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SunMoon Food obtains 34.9m yuan interest-free loan, proposes placement

FRUITS and seafood distributor SunMoon Food Co, which recently announced the bankruptcy reorganisation of three entities including its parent, has decided to take out an interest-free loan and may conduct a share placement.

Its board had been unable to assess its financial position as a going concern as there were factors substantially relating to the collectability of account receivables from the Yiguo group, including the three entities.

"It is therefore imperative for the board to seek and obtain alternative fundraising options," the board said on Wednesday.

Four of SunMoon's directors became aware earlier this month that three entities - Shanghai Yiguo E-Commerce, Shanghai Winchain Supply Chain Management and Shanghai Exfresh Logistic - were placed under bankruptcy reorganisation under Chinese law on July 30.

Shanghai Yiguo E-Commerce is the ultimate holding company of Yiguo General Food Pte Ltd, which in turn holds a 59.9 per cent stake in SunMoon.

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The 34.9 million yuan (S$6.9 million) interest-free loan will come from Jiangzhong Shiliao (Hubei) Technology (JSHT), said mainboard-listed SunMoon on Wednesday.

This amount represents the total that the Yiguo group owes to SunMoon's wholly-owned subsidiary, Shanghai SunMoon Supply Chain Management (SMF Shanmai) as at July 30, 2020.

The lender's shareholder, Jiangxi Jiangzhong Shiliao Technology, produces "dietary therapy food" with "stomach-nourishing" characteristics, at its manufacturing base in China, said SunMoon.

JSHT is also the investor in one of the proposed reorganisation plans for the three entities, up for approval by the Chinese court.

SunMoon said that with the loan, it will be in a net positive equity position and its cash flow will also improve. The loan will be disbursed in seven tranches starting on Sept 30, 2020 and ending by March 31, 2021.

The company may opt to issue new ordinary shares to repay the loan amounts already disbursed, if JSHT is not the investor in the reorganisation plan approved by the court or if the three entities' reorganisation fails and they must proceed with bankruptcy liquidation.

SunMoon has thus inked a placement agreement with the lender, in the event either of these scenarios takes place.

For the proposed placement, the issue price is 3.2 Singapore cents per subscription share. This is at a 20 per cent discount to the volume-weighted average price of four cents per share based on trades done in the stock on Oct 9.

The potential placement is subject to SunMoon shareholders' approval at an extraordinary general meeting to be convened.

On Wednesday, SunMoon's board said that its newly formed executive committee (exco) is looking to appoint an accounting firm to "support the current management" of the company.

The exco - made up of the four directors who first learnt of the reorganisation - earlier appointed a Chinese legal council in China who will work with and assist SunMoon's legal counsel in Singapore, in relation to the bankruptcy reorganisation.

The exco was formed to take over the group's day-to-day management and operations from the management team after SunMoon found out about the reorganisation.

Separately, the exco was also made aware of an enforcement order that has since been resolved and was district from the reorganisation.

A Chinese court had issued the order on Oct 9 for an unfulfilled court-certified settlement agreement in the amount of about 7.3 million yuan against SMF Shanmai, relating to certain owings by the SunMoon unit to one of its suppliers, Fu Rui.

SunMoon's board later obtained a letter dated Oct 17 by Fu Rui indicating that the supplier had agreed to withdraw the enforcement order.

SunMoon on Oct 15 requested its trading halt be converted into a suspension. Its shares last traded at 3.1 Singapore cents on Oct 12.

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