now in compliance with covenants in bond documents mandating the purchase of 140,000 hectares (ha) of forestry assets by May 15, 2007. In addition, the company has sufficient funds in collateral accounts in the U.S. to meet the May 15, 2007 interest payment of US$11.7 million due on the company's senior notes. The outlook on the rating is negative. Standard & Poor's also affirmed its 'B' issue rating on the notes.Mandra reported plantation assets of 126,766 ha as of the end February 2006, and recently confirmed that it has reached the 140,000 ha purchase threshold stipulated in its bond documents. To boost liquidity, Mandra expects to secure a working capital facility for up to US$25 million from the Bank of China Ltd. in the first half of fiscal 2007. Its cash balance as of April 6, 2007 totaled US$72.8 million.Mandra has transferred US$8 million in cash from standing timber sales over the past few months to its collateral accounts in the U.S. These funds, coupled with the remaining cash from the bond collateral accounts, will enable the company to meet its May 15, 2007 interest payment on the 2013 bond. Repayment of the Nov. 15, 2007 interest payment should come entirely from cash flows from the harvesting of plantation assets and the sale of standing timber."We see associated execution risk with Mandra's plan to begin harvesting in the second half of fiscal 2007 as it does not have a proven track record yet," said Standard & Poor's credit analyst Mary Ellen Olson. "Regulations are another key concern. While the company has made progress in receiving quota allocations, it does not yet have 100% of the quota allocation needed to meet its intended harvest for 2007 of about 1 million cubic meters."Recently released regulations on investment in forestry assets in China also heighten regulatory risk.
http://www.taiwanratings.com//en/news/Press_Release/SandP/2008/En_Mandra02212008.asp
Mandra Forestry Finance Ltd. Ratings Placed On Watch Neg On Increased Credit Risks
2008/02/21
Analyst:
Xiaoming Song, Hong Kong, (852) 2533-3503Ryan Tsang, CFA, Hong Kong, (852) 2533-3532
RatingsDirect publication date: 20-Feb-2008Disseminated from Standard & Poor's RatingsDirect:http://www.ratingsdirect.com/
HONG KONG--Standard & Poor's Ratings Services said today that it had placed its 'B-' long-term corporate credit rating on Mandra Forestry Finance Ltd. on CreditWatch with negative implications.
At the same time, Standard & Poor's also placed its 'B-' issue rating on Mandra's US$195 million guaranteed senior notes due May 15, 2013 on CreditWatch with negative implications. "The CreditWatch placements reflect the risk that recent snowstorms in China could put added pressure on Mandra's already weak liquidity profile and underperforming core operations, as reflected in its persistently weak financial results," said Standard & Poor's credit analyst Xiaoming Song.
China's State Forestry Administration said yesterday that the recent winter storms were the largest and longest in more than 50 years and had affected about two-thirds of forestry assets in Anhui province, where most of Mandra's timber assets are located.
Mandra's weak liquidity profile reflects the company's highly leveraged funding structure, consecutive operating losses, and limited access to additional funding due to covenant restrictions.
Mandra's core business activities--acquiring plantations and harvesting--have been significantly delayed because of the difficulties in receiving timely government approval, particularly on harvesting quotas, and the company has lowered its acquisition targets by 30%. For the first nine months of 2007, Mandra made an operating loss of US$5.6 million, following losses of US$4.8 million in 2006 and US$4.9 million in 2005. The company entered into the timber trading business in early 2006 to generate immediate cash flow to compensate for the shortfall in cash flow from harvesting activity. Standard & Poor's views the low-margin timber trading negatively because of its increased counterparty risk.
Mandra has verbally confirmed to us that it has sufficient funds to meet the coupon payment due in May 2008. However, uncertainty remains over the extent to which the snowstorms will affect the company's ability to keep its core business operations on track and to meet its debt service obligations over the next 12 months without affecting the funding of capital expenditure and working capital.
Standard & Poor's will resolve the CreditWatch within the next three months after it meets the management and evaluates the full impact of the snowstorms on the company's future operations and cash flow generation, as well as its liquidity profile. The rating will be lowered if this reviewleads us to believe that Mandra's ability to service future debt obligations and/or to comply with covenants is materially impaired and insurance coverage is not available to offer sufficient and timely mitigation for such downside risks. If the company demonstrates otherwise, the rating could be affirmed.
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