Harbour Centre Development Limited — M&A Activity 1999

Dec 14, 1999

Listed Company Information

CHI CHEUNG<0112>&FE CONSORT INTL<0035>-Joint Announcement Chi Cheung Investment Company, Limited Far East Consortium International Limited Proposed Financial Restructuring of Chi Cheung Investment Company, Limited Further to the press announcements made by Chi Cheung and Far East Consortium International on 28 October 1999 respectively, their respective directors announce that Heads of Agreement were entered into between Chi Cheung and the Investor on 8 December 1999 in relation to the proposed financial restructuring for Chi Cheung by way of a Scheme. The Heads of Agreement are subject to various conditions including, inter alia, in principle support to the Proposal be obtained from the requisite majority of Chi Cheung's creditors, and that the Formal Agreement be entered into by the parties on or before 31 January 2000. The Stock Exchange has indicated that the transaction may constitute a spin-off as far as Far East Consortium International is concerned, and Newco may be treated as a new listing applicant following the Completion of the Scheme. If so, Far East Consortium International may not proceed with the Proposal. Accordingly, the release of this announcement does not in any way indicate that the proposed financial restructuring of Chi Cheung and the proposed investment by the Investor will be successfully implemented and completed. Chi Cheung had a negative net asset value of HK$575 million as at 30 June 1999. If Chi Cheung is unable to restructure its indebtedness with its bankers and creditors or to secure new equity financing, Chi Cheung will remain to have a negative net asset value and will be insolvent. Shareholders and investors should exercise extreme caution when dealing in the securities of Chi Cheung. The hearing by the Court of the winding up petition filed against Chi Cheung will take place on 15 December 1999. Chi Cheung will oppose the winding up petition. At the request of Chi Cheung, trading in Chi Cheung's shares was suspended since 2:30 p.m., 8 December 1999 and will be resumed on 14 December 1999. Parties to the Heads of Agreement 1. Chi Cheung 2. The Investor Date of the Heads of Agreement 8 December 1999 The Heads of Agreement The Heads of Agreement set out the principal terms and conditions agreed between Chi Cheung and the Investor for a proposed investment in Chi Cheung by way of the Scheme (in compliance with the requirements of the Code where applicable) involving an offering of new shares by Newco in exchange for the existing shares held by Chi Cheung's shareholders and an offering of new shares and cash by Newco in settlement of the indebtedness of Chi Cheung's creditors. The parties require not less than 50% by number and 75% by value of Chi Cheung's creditors will support the Proposal by the time the parties enter into the Formal Agreement. The Heads of Agreement may be terminated by the Investor if any of the creditors who have given their in principle support to the Proposal withdraws their support or the Formal Agreement not being entered into between the parties on or before 31 January 2000 (or such later date as the parties may agree in writing). Background Information of the Investor and the Joint Venture Interest The Investor is a company incorporated in Hong Kong and is an indirectly wholly owned subsidiary of Far East Consortium International, which is a company incorporated in the Cayman Islands and listed on the Stock Exchange, with principal businesses in the fields of property investment and development, investment holding, share trading, hotel operation and manufacture of boiler and cement products. The Joint Venture Interest is a 68% ownership in Shangqiu Yong Yuan Highway Development Co., Ltd., a sino-foreign cooperative joint venture which started from 31 July 1997 to 30 July 2018, for the construction and operation of a toll road location at National Highway 311 (Yongsheng Section), Yong Sheng City, Henan province, the People's Republic of China (the "PRC"). The remaining 32% interest is held by an independent third party which is not connected with the directors, chief executives and substantial shareholders, subsidiaries or any associates of Chi Cheung and Far East Consortium International. The reconstruction of the open system, dual one-lane toll road in replacement of the existing toll road is a section of the major national highway to Suzhou, Shandong and Anhui Provinces with a total length of 42km classified as a General Grade II Road as defined by the Ministry of Communications of the PRC. All relevant approvals from the PRC have been obtained on the setup and the registered capital has been paid up. The reconstructed toll road is expected to be completed in early 2000 so currently there is no revenue. Principal Arrangements of the Scheme 1. The net assets of Newco will be within the range of HK$230 million to HK$280 million (comprising of cash of HK$30 million and the Joint Venture Interest which is subject to independent valuation). 2. Newco will issue Scheme Shares to the creditors of Chi Cheung and make a cash payment to compromise their debts. On these basis, the indebtedness will be satisfied by: (i) the issue and allotment of approximately 663 million Scheme Shares, representing, as the case may be (depending on the eventual number of Scheme Shares of Newco issued to the Investor), approximately 20.2% to 17.5% of the Enlarged Capital; (ii) a cash payment of minimum sum of HK$30 million. 3. Newco will acquire the entire issued share capital of Chi Cheung from its Shareholders who will receive approximately 321 million Scheme Shares on the basis of one Scheme Share for every existing Chi Cheung Share held, representing, as the case may be, approximately 9.8% to 8.5% of the Enlarged Capital; Scheme of Arrangement Chi Cheung undertakes to use its best endeavours to implement schemes of arrangement with its creditors and the Shareholders pursuant to Section 166 of the Companies Ordinance upon, inter alia, the following principal terms: 1. Subject to 2 below, Newco will issue Scheme Shares to the Investor at par of HK$0.10 each to acquire from the Investor net assets comprising of cash of HK$30 million and the Joint Venture Interest before the implementation of the Scheme. Following the implementation of the Scheme, the Investor will hold between 2,300 million to 2,800 million Scheme Shares, representing approximately 70% to 74% of the Enlarged Capital of Newco; 2. An independent valuation will be conducted to determine the open market value of the Joint Venture Interest as at 30 November 1999: (a) if the Joint Venture Interest is less than HK$200 million, Newco will acquire from the Investor other property assets or other investments to be agreed by the parties to ensure that the net assets of Newco (including cash of HK$30 million) will not be less than HK$230 million; (b) if the Joint Venture Interest is more than HK$250 million, the excess amount over HK$250 million will be treated as an interest free and unsecured shareholder's loan due by Newco to the Investor, repayable after one year from Completion. 3. Newco will issue Scheme Shares to the creditors of Chi Cheung and make a cash payment to compromise all their debts (comprising of unsecured debts and Unsecured Shortfall) estimated to be approximately HK$634 million as at 31 October 1999 with a total of: (a) a minimum sum of HK$30 million comprising cash of HK$18 million from Newco and any cash remaining with the Group as at Completion. If the cash remaining is less than HK$12 million, Newco will meet the shortfall; and (b) a total of 663 million Scheme Shares; As the offer for compromise is for a lump sum cash plus a fixed number of shares, the hair cut ratio will depend on the amount of indebtedness, which cannot be determined until the unsecured shortfall is crystallised. 4. Newco will acquire the entire issued share capital of Chi Cheung from the Shareholders who will receive approximately 321 million Scheme Shares; and 5. The creditors of Chi Cheung undertake not to dispose of the Scheme Shares issued to them within 6 months from Completion and will not dispose of more than 50% of such Scheme Shares in the following 3 months. (For the Shareholding Structure of Chi Cheung, please refer to the press announcement today.) Formal Agreement Except for Chi Cheung's undertaking not to negotiate with other potential investors, the Heads of Agreements are not binding on the parties until the Formal Agreement has been signed, which shall take place within seven days after the finalisation of the valuation report for the Joint Venture Interest but not later than 31 January 2000. The Formal Agreement will be subject to a number of conditions including: 1. A written confirmation being obtained by Far East Consortium International from the Stock Exchange that the transactions contemplated in the Formal Agreement complies with the requirements under the Listing Rules within 30 days from the date of the Formal Agreement. 2. Within 60 days from the date of the Formal Agreement: (i) the Stock Exchange confirming in writing that Newco will not be treated as a new listing applicant upon Completion; (ii) the Stock Exchange granting approval of the listing of and dealing in the shares of Newco in issue immediately after Completion by way of an introduction and shares of Newco to be issued to the Creditors and Shareholders under the Scheme; (iii) a whitewash waiver being obtained from the Executive of the Corporate Finance Division of the SFC pursuant to Rule 26 of the Code in respect of any obligation which may arise whereby the Investor or any party acting in concert with the Investor are required to make a general offer for all the issued shares of Chi Cheung not already owned by them as a result of transactions contemplated under the Heads of Agreement, which requires resolution by independent shareholders by a poll under the Code. 3. the requisite majorities of the Shareholders and the creditors of Chi Cheung approving the Scheme and the transactions contemplated hereunder pursuant to the Listing Rules, the Code and the Companies Ordinance within 150 days from the date of the Formal Agreement; 4. the Scheme being sanctioned by the Court and the winding up petition filed by Fair Eagle Finance Limited being discontinued or discharged on or before 30 June 2000. Management 1. The board of directors of Newco from Completion will comprise of a majority of directors nominated by the Investor. Two independent non-executive directors will be nominated for appointment by the board of directors of Newco. 2. Mr. Ng will be offered to serve as the Chief Executive Officer and Director of Newco, in which position Newco will offer him an option to subscribe at par in cash up to 10% of the Enlarged Capital at par, which option is exercisable within three years from Completion. An option agreement will be signed between Mr. Ng and Newco before Completion. The option shall be subject to the consent of the Executive of the SFC pursuant to Rule 25 of the Code upon the application by Chi Cheung, and shall require the requisite shareholders' approval under the Listing Rules. Other Information The winding up petition of Chi Cheung disclosed in its announcement dated 15 September 1999 will be heard by the Court on 15 December 1999. Chi Cheung will oppose the winding up petition. The Stock Exchange has indicated that the transaction may constitute a spin-off as far as Far East Consortium International is concerned, and Newco may be treated as a new listing applicant following the Completion of the Scheme. If so, Far East Consortium International may not proceed with the Proposal. Chi Cheung recorded losses of approximately HK$67 million, HK$1,288 million and HK$84 million respectively for the financial years ended 31 December 1997 and 1998 and the half year ended 30 June 1999, and had a negative net asset of HK$575 million or a negative net asset per share of HK$1.79 as at 30 June 1999. If Chi Cheung is unable to restructure its indebtedness with its bankers and creditors or to secure new equity financing, it will remain to have a negative net asset value and will be insolvent. Shareholders and investors should exercise extreme caution when dealing in the securities of Chi Cheung. Further announcement in relation to the progress of the proposed restructuring plan will be released by Chi Cheung or jointly with Far East Consortium International as soon as practicable. As requested by Chi Cheung, trading in Chi Cheung's shares was suspended since 2:30 p.m., 8 December 1999 and will be resumed on 14 December 1999. Definitions "Chi Cheung" Chi Cheung Investment Company, Limited, incorporated in Hong Kong and listed on the Stock Exchange "Code" the Hong Kong Code on Takeovers and Mergers "Completion" the date on which the Scheme becomes effective when it is sanctioned by the Court, with or without modifications, and an office copy of the Court Order and the minute containing the particulars required by the Companies Ordinance is delivered to the Registrar of Companies in Hong Kong for registration and the completion of the Formal Agreement "Enlarged Capital" the enlarged issued share capital of Newco immediately upon Completion "Far East Consortium International" Far East Consortium International Limited, a company incorporated in the Cayman Islands and listed on the Stock Exchange "Formal Agreement" a legally binding agreement to be entered into between the Investor, Chi Cheung and Newco incorporating the terms of the Heads of Agreement "Investor" Far East Consortium Limited, an indirect wholly owned subsidiary of Far East Consortium International "Group" Chi Cheung and its subsidiaries "Joint Venture Interest" a 68% interest in a joint venture of a toll road which is a section of National Highway 311 located at Yong Sheng City, Henan, the PRC "Listing Rules" the Rules Governing the Listing of Securities on the Stock Exchange "Mr. Ng" Mr. Ng Kwok Cheung, Paul, the Chairman and Chief Executive Officer of Chi Cheung "Newco" a company wholly owned by the Investor incorporated in the Cayman Islands "Paliburg" Paliburg Holdings Limited, a company incorporated in Bermuda and listed on the Stock Exchange "Proposal" the investment proposal submitted by Far East Consortium International to Chi Cheung pursuant to the principal terms described in this announcement "Rapid Growth" Rapid Growth Holdings Limited, a company incorporated in the British Virgin Islands "Scheme" a proposed scheme of arrangement to be made by Chi Cheung with its creditors and the shareholders pursuant to Section 166 of the Companies Ordinance upon the terms as set out in the Heads of Agreement "Scheme Shares" new shares of HK$0.10 each in Newco "Secured Creditors" the creditors of Chi Cheung whose claims are secured by the Secured Properties "Secured Properties" landed properties beneficially owned by the subsidiaries which are used to secure the liabilities and/or indebtedness of Chi Cheung "SFC" the Securities and Futures Commission "Shareholders" the shareholders of Chi Cheung "Stock Exchange" The Stock Exchange of Hong Kong Limited "Unsecured Shortfall" the indebtedness due to the Secured Creditors less the reference value to be determined by the relevant Secured Creditor based on Chi Cheung's valuation or an open tender or the net sale proceeds of the relevant Secured Properties received prior to Completion By Order of the Board By Order of the Board Chi Cheung Investment Company, Limited Far East Consortium International Limited Ng Kwok Cheung, Paul Michael Chi Ning O'Young Chairman and Chief Executive Officer Managing Director Hong Kong, 13 December 1999 The directors of Chi Cheung jointly and severally accept full responsibility for the accuracy of the information contained in this announcement other than that relating to Far East Consortium International and confirm, having made all reasonable inquiries, that to the best of their knowledge and belief, the opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading. The directors of Far East Consortium International jointly and severally accept full responsibility for the accuracy of the information contained in this announcement other than that relating to Chi Cheung and confirm, have made all reasonable inquires, that to the best of their knowledge and belief, the opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.