Executive chairman of SunMoon Food Co Gary Loh has told Fruitnet.com that a new investment deal with Chic Foods secures the company’s financial stability and paves the way for its expansion into new product lines such as mandarins and other citrus fruits.
SunMoon Food, whose fresh fruit trading business is focused on Chinese apples and pears, last month entered into a Memorandum of Understanding (MoU) with Chic Foods Asia Pacific, China’s largest exporter of processed fruit products.
Under the deal, Chic Foods has agreed to invest in SunMoon by way of a S$24 convertible loan and an additional optional S$60m convertible loan facility.
SunMoon Food said it will use the proceeds from the S$24m convertible loan from Chic to settle the outstanding principal on another convertible loan agreement signed on 21 March 2007, which amounts to S$24m, together with S$6.43m accruing.
To facilitate the proposed transactions, SunMoon is proposing to undertake a 20:1 consolidation of all its issued ordinary shares in the capital of the company.
The deal, which is expected to go through in the first quarter of next year in conjunction with a rights issue, would give Chic a 75 per cent shareholding in SunMoon once its S$24m investment is converted. The agreement would effectively see Chic buyout most of the original group of investors who stepped in to bail out SunMoon in 2007, when it was on the brink of bankruptcy.
Gary Loh, chairman of First Alverstone Partners, was at the front of that pack of investors in 2007, and remains very much committed to the cause as executive chairman of SunMoon.
“When the new investors came in 2007, they invested S$40m, and around S$16m of that was converted into shares, the bulk of them going to myself,” he explained. “Most of the remaining funds (around S$24m) came from the other investors and this was supposed to be a two-year convertible loan agreement, but when the two years were up, we could not agree on a `share` price with them for conversion. As such, we decided to restructure the loan and effectively buy them out, but we had to find a strategic partner to do this, which is where Chic comes in.”
Since the S$40m bailout in 2007, Mr Loh said his management team have “cleaned up” SunMoon, which was mired in debt and bogged down by an expensive plantation and packing infrastructure in China.
“When we came in, the business had these cancer cells that we needed to chop off to revive it, namely the plantation and packaging business,” he told Fruitnet.com in an exclusive interview. “We offloaded those and focused on managing the SunMoon brand and on the quality control (QC) side.”
Since divesting its plantation and packing operations, SunMoon has been sourcing fruit from accredited packers in China that meet its strict quality standards, according to Mr Loh.
Having stripped SunMoon down to the bones, however, the next stage for Mr Loh and his team was to secure investment to resume expansion, albeit on the right course – and this is where Chic represents the ideal partner, he said. “We were fundamentally sound `as a company`. Now, with this agreement, we’re financially sound too.”
SunMoon intends to use the proceeds from the optional S$60m convertible loan facility to meet the working capital expenditure requirements for future expansion and development of the business, and to fund future acquisitions as and when such opportunities arise.
“To go to the next level `with SunMoon`, we need a back-end in place,” said Mr Loh. “Chic brings in that back end `infrastructure` – they’re very strong in sourcing and packaging. If we chopped off our limbs by offloading our plantation and packing business, then partnering with Chic is like adding bionic arms and legs.”
Chic’s fruit processing business is one of China’s largest, supplying several thousand containers of fruit in plastic cups such as peaches, oranges and pears and servicing the needs of major customers such as Del Monte in North America, SPC in Australia and Heinz in New Zealand. Part of a conglomerate headed up by Shanghai-based businessman and entrepreneur Edward Zhu, Chic Foods is led by Steven Schafer, who previously worked with Dole Asia and in the fruit juice business with Tropicana.
Chic has an extensive sourcing base covering its own farms and processing facilities. “They’ll take over our sourcing and while the bulk of their business is in for processed fruit, they can turn their strengths to sourcing fresh fruit,” said Mr Loh. “They’ll be able to go in and buy crops lock, stock and barrel, keeping the best product for the fresh market, using the middle range for fruit in cups and such like and directing the lower end product to juicing.”
The SunMoon brand, long synonymous with high-quality Chinese apples and pears in markets like South East Asia and Europe, will now be extended to other products, such as mandarins and other citrus products.
“Indonesia is a big market for SunMoon and it’s also one of the world’s biggest buyers of mandarins,” Mr Loh told Fruitnet.com. “There’ll be an opportunity to supply not only apples, but premium-range mandarins and oranges to our customers as well as other products such as blueberries, peaches and nectarines.”
Mr Loh said the kudos of the SunMoon brand was a key draw to the deal for Chic, which was keen to foray into the fresh fruit market. “As well as an established name, we also have an established network and distribution chain, and we took them to meet all our partners before signing the MoU,” said Mr Loh.
He said SunMoon’s small but committed management team, which has succeeded in reversing the company’s ailing fortunes, are also an important part of the package.
If taken up, Chic’s optional S$60m convertible loan facility will increase its shareholding in SunMoon to more than 90 per cent, but Mr Loh and his team expect to remain heavily involved in executing the company’s vision, albeit as part of a greatly beefed up operation.
A full interview with SunMoon Food Co's exexutive chairman Gary Loh will appear in the December/January edition of Asiafruit Magazine.
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