Audit Committee Chair Was A Senior Partner at KMPG
I don't think there's outright fraud here. It's more a case of playing hardball with bondholders. In December the Company announced their intention to restructure their debt, possibly with new debt. It appears as if negotiations with the bondholders is not going well,so they passed their interest payment to get their attention. Even if the bondholders decide to sue, there's lots of time to remedy the situation.
So is auditor at Sino Forest a partner--in fact audit committee was three partners from 3 separate firms. You all better hope they do not stop trading in CMED like they did at Sino. I am an unhappy Sino shareholder. They have stopped trading for 6 months. If it smells like a dead fish and looks like a dead fish, it is a dead fish. It will not bounce back anytime soon unless they start communicating and they are not too good at that. If anything, next statement will be "We cannot discuss negotiations with note holders please be certain that we are really legit"
This company has not been around for 15 years. The bond holders have been shorting the stock and this is the reason they want them out. I have made money on this company in the past. Be patient don't buy the fear BS on this board.
That was what kept me up last night, thinking about the possibilities.
The consequence of a loan default in the US is serious. But this is a Chinese company, needing only to abide by Chinese laws. Bargaining is common in Chinese business. Somebody posted in this message board that CMED has sent notice to the bondholders ahead of time. I suspect that CMED has already consulted their lawyers ahead of time. I suspect the most likely consequence is that CMED end up buying back considerable amount of their debentures at deep discount (Seeking alpha articles say that CMED has difficulty locating the owners of the bonds, which were quoted around 50 cents on the dollar) and pay the past due interest on the remaining bonds.
A friend in China I consulted told me that he has not seen any widespread defection of CMED customers. So, the business is viable. I have a hard time believing that the company cannot pay the 4 million dollar interest from its operations, considering that it has already bought back considerable debt not yet due.
Since I own a lot of CMED share. The Fitch downgrade news I saw last night kept me awake all night.
After giving this mtter a lot of thought, I agree with your assessment for the following reasons:
1. CMED had 206 mil of cash as of 9/30, plus >10 million of free cash flow from operation since that time. The payoff of the matured loan in 11/11, and the presumed buy back of approximately half of the 235 million debenture due 2013 (deduced from the number of warrants recaptured by the company) would still leave the company with >120 million in cash. In addition, CMED has a credit line of about 100 million which it can tap. Unless of course all the numbers are all bogus. I believe such possibility is not likely given that PcW is their auditor and the CFO and other insiders have been buying stocks throughout 2011. I find it difficult to believe that all these people can be kept in the dark.
2. The CEO owns a big chunk of the company, besides owning a lot of other things. He has a strong vested interest in keeping CMED alive. If CMED is in dire distress, he could advance a 2-4 million loan to satisfy the supposedly defaulted interest. If the company is a fraud, he would be unloading significant portions of his holdings over the last few years. We do not see such evidence. In 2009, he bought the HIFU division from CMED just before its SFDA license expired and the HIFU division owned by him is now not selling any new products and therefore practically worthless.