Singapore Corporate News - 21 Apr 2008

Bio-Treat hit with notice of default on bonds

IN A major disclosure relating to its convertible bonds (CB) programme, Bio-Treat Technology said it had received a notice of default from the investment banking arm of Merrill Lynch saying the bonds it holds are immediately due and payable.

This underlines market fears that the Chinese-based wastewater treatment company could be sitting on huge defaults for the put options made due under its $206 million CB programme, and could signal more such news to come. Private institutional investors are believed to be on the list of these CB holders.

Merrill Lynch Global Markets & Investment Banking Group - which holds Bio-Treat's CBs with an original face value of $27.6 million - notified Bio-Treat last Friday that its failure to redeem the full amount of bonds put to it on Jan 18 constitutes an event of default.

This entitles ML to accelerate the bonds held by it under the terms and conditions of the bonds, it said. Bio-Treat's fund raising exercise with a group of financial institutions is being stalled as a result.

'In view of the notice of the default by ML, the company has to postpone the execution of the transaction documents pending the outcome of a bondholder's meeting which the company is making arrangements to convene,' Bio-Treat said. 'The company will issue a formal notice of meeting to the bondholders shortly.'

The company had on April 11 made a clarification with the Singapore Exchange in response to a BT commentary questioning its corporate disclosure level. It revealed that it is proactively raising funds to pay off the bonds that have been put back by bondholders and was very close to concluding the relevant transaction documents with a group of financial institutions.

It also said it planned to continue with a rights issue exercise to raise $156 million. But so far, it has not issued a circular to shareholders detailing the rights issue. This rights issue was alleged to have violated Bio-Treat's securities purchase agreement signed with Abax Lotus on Jan 23 and is a sticking point in the latter's law suit against Bio-Treat.

The Hong Kong-based hedge fund run by Abax Global Capital has sued Bio-Treat to recover US$4.2 million allegedly owed to it as damages for the collapse of their credit agreement, blaming Bio-Treat for the termination of the agreement caused by its alleged failure to follow through on terms agreed. This lawsuit was announced by Bio-Treat on April 9 after BT reported on it.