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Company Origo Partners PLC
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Interim Management Statement

Released 14:50 20-Feb-2013
Number 3235Y14

RNS Number : 3235Y
Origo Partners PLC
20 February 2013
 



 20 February 2013

      Origo Partners PLC

 

Interim Management Statement for the three month period from                                October 1, 2012 to December 31, 2012

 

This Interim Management Statement by Origo Partners Plc ("Origo" or "the Company") and its subsidiaries ("the Group") relates to the three month period from October 1, 2012 to December 31, 2012 ("the Period").

 

Highlights from the Period:

 

·     Unaudited net asset value of US$196.5 million compared to US$201.7 million for the period ending September 30, 2012

·     Unaudited net asset value per share of US$0.55 at the end of the Period compared to US$0.57 per share for the period ending September 30, 2012

·     Total investments of US$4.4 million

·     Ordinary share repurchases in the Period amounting to approximately US$700,000

·     Net cash position of US$22.0 million

 

Post the Period:

 

·     Proposals to extend the maturity of the Company's existing convertible zero-dividend preference shares ("C-ZDPs") by 18 months

 

Chris Rynning, Origo's CEO, said:

 

"Q4 represented a mixed picture for the Company with our Chinese portfolio trading well, benefitting from the gradual recovery of China's economy, but offset by the impact of political uncertainty relating to our Mongolian investments during the Period.

 

Rebounding demand, easing credit conditions and a renewed policy focus on infrastructure construction, industrial expansion and environmental remediation helped our Chinese portfolio companies to develop as planned.  I expect our China portfolio to continue to perform well in 2013 and beyond, and I firmly believe we will be well placed to crystalize value from these investments during the course of our targeted 3-5 year investment horizon. With over 300 million Chinese people expected to move into cities over the next 10-15 years, equivalent to building a new U.S.A. in terms of infrastructure, I remain confident on the growth prospects across our portfolio of clean tech, natural resource and mining assets.

 

Mongolia, on the other hand, is yet to clearly signal a renewed path for a stable and predictable environment for foreign investment and due to the lack of clarity on the country's development path, we have temporarily scaled down our operations in Mongolia. Whilst we do not expect matters to stabilize until after the Presidential elections in June, we continue to engage with the Government of Mongolia and other local stakeholders to promote investor friendly policies. Our Mongolia focused portfolio companies continue to meet their exploration and development targets, and we are actively exploring exit opportunities for our Mongolian investments. I am confident that in working with our Mongolian partners we will be able to realize value and achieve our investment objectives for our Mongolia portfolio within our targeted holding period. 

 

We take some encouragement from our portfolio company, ResCap Securities, recently carrying out the first ever reverse takeover transaction on the Mongolian Stock Exchange (MSE) after the Period end. This transaction, although small, illustrates the range of potential opportunities open to investors in Mongolia.

 

We continue to explore opportunities in other territories in the vicinity of China. In particular, we have redeployed a number of international investment professionals from Mongolia to Myanmar where we are exploring a number of strategic relationships as well as potential investment opportunities across mining, agriculture and other growth sectors that interest China.  I expect a gradual and cautious build up in Myanmar during the course of this year, as we have made good progress in understanding the local investment environment, positioning us well for taking advantage of opportunities as the country continues to reform and open up to foreign investment. The strategy in Myanmar hinges on continued reform within the country and that Origo's management resources are not constrained as we focus on realisations of investments within our portfolio. 

 

We welcomed Shonaid Jemmett-Page to the Board as a Non-Executive Director and Vice Chairman in October. Mrs. Jemmett-Page has already made a significant contribution at both the corporate and portfolio level as we continue to focus on delivering shareholder value. As a former partner with KPMG and a private equity professional, her long track record in Asia and Africa means she has the right audit, compliance, governance and transactional skills to help us manage and exit our investments in Chinese businesses. The steps we have undertaken to strengthen the board of Origo with senior professionals, Lionel Des Saint-Exupery, Tom Preststulen and Shonaid Jemmett-Page, makes Origo a stronger and more prepared group for executing well in China.

 

In the Period, we also undertook a share buyback programme. The gap between the price of our shares and the value of our assets is a serious concern for management as we are significant common shareholders. The gap in my view reflects the steady negative news flow during 2012 from the territories and commodities sectors we invest in, and not the fundamentals of Origo itself. The Board will continue to consider further share purchases in the context of our prudent capital policy and commitment to generating shareholder value.

 

Origo will separately announce today proposals to extend the maturity of the Company's C-ZDPs by 18 months. The Directors consider that these proposals are a prudent step that puts the Company in a stronger position to optimise shareholder value going forward and provides greater flexibility in respect of applying proceeds from future realisations to repurchases of ordinary shares as well as C-ZDPs.

 

I remain confident in China's ability to avoid a hard landing and keep growing at a level which will allow us to meet our investment objectives over the life cycle of our portfolio.  And importantly, our relationship with the founders and entrepreneurs in the many portfolio companies remain constructive and focused on their growth. In the long term, it is these relationships that will help protect and deliver value for Origo shareholders."

 

1.   Resources and Commitments

 

At December 31, 2012, Origo had cash and cash equivalents of US$25.0 million. Payables to debtors and other liabilities equaled US$3.0 million (excluding USR fair value movements and provisions for performance incentives) leaving the Group with a net cash position of US$22.0 million.

 

Origo will separately announce today proposals to extend the maturity of the Company's C-ZDPs by 18 months.  Details will be set out in the separate announcement.

 

2.   Unaudited Net Asset Value

 

No revaluation of the portfolio took place during the Period as per Origo's policy to reassess the value of the Company's assets on a bi-annual basis. However, adjusting to reflect the purchase and sale of investments, currency movements and market values in respect of quoted investments, the Company estimates unaudited net asset value at the end of the Period was US$196.5 million (US$0.55 per share). The equivalent NAV per share translated into British Sterling at the prevailing exchange rate at the end of the Period was 34 pence compared to 35 pence for the period ending September 30, 2012. The decrease in NAV was due to ongoing operating expenses (US$3.3 million) and non-cash based charges relating to interest accrued (US$1.1 million) to the zero-dividend preferred shares.

 

3.   Portfolio Composition

 

In line with the Group's strategy, investments are made predominately in privately held companies across various sectors of China's economy, and in companies and assets with exposure to the Chinese market, with the objective of providing shareholders with above market returns, primarily through capital appreciation. Currently, the Group focuses on the following sectors: metals & mining, agriculture and cleantech.

 

As at December 31, 2012, the portfolio was carried at the aggregate value (excluding revaluations of unquoted portfolios) of US$233.3 million compared to US$233.8 million for the period ending September 30, 2012. The top ten investments represented 90 per cent of the fair value of the portfolio, with the top five investments accounting for 70 per cent.

 

Table 1: Top 10 Investments (US$ million)

 

Company

Sector

Instrument

Ownership*

Cost  

Fair value

% of
NAV

Gobi Coal & Energy Ltd

Metals & Mining

Common Stock

14.0%

15.0

67.0

34.1%

China Rice Ltd

Agriculture

Preferred Stock & Loan

32.1%

28.0

31.8

16.2%

R. M. Williams Agricultural Holdings Pty Ltd

Agriculture

Common Stock & Loan

17.0%

23.1

26.2

13.3%

Celadon Mining Ltd

Metals & Mining

Common Stock

9.7%

13.1

24.4

12.4%

China Cleantech Partners, L.P.**

Cleantech

Limited Partnership Interests

50.1%

15.0

15.0

7.6%

Unipower Battery Ltd

Cleantech

Preferred Stock & Loan

16.5%

13.3

13.3

6.8%

Moly World Ltd

Metals & Mining

Common Stock

20.0%

10.0

10.0

5.1%

IRCA Holdings Ltd

Metals & Mining

Common Stock & Loan

49.1%

24.9

9.3

4.8%

Kincora Copper Ltd

Metals & Mining

Common Stock

32.6%

9.3

7.6

3.9%

Niutech Energy Ltd

Cleantech

Preferred Stock

21.1%

6.4

6.4

3.2%

 

*    Legal & beneficial interests, excluding impact of outstanding options/warrants and any outstanding convertible instruments

**   A private equity fund focusing on China's cleantech sectors, jointly formed and co-managed by the Group and Ecofin Limited

 

Reflecting the Group's strategy of investing in privately held companies, 95 per cent of the portfolio (in terms of fair value) at the end of the Period was invested in unquoted portfolio companies.

 

The Company's direct holdings in listed companies comprised stakes in HaloSource Inc. (LSE: HAL), Kincora Copper Limited (TSXV: KCC), Voyager Resources Ltd (ASX: VOR).

 

The Group also has indirect interests in other quoted investments through its investments in two funds managed by the Group - the China Commodities Absolute Return Ltd ("CCF") and the Mongolia Stock Exchange ("MSE") Liquidity Fund. 

 

The weighted average holding period for the portfolio was 2.8 years, with 51 per cent of the Portfolio having been held for less than 3 years; 49 per cent having been held for 3 years or longer.

 

In terms of sectors, the composition of the portfolio at the end of Period comprised:

 

Metals & Mining (52 per cent)

Agriculture (25 per cent)

Cleantech (18 per cent)

Consumer, Technology and Media (5 per cent).

 

4.   Investments and Divestments

 

The Group invested a total of US$4.4 million to existing investee companies during the period, of which US$2.0 million were invested in the listed equities directly and US$0.9 million through CCF.

 

In November 2012, Origo participated in a private placement by Kincora, subscribing to CAD2.0 million of common shares and common share warrants exercisable at a price of CAD0.19 per warrant for up to three years.

 

In November and December 2012, Origo sold its interests in two Hong Kong listed Chinese companies, Hilong Holding Ltd, a Chinese integrated oilfield equipment and service provider, and SPT Energy Group Inc. a Chinese integrated high-end onshore drilling services providers, generated realised profit of US$1.8 million - a 1.9x cash to cash return on the cost of the investment and an IRR of 104 per cent. 

 

In the Period, the Company undertook repurchases of ordinary shares amounting to approximately US$700,000 .  Purchased shares are cancelled.

 

5.   Portfolio Updates

 

China Rice, our rice processing and distribution business, continues to trade well. The underlying drivers for the business remain sound, with a fragmented market ripe for consolidation and growing consumer demand for high-quality, green and organic products. Located in the key rice producing belt of north-east China with access to paddy rice, ample processing capacity to support significant growth without further capex investment and an  extensive and scalable distribution network, China Rice is well positioned to address this market opportunity. We expect net profits for financial year 2012 (ending March 31, 2013) to come in at around RMB 75 million (US$12 million), up approximately 30 per cent from the time of our original investment. In the Period, China Rice obtained additional working capital facilities, setting the company up for continued growth at the same pace in 2013 and beyond. Our equity and loan position in China Rice is held at cost, having revalued only the conversion feature of our loan to the company at fair value.  

 

Unipower Battery Ltd, a provider of batteries to the Chinese electric vehicle sector, is also performing well and has firmly established itself among the leading 5 domestic suppliers of polymer lithium-ion batteries to the municipal transportation segment. The demand for Unipower's products significantly increased during the course of 2012 and we anticipate this trend to continue in 2013 as the Chinese government seeks to mitigate growing public concerns about the poor air quality in cities across China. The company has also expanded its product offering into two new growth segments: back-up power and energy storage solutions for the telecom and renewable energy generation sectors. The company broke-even on the basis of US$27.1 million in revenues in 2012. With spare production capacity and a healthy order intake, we are confident that the company should be able to maintain this positive momentum throughout 2013 and beyond. Our Unipower investment is currently carried at cost. 

 

Niutech Energy Ltd, a provider of waste tire and recycling solutions, has completed the construction of a 10,000 MT per annum facility in Germany. With commissioning expected in the coming months, Niutech recently exercised an option to take operational control over the venture. Having already successfully sold and commissioned a number of facilities in Asia, this represents an important milestone for Niutech as it extends the company's business model into operation and provides an entry point into the European market. Specifically, we expect the commencement of commercial operations at the German plant to act as a catalyst for a number of sales opportunities already developed across Europe, enabling Niutech to rapidly scale its business in 2013. The Niutech investment is currently carried at cost, however the company is presently engaged in discussions with a number of Asia based investors in respect of a possible new equity placing which may deliver a significant upside to the existing carrying value.  

 

During the Period, Kincora Copper successfully closed the second tranche of a private placement, raising C$4.7 million in total. The funds will be directed towards the continuation of drilling and exploration activities at the company's flagship Bronze Fox project located in the emerging Oyu Tolgoi South Gobi porphyry copper belt in southeast Mongolia and for working capital. After the Period, Kincora made an announcement in respect to Mongolian media reports, which allege that two licenses held by Kincora's wholly owned subsidiary, Golden Grouse LLC ("GG"), along with a total of 107 other licenses, had been issued in violation of Mongolian anti-corruption laws and could be repatriated by the State. We note that these licenses were not acquired directly by Kincora, but through a transaction with Golden Grouse which closed in April 2012. Whilst these reports are concerning, they only pertain to two GG licenses and not the company's flagship Bronze Fox project. Therefore, if revoked, it would not materially affect the commercial prospects of the company.  We are cautiously optimistic about a rebound in the value of our position in Kincora as the regulatory picture stabilises and the company starts to deliver on its 2013 exploration campaign.

 

R.M. Williams Agricultural Holdings ("RMWAH") is currently undergoing a turn-around aimed at facilitating a liquidity event. This effort, initiated this summer under the leadership of Origo, with the support of two other minority shareholders, builds on four key elements: i) restructuring the shareholder arrangements to minimize the undue influence of certain minority shareholders; ii)  recomposing the management and board to fairly represent the interest and strategic direction of shareholders; iii) refocusing the business on those assets most likely to deliver profitable growth, in particular poultry exports to Asia; and iv) divesting non-core assets to pay down bank debt and distribute any surplus proceeds to shareholders. The board and management restructuring was completed in summer and early fall.  In Q4, the company announced it had commenced exports of organic poultry to Asia.  Certain assets have been listed for sale with the sales process expected to complete during the course of Q2. Meanwhile, Origo and the new management have re-engaged with a number of parties who have previously expressed an interest in the business and/specific assets of the company, with the view to progress such discussions during to the course of 2013

 

After the end of the Period, our Mongolian portfolio company, ResCap Securities, carried out the first reverse takeover transaction on the Mongolian Stock Exchange (MSE) when it launched Eurofeu Asia JSC (MSE:SOI). ResCap Securities is the largest broker on the MSE by volume and has taken a lead on trading Mongolian equities. Eurofeu has established itself over the last decade as Mongolia's market leader in full service fire safety, and is the only company in the country providing a number of key fire safety services.  Origo has a shareholding in Eurofeu through our MSE Liquidity Fund and while the investment is not material to Origo's balance sheet, it demonstrates our ability to be a leading investor in Mongolian equities across various sectors.

 

Our MSE Liquidity Fund continues to perform well, and is now up 16.7 per cent since inception. In the Period, the fund participated in a further private placement by a company that is being listed on the MSE at a compelling valuation which may see a re-rating once listed.

 

ENDS

 

Origo Partners plc

Chris Rynning

Niklas Ponnert

 

chris@origoplc.com

niklas@origoplc.com

 

Nominated Adviser and Broker:

Liberum Capital Limited

Simon Atkinson / Richard Bootle

 

+44 (0)20 3100 2222

Public Relations:

Aura Financial

Andy Mills / Nina Legge

+44 (0)20 7321 0000

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Interim Management Statement - RNS