Origin Agritech LTD

Regulatory Filings • Aug 4, 2009

CORRESP 1 filename1.htm

Origin Agritech Limited

No. 21 Sheng Ming Yuan Road

Changping District

Beijing 102206

China

July 29, 2009

Filed via EDGAR

United States Securities and Exchange Commission

Mail Stop #3561

100 F. Street, NE

Washington, DC 20549

Attention: John Reynolds, Assistant Director

Re: Origin Agritech Limited

Form 20-F for Fiscal Year Ended September 30, 2008

Filed April 3, 2009

File No. 000-51576

Dear Sirs:

We are responding to your comments by letter dated July 10, 2009, sent to Origin Agritech Limited (“Company”) concerning the above referenced Form 20-F. We have repeated the staff comments for your convenience, with a written response set forth thereafter.

| Form 20-F for Fiscal
Year Ended September 20, 2008 | |
| --- | --- |
| Item 15 – Controls and
Procedures, page 117 | |
| (c) Changes in
internal control over financial reporting, page
120 | |
| 1. | We
note the disclosure that there were no changes to your internal control
over financial reporting during the year ended September 30, 2008, other
than the remediation of your material weakness identified in 2007 with
respect to your derivative accounting. Please expand your
disclosure to describe those changes in internal control over financial
reporting that resulted in a remediation of the 2007 material weakness
with respect to your derivative accounting. |
| | Response : Our
company shifted key personnel to address the weaknesses evident in
derivative accounting. The department was reorganized and
appropriate individuals were given the responsibility to review higher
level functions. As a result, we remediated the weakness in
2008. The changes in internal control that prompted the
remediation was made in the prior filing of the Company on Form
20-F. If an amendment to the Form 20-F is required for another
purpose, we will amend our 20-F filing to expand your disclosure to
describe those changes in internal control over financial reporting that
resulted in a remediation of the 2007 material weakness with respect to
your derivative accounting. |

| Note
13. Borrowings, page F-29 | |
| --- | --- |
| Note
13. Convertible Notes, page F-30 | |
| 2. | We
note the disclosure that on July 28, 2008, you entered into your first
notes repurchase agreement with Citadel to repurchase the principal amount
of $18.7 million of your guaranteed senior secured convertible notes for a
total repurchase price of $20.0 million. Furthermore, you
indicate that the repurchase price plus the fair value of the redemption
features in excess of the carrying value of the debt resulted in a premium
which is amortized using the effective interest method over the remaining
term of the notes. Please tell us how you considered paragraph
21 of APB 26 with respect to the timing of the loss on
extinguishment. |
| | Response : |
| | We
considered EITF 96-19 as relevant to our specific case, and subsequently
APB26 or EITF 00-27, depending on the outcome of our evaluation of EITF
96-19. As
a first step, we determined if the change in the terms of the note should
be deemed a modification or extinguishment of debts under EITF
96-19. The Company compared the cash flows of the original
agreement to the new agreement terms to determine if a significant
difference exists (greater than 10% change in cash flows). The
method in applying the 10% test used is the gross
method. |

| CASH
FLOWS FROM CONVERTIBLE DEBT EVALUATION | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | | Traunch
1 | Traunch
2 | | | | |
| PRINCIPLE
(in millions) | $ 40.0 | $ 26.0 | $ 21.3 | | | | |
| TERM
(years) | 5 | | | | | | |
| GROSS
METHOD | | | | | | | |
| | | Jul-08 | Dec-08 | 2009 | 2010 | 2011 | 2012 |
| OUTFLOWS | | | | | | | |
| PRINCIPLE
PAYMENTS | | $ 14.0 | $ 5.0 | | | | $ 44.74 |
| INTEREST
PAYMENTS | | $ 1.03 | $ 0.13 | $ 0.21 | $ 0.21 | $ 0.21 | $ 0.21 |
| EFFECTIVE
INTEREST RATE | 16.00 % | $ 15.03 | $ 3.69 | $ 0.18 | $ 0.16 | $ 0.14 | $ 24.83 |
| CASH
FLOW | | $ 44.02 | | | | | |
| %
Difference | | | | | | | |

| CASH FLOWS FROM
CONVERTIBLE DEBT EVALUATION | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| PRINCIPLE
(in millions) | $ 40.0 | | | | | |
| TERM
(years) | 5 | | | | | |
| GROSS
METHOD | | | | | | |
| | | 2008 | 2009 | 2010 | 2011 | 2012 |
| OUTFLOWS | | | | | | |
| PRINCIPLE
PAYMENTS | | | | | | $ 84.01 |
| INTEREST
PAYMENTS | | $ 0.40 | $ 0.40 | $ 0.40 | $ 0.40 | $ 0.40 |
| EFFECTIVE
INTEREST RATE | 16.00 % | $ 0.37 | $ 0.34 | $ 0.30 | $ 0.26 | $ 46.62 |
| CASH
FLOW | | $ 47.89 | | | | |
| %
Difference | | 8.08 % | | | | |

Conclusion: Should be accounted for as modification as there is less than 10% change in cash flows

According to the above gross method, there existed a lesser than 10% change in cash flows, and thus we considered this as such accordingly. As a result, APB 26 does not apply as it is not an extinguishment of debt. According to EITF 96-19, such loss is a premium on repurchase of the debt and amortized over the remaining life of the note.

Exhibits
3.	Please
file the notes repurchase agreements with Citadel, or explain why these
agreements are not required to be filed.
	Response : The
amendments to the notes repurchase agreements were not filed within the
Form 20-F because they were previously filed with the
SEC. Therefore, they are already included in the Company public
filings. The filings of the amendments were made on July 28,
2008 and February 12, 2009. The description was updated in the
Form 20-F to reflect the status of the agreements. If an amendment to the
Form 20-F is required for another purpose, we will amend the exhibit index
to incorporate by reference the two amendments to the note repurchase
agreements from the prior filings of the Company made on July 28, 2008 and
February 12,
2009.

In preparing the response on comment # 2, the Company has sought and obtained comments from its external independent auditors, BDO Limited (Hong Kong). The BDO Seidman LLP US Gatekeeper for the 20-F filing is Wendy Hambleton, phone number 312-616-4657.

In connection with responding to the Staff comments, the company acknowledges that:

· the company is responsible for the adequacy and accuracy of the disclosure in the filing;

· staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

· the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities law of the United States.

Sincerely,
/s/ Irving
Kau
Irving
Kau,
Vice
President of Finance

cc: Yoland Guobadia

Ryan Milne

Louis Rambo