What I Find Attractive in SINO

Sinophil Corporation (SINO, the “Company”) was originally incorporated as an oil and gas exploration company. In 1997, the Company changed its primary purpose to investment holding company. SINO is not yet in commercial operations and has generated losses in the last five years.SINO1

The Company has made investments in the gaming industry:

  1. 40% equity in Legend International Resorts Limited
  2. 3.75% equity in Metro Manila Turf Club, Inc.
  3. 3.9% equity in Belle Bay City Corporation

In March 1997, SINO entered into a Share Swap Agreement (“Agreement”) with Paxell Limited and Metroplex Berhd (collectively referred to as “Metroplex”) for a 40% interest in Legend International Resorts Limited (LIR-HK). However, conflicts between the parties involved caused the agreement to be rescinded on August 23, 2001 and in effect cancelling all obligations stated in the Agreement and reversing all the relevant transactions.

On March 30, 2007, SINO acquired the loan obligation of LIR-HK in Union Bank which was secured by 1 billion shares of SINO under the name of Metroplex. However, the same shares were also used by Metroplex to secure another loan from a different creditor, Evanston Asset Holdings Pte. Ltd. (“Evanston”). In 2012, SINO was informed that Evanston has undertaken foreclosure proceedings on the mentioned shares. As a conservative accounting measure, SINO recognize full impairment of P1,501,521,316 for the event.

Metro Manila Turf Club, Inc. (MMTC) was incorporated in 1993 and has a congressional franchise for horseracing which was granted in 1995. Belle Corporation (Belle) and SINO owns 100% of the MMTC as of December 31, 2007. As of December 31, 2009, Belle and SINO sold a combined 87.5% of MMTC to a group of investors. The 121 hectare land intended for the race track in Tanauan, Batangas was retained by Belle and SINO and was set aside for future real estate projects.

Belle Bay City Corporation (BBCC) is a landholding company that owned approximately 14 hectares in net land area in a reclaimed seafront along Roxas Boulevard in Parañaque. However, the 1997 Asian Financial Crisis rendered the project unfeasible. SINO initially has 4.5% interest in BBCC but was later diluted to 3.9%. In November 2012, the Company received 4,348 sq. m. land area valued P108.7 million from BBCC as a liquidating dividend. The Company recognized P33.3 million gain on the dividend.

None of the above mentioned information could interest an investor but a close scrutiny on the Company’s financial statements and the Company’s recent developments will make the Company interesting.

A substantial part of the Company’s balance sheet is the P1.6 billion under the available-for-sale account (AFS). Details of the amount will reveal that P1 billion of the recognized AFS are Belle preferred shares subject to a settlement agreement where Belle is obliged to transfer 235,583 sq. m. of developed Rancho Montana land located in Tanauan, Batangas in exchange for the cancellation of Belle’s preferred shares.[1] The Rancho Montana will be ready for sale next year.

On May 10, 2013, SINO’s Board approved a par reduction from P1 to P.25 [2] where P.75 will be applied to eliminate the Company’s deficit.[3] The Company’s move is called a quasi-reorganization.

The reasons for a quasi-reorganization is basically to:

  1. Provide a “fresh start” for the Company – A company with no deficit will recognize subsequent earnings as retained earnings and will not be applied as a deduction to the deficit. In other words, quasi-reorganization provides a clean slate for the Company.
  2. Express intention to declare dividends in the future – Since a company with deficit cannot declare dividends to its shareholders, quasi-reorganization provides a faster and easier way to eliminate deficit.
  3. Present an attractive balance sheet for potential investors

 With the above mentioned reasons, we can speculate three scenarios for SINO:

  1. Rancho Montana will be transferred to SINO within this year.
  2. Possible merger and acquisition of SINO by BEL
  3. Possible infusion of more assets by BEL
  4. Combination of all of the above

I am expecting scenario number 1 to be the most likely event. With SINO setting up its balance sheet for a “fresh start,” SINO’s management probably expects to recognize earnings in the future and that future earnings will probably be derived from the sale of Rancho Montana land.

Infusion of more assets is also a likely event; Belle has a 121 hectares land in Tanauan, Batangas, considering that Rancho Montana is also located there we can expect Belle to initiate an asset for share swap with SINO to increase their interest in SINO and eventually (probably) merge the Company with other real estate businesses.

The merger scenario is taken from a quote of Belle’s Vice Chairman, Mr. Willy Ocier, where he said “We have identified several but we only want three. It will involve mergers and acquisitions. Once we have decided, we will jump in a big way.” [4] Belle has 45.49% effective interest in SINO.

How much do I think SINO’s share be worth? At a conservative book value of P.42 which is computed as follows:

SINO2

 Sources:

  1. Amended 2012 Annual Report, Related Party Transactions, Note 15, p.63, http://www.pse.com.ph/resource/corpt/2013/SINO_A17A_Dec2012.pdf
  2. Board approval of amendments to Articles of Incorporation re: reduction in number of directors and change in par value of common and preferred shares, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3835_SINO.pdf
  3. Additional information re: Board approval of change in par value of
    common and preferred shares; Trading halt, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-4061_SINO.pdf
  4. Clarification of news article: “Belle to spin off gaming”,  http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-4220_BEL.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

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2 thoughts on “What I Find Attractive in SINO

    • Hello Audi,

      I wish SINO should liquidate this property:
      “Sinophil has a 4,000-square meter property near the $1.3-billion Belle Grande Manila integrated casino and hotel complex in Pagcor’s Entertainment City project in Parañaque.”

      And this:
      “Other assets of Sinophil include a 30-hectare lot near Belle’s property in Batangas.”

      Is the Rancho Montanan mentioned in the post above.

      Renzie

      Reply

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