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China XD Plastics Company Limited (CXDC)
NasdaqGM - NasdaqGM Real Time Price. Currency in USD
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Not following… Why down to $.78 a share… I thought if the deal didn’t go through it would be great for shareholders
Dark pool trading has been above average nearly everyday since the big drop. Any thoughts?
Richard X Roe
The privatization "offer" expires in two hours. You get nothing.
Roe was right
Good volume and good apreciation. Soon will surpass the buyout price.
Morgan Stanley loses everything? $100mm
XCDC time to 🚀🚀🚀🚀🚀
Being careful regarding going dark and delisting risk
"Privatisation" mentioned 30 times in today's SEC filing
“Privatisation” means the acquisition of the Listco by the Bidco pursuant to an agreement and plan of merger delivered to the Common Facility Agent in accordance with Clause 22.36 (Conditions Subsequent).
“Privatisation Facility” means a term loan facility of up to US$100,000,000 and with a term of one year to be provided by a syndicate led by Industrial and Commercial Bank of China (Macau) Limited to the Bidco for purpose of financing the Privatisation of China XD Plastics Company Limited. For the avoidance of doubt, the terms and conditions (including the commitment amount) of the Privatisation Facility will be subject to the credit approval and final documentation acceptable to Industrial and Commercial Bank of China (Macau) Limited.
On 3/11/19, CXDC filed this document showing that MSPEA and CXDC agreed to changing the Maturity Date of the Preferred Shares, deferring MSPEA's right to the IRR-based ($16/share) until 2022. There was no theft of anyone's rights. Richard Roe, do you still insist that CXDC stole nearly $300M from MSPEA?
Item 3.03 Material Modification to Rights of Security Holders.
On March 11, 2019, the board of directors of China XD Plastics Company Limited (the “Company”) and MSPEA Modified Plastics Holding Limited, the sole holder of all outstanding shares of Series D Junior Convertible Preferred Stock of the Company, approved the amendment of the Amended and Restated Certificate of Designation, Preferences and Rights of Series D Junior Convertible Preferred Stock of the Company (“Amended and Restated Certificate”) to amend “Maturity Date” set forth therein from the maturity date of the U.S. dollar denominated senior notes in an aggregate principal amount of up to US$300,000,000 issued in 2014 by Favor Sea Limited to January 1, 2022 (the “Amendment of the Series D Certificate of Designation”). Following such amendment, the trigger with respect to the mandatory redemption of the Series D Preferred Stock as described in Section 8 of the Amended and Restated Certificate, and the period for Voluntary Conversion (as defined in the Amended and Restated Certificate) as described in Section 6(A) of the Amended and Restated Certificate are extended to the amended Maturity Date.
Here's an article from today's Harbin government newsletter about CXDC's new bio-composite materials factory. Assuming Google Translate is working, it appears to say the project is 6 months ahead of schedule and will be opening in 2020. Harbin considers it to be one of the top three new projects in their community. Worth reading.
哈尔滨市人民政府 今日要闻 营造发展好环境 促使项目早开工
Glenhill Advisors, LLC
600 Fifth Avenue, 11th Floor
New York, NY 10020
April 12, 2019
The Board of Directors
China XD Plastics Company Limited
No. 9 Dalian North Road, Haping Road Centralized Industrial Park
Harbin Development Zone
P. R. China
As you are aware, Glenhill Advisors, LLC and certain of its affiliates own or manage an aggregate of approximately 1,927,085 shares of common stock of China XD Plastics Company Limited (the “Company”). We understand that these entities are, in the aggregate, the largest minority stockholders of the Company. Certain of our investments have been held since 2013. Over the years we have had numerous calls and meetings with the senior management team of China Plastics seeking to understand the Company’s long-term strategy. We believe that we have been extremely patient and constructive shareholders.
On February 17, 2017, the Company announced that it had received a non-binding proposal, dated February 16, 2017, from its Chairman and Chief Executive Officer and other entities, including entities affiliated with Morgan Stanley (all such persons and entities, the “Buyer Consortium”) to acquire all the outstanding shares of common stock not previously owned by them in a “going private” transaction for US$5.21 per share of common stock in cash (the “Going Private Proposal”). The Company further announced that it had appointed a special committee (“Special Committee”) of three independent directors to consider the Going Private Proposal.
Since the date of the Going Private Proposal, no action appears to have been taken by the Special Committee or the Board to address or respond to the proposal. In fact, on May 15, 2017, Lawrence W. Leighton, the Chair of the Special Committee and also the Audit Committee Financial Expert and a member of the Nomination and the Compensation Committees, resigned as a director. In addition, Joseph Chow, who was appointed as an independent director of the Company on November 16, 2017, resigned on March 12, 2019. We can only surmise that these resignations were due, in part, to concerns with the direction and management of the Company.
As large stockholders of the Company, we have requested numerous times, through the Company’s Chief Financial Officer and director, Taylor Zhang, and Glenhill Advisors, LLC’s Morgan Stanley representative, to have a call or meeting with Morgan Stanley’s employees who serve on the Board, Homer Sun and Jun Xu. We have been advised that Morgan Stanley has refused our overtures.
We believe a fair deal is one where the existing stockholders of the Company have the opportunity to participate in the future upside following a going private transaction.
We encourage the Special Committee to meet and to consider the offer by the Buyer Consortium, and to disclose publicly the status of the negotiations. In addition to the $5.21 per share offered by the Buyer Consortium, we encourage the Buyer Consortium to revise its offer to also include a contingent value right (“CVR”) for 75% of the present minority equity economics, together with the closing cash component. This CVR for 75% of current equity ownership would entitle stockholders to receive a US dollar payout equal in value to the IPO value of a company listed in China or the equivalent share ownership of shares listed on any exchange where US citizens have the right to acquire shares.
The CVR would give stockholders future upside, and solve for any valuation disagreement among the parties. It’s a simple and fair solution in the context of a going private transaction. I am willing to engage in a dialogue with respect to the matters discussed above.
Very truly yours,
Glenhill Advisors, LLC
By: /s/ Glenn J. Krevlin
Glenn J. Krevlin
I don't understand why CXDC would prepay US$48.2 million for raw materials to be supplied to Dubai Xinda if it wasn't to reduce exposure on price variations, transferring this exposure to the seller. The September 30, 2019 financial statements show this didn't happen, and the seller couldn't refund the prepayment in full - requiring repayment terms. An example of Richard X. Roe would say shows the lack of substance to China XD's business. The financial statement note says:
"v) Hong Kong Grand Royal Trading Co., Ltd. (“Hong Kong Grand Royal”) is a raw material supplier of Dubai Xinda. Dubai Xinda has prepaid US$48.2 million to Hong Kong Grand Royal in 2017 for purchase of raw materials. Due to the price fluctuation of raw materials, Hong Kong Grand Royal could not purchase and deliver the raw materials to Dubai Xinda. In July 2019, both parties entered into a supplemental agreement to cancel the original purchase agreements and Hong Kong Grand Royal shall refund US$14.0 million by September 30, 2019 and US$34.2 million by October 30, 2019. As of September 30, 2019, Hong Kong Grand Royal has refunded US$5.6 million. On October 25, 2019, both parties entered into another supplemental agreement, pursuant to which, the remaining refund shall be paid by December 30, 2019."
The Duff & Phelps DCF calculations are highly contingent on management's low revenue projections (and we know from experience how good tthey are in projecting revenue?!?) for the years up to 2023 and by the extremely high WACC. Given the low market value of equity, the WACC should be much closer to the cost of debt - probably around 8/9% instead of the 14% they use. This would make a huge difference in valuation, given that significant revenue increases are only scheduled for after 2023. For Q1 2020 they seem to indicate Revenue of $85m, but EBITDA of $76m!! (reversing the receivable write down already in Q1 2020?)
ICBC, the largest bank in the world, just lent CXDC $135M and have committed to lending another $100M as the Privatisation Facility. As the China state bank, they know every detail about CXDC's operations, balance sheet and profitability. They are on board and so am I.
The Going-private Consortium is external to the company, so the equity restructuring of the MSPEA shares has no direct effect on the buyout arrangements organized within the Consortium. As I understand from IR, the consortium is still very much alive and became formalized with the formation of BidCo. Given the prior arrangements regarding the MSPEA financing and the related opportunity costs for MSPEA, it looks inconceivable that MSPEA would accept a return of less than $22 a share for its CXDC shares in the end.
Huge volume—- consistently for over a month. A lot of new, strong hands replacing weaker sellers. CXDC has never traded on on fundamentals or valuation metrics. Not even Morgan Stanley’s 24 pct position ( at a cost of $6.25, or $100mm) and a $5.21 Privatization offer could create a pulse. Now CXDC has financing from the largest banks in the world, and trading liquidity. At 1X EPS, 1/7 of Book, 40 pct of EBITDA , 1/11 of Revs, and MS’ need to exit at somewhere at or above their cost basis, it is the quintessential asymmetrical trade: 50 CT’s downside and $6 upside (1/2 of BV)
I can assure you MSPEA will not sell one share for $5.21. They will join the bidco and look to buy min shareholders out . Then list in China or Dubai . Need to see new Duff valuation . I can’t imagine the company’s value hasn’t increased significantly since 2017
Should the discussion on the preferred D series shares be over now that they were now converted to regular common shares?
As a stockholder, I am interested in maximizing value. As of now, Mr. Han still has the upper hand with 35 M shares va 31 M shares of stocks he doesn't own. (MS 16M +15 M Mr Han doesn't own). Is it worth for MS to buy out Mr. Han at $5.21 instead of the other way around?
MSPEA 13D filing from 15 Oct 2019 interesting. That filing indicates that both MSPEA representatives left CXDC Board on 30 Sep 2019. There is nothing in any of the filings about the current $1.2/share buyout that suggests MSPEA are in any way connected with the buyout. So the question becomes - will MSPEA just hand over their shares (cost basis $6.25/share) to Han without a fight?
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