SunMoon Food enters into interest-free loan agreement and placement agreement with Jiangzhong Shiliao Technology

SunMoon Food Company says it has entered into an interest-free loan agreement with Jiangzhong Shiliao (Hubei) Technology Co on Oct 27.

The agreement was entered through Shanghai SunMoon Supply Chain Management.

In connection with the loan agreement, SunMoon Food has entered into a placement agreement with Jiangzhong Shiliao for the proposed allotment and issuance of a number of new ordinary shares that has yet to be determined.

Under the loan agreement, Jiangzhong Shiliao will loan RMB34.9 million ($6.9 million) interest-free to SunMoon Food Company. The loan will be disbursed directly to Shanghai SunMoon Supply Chain Management in seven tranches from September 2020 to March 2021.

The interest-free amount represents the total amount owed by the Yiguo group to Shanghai SunMoon Supply Chain Management as at July 30.

The term of the loan will commence on Sept 30, 2020, the date on when the loan is disbursed and end on the 90th day when any of the following conditions are satisfied, including the date when the Chinese court approves the bankruptcy reorganisation plan of the Yiguo entities, or when the entities are ordered to proceed with the bankruptcy liquidation procedures.

See: SunMoon Food parent Shanghai Yiguo files for bankruptcy, putting $12.4 mil worth of receivables at risk and SunMoon Food commences formal inquiry into parent company's bankruptcy, exploring fund-raising options

SunMoon Food Company may elect to pay the loan due by issuing new ordinary shares to Jiangzhong Shiliao or its designated parties. Alternatively, Jiangzhong Shiliao will acquire the equivalent of the loan amount from the Yiguo entities to Shanghai SunMoon Supply Chain Management (purchase of AR) and the total amount due will be used to set off the consideration payable for the purchase of AR.

Shanghai SunMoon Supply Chain Management also has the option to repay the loan at any time.

Should the placement agreement be terminated, the term of the loan will be extended to June 30, 2022.

See also: SunMoon's Loh sells shares ahead of parent company's bankruptcy filing announcement

According to SunMoon Food Company, the loan will put the company in a net positive equity position and improve its cash flow.

In the event that the bankruptcy reorganisation fails and the company is required to issue new shares to Jiangzhong Shiliao, the company will still be in a net positive equity position.

Under the placement agreement, the issue price is 3.2 cents per subscription share, which represents a discount of about 20% to the volume-weighted average price (VWAP) of 4 cents per share based on the trades done on the SGX-ST on Oct 9.

The issue price was commercially agreed between SunMoon Food Company and Jiangzhong Shiliao.

The subscription of the shares will take place in three tranches.

SunMoon Food Company says it intends to seek shareholders’ approval at an extraordinary general meeting (EGM) instead of relying on the general share issue mandate granted by shareholders at the last annual general meeting (AGM) on Sept 29.

Shares in SunMoon Food last traded at 3.1 cents before the company requested for a trading halt on Oct 12 and trading suspension on Oct 15.