An introduction to Celestial Nutrifoods

In June 2009, Celestial Nutrifoods announced its inability to redeem SGD 235 million of convertible debentures. This constituted an act of default and caused trading of its shares on the SGX.

Almost two years have passed since and things have gone from bad to worse. Fundamentals have deteriorated rapidly, restructuring attempts were attempted (then abandoned), and finally in December 2010 FTI Consulting was appointed by the High Court of Singapore to act as provisional liquidator. As provisional liquidator, FTI is exploring strategic options to rehabilitate the firm, although a full liquidation of the company cannot be ruled out at this point.

All corporate defaults are distressing situations from an investor perspective. However, the Celestial Nutrifoods default is particularly disturbing because it seems to have been an entirely avoidable event. Cash reserves were sufficient to cover the outstanding SGD 235 million debt obligation as late as September 2008. And the management team of Celestial Nutrifoods claimed publicly that it was preparing for a possible bond redemption. Instead of conserving cash, however, management initiated an unprecedented spending spree in the 4Q 2008 and 1Q 2009. The magnitude of the "investments" made a default in June 2009 unavoidable.

Celestial's management needs to be held accountable for its actions leading to the default. The default destroyed value and even today great uncertainty remains as to whether the firm will be able to continue as a going concern.

At best, management is guilty of incompetence and severe mismanagement of the company’s finances. At worst, investors have been robbed by management and the Board of Directors. Note that FTI has identified large cash outflows at Celestial; FTI believes these cash outflows represent fraudulent conveyances. If Celestial's management and Board have stolen from investors, they must be prosecuted to the full extent of the law.

In the meantime, investors need to stay updated on developments and let their voices be heard. If you are an impaired investor, speak your mind. Contact the SGX and MAS and raise awareness of the plight of Celestial investors.