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DT Capital Limited M&A Activity 2014
49154_rns_2014-03-21_5022767d-9268-4f47-af05-5889d1117461.pdf
M&A Activity
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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.
EVERCHINA INT'L HOLDINGS COMPANY LIMITED
潤中國際控股有限公司
(formerly known as "Interchina Holdings Company Limited" 國中控股有限公司)
(incorporated in Hong Kong with limited liability)
(Stock Code: 202)
DISCLOSABLE AND CONNECTED TRANSACTION
THE ACQUISITION
On 21 March 2014 (after trading hours), the Purchaser, a wholly-owned subsidiary of the Company, entered into the Agreement with the Vendor pursuant to which the Purchaser has conditionally agreed to acquire the Sale Shares, representing the entire issued share capital of the Target, and the Sale Loan at the aggregate Consideration of HK$318,000,000. The Consideration shall be settled by cash.
The Sale Shares represent the entire issued share capital of the Target and the Sale Loan shall represent all amounts due and owing to the Vendor by the Target immediately prior to Completion. Upon Completion, the Target shall become a wholly-owned subsidiary of the Company, which in turn will directly hold 30% equity interest in the Indonesian Company. Together with the 65% equity interest in the Indonesian Company already held by the Group as at the date of this announcement, the Company will be indirectly holding 95% equity interest in the Indonesian Company upon Completion.
Completion is subject to fulfilment (or waiver, as the case may be) of the conditions precedent as set out below.
LISTING RULES IMPLICATION
As the applicable percentage ratios in respect of the Acquisition exceed 5% but less than 25%, the Acquisition constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules.
As the Vendor is the sole shareholder of the Target and the Target is currently holding 17.5% equity interest in the Indonesian Company, being a subsidiary of the Company, the Vendor is therefore regarded as a connected person of the Company under Chapter 14A of the Listing Rules. Accordingly, the Acquisition constitutes a connected transaction of the Company which is subject to reporting, announcement and independent shareholders’ approval requirements under Chapter 14A.32 of the Listing Rules. An Independent Board Committee will be formed to provide recommendations to the Independent Shareholders on the Agreement and the transactions contemplated thereunder. An independent financial adviser will be appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.
The Company will seek the Independent Shareholders’ approval of the Agreement and the transactions contemplated thereunder at the EGM by way of poll whereby the Vendor and his associates shall abstain from voting.
GENERAL
A circular containing, among other things, (i) details of the Acquisition; (ii) the letter of recommendation from the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice from the independent financial adviser to the Independent Board Committee and the Independent Shareholders; and (iv) a notice of the EGM, will be despatched to the Shareholders on or before 30 April 2014 in accordance with the Listing Rules.
As the Acquisition is subject to the fulfilment of a number of conditions precedent and may or may not proceed, Shareholders and potential investors should exercise caution when dealing in the securities of the Company.
INTRODUCTION
The Board is pleased to announce that on 21 March 2014 (after trading hours), the Purchaser, a wholly-owned subsidiary of the Company, entered into the Agreement with the Vendor pursuant to which the Purchaser has conditionally agreed to acquire the Sale Shares, representing the entire issued share capital of the Target, and the Sale Loan at the aggregate Consideration of HK$318,000,000.
THE AGREEMENT
Date: 21 March 2014 (after the trading hours)
Parties:
Purchaser : Interchina Resources Holdings Limited, a wholly-owned subsidiary of the Company
Vendor : Mr. Ji Wen Wen
As the Vendor is the sole shareholder of the Target and the Target is currently holding 17.5% equity interest in the Indonesian Company, being a subsidiary of the Company, the Vendor is regarded as a connected person of the Company under the Listing Rules.
Assets to be acquired
(i) the Sale Shares, representing the entire issued share capital of the Target, which in turn will hold 30% equity interest in the Indonesian Company upon Completion.
(ii) the Sale Loan, being the aggregate sum due and owing by the Target to the Vendor immediately prior to Completion.
As at the date of this announcement, the amount due and owing by the Target to the Vendor was US$6,051,500 (equivalent to approximately HK$47,201,700). Such balance was mainly arising from the shareholder's loan advanced by the Vendor to the Target for the lending of US$6,000,000 (equivalent to approximately HK$46,800,000) to an Independent Third Party (the "Loan") in 2012. Details of the Loan and further details of the Indonesian Company is set out in the section headed "Information of the Indonesian Company" in this announcement.
The original purchase cost of the Target to the Vendor amounted to HK$150,000,000.
Consideration
The Consideration is HK$318,000,000, of which the consideration for the Sale Loan is equivalent to its face value and the consideration for the Sale Shares shall be the balance of the Consideration after deducting the consideration for the Sale Loan. The Consideration will be satisfied in cash in the following manners:
(a) HK$159,000,000 shall be payable by the Purchaser to the Vendor (or his nominee(s)) as deposit (the "Deposit") and part payment of the Consideration within 10 days after signing of the Agreement; and
(b) HK$159,000,000 shall be payable by the Purchaser to the Vendor (or his nominee(s)) upon Completion.
In the event the conditions precedent set out in the Agreement are not satisfied (or as the case may be, waived) on or before the Long Stop Date (as defined below), or the Purchaser has served a notice to the Vendor stating it is not satisfied with the results of the due diligence review conducted pursuant to the Agreement, or the Purchaser has exercised its right of rescission in accordance with the Agreement, or Completion does not take place in accordance with the terms thereof, the Vendor shall refund the Deposit (without interest) to the Purchaser within 7 Business Days after written demand from the Purchaser in such method as the Purchaser may agree.
The Consideration was determined after arm's length negotiations between the Purchaser and the Vendor and by reference to the preliminary valuation of the Mining Right at US$138,000,000 (equivalent to approximately HK$1,076,400,000) as at 31 January 2014. Such valuation was assessed by Roma Appraisals Limited, a firm of independent professional valuers, adopting the income-based approach. The Consideration represents a
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discount of approximately 1.5% over the 30% of the valuation of the Mining Right i.e. HK$322,920,000. The valuation constitutes profit forecast pursuant to the Listing Rules. Please refer to the announcement of the Company dated 21 March 2014 for further details. The Consideration will be financed by internal resources of the Group.
The Board (other than the independent non-executive Directors whose view will be included in the circular of the Company to be published in relation to the Acquisition after being advised by the independent financial adviser) is of the view that the terms of the Agreement (including the Consideration) are fair and reasonable and are in the interest of the Company and the Independent Shareholders as a whole.
Conditions precedent
Completion is subject to the following conditions:
(a) the passing of the necessary resolution(s) by the shareholders of the Company (other than those who are required to abstain from voting under the Listing Rules) at the extraordinary general meeting of the Company to approve the Agreement and the transactions contemplated thereunder;
(b) all necessary consents, licences and approvals required to be obtained on the part of the Purchaser in respect of the Agreement and the transactions contemplated thereunder having been obtained and remain in full force and effect;
(c) the Target having become the registered and beneficial owner of 30% equity interest in the Indonesian Company;
(d) all necessary consents, licences and approvals required to be obtained on the part of the Vendor and the Target Group in respect of the Agreement and the transactions contemplated thereunder having been obtained and remain in full force and effect;
(e) the Purchaser being satisfied with the results of the due diligence review to be conducted under the Agreement; and
(f) there being no breach of the warranties given by the Vendor in the Agreement and such warranties having remained true and accurate in all respects up to and including Completion.
The Purchaser may at its discretion at any time waive in writing the condition (e) set out above. Save as aforesaid, none of the above conditions are capable of being waived. The Vendor shall use his best endeavours to procure the fulfilment of the conditions (c), (d) and (f) above. If any of the conditions set out above have not been satisfied (or as the case may be, waived) on or before 4:00 p.m. on 30 September 2014 (or such later date as the Purchaser may agree) (the "Long Stop Date"), the Agreement shall cease and determine notwithstanding any other provisions of the Agreement and the Vendor shall within 7 Business Days from the cessation and termination of the Agreement refund the Deposit to the Purchaser without interest, and thereafter neither party thereto shall have any obligations and liabilities towards each other thereunder save for any antecedent breaches of the terms thereof.
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Completion
Completion shall take place on the third Business Day after the fulfilment (or waiver, as the case may be) of the conditions precedent or such other date as the Purchaser may agree.
Upon Completion, the Target shall become a wholly-owned subsidiary of the Company, which in turn will directly hold 30% equity interest in the Indonesian Company. The equity interests in the Indonesian Company held by the Group will then be increased from 65% to 95%. The Indonesian Company will be treated as a 95%-owned subsidiary of the Company, with 5% non-controlling interest and its accounts will continue to be consolidated to that of the Group.
INFORMATION OF THE TARGET GROUP
The Target
The Target was incorporated in the British Virgin Islands on 1 July 2010 with limited liability and is engaged in investment holding. As at the date of this announcement, the principal assets of the Target were the 17.5% equity interest in the Indonesian Company and the Loan. Upon Completion, the Target shall be directly interested in 30% of the equity interest in the Indonesian Company.
In 2012, the Target granted the Loan in the principal amount of US$6,000,000 (equivalent to approximately HK$46,800,000) to an Independent Third Party for a term of 5 years. The Loan is interest free and secured by a pledge of 2,500 shares in the Indonesian Company held by Mr. Daniel Cherlin, representing 5% equity interest in the Indonesian Company, in favour of the Target. As at the date of this announcement, the Loan was still outstanding.
Set out below is the unaudited financial information of the Target for the two years ended 31 March 2013 and the nine months ended 31 December 2013 prepared in accordance with the Hong Kong Financial Reporting Standards:
| For the year ended 31 March 2012 HK$ | For the year ended 31 March 2013 HK$ | For the nine months ended 31 December 2013 HK$ | |
|---|---|---|---|
| Loss before taxation | 11,700 | 11,700 | 11,700 |
| Loss after taxation | 11,700 | 11,700 | 11,700 |
| Net liabilities | 378,300 | 366,600 | 354,900 |
The Indonesian Company
The Indonesian Company was incorporated in the Republic of Indonesia on 8 October 2005 with limited liability and is a mining company under the Laws of the Republic Indonesia. As at the date of the Agreement, the Indonesian Company had an authorised share capital of Rp5,000,000,000 divided into 50,000 shares of Rp100,000 each, all of which have been issued and fully paid. As at the date of the Agreement, the Indonesian Company was owned
as to 65% by Universe Glory Limited, a direct wholly-owned subsidiary of the Purchaser, 17.5% by the Vendor, 10% by Lianbo Limited, 5% by Mr. Daniel Cherlin and 2.5% by Mr. Aristoteles Cherlin.
The Indonesian Company is the legal holder of the Mining Licence to exclusively conduct the activities of construction, production, sales transportation and processing/refinery of manganese ore in the Mining Blocks for a period of twenty years. Based on the available estimate manganese resources of the Mining Blocks, the carrying value of the Mining Right as at 31 March 2013 was approximately HK$1,099,800,000 as shown in the consolidated financial statements of the Company for the year ended 31 March 2013. Since obtaining the Mining Licence by the Indonesian Company in November 2011, the relevant construction has been underway, but no production has commenced. Therefore, the Indonesian Company/ the Mining Block did not generate any revenue but recorded a loss before and after taxation of approximately HK$196,000 and HK$1,865,000 for the two years ended 31 March 2013 respectively.
FINANCIAL EFFECT OF THE ACQUISITION
Upon Completion, the Group's interest in the Indonesian Company will increase from 65% to 95% and the non-controlling interest of the Indonesian Company will decrease from 35% to 5%. The financial statements of the Indonesian Company shall continue to be accounted for in the Group's consolidated financial statements with non-controlling interest of 5% held by Mr. Daniel Cherlin. The Acquisition would not lead to a material change in the net asset value of the Group but (i) the total assets of the Group will be decreased by HK$271,200,000 which represents the Consideration of HK$318,000,000 less the Loan of US$6,000,000 (equivalent to approximately HK$46,800,000); and (ii) the total liabilities of the Group will be decreased by HK$271,200,000 due to the decrease in the percentage of the non-controlling interest of the Indonesian Company upon Completion and the profit or loss generated from the Indonesian Company attributable to the Company will be 95%, instead of 65%.
REASONS FOR THE ACQUISITION
The Company is an investment holding company. The Group is principally engaged in the environmental water treatment operation, property investment operation, financing and securities investment operation and natural resources operation.
The Company has been interested in obtaining full ownership of the Mining Blocks. At the beginning of 2011, the Company, through the acquisition of entire equity interest in Universe Glory Limited, indirectly held 65% equity interest of the Indonesian Company. Since the relevant production plan had not been finalised, the Indonesian Company did not generate any revenue for the past two years. However, the Company believes that demand for natural resources will be considerable and is confident that the Mining Blocks will have considerable development potential in the future. The Company considers that the Acquisition represents an opportunity for the Group to consolidate the shareholding in the Indonesian Company at a reasonable price which would improve the efficiency of decision making process of the Indonesian Company. In addition, by acquiring more equity interest in the Indonesian Company, the Company will be entitled to a larger portion of the profit of the Indonesian Company. Upon Completion, the Indonesian Company will speed up the
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progress of the production plan or any other feasibility proposal of the Mining Blocks. It believes that the natural resources operation will make contribution to the cash flow and revenue stream of the Group in the near future.
The terms of the Agreement have been negotiated on an arm's length basis. The Directors (excluding the independent non-executive Directors) believe that the Acquisition is in line with the business plan of the Company and the terms of the Agreement are fair and reasonable so far as the Independent Shareholders are concerned, and the Acquisition is in the interest of the Company and the Independent Shareholders as a whole.
LISTING RULES IMPLICATION
As the applicable percentage ratios in respect of the Acquisition exceed 5% but less than 25%, the Acquisition constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules.
As the Vendor is the sole shareholder of the Target and the Target is currently holding 17.5% equity interest in the Indonesian Company, a subsidiary of the Company, the Vendor is therefore regarded as a connected person of the Company under the Listing Rules. Accordingly, the Acquisition constitutes a connected transaction of the Company which is subject to reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.
An Independent Board Committee will be formed to provide recommendations to the Independent Shareholders on the Agreement and the transactions contemplated thereunder. An independent financial adviser will be appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.
The Company will seek the Independent Shareholders' approval of the Agreement and the transactions contemplated thereunder at the EGM by way of poll whereby the Vendor and his associates shall abstain from voting. As at the date of this announcement, the Vendor and his associates do not hold any Shares.
GENERAL
A circular containing, among other things, (i) details of the Acquisition; (ii) the letter of recommendation from the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice from the independent financial adviser to the Independent Board Committee and the Independent Shareholders; and (iv) a notice of the EGM, will be despatched to the Shareholders on or before 30 April 2014 in accordance with the Listing Rules.
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DEFINITIONS
In this announcement, unless the context otherwise requires, the following terms shall have the following meanings:
“Acquisition”
the acquisition by the Purchaser of the Sale Shares and the Sale Loan pursuant to the terms and conditions of the Agreement
“Agreement”
the sale and purchase agreement dated 21 March 2014 entered into between the Purchaser and the Vendor in relation to the Acquisition
“associates”
has the meaning ascribed to it under the Listing Rules
“Board”
the board of Directors
“Business Day”
a day (other than a Saturday or any day on which a tropical cyclone warning no. 8 or above is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon or on which a “black” rainstorm warning signal is hoisted or remains in effect between 9:00 a.m. and 12:00 noon and is not discontinued at or before 12:00 noon) on which licensed banks are generally open for business in Hong Kong throughout their normal business hours
“Company”
EverChina Int'l Holdings Company Limited, a company incorporated in Hong Kong with limited liability, the issued Shares of which are listed on the Main Board
“Completion”
completion of the Acquisition
“connected person(s)”
has the meaning ascribed to it in the Listing Rules
“Consideration”
the aggregate consideration of HK$318,000,000 for the sale and purchase of the Sale Shares and the Sale Loan under the Agreement
“Director(s)”
the director(s) of the Company
“EGM”
the extraordinary general meeting of the Company to be held to consider and if thought fit, to approve the Agreement and the transactions contemplated thereunder
“Group”
the Company and its subsidiaries
“HK$”
Hong Kong dollar, the lawful currency of Hong Kong
“Hong Kong”
the Hong Kong Special Administrative Region of the People's Republic of China
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“Independent Board Committee” the independent committee of the Board comprising all independent non-executive Directors to be established to provide recommendation to the Independent Shareholders in relation to the Agreement and the transactions contemplated thereunder
“Independent Shareholder(s)” Shareholders other than the Vendor and his associates
“Independent Third Party” independent third party who is, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, independent of the Group and its connected persons (as defined under the Listing Rules)
“Indonesian Company” P.T. Satwa Lestari Permai, a company incorporated in the Republic of Indonesia with limited liability and a subsidiary of the Company
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Main Board” the Main Board of the Stock Exchange
“Mining Blocks” the mining area located in the Fatumetan and Tanini Village, sub-districts of South Amfoang and Takari, Kupang Regency, East Nusatenggara Regency Province, Republic of Indonesia, with aggregate area of 2,000 hectare where the estimate manganese resources is located
“Mining Licence” the mining business licence called Ijin Usaha Pertambangan issued by the Head of Regency of Kupang, Indonesia, under which the Indonesian Company is licensed to conduct the activities of construction, production, sales transportation and processing/refinery of manganese ore in the Mining Blocks
“Mining Right” the right conferred under the Mining Licence in relation to the Mining Blocks
“Purchaser” Interchina Resources Holdings Limited, a wholly-owned subsidiary of the Company
“Rp” Rupiah, the lawful currency of Indonesia
“Sale Shares” 50,000 shares of US$1.00 each in the capital of the Target, being the entire issued share capital of the Target as at the date of this announcement
“Sale Loan” being the aggregate amount owned by the Target to the Vendor immediately prior to Completion, which is interest free, unsecured and repayable on demand
"Share(s)" ordinary share(s) of HK$0.10 each in the capital of the Company
"Shareholder(s)" holder(s) of the Shares
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Target" All Yield Investments Limited, a company incorporated in the British Virgin Islands with limited liability
"Target Group" the Target and the Indonesian Company
"Vendor" Mr. Ji Wenwen
“%” per cent.
By Order of the Board
EverChina Int'l Holdings Company Limited
Lam Cheung Shing, Richard
Chief Executive Officer and Executive Director
Hong Kong, 21 March 2014
As at the date of this announcement, the executive Directors are Mr. Jiang Zhaobai, Mr. Shen Angang, Mr. Lam Cheung Shing, Richard, Mr. Zhu Deyu Mr. Lu Yaohua and Mr. Gu Yungao; and the independent non-executive Directors are Mr. Ho Yiu Yue, Louis, Mr. Ko Ming Tung, Edward and Mr. Chen Yi, Ethan.
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