SUNMOON Food Co has agreed to discharge two China customers of US$1.03 million of debt in exchange for a 12 per cent stake in fruit retailer Harvest Season Singapore.
SunMoon has entered into a conditional agreement to buy the Harvest Season stake from one Tony Zhang Jiang Quan in exchange for discharging the entire receivables owed to SunMoon by China-based distributors East China Marine Equipment and Shanghai Chibin International Trading Co, equivalent to US$1.03 million.
In order for Mr Zhang to sell those Harvest Season shares to SunMoon, Mr Zhang has entered into an agreement with Harvest Season shareholder Patrick Ong Yaw Teh to buy a 75 per cent stake in Harvest Season from Mr Ong. The deal between Mr Zhang and SunMoon is thus conditional upon the deal between Mr Zhang and Mr Ong being completed, among other conditions.
Mr Zhang will also have a two-year option to force SunMoon to sell all of its Harvest Season shares back to Mr Zhang at US$1.14 million, or a 10 per cent premium to the consideration price of US$1.03 million.
The transaction is economically equivalent to SunMoon giving a two-year term loan, backed by the 12 per cent stake in Harvest Season, with a principal amount equal to the receivables owed by the Chinese distributors. If Mr Zhang can amass that money within two years, plus an additional 10 per cent, he can get back his Harvest Season shares. Otherwise, SunMoon will retain those Harvest Season shares.
This will be SunMoon's second attempt at getting a stake in Harvest Season, a fruit retailer with six stores in Zhenjiang and Nanjing in the Jiangsu province. The company also has an online fruit retail business.
SunMoon tried to acquire a 51 per cent stake in Harvest Season in 2015, but the deal lapsed in September.