Published March 13, 2009

Lenders demand Beauty China to pay up

By LYNETTE KHOO

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BEAUTY China has been slapped with a statutory demand from its syndicated lenders to repay the entire principal and interest outstanding on a loan of HK$134 million (S$26.54 million).

The deadline is March 27, and 'a failure to successfully reschedule the loan will raise a going concern issue', it said yesterday.

The cosmetics firm yesterday asked for a share trading suspension pending the announcement. Beauty China said it had requested the lenders to extend the deadline of the first instalment of the loan of about HK$27 million since January.

'This request was made due to slow collection of trade receivables from distributors and the accelerated payments to suppliers and contractors who have shortened their credit terms to the company and its subsidiaries during the last quarter,' the group added.

The group had informed the lenders at a meeting on Tuesday on the prospect of getting a fund injection from potential investors and requested a 'standstill' till April 27 to allow the negotiations with the potential investors, due diligence or conclusion of any transaction to proceed.

Beauty China said it is in talks with a potential financial investor who will bring in a cosmetics industry player as strategic investor and expects the proposed cash injection to be adequate to meet its immediate obligations to the lenders.

A non-binding term sheet was signed on Feb 25 and two supplement agreements were also signed, granting the potential investor the 'most favoured investor' status for six months from March 2 and an exclusivity period of six weeks from March 11 to conduct due diligence.

This is a separate matter from the potential shares sale by Beauty China chairman and founder Wong Hon Wai. The group said that Mr Wong has entered into an agreement to sell 50 million shares or a 14 per cent stake in Beauty China to a subsidiary of a Hong Kong-listed firm, and a call option to buy another 41 million shares or 11.5 per cent stake at $0.12825 per share.

But this transaction is subject to Beauty China's syndicated loan being favourably restructured. The group said that it does not expect this condition to be met by the March 13 deadline.

Meanwhile, the outstanding sum of $800,000 that Mr Wong owed to a financier has been fully settled through a further forced-sale of Beauty China shares that he pledged. This cut his stake from 32.28 per cent to 30.51 per cent.