Monde Nissin ownership group offers to personally backstop Quorn losses for 10 years, but...

Monde Nissin [MONDE 7.90 unch; 79% avgVol] [link] announced a bizarre and remarkable commitment from Henry Soesanto, MONDE’s CEO, and the rest of MONDE’s controlling shareholders, to offer a one-time cash “top-up” to reduce the net cumulative impairment of Monde Nissin Singapore Pte. Ltd., MONDE’s wholly-owned subsidiary that holds MONDE’s struggling alternative meat business. The commitment will begin for any impairment starting in FY23, and carry through for 10 years for any impairments through FY32, with that one-time payment coming on or before June 30, 2033. The amount of this commitment is capped at 12% of the value of MONDE’s outstanding shares, based on a weighted average of the last five trading days of 2032. The commitment will automatically expire if MONDE ceases to control the entities holding MONDE’s alternative meat assets. The amount of the commitment will also be pro-rated if MONDE retains control of the alternative meat assets but sells a portion of the business to another investor or group of investors. As of yesterday’s closing price, the value of the shares pledged is approximately P17 billion.

MB bottom-line: This one is absolutely wild to me, and I’m not really sure what to think about it. On the one hand, this is a great example of “put your money where your mouth is”, with Mr. Soesanto and the controlling shareholders effectively betting on their alternative meat vision with a portion of their stake in MONDE as that bet. The controlling shareholders probably thought of this as a way to calm the nerves of MONDE shareholders who have watched the alternative meat business plummet in value.

On the other hand, though, the loopholes in the commitment have me questioning who the audience is for this stunt. This isn’t a year-by-year top-up where the controlling shareholders make up for the alternative meat business’ impairments in cash payments at the close of each fiscal year: they’re only doing a one-time payment after the 2032 Annual Report is produced. What happens if they rack up tons of impairments from 2023 through 2030, and sell the alternative meat business in 2031? According to my understanding of this commitment, the loss of control extinguishes any commitment that the controlling shareholders might have had for any impairments along the way. What happens if the impairments dramatically exceed the 12% cap, and the aggregate drag of the alternative meat business on the stock’s value has significantly eroded the market capitalization of MONDE? Again, according to my understanding, the 12% cap is tied to the value of MONDE’s shares at the end of 2032, which could literally be anything. MONDE’s price could grow 200% over that time and the cap would then grow substantially in value, or it could fall another 40% and the value of that cap would crash from P17 billion down to P10 billion.

MONDE has already taken a P20 billion impairment on Quorn in 2022. Let’s be generous and say that MONDE only takes a P5 billion impairment on Quorn this year (I'm purely speculating here, I have no info to suggest how Quorn will do in FY23); how would this commitment change your view of that impairment? Would you be disappointed but hold the stock anyway because of the commitment, despite the losses, or would you exit your position because of the uncertainty of a possible one-time top-up of variable, capped value, in 2032? 

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