Comtec Solar Systems Group Limited — M&A Activity 2017

Jan 3, 2017

This announcement appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the shares of Comtec Solar Systems Group Limited.

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

卡姆丹克太陽能系統集團有限公司 Comtec Solar Systems Group Limited

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 712)

MAJOR TRANSACTION PROPOSED DISPOSAL OF TARGET ASSETS OF COMTEC MALAYSIA

THE PROPOSED DISPOSAL

The Board hereby announces that, on 30 December 2016 (after trading hours of the Stock Exchange), the Company, Comtec Malaysia and Longi entered into the Asset Transfer Agreement, pursuant to which Comtec Malaysia agreed to sell and Longi agreed to purchase the Target Assets of Comtec Malaysia at the Total Consideration of RMB200 million.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios exceeds 25% but none of the applicable percentage ratios exceeds 75%, the Asset Transfer Agreement and the transaction contemplated thereunder constitute a major transaction for the Company and are subject to the reporting and announcement and Shareholders’ approval requirements as set out in Chapter 14 of the Listing Rules.

GENERAL

The EGM will be convened and held for the Shareholders to consider and if thought fit, approve the Asset Transfer Agreement.

A circular containing, among others, further details about the Asset Transfer Agreement together with a notice convening the EGM, is currently expected to be despatched to the Shareholders no later than 24 January 2017.

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As Completion of the Proposed Disposal is subject to fulfilment of certain conditions precedent under the Asset Transfer Agreement and the Proposed Disposal may or may not proceed, Shareholders and potential investors of the Company are urged to exercise caution when dealing in the Shares.

THE PROPOSED DISPOSAL

The Board hereby announces that, on 30 December 2016 (after trading hours of the Stock Exchange), the Company, Comtec Malaysia and Longi entered into the Asset Transfer Agreement, pursuant to which Comtec Malaysia agreed to sell and Longi agreed to purchase the Target Assets of Comtec Malaysia at the Total Consideration of RMB200 million.

ASSET TRANSFER AGREEMENT

The principal terms of the Asset Transfer Agreement are set out below:

Date:

30 December 2016

Parties:

• (1) Comtec Malaysia, as the vendor;

• (2) Longi, as the purchaser; and

• (3) the Company, as the guarantor to Comtec Malaysia.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, each of Longi and its ultimate beneficial owners is a third party independent of each of the Company and its connected persons.

Target Assets to be Disposed:

Pursuant to the Asset Transfer Agreement, the Target Assets to be transferred from Comtec Malaysia to Longi comprise of the following with a total net book value of approximately RMB500 million as of 30 November 2016:

• (1) the Target Properties (including the Target Land and the Target Buildings); and

• (2) the Target Equipment.

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The Target Assets represent substantially all machinery, equipment, furniture, computer hardware, vehicles, any related capitalised items and other tangible assets relating to or used in the operation of the production facility at the Target Properties, other than cropping saws, squaring saws and wire saws, which the parties agreed not form the subject of the transaction with a net book value of approximately RMB46.3 million as at 30 November 2016 and will be shipped to the Group’s facilities in the PRC for internal use or sale to other parties.

Total Consideration of the Proposed Disposal:

The Total Consideration payable by Longi for the Proposed Disposal shall be RMB200 million, among which RMB54,300,000 shall be attributable to the Target Equipment and RMB145,700,000 shall be attributable to the Target Properties (among which RMB6,700,000 and RMB139,000,000 shall be attributable to the Target Land and the Target Buildings, respectively), which is arrived in arm’s length negotiation among the parties with reference to the total net book value of the Target Assets of approximately RMB500 million as of 30 November 2016 with a discount of approximately 60%.

The consideration shall be paid by instalments in cash in accordance with the below terms:

• (1) within fourteen (14) Business Days after the date of the Asset Transfer Agreement, Longi shall pay to Comtec Malaysia an amount equal to 30% of the Total Consideration minus stamp duties payable in relation to the Memorandum of Transfer (if any) (the ‘‘First Instalment’’) by wire transfer;

• (2) within fourteen (14) Business Days after the Closing Date, Longi shall pay to Comtec Malaysia an amount equal to 60% of the Total Consideration minus (i) the Retention Sum (if any) minus (ii) the Outstanding Payment Amounts (if any) minus (iii) the Rectification and Compliance Costs minus (iv) the GST (if any) (the ‘‘Second Instalment’’) by wire transfer; provided that (i) if and as soon as any of the GST is refunded to Longi by the taxation authority in Malaysia, Longi shall further pay an amount equivalent to the refunded GST to Comtec Malaysia; (ii) if and as soon as Comtec Malaysia provides the documentary evidence showing that all of such Outstanding Payment Amounts or any part thereof are settled, Longi shall further pay an amount equivalent to the settled Outstanding Payment Amounts to Comtec Malaysia; and (iii) if and as soon as Comtec Malaysia provides the documentary evidence showing that all of such Rectification and Compliance Costs or any part thereof are settled, Longi shall further pay an amount equivalent to the settled Rectification and Compliance Costs to Comtec Malaysia; and

• (3) within fourteen (14) Business Days after the last day of the twelfth (12th) month after the Closing Date, Longi shall pay to Comtec Malaysia an amount equal to 10% of the Total Consideration minus the Rectification and Compliance Costs which have not been deducted from the Second Instalment (if any) (the ‘‘Third Instalment’’) by wire transfer; provided that if and as soon as Comtec Malaysia provides the documentary evidence showing that all of such Rectification and Compliance Costs or any part thereof are settled, Longi shall further pay an amount equivalent to the settled Rectification and Compliance Costs to Comtec Malaysia.

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Longi shall release the Retention Sum to Comtec Malaysia upon Comtec Malaysia executing the requisite forms to affirm the disposal of the Target Properties results in a loss and it shall not be liable to pay any real property gain tax in respect thereof and a certificate of own-chargeability having been issued by the Inland Revenue Board of Malaysia.

Deposit and default interest

If Longi fails to pay the First Instalment and the respective overdue interest on it in accordance with the schedule set out above, Longi shall procure any of the ultimate parent company of Longi and the subsidiaries of such ultimate parent company to pay, within three (3) Business Days after the receipt of payment notice in writing from Comtec Malaysia, the same amount of such outstanding consideration and the overdue interest as deposit (‘‘Deposit’’) to the bank account designated by Comtec Malaysia. The Deposit will be refunded to Longi when it notifies Comtec Malaysia that it is ready to pay the relevant outstanding amount.

If Longi fails to pay the First Instalment and/or the Second Instalment in accordance with the schedule set out above for up to one year following the stipulated payment date, Longi shall pay overdue interest on the outstanding amount accrued at the one-year RMB benchmark loan interest rate for financial institutions announced by the People’s Bank of China as of the Closing Date (the ‘‘Benchmark Rate’’). If Longi fails to pay the First Instalment and/or the Second Instalment in accordance with the schedule set out above for more than one year following the stipulated payment date, or if Longi fails to pay the Third Instalment in accordance with the schedule set out above, Longi shall pay overdue interest on the outstanding amount accrued at two times of the Benchmark Rate.

Conditions Precedent:

The Asset Transfer Agreement is conditional upon, amongst others, the following conditions precedent being fulfilled, or unless otherwise waived by the Vendor and the Purchaser in writing (where applicable):

• (1) Longi shall have completed the due diligence of the Target Assets, the result of which shall be satisfactory to Longi;

• (2) the Asset Transfer Agreement shall have been duly and lawfully executed and delivered by the parties thereto;

• (3) the Company shall have obtained the approval at the EGM from its shareholders for the execution of the Asset Transfer Agreement, the transfer of the Target Assets and the performance of its obligations as contemplated thereunder in accordance with the Listing Rules;

• (4) Longi shall have delivered to Comtec Malaysia, and Comtec Malaysia shall have delivered to Longi, certified true copies of the resolutions of their respective board of directors and the shareholders’ general meeting (if applicable) approving the execution of the Asset Transfer Agreement, the transfer of the Target Assets and the performance of their respective obligations as contemplated thereunder in accordance with the Listing Rules, their respective articles of association and other applicable Laws;

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• (5) Comtec Malaysia and the Company shall have executed a statutory declaration confirming the Outstanding Payment Amounts as the final amounts for any liabilities owing to Creditors;

• (6) upon the receipt of the First Instalment by Comtec Malaysia, Comtec Malaysia shall have executed and deposited with Longi’s solicitors in escrow necessary documents, materials and items for the purpose of conducting the relevant approval procedures with the competent local authorities for the transfer of the Target Properties;

• (7) where necessary, the parties shall have obtained the relevant approvals or permissions from the competent authorities in Malaysia for the transfer of the Target Assets;

• (8) Longi shall have received from Comtec Malaysia the as-built drawings and occupation permits;

• (9) Comtec Malaysia shall have reached the agreement with the supporting facilities providers pursuant to which Comtec Malaysia shall assign the rights and obligations under the contracts (including but not limited to electricity supply contracts and argon supply contracts) signed by and between Comtec Malaysia and the supporting facilities providers to Longi to ensure the normal operation of the Target Assets after the Closing Date, and the contents of such contracts shall have been approved in writing by Longi;

• (10) Comtec Malaysia shall have obtained all the necessary government approvals for the manufacturing and sales activities with/in/by the Target Assets and Longi shall be entitled to obtain the sufficient and necessary information in relation to such approvals and have provided written acknowledgement;

• (11) all encumbrances over the Target Assets shall have been released or discharged entirely and the relevant forms, where applicable, shall have been issued by the Companies Commission of Malaysia;

• (12) Unless otherwise agreed by the parties, there shall not be any material adverse effect to the Target Assets as of the Unconditional Date;

• (13) Comtec Malaysia and the Company shall have made to Longi sufficient disclosure in relation to the Target Assets, which shall be true, accurate, complete and valid as of the Closing Date unless otherwise specified;

• (14) Comtec Malaysia and the Company shall be responsible for the payment of all the debts as shown on Comtec Malaysia’s financial statements as of the Closing Date (or agree in writing to delegate Longi to repay such debts on behalf of Comtec Malaysia, the same amount of which shall be deducted from the Second Instalment) and shall settle all the payables disputes with Comtec Malaysia’s suppliers arising before the Closing Date; and

• (15) Comtec Malaysia shall rectify the defects identified in the Target Assets to comply with regulatory standards and regulation and to obtain necessary licenses, certificates and permits, the costs to which shall be deducted from the Total Consideration as part of the Rectification and Compliance Costs.

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Notwithstanding anything to the contrary, Comtec Malaysia and Longi shall not waive the conditions precedent as set out in the above item (3).

The parties shall procure the satisfaction of the above conditions as soon as practicable before the Long Stop Date (or such later date as the parties may agree).

Arrangement of Transitional Period

Each party shall not take any action which will hinder or prejudice the transactions contemplated under the Asset Transfer Agreement during the Transitional Period.

Comtec Malaysia undertakes to permit the personnel authorised and designated by Longi (‘‘Designated Personnel’’) to access the its production site on the Target Properties for inspection, valuation, maintenance, or supervision of the Target Assets in order to avoid any issue which might hinder the transactions contemplated under the Asset Transfer Agreement and ensure the normal operation of the Target Assets. Comtec Malaysia shall give its full co-operation to the Designated Personnel in connection herewith.

Comtec Malaysia undertakes to ensure that the Target Assets shall be in normal operation during the Transitional Period and to timely inform Longi the operational status of the Target Assets by e-mail or otherwise in writing. Comtec Malaysia is obliged to ensure the safety and entirety of the Target Assets during the Transitional Period and not to take any action which might hinder the normal operation of the Target Assets after the Closing Date. Any guarantee provided by Comtec Malaysia or any other agreement or action in the Transitional Period which might lead to any abnormal change of the Target Assets or the rights and benefits of Comtec Malaysia shall be approved in writing by Longi or the representatives of Longi.

REASONS FOR AND BENEFITS OF THE PROPOSED DISPOSAL

Comtec Malaysia was established in 2013 by the Company to expand the Group’s production capacity in its solar-grade monocrystalline silicon business. Due to the unfavorable global macro-economic environment, the relatively small scale of operations, the lower production efficiency at the early stage of its operations and that it took time to train the local production team, Comtec Malaysia has been loss making and has recorded cumulative operating loss of approximately RMB178.5 million since 2013. Although the Group has been striving to improve its operating efficiency and reduce its production cost per unit, Comtec Malaysia has not been able to generate operating profit so far in 2016. At the same time, the industry landscape for the monocrystalline silicon business deteriorated in the second half of 2016, with certain major players who use monocrystalline silicon wafers, such as those produced by Comtec Malaysia, scaling back or even shutting down their production. In such circumstances, the Board considers that it will be in the interest of the Company to exit its investment in the production facilities in Malaysia so that the Group can provide more resources on expanding its downstream distributed solar system business, as it is expected that the business prospects of the downstream distributed solar system business is better than that of the upstream ingot and wafer manufacturing business. Also, given the unfavorable market conditions, the Board believes there is a risk that the prices of the Target Assets may fall even lower later.

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Thus the Directors are of the view that the Asset Transfer Agreement and the transaction contemplated thereunder are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

FINANCIAL EFFECT OF THE PROPOSED DISPOSAL

The actual financial effect from the Proposed Disposal and to be accounted for in the consolidated financial statements of the Company will be computed basing on the financial information of the Proposed Disposal as at the Completion and subject to audit. For illustrative purposes, there is an estimated loss of approximately RMB300 million arising out of the Proposed Disposal based on the consideration of RMB200 million and the total net book value of the Target Assets as at 30 November 2016 of approximately RMB500 million.

The proceeds from the Proposed Disposal will be used for general working capital purposes and any investment opportunities identified in the future.

INFORMATION ABOUT THE GROUP, THE TARGET ASSETS AND LONGI

Information about the Group

The Group is principally engaged in the manufacture and sales of solar wafers and related products and provision of processing services for solar products.

Information about the Target Assets

The unaudited total net book value of the Target Assets as at 30 November 2016 was approximately RMB500 million.

The net loss of Comtec Malaysia before and after taxation for the years ended 31 December 2014 and 2015 were set out as follow:

			For the
	For the year	For the year	eleven months
	ended	ended	ended
	31 December	31 December	30 November
	2014	2015	2016
	RMB	RMB	RMB
	(audited)	(audited)	(unaudited)
Net loss before and after taxation and
extraordinary items	27,021,000	71,798,000	79,379,000

Information about Longi

Longi is a company established under the laws of Malaysia and wholly-owned by Xi’an Longi. Longi is mainly engaged in the business of production of monocrystalline silicon wafers, monocrystalline battery and monocrystalline component, etc.

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EGM

The EGM will be held to consider and, if thought fit, to approve, among others, the Asset Transfer Agreement. A circular containing, among others, further details about the Asset Transfer Agreement, is currently expected to be despatched to the Shareholders no later than 24 January 2017.

As Completion of the Proposed Disposal is subject to fulfilment of certain conditions precedent under the Asset Transfer Agreement and the Proposed Disposal may or may not proceed, Shareholders and potential investors of the Company are urged to exercise caution when dealing in the Shares.

DEFINITIONS

Unless the context requires otherwise, the following expressions shall have the following meanings in this announcement:

• ‘‘Asset Transfer Agreement’’ the asset purchase agreement entered into by and among the Company, Comtec Malaysia and Longi dated 30 December 2016;

• ‘‘Board’’ the board of Directors;

• ‘‘Business Day’’ means a day other than a Saturday, Sunday or other day on which commercial banks in PRC and Hong Kong are closed;

• ‘‘Closing Date’’ the date when all the conditions precedent of the Asset Transfer Agreement have been fulfilled or unless otherwise waived by Comtec Malaysia and Longi in writing (where applicable) and Form L has been issued by the relevant land registry office;

• ‘‘Company’’ Comtec Solar Systems Group Limited, a company incorporated in the Cayman Islands with limited liability and the Shares of which are listed on the Stock Exchange;

• ‘‘Completion’’ means the completion of the transfer of the Target Assets;

• ‘‘Comtec Malaysia’’ Comtec Solar International (M) Sdn. Bhd., a company incorporated and existing under the laws of Malaysia, with its registered office at Lot 3211, Block 12, MuaraTebas Land District, Jalan Usaha Jaya, Samajaya Free Industrial Zone, 93350, Kuching, Sarawak, and a wholly-owned subsidiary of the Group;

• ‘‘connected person’’ has the meaning ascribed thereto under the Listing Rules;

• ‘‘Creditors’’

• the trade creditors and other third party creditors of Comtec Malaysia;

• ‘‘Director(s)’’ the director(s) of the Company;

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‘‘EGM’’

• ‘‘Group’’

• ‘‘GST’’

• ‘‘Hong Kong’’

• ‘‘Independent Third Party(ies)’’

• ‘‘Listing Rules’’

• ‘‘Long Stop Date’’

• ‘‘Longi’’

• ‘‘Outstanding Payment Amounts’’

• ‘‘PRC’’

• the extraordinary general meeting of the Company to be convened and held for the Shareholders to consider and, if thought fit, approve the Asset Transfer Agreement;

the Company and its subsidiaries;

• the goods and services tax which may from time to time be imposed under the Goods and Services Tax Act, 2014 of Malaysia or any value added tax, consumption tax, or tax, duty, charge or imposition of a similar nature whatsoever and by whatever name called, which may from time to time be imposed or charge (including any increases or decreases to the rate) by the taxation authority in Malaysia;

• the Hong Kong Special Administrative Region of the PRC;

• person or company who or which is not a connected person of the Company;

• the Rules Governing the Listing of Securities of the Stock Exchange;

• means the sixth (6th) calendar month after the date of the Asset Transfer Agreement;

Longi (Kuching) Sdn. Bhd., a company incorporated and existing under the laws of Malaysia, with its registered office at Lot 2118, Jalan Usaha Jaya, Sama Jaya Free Industrial Zone, 93450 Kuching, Sarawak, and a whollyowned subsidiary of Xi’an Longi;

(i) the amounts due to the Creditors and/or suppliers under such agreements and/or purchase orders as of the Closing Date; (ii) the amounts due to the Creditors and/or suppliers under other agreements and/or purchase orders entered into by Comtec Malaysia before the Closing Date; (iii) stamp duties, real property gains tax, consumption tax, quit rent, rates, assessment, land premium and all other lawful outgoings payable in respect of the Target Properties which shall be based on the information provided by Comtec Malaysia in the due diligence process or tax law and regulations and confirmed in writing by Comtec Malaysia; (iv) all accrued charges, customers’ prepayments and other bills payables; and (v) all outstanding liabilities or contingent liabilities as shown on the Comtec Malaysia’s financial statements as of the Closing Date; the People’s Republic of China which, for the purpose of this announcement, excludes Hong Kong, Macau Special Administrative Region of the PRC and Taiwan;

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• ‘‘Proposed Disposal’’

• the proposed disposal of the Target Assets by Comtec Malaysia to Longi;

• ‘‘Rectification and Compliance Costs’’

• the estimated costs to rectify defects identified in the Target Assets, to comply with regulatory standards and regulations, and to obtain necessary licences, certificates and permits;

• ‘‘Retention Sum’’

• the sum representing three percent (3%) of the consideration of the Target Properties payable by Comtec Malaysia in respect of real property gains tax to the Inland Revenue Board of Malaysia;

• ‘‘RMB’’

Renminbi, the lawful currency of PRC;

• ‘‘Share(s)’’

• ordinary shares of HK$0.001 each in the share capital of the Company;

• ‘‘Shareholder(s)’’

holder(s) of the Share(s);

• ‘‘Stock Exchange’’

The Stock Exchange of Hong Kong Limited;

• ‘‘Target Assets’’

the Target Equipment and the Target Properties;

• ‘‘Target Buildings’’

• the factory buildings/constructions owned by Comtec Malaysia located on the Target Land and covering a total area of 37,823.68 square meters;

• ‘‘Target Equipment’’

• all kinds of machinery and equipment located on the Target Properties (other than cropping saws, squaring saws and wire saws);

• ‘‘Target Land’’

• the land owned by Comtec Malaysia as at the date of this announcement and located at Lot 3159 Block 12 MuaraTebas Land District, Samajaya Free Industrial Zone, Kuching covering a total area of 15.433 hectares;

• ‘‘Target Properties’’

The Target Land and the Target Buildings;

• ‘‘Total Consideration’’ the total consideration to be paid by Longi to Comtec Malaysia under the Asset Transfer Agreement;

• ‘‘Transitional Period’’

• the period from the date of the Asset Transfer Agreement to the Completion (both days inclusive), which shall not be more than six (6) calendar months after the date of the Asset Transfer Agreement;

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‘‘Unconditional Date’’

means the second Business Day after the last of the conditions precedent of the Asset Transfer Agreement have been fulfilled or unless otherwise waived by Comtec Malaysia and Longi in writing (where applicable), or any other date as otherwise agreed in writing among the parties;

‘‘Xi’an Longi’’

Xi’an Longi Silicon Materials Corp.（西安隆基硅材料股份 有限公司）, a company established under the laws of the PRC, A shares of which are listed on the Shanghai Stock Exchange (stock code: 601012) and the indirect parent company of Longi; and

‘‘%’’

per cent.

By order of the board of Comtec Solar Systems Group Limited John Yi ZHANG Chairman

Shanghai, the People’s Republic of China, 3 January 2017

As at the date of this announcement, the executive Directors are Mr. John Yi Zhang, Mr. Chau Kwok Keung and Mr. Zhang Zhen, the non-executive Directors are Mr. Donald Huang and Mr. Wang Yixin, and the independent non-executive Directors are Mr. Leung Ming Shu, Mr. Kang Sun and Mr. Daniel DeWitt Martin.

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