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Sandalwood grower Quintis has been dealt another blow after a law firm floated the prospect of a shareholder class action and ratings agencies Moody's and S&P; warned the company's bonds could be downgraded further.
A testing week for the former TFS saw it issue a confession on Wednesday that the board and management had no knowledge of the termination of an oil supply arrangement with Galderma in December. That followed the loss of its biggest timber customer in China back in March.
Bannister Law is investigating a potential class action after the shares were savaged by the market in light of the extraordinary disclosure.
"Inadequate disclosure of this type is simply unacceptable in Australia," Charles Bannister said in a statement on Friday.
"Continuous disclosure is at the heart of buyers' confidence in the share market and impacts directly on the share price of listed entities, as this news demonstrates."
Quintis suffered another blow during the week when long-time supporter Canaccord Genuity dropped equity research coverage, citing an "apparent lack of transparency".
Moody's lowered the bonds, which are not considered investment grade, to "B3" from "B2". The rating is being reviewed for downgrade, which would see it drop from the "B" category rating to the "C" category, the bottom of the scale. S&P; reduced its rating to "B" from "B-plus" and placed it on watch.
"The rating action and review follows a number of negative announcements by Quintis which could reduce the company's future earnings and cash flow generation, and potentially negatively affect the willingness of wholesale investors to invest in new plantations," said Maurice O'Connell, a Moody's analyst, in a statement on Friday.
The lapse of the Galderma deal creates uncertainty around the sustainability of earnings and cashflow, "as well as the effectiveness of management reporting".
"Should the flow of negative news affect investor sentiment, the impact on revenues and cashflow could be material," Mr O'Connell said.
Quintis' debt is five times its earnings, Moody's estimates, as of December 2016.
S&P; echoed the risk around plantation investor subscriptions, which tend to be concentrated around the final weeks of June. That demand could be hurt by delays around sandalwood sales into China linked to its move to contract a new major buyer in that market.
But S&P; is also troubled by the risk that a mystery institutional investor elects to exercise a put option over their trees in July, entitling the investor to more than $30 million in cash.
"We consider the probability of an estimated $35 million option on 400 hectares being put back to the company could increase if Indian sandalwood product sales are significantly lower than the company expects," said Sam Heffernan, an S&P; analyst.
"Should investor flows and Indian sandalwood product sales be materially lower, then the placement of the option back to the company could test Quintis' liquidity position."
The rating change has no impact on the company's debt capital structure, Quintis said in an ASX statement.