Chaoda Modern Agriculture (Holdings) Limited in the spot light

www.chaoda.com

Chaoda Modern Agriculture (Holdings) Limited (SEHK: 682) (OTCBB: CMGHF) is a leading grower of fruits and vegetables in China. The majority of their fruit and vegetable production is sold as fresh produce primarily in the People’s Republic of China.

Chaoda Modern Agriculture was established in 1994 by Kwok Ho, in Fuzhou, Fujian province, China and is now incorporated in the Cayman Islands, has been publicly traded on the Hong Kong Exchange since 2000 and is headquartered in Wanchai, Hong Kong.

According to their website Chaoda is integrated and in control the entire production chain from seeds to processing and marketing of their products, which include;

bell peppers, broccoli, carrot, cauliflower, various tomatoes, Chinese cabbage, Chinese radish, choi sum, cucumber, eggplant, various hot peppers, iceberg lettuce, loquat, various melons, mushrooms, onion, potato, pumpkin, various rice, sugar snaps, summer squash, sweet corn, sweet potato, tangerine, tea, timber, watermelon, and welsh onion.The company also breeds and sells livestock, including Boer goats, Dorper sheep, and dairy cattle.

 2011 has been a rough year for Chaoda; it has been the subject of a series of allegations of fraud and of insider trading by its executives, which have resulted in falls in its share price. Chaoda has been fighting the allegations and they have been taking the fight to the local media , recently Chairman Kwok Ho and finance director Andy Chan Chi-po stated that they “ do not accept” the charges against them.

Here are two articles relating to Chaoda’s resent corporate governance issues:

Financial Times - http://www.ft.com/intl/cms/s/2/3434c82a-e8c5-11e0-902c-00144feab49a.html#axzz1gOugKu8w

Bloomberg - http://www.businessweek.com/news/2011-09-26/chaoda-slumps-in-hong-kong-trading-on-misconduct-lawsuit.html 

Another issue the company is facing is a potential issue with bondholders after the company breached a covenant in its $200m of convertible bonds. Holders of the bonds , which are due to mature in 2015 can demand the company to repay them the principal on the bonds , if Chaod’s shares are suspended from trade for more than 60 consecutive days, which the time period for this has already passed.

As one might expect their rating has been downgraded, Moody’s downgraded Chaoda from Ba3 to B3, which is from “investment grade” to “junk”.

Chaoda is in a very exciting space, but it looks like there are some dark days a head of them and if they fall what other firms will go with them? It seems like we all will learn more over the next 6 months.