China Fish / Pac Andes

China Fish / Pac Andes: recall, yday’s news that Russia’s foreign invmt govt commission has ordered Pac Andes to sell the Russian fishing assets it acquired in violation of the law. Pac Andes group and CFISH have yet to be contacted by the Russian govt. UBS notes Pacific Andes group does not own fishing assets in Russia, it has only supply agreements, so the key is how the Russian govt interprets the supply agreements. CFISH's CFO says, if these agreements are considered as fishing assets and will be void, CFISH should be able to obtain compensation from fishing companies for the costs of sourcing the same quantity of fish. The co has yet to pre-pay the 4th supply agreement, and if it goes ahead to pre-pay this agreement, the US$150m will only be a deposit in an escrow account. Since Russia has to sell majority of Alaska Pollock catch outside Russia and the Pac Andes group has established the distribution network outside Russia, one of the scenarios is that, if the supply agreements are voided, Pac Andes group has to source fishes from middlemen rather than directly from fishing companies in Russia. CFISH's margin could then be notably lower. Russian operations accounted for 77% of its EBITDA and EBITDA margin of those operations are c45% in FY12. Assuming its EBITDA margin is cut by half, its net debt/EBITDA and EBITDA/interest ratios will worsen from 2.5x to 4x, and 8.2x to 5.0x respectively. USB believes there remains a high level of uncertainty as to how the Russian govt will interpret the supply agreements, and if these agreements are voided, how and whether CFISH will obtain compensation from Russian fishing companies. There are also high levels of uncertainty as to how the Russian govt will enforce the selling of Pac Andes group's "fishing assets", who can buy the assets, timing of the sales. The house does not expect the company and even the Russian govt to have clear cut answers to those questions at the moment. CFGSP 2019 fixed income drops 8%. China Fish stock is -1.7% at $0.565. Pac Andes stock is +0.8% at $0.135.