Sino Mercury Acquisition Corp (NASDAQ:SMAC) Management Interview


Sino Mercury Acquisition Corp
President: Richard Xu


WSA:  Good day from Wall Street, this is Juan Costello, Senior Analyst at the Wall Street Analyzer.  Joining us today is Richard Xu, the President of Sino Mercury Acquisition Corporation.  The company trades on NASDAQ.  Ticker symbol is SMAC, SMACU and SMACR.  Thanks for joining us today there, Richard.

Richard Xu:  Thanks for having me.

WSA: Great.  Now, starting off, please give us the history and overview of your company for some of our listeners that will need your story.

Richard Xu:  Sure.  We are a $40 million Special Purpose Acquisition Corp listed on NASDAQ Capital Markets.  Our management team is a group of a young generation of Chinese entrepreneurs and professionals in our late 30s or early 40s.  We are able to communicate with American investors through English.  We’ve got the prestigious education training from top universities in China or the United States, and we have deep understanding of American culture and its stock markets and we are confident to be able to bring same levels of transparency and the same standard of corporate governance for our shareholders.

Sino Mercury is providing our team a great vehicle to make serious acquisition in our target sector so that we create and add value for our shareholders through our consolidation skill sets.  In order to maximize the value for our SPAC shareholders and shareholders of our combined company, we brought a few unique features to make our SPAC different.  Number one, $30 million are committed by our cornerstone investors brought by our management.  So compared with other SPACs, and our SPAC has much higher probability of closing the initial business combination.  Moreover, such capital endorsement the management team and it gives the other shareholders confidence.

Number two, at least $10 million purchased by investor were voted in favor of the initial business combination and not reaching redemption.  And number three, our rights structure to replace warrant structure in traditional SPAC companies, rights holder would immediately get one-tenths common share in conjunction with the closing of the business combination, warrants could give a lot of upside imagination to SPAC investor.  However, if the share price of lot of combined companies will not trade higher than their share price, the warrants will end up in loss.  So therefore our potential 10% immediate return could be more attractive to SPAC investor.

Moreover, the combined company will have less diluted shares of capital structure compared with warrant structure, which will eventually benefit the shareholders.  So we realize a lot of our investors don’t understand the value of our SPAC rights, hope my above explanation could give investor a better view of our SPAC.

WSA:  Right.  So yeah, that in mind please you know elaborate more on the Wins Finance Group merger.

Richard Xu:  Okay.  Thanks.  In order for our investor to have a better understanding of why we made this acquisition, I would like to start with the story on the following.  My uncle in China was a businessman producing clothing for American brands in Guangzhou province, one of the richest provinces in China.  A few years ago, he tried to borrow cash to expand his factory to satisfy growing demand.  But he found local banks were too expensive and he told me that non-governmental small business like his can basically forget about bank loans in China.  It’s either unavailable or way too expensive.  Recently my uncle borrowed money from our whole family to finance the expansion.

So right now in China, there are more than 56 million small and medium non-government owned companies like my uncle’s in China, and more than 80% of them cannot get direct bank lending.  Unfortunately, a large number of them don’t have family or friends with enough cash to support them.  Eventually, a lot of them have to close the door because of the lack of financing.  And most of the cheap credit is going to inefficient state-owned enterprises known as SOEs, which use the funds largely to refinance old debt, lot of them make fresh investments.  Surprising factor, small and medium sized companies that create most of the new jobs in the world’s second largest economy have largely been left out in the course.  Therefore, third-party financing solution provider, we also call them non-banking financial companies, they are standing between banks and SMEs and they are booming such as financing guarantee, micro lending, financing leasing and so on.

For example, the number of guarantee companies grow from 2500 to over 8500 within the recent 10 years, the number of micro lender grow from seven to over 7000 companies since 2006.  These companies are standing in the frontline and accumulating valuable hands-on experience and expertise concerning China SMEs.  However, such third-party financing market is very fragmented.  Many providers lack capital and are unable to expand their business beyond their regional or local markets, mainly traditional non-banking financial institutions face a bottleneck situation, due to limitation of their management capability and a visionary strategy.  We believe that attractive acquisition targets can be acquired at attractive prices and that we can create added value for our shareholders through a rollup strategy, which aggregates prime entity at low prices.

Our first acquisition, Wins Finance Group Limited, a British Virgin Island holding company with its business operation in China, is a leading and integrated lending solution provider mainly serving small and medium sized enterprises in Beijing and Shanxi province in China. Wins is currently providing financing guarantee, financing leasing and financing advisory service to SMEs.  Wins’ current net book value is over $200 million with a significant portion in cash, which will provide strong support for our strategic business expansion.  We are lucky enough to acquire Wins at a good discount.  Wins also have approved effective risk control system and a management system with a low historical default rate at 0.4% for the year ended June 30, 2014 and 0.9% for the year ended June 30, 2013.  Actually our fiscal year is June 30, that’s both 12month numbers.

So Wins is targeted to be our first acquisition primarily because it provide us with an immediately ready business platform upon which we can plan a rollup strategy with its existing financial licenses, risk system, good track record and a customer base available.  Okay.

WSA:  And what are some of the key factors that you feel make the company unique from some of the other players in the sector and able to continue to capitalize on key market trends?

Richard Xu:  Sure.  I think last year actually, you know, through Alibaba’s IPO, American investors realized China has the largest ecommerce market in the world.  Digital revolution brought ecommerce to the third or fourth [indiscernible] [0:08:41] in China where retail infrastructure very weakly developed compared with United States.  And the same revolution will also tie to China traditional lending market with 56 million small and medium companies and a majority only served by banks.  China could create the largest business lending market in the world and internet financing especially peer-to-peer lending is bringing financing to qualify SMEs in most efficient ways, and obvious this market is much larger than the underserved credit card holder market targeted by lending clubs in the United States.

So although United States is the second country to introduce P2P concept, but the P2P transaction value in China is almost 10 times of that in the United States.  And our strategy is to make use of the infrastructure of this initial acquisition to improve and build a comprehensive platform for the provision of lending and other financing solution to the business borrowers in China.  So a serious acquisition of third-party financing solution provider including but not limited to financing guarantee, financing leasing and commercial factoring providers, and in addition we also plan to acquire and integrate established online peer-to-peer lender to expand our existing base in the financing business with the objective eventually of establishing full servicing kind of lending platform to aim at serving small and medium enterprises in China.

And now I want to talk about our strategy…it includes three important components.  Number one, to continually improve and expand our existing lending solution products and in addition to provide innovative and high quality financing solution products.  Number two, to continue the rigorous paths of existing risk control system and make improvement on their base in order to allow the system to be scalable and to strike a good balance between risk and growth; and number three, to create a growing circle of loyal investors on our peer-to-peer lending platform so we can optimize the benefits from our financing solutions supply chain.

So our ultimate goal is to eventually build a mutually beneficial and a scalable financing ecosystem for both capital provider and the borrowers.

WSA:  Okay.  And so in turn what are some of the other key goals and milestones that you and your team are hoping to accomplish here over the course of the next six to 12 months?

Richard Xu:  Sure, I don’t know whether I am allowed to talk too much about the future.

WSA:  Right.  Hold off on any forward-looking statements.

Richard Xu:  Sure, sure.  As I mentioned just now, our platform has three important components.  Number one, proprietary high quality products; number two, rigorous and scalable risk control system; and number three, capital supply from loyal investor group and the bank partners.  Our goal is to drive those components as perfect as possible through organic growth and further acquisitions.  We hope to supply more lending solutions to our SME borrowers and add peer-to-peer lending platform with loyal investor group.

WSA:  And do you think that your company story, message and upside potential are completely understood and appreciated by investors and Wall Street and if not what you wish investors better understood about you guys?

Richard Xu:  To be honest I mean, it’s always easy to deliver the story, but it’s not easy for investors to understand stories especially with the business operations in China.  So I hope investors should understand, our goal is to create a financing ecosystem for capital provider and borrowers.  Don’t look at us as only a guarantee company or leasing company because of our initial acquisition.  We will continue to build this platform through further acquisition or organic growth, so that actually we want to share to our investor eventually.

WSA:  Certainly and perhaps you can talk to us a little bit more about your background and experience as well as that of key management.

Richard Xu:  Yeah, I mean, as I mentioned first part, we are all Chinese younger generation, which is different from older generation.  We know how to communicate with investors and I myself have over 10 years of Wall Street experience here and our other team members actually, they have a company background, investment background and we are very good at consolidation.  So yeah, for detailed information, you can find out from our prospectus.

WSA:  Certainly.  Once again joining us today is Richard Xu, the President of Sino Mercury Acquisition Corporation.  The company trades at NASCAQ, ticker symbol SMAC, SMACU and SMACR.  Currently trading at 9.92 a share, market cap is around 52 million.  Before we conclude here, Richard to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?

Richard Xu:  Thanks.  I think first of all, our first acquisition obviously is a safe investment from our SPAC company with target company strong balance sheet with majority in cash and we believe our acquisition price is lower than their liquidation value.  So we think this is a quite safe investment.  Second as I mentioned, China could create a large business lending market for SMEs in the world.  Our company could give American investors, especially retail investors a taste of such booming opportunity.

WSA:  Well, we certainly look forward to continuing to track the company’s growth and report on your upcoming progress.  We would like to thank you for taking the time to join us today, Richard and update our investor audience on SMAC.  It was great to have you on there.

Richard Xu:  Thank you so much, I appreciate it.  Thanks for having me.



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