Hong Kong – Sinomax, a flexible foam maker with operations in mainland China, Vietnam and the US, has issued a profit warning for the 2019 financial year, and warned that it has technically defaulted on loan or facility agreements.
The company has taken out loans to the value of HK$ 361.1m ($46.4m) since 2016. It recently raised US$21.6m when it sold its stake in the joint venture Chengdu Xingang. Sinomax also raised $6m for working capital following a property deal in the US.
After looking at the preliminary results for 2019, the company said it has 'failed to satisfy certain financial covenants under the facility agreements'.
This could see lenders demand immediate repayment of the loans and interest. The company is negotiating with its lenders, who had not enforced their option to call in the loans, according to a release to the Hong Kong stock exchange on 21 January 2020.
Sinomax added that it has 'not experienced any difficulty in obtaining financing with its banks for its working capital... there is no material adverse impact on the operation of the Group as a result of the breach [in the loan agreements]'.
Because of the technical default, the company is reclassifying some of its debt in its accounts. About HK$122m will become current liability in the accounts.
The company said that its management accounts show it is likely to make a pre-tax loss of between HK$ 112m-120m. This is the result of an impairment loss for goodwill, brand names and customer relationships of about HK$ 132.7m for the 2019 financial year. This compares with a pre-tax profit of HK$ 27.6m in 2018.
In the first half of 2019 the company said sales were HK$ 1.5bn in the first half of 2019. That number is down 27% on the same period in 2018.
Sinomax promises more information on the loan situation when it becomes available. It also plans to give full details of the annual results at the end of March 2020.
Currency Exchange: XE.com