CMON Limited — M&A Activity 2000

Dec 21, 2000

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

SHENYANG PUBLIC UTILITY HOLDINGS COMPANY LIMITED

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

ANNOUNCEMENT

DISPOSAL OF EQUITY INTEREST IN JINGWEI TRANSPORTATION AND APPOINTMENT OF VICE PRESIDENT OF THE COMPANY

SUMMARY

On 20th December, 2000, the Company entered into a disposal agreement with Zheng Xing, pursuant to which the Company agreed to sell, and Zheng Xing agreed to acquire, its entire 99% equity interest in Jingwei Transportation at a cash consideration of RMB69,013,000 (approximately HK$64,498,000). Jingwei Transportation is principally engaged in the provision of long distance bus service in Shenyang, the PRC.

The Directors considered that the Disposal Agreement was negotiated on an arm’s length basis and agreed on normal commercial terms between the parties involved. In view of (i) the fierce competition existing among the long distance passenger transportation operators in Shenyang, (ii) the increase in operating cost of Jingwei Transportation; and (iii) a surplus resulting from the Disposal, the Directors considered that the Disposal is in the interests of the Company and the Shareholders as a whole. The Directors further considered that there would not be any material impact on the Group’s turnover and profit subsequent to the Disposal since Jingwei Transportation’s contribution, in terms of turnover and profit before taxation and minority interests, only represented approximately 5.7% and 1.3% respectively of the Group’s turnover and profit before taxation and minority interests for the six months ended 30th June, 2000. The Company intends to apply the proceeds received from the Disposal and the balance of the proceeds from the H share offer which was originally intended to apply to its long distance bus service business as additional working capital and to fund any potential business opportunities available to the Group which are beneficial to and in the interests of the Company and the Shareholders as a whole.

Save as disclosed herein, the Directors confirm that there are no negotiations or agreements relating to any intended acquisitions or realisations which are discloseable pursuant to paragraph 3 of the Listing Agreement and that they are not aware of any matter discloseable under the general obligation imposed by paragraph 2 of the Listing Agreement, which is or may be of a price sensitive nature.

Mr. Wang Se, an executive Director and the company secretary of the Company, has been appointed as a vice president of the Company by the Board pursuant to the articles of association of the Company effective on 20th December, 2000.

1. THE AGREEMENT

Date

20th December, 2000

Parties

Vendor	:	The Company
Purchaser	:	Zheng Xing

Zheng Xing is independent of, and not connected with, the directors, chief executive or substantial shareholders of the Company, any of their respective subsidiaries or associates (as defined in the Listing Rules).

Assets to be disposed of

The Company has agreed to sell, and Zheng Xing has agreed to acquire, the Company’s entire 99% equity interest in Jingwei Transportation.

Consideration

RMB69,013,000 (approximately HK$64,498,000), which was negotiated on arm’s length basis and was determined by reference to the independent valuation of the net asset value of Jingwei Transportation attributable to the Company’s entire 99% interest in the amount of approximately RMB67,993,000 as at 30th April, 2000 which was prepared by the independent PRC valuer, Shenyang Zhongshen Assets Appraisal Co., Ltd. (瀋陽中瀋資產評估有限責任公司) The Consideration represents a premium of approximately 1.5% to the independent valuation of the net asset value of Jingwei Transportation as at 30th April, 2000. In addition, the Consideration represents a premium of approximately 20.3% to the audited net asset value of Jingwei Transportation attributable to the Company’s entire 99% interest as at 31st December, 1999 (which is approximately RMB57,348,000 (approximately HK$53,596,000)), and represents a premium of approximately 13.2% to the unaudited net asset value of Jingwei Transportation attributable to the Company’s entire 99% interest as at 30th September, 2000 (which is approximately RMB60,953,000 (approximately HK$56,965,000)).

Conditions

Completion of the Disposal Agreement is conditional upon, inter alia, the approval from the relevant governmental departments in the PRC. It is expected that the Completion will take place by 31st January, 2001.

2. INFORMATION ON JINGWEI TRANSPORTATION

Jingwei Transportation is principally engaged in (i) the operation of three bus terminals; (ii) leasing of buses to individual bus operators; and (iii) leasing and operating granted routes. Jingwei Transportation’s pro forma turnover for each of the two years ended 31st December, 1999 was approximately RMB30,847,000 and RMB28,943,000 respectively, which accounted for approximately 7.4% and 6.7% of the Group’s adjusted pro forma combined turnover for each of the two years ended 31st December, 1999 respectively. In addition, Jingwei Transportation’s pro forma profit before taxation and minority interests for each of the two years ended 31st December, 1999 was approximately RMB10,609,000 and RMB11,749,000 respectively, which accounted for approximately 3.5% and 3.8% of the Group’s adjusted pro forma combined profit before taxation and minority interests for each of the two years ended 31st December, 1999 respectively. Accordingly, Jingwei Transportation’s turnover continued to decline over the past two years. Moreover, Jingwei Transportation’s turnover and profit before taxation and minority interests for the six months ended 30th June, 2000 was approximately RMB16,099,000 and RMB2,298,000 respectively, which accounted for approximately 5.7% and 1.3% of the Group’s turnover and profit before taxation and minority interests for the six months ended 30th June, 2000.

Jingwei Transportation’s net asset value as at 31st December, 1999 was approximately RMB57,927,000, represented approximately 4.0% of the Group’s net asset value.

According to the Company’s 1999 Annual Report, the long distance bus service market was under severe competition. Jingwei Transportation faces competition from a number of operators of long distance passenger transportation services, including bus and train. Jingwei Transportation’s competitors employed newer models of luxury coaches when comparing to Jingwei Transportation’s current bus fleet. The Directors believed that the quality of the current fleet of Jingwei Transportation could neither meet consumer demand nor provide the standard of comfort which consumers expect, hence resulting in a decrease in the passenger volume carried by Jingwei Transportation’s bus fleet.

The operating environment of Jingwei Transportation further deteriorated in year 2000. The further increase of provision of public train services, which offers passengers a faster alternative means of transport, led to the dispersal of passengers and consequently affected the passenger volume of Jingwei Transportation. According to the Company’s 2000 interim report, during the six months ended 30th June, 2000, the operating cost of Jingwei Transportation increased significantly as a result of (i) an increase in mandatory contribution to the government passenger infrastructure fund (客建基金) pursuant to the notice Liao Jiao Zheng Guan Fa [2000] 25 (遼寧交徵管發[2000]25)of the Traffic Collection and Examination Department of Liaoning Province (遼寧省交通徵稽局)issued on 21st April 2000; (ii) an increase in the unit costs of diesel; and (iii) an increase in ticket printing expenses. The government passenger infrastructure fund increased by approximately 150% from RMB18 per passenger seat to RMB45 per passenger seat. The Directors believe that the growth prospect of Jingwei Transportation is significantly affected due to the adverse change in the operating environment in 2000.

According to the prospectus of the Company dated 7th December, 1999, the Company intended to apply approximately RMB93,000,000 (approximately HK$86,916,000) of the net proceeds from the H share offer of the Company for purchasing new buses to replace part of the current fleet of Jingwei Transportation. As of 30th September, 2000, approximately RMB1,000,000 of the proceeds from the H share offer of the Company had been used for replacing part of the current fleet of Jingwei Transportation. In view of the fierce competition existing among the long distance passenger transportation operators and the deteriorating operating environment, the Directors concerned about the prospect of Jingwei Transportation and the time and resources to be required for Jingwei Transportation in order to achieve growth.

1. REASONS FOR THE DISPOSAL AND FUTURE INTENTIONS OF THE COMPANY

The Group is a leading urban public utility developer and operator based in Shenyang, Liaoning Province, the PRC. The principal business of the Group is the production and sale of purified water. The Group also, through its investment in Jingwei Transportation, provides long distance bus service and, through a joint venture, engages in coal-fired power and heat co-generation.

The Directors had closely monitored and reassessed its investments in Jingwei Transportation. The Directors envisaged that strong competition would continue to present in the Group’s long distance bus service business. As explained above, in view of the deteriorating operating environment arose in 2000, the Directors concerned about the prospect of Jingwei Transportation and concerned the time and resources to be required in order to achieve growth for Jingwei Transportation.

As stated in the prospectus of the Company dated 7th December, 1999, it is the Group’s strategy to consolidate and expand its existing businesses, principally the urban water supply business, as well as actively evaluate opportunities in other urban public utility and infrastructure businesses. The Directors have been actively evaluating opportunities in other areas of business, in particular sewage water processing business, which can create synergy and develop vertical integration with the Group’s principal business in production and sale of purified water. The Directors consider that a relatively more focused strategy in water related business will be beneficial to the Company and the Shareholders as a whole. At present, the Group does not have any identifiable investment plan and has not engaged in any agreement nor negotiation with any parties which are disclosed under paragraph 3 of the Listing Agreement.

The Directors consider that Jingwei Transportation’s competitiveness will continue to decrease due to the adverse operating environment and the increase in operating costs and fierce competition in the long distance passenger transportation industry, as such, the Directors believed that the Disposal represents a good opportunity to realise its investments in the long distance bus service business rather than to further increase its capital contribution in Jingwei Transportation, and allow the Group to focus its capital and resources to develop business which is in line with its strategy. Moreover, since Jingwei Transportation’s contribution in terms of turnover and profit only represented a small portion of the Group’s turnover and profit, the Directors considered that the loss of the profit contribution from Jingwei Transportation resulting from the Disposal on the profitability of the Group to be immaterial.

The Directors estimated that the Disposal would give rise to a surplus of approximately RMB9,000,000 over the book cost of the Company’s interest invested in Jingwei Transportation. Taking into consideration that the deteriorating operating environment of Jingwei Transportation and it would continue to face fierce competition in the foreseeable future, and in view of the surplus to be realised from the Disposal, the Directors believed that the Disposal is beneficial to the Company and the Shareholders taken as a whole.

The Directors intend to apply the proceeds received from the Disposal as additional working capital of the Group and to fund any potential business opportunities available to the Group. Pending the use of such proceeds, the Directors intend to place such proceeds from the Disposal on short-term bank deposit.

Since the Company had disposed of its long distance bus service business, the Company intends to apply such part of the proceeds, amounting to approximately RMB92,000,000, of the H share offer which was originally intended to purchase new buses as additional working capital of the Group and to fund any potential business opportunities available to the Group. It is the intention of the Directors to explore further investment opportunities for the Company which are in line with its business strategy and are beneficial to and in the interests of the Company and the Shareholders as a whole, though no such opportunities have been identified at this stage. Should such opportunities, if identified, trigger any provisions under the Listing Rules, the Company will ensure that the relevant disclosure and/or approval requirements will be complied with.

In addition, the Company confirmed that it will continue to apply the rest of the proceeds received from the H share offer of the Company in accordance with the plans stated in the prospectus of the Company dated 7th December, 1999.

4. GENERAL

Save as disclosed herein, the Directors confirm that there are no negotiations or agreements relating to any intended acquisitions or realisations which are discloseable pursuant to paragraph 3 of the Listing Agreement and that they are not aware of any matter discloseable under the general obligation imposed by paragraph 2 of the Listing Agreement, which is or may be of a price sensitive nature.

5. APPOINTMENT OF VICE PRESIDENT OF THE COMPANY

The Board would also like to announce that Mr. Wang Se, an executive Director and the company secretary of the Company, has been appointed as a vice president of the Company by the Board pursuant to the articles of association of the Company effective on 20th December, 2000.

6. DEFINITIONS

In the announcement, the following expressions have the meanings set out below unless the context requires otherwise:

“Board”	the Board of Directors of the Company
“Company”	瀋陽公用股份發展有限公司(Shenyang Public Utility Holdings Company Limited), a joint stock limited company established in the PRC with limited liability on 2nd July, 1999, the H shares of which are listed on the Stock Exchange
“Completion”	the completion of the Disposal
“Consideration”	RMB69,013,000 (equivalent to approximately HK$64,498,000) being the consideration payable by Zheng Xing to the Company for the Disposal
“Directors”	Directors of the Company
“Disposal”	the disposal of the Company’s entire 99% equity interest in Jingwei Transportation to Zheng Xing pursuant to the terms of the Disposal Agreement
“Disposal Agreement”	A conditional sale and purchase agreement dated 20th December, 2000, entered into between the Company and Zheng Xing relating to the Disposal
“Group”	the group of companies comprising the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s Republic of China
“Jingwei Transportation”	瀋陽經緯客運有限公司(Shenyang Jingwei Passenger Transportation Company Limited), a company with limited liability established in the PRC on 16th August, 1999 and is owned as to 99% by the Company and as to the remaining interest by Shenyang Public Utility Group Company Limited
“Listing Agreement”	the listing agreement entered into between the Company and the Stock Exchange in accordance to appendix 7i of the Listing Rules
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
“PRC”	the People’s Republic of China excluding, for the purpose of this announcement, Hong Kong, Macau and Taiwan
“Shareholder(s)”	the shareholder(s) of the ordinary share(s) of RMB1.00 each in the issued share capital of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Zheng Xing”	瀋陽政興企業集團有限責任公司(Shenyang Zheng Xing Enterprise Group Company Limited), a limited liability company established in the PRC
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC

Note: For reference purpose only, the translation of Renminbi to Hong Kong dollars is based on the exchange rate of HK$1.00 to RMB1.07 in this announcement.

By Order of the Board

Shenyang Public Utility Holdings Company Limited

Wang Se

Director and Company Secretary

Shenyang, the PRC, 20th December, 2000

Please also refer to the published version of this announcement in the i Mail dated 21/12/2000.