Harbour Centre Development Limited — M&A Activity 1999

Nov 30, 1999

Listed Company Information

FE CONSORT INTL<0035> - Announcement 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. FAR EAST CONSORTIUM INTERNATIONAL LIMITED (Incorporated in the Cayman Islands with limited liability) PROPOSED SPIN-OFF AND SEPARATE LISTING OF NEW CHINA HOMES, LTD. ON THE NASDAQ STOCK MARKET The Company has applied to the Stock Exchange for New China Homes, a 91.8% owned subsidiary of the Company, to be spun-off and separately listed on the Nasdaq by way of a public offering of new shares in New China Homes in the US. New China Homes is principally engaged in the development of and investment in middle-income sector residential property and related projects in major PRC cities (excluding Hong Kong). Under the Listing, New China Homes will issue an aggregate of up to 2,300,000 New NCH Shares at a price of US$5.00 per New NCH Share and up to 2,300,000 NCH Warrants at a price of US$0.125 per NCH Warrant. The Company will continue to hold a maximum of approximately 77% in the enlarged issued share capital of New China Homes following the Listing. The Listing also involves the adoption by New China Homes of the Stock Option Plan, the Waiver of assured entitlements of the Shareholders and the Guarantee. The Directors are seeking the approval of, among other things, the Listing and its ancillary matters and the adoption of the Stock Option Plan from Shareholders and the Waiver of assured entitlements from Independent Shareholders. 1. THE LISTING The Directors announced that on 31st August 1999, a registration statement has been filed with the US SEC in connection with a public offering of shares in New China Homes and a listing and quotation of such shares on the Nasdaq. Pursuant to the Listing, New China Homes will issue 2,000,000 New NCH Shares at a price of US$5.00 per New NCH Share and 2,000,000 NCH Warrants at US$0.125 per NCH Warrant. The Underwriter will also be granted an option to subscribe for a further 300,000 New NCH Shares and 300,000 NCH Warrants under an over-allotment scheme. The New NCH Shares and the NCH Warrants are proposed to be listed by way of a public offering. Immediately following the Listing, the issued share capital of New China Homes will consist of 12.4 million NCH Shares (before taking into account over-allotment of the New NCH Shares). 2. INFORMATION ON NEW CHINA HOMES The operations of the New China Homes Group was founded in 1997 to become a leading developer of large, planned residential communities in the PRC's rapidly emerging private home building market. New China Homes designs, develops, constructs, markets and sells spacious, high-quality, affordable homes in planned residential communities in the PRC, which are targeted at Chinese middle-income families. Development sites are selected which are within commuting distance to PRC's principal population centers. In May 1997, the New China Homes Group began the construction of its first planned residential community, called "California Gardens". California Gardens is located on a 350-acre site just inside the northwestern corner of the outer ring road surrounding the city of Shanghai. When completed, California Gardens will feature a projected 4,485 townhouses and 1,280 apartments, representing a total gross floor area of approximately 10 million square feet. The following is a summary of the shareholding structure before and after the proposed Listing: Before After Listing Listing (Note) The Company 91.8% 77.0% Investors 8.2% 6.9% Public Investors - 16.1% Total 100% 100% Note: before taking into account conversion of the NCH Warrants and the issue of the over-allotment securities. All of the existing shareholders of New China Homes have agreed that: *25% of their NCH Shares will be cancelled if the net income of New China Homes is less than US$10 million in the one-year period commencing on the first day of the month following the closing date of the public offer of the New NCH Shares in the US; and *25% of their NCH Shares will be cancelled if the net income of New China Homes is less than US$20 million in the next following one-year period. 3. REASONS FOR THE LISTING The Directors consider that a separate listing of the Group's PRC residential property development operations through New China Homes will have the following benefits: *The Listing will assist New China Homes in raising capital required to finance its future expansion in a variety of development projects. New China Homes is poised for significant growth and the Directors believe it would be both effective and prudent for New China Homes to support this growth independently through equity capital raised by way of a separate listing and the resulting access to the US and global capital markets; *New China Homes, as a separate listed company, will focus on the PRC projects (other than Hong Kong) so as to capitalise on the opportunities which are expected to arise in the middle-income residential housing sector in the PRC in the future; *The Listing will clarify the geographical structure of the Group: - the Company will hold Hong Kong and overseas properties, non-residential PRC property projects and other investments and a controlling interest in New China Homes; and - New China Homes will focus on middle-income residential developments (which may include ancillary commercial space and recreational facilities) in the PRC (other than Hong Kong). *The proposed restructuring will enable investors to appraise the strategies, geographical exposure, risks and returns of the Company and New China Homes separately to make their investment decisions accordingly. It is expected that New China Homes will remain as a subsidiary of the Company after the Listing. In order to ensure clear segregation of operations, the Company has entered into a non-competition agreement with New China Homes undertaking, inter alia, that, while the Company maintains an interest of 25% or more of New China Homes, the Company will not engage in investment in or development of residential homes in the PRC (excluding Hong Kong) (unless such projects have first been offered to New China Homes and which were rejected). 4. USE OF PROCEEDS OF THE LISTING The net proceeds of the Listing from the offering is estimated to amount to approximately US$8.0 million (HK$62.0 million) or US$9.5 million (HK$73.6 million) if the Underwriter exercises its over-allotment option in full, assuming an initial offering price of US$5.00 per New NCH Share and US$0.125 per NCH Warrant and after deducting estimated underwriting discounts and commissions and expenses of the offering. The net proceeds from the Listing is expected to be used for working capital and general corporate purposes, including the completion of additional phases of the California Gardens project and the acquisition of land for future development projects. Pending such uses, New China Homes' directors intended to invest the net proceeds in interest-bearing, investment grade instruments, certificates of deposits, or direct or guaranteed obligations of the US. 5. FINANCIAL INFORMATION ON THE GROUP AND THE NEW CHINA HOMES GROUP The following is a summary of the results of the Group and the New China Homes Group for the three years ended 31st March, 1999: Year ended 31st March 1997 1998 1999 HK$'000 HK$'000 HK$'000 Profit for the year per audited financial statement (Note (i)) 141,029 30,025 40,266 Less: Contribution from associated companies (net of tax) 105,743 4,886 15,300 35,286 25,139 24,966 Less: Contribution from New China Homes Group (Note (ii)) (11 ) 3,290 19,329 Add: Loss on termination of a property development project in Xiamen, the PRC (Note (iii)) 0 0 (55,419 ) 11 (3,290 ) 36,090 Proforma profit for the year (Note (iv)) 35,297 21,849 61,056 Notes: (i) The above results for each of the three years ended 31st March, 1997, 1998 and 1999 have been prepared based on the statutory audited financial statements of the Group for those years issued on 15th August, 1997, 18th August, 1998 and 17th August, 1999 respectively and approved by the Shareholders in the respective annual general meetings. (ii) The results of the New China Homes Group for the years ended 31st March, 1998 and 1999 incorporated in the Amendment No. 1 to the Form F-1 of registration statements and, filed with the SEC which are prepared for the purpose of a public offering in the US and a listing of the shares of New China Homes on the Nasdaq differs from the above in respect of certain costs which have been reallocated between those two years. This allocation is to reflect a mistake in calculating the construction cost of California Gardens of the New China Homes Group as a result of under accrual of certain infrastructure cost for Phase I at 31st March, 1998, which were originally recorded in the year ended 31st March, 1999. Net profits of New China Homes Group as incorporated in the registration statements as filed with the SEC for the 3 years ended 31st March, 1997, 1998 and 1999 are net loss of HK$11,000, and HK$3,639,000 and profit of HK$26,082,000, respectively. (iii) The exceptional loss recorded in the year ended 31st March, 1999, included an amount of approximately HK$55.4 million being the loss on termination of a property development project in Xiamen, the PRC. (iv) being profit attributable to Shareholders of the Group's normal course of business and excluding the contribution from the New China Homes Group and associate companies of the Group. Net tangible assets Set out below are proforma adjustment to the audited consolidated net tangible assets of the Group as at 31st March, 1999 to take into account the effects of Listing of New China Homes, assuming this transaction had taken place as at that date: HK$'000 Audited consolidated net tangible assets of the Group as at 31st March, 1999 2,434,107 Add: Increase in net tangible assets after the Listing of New China Homes Group (Note 1) 42,911 Proforma combined net tangible assets after the Listing of New China Homes Group 2,477,018 Audited net tangible asset value per Share as at 31st March, 1999 (Note 2) HK$2.63 Proforma net tangible asset value per Share after the Listing of New China Homes Group (Note 2) HK$2.68 Notes: 1. Share of approximately 77% of the net tangible assets of New China Homes Group after the Listing 64,064 Less: Share of 91.8% of the net tangible asset value of New China Homes Group before the Listing (21,153 ) 42,911 Assuming that the Company would hold approximately an indirect 77% equity interest in the New China Homes Group after completion of the Listing. 2. Based on 924,699,356 Shares in issue as at 31st March, 1999. 6. CONDITIONS OF THE LISTING The Listing is conditional, inter alia, on the following conditions being fulfilled: (i) the Listing Committee of the Stock Exchange having approved the Listing; (ii) the passing at the Extraordinary General Meeting of necessary resolutions by the Shareholders to approve the Listing (and its ancillary matters), the Stock Option Plan and the Independent Shareholders to approve the Waiver as referred to below; (iii) the obligations of the Underwriter under the Underwriting Agreement not being terminated by the Underwriter in accordance with the terms of the Underwriting Agreement; and (iv) the filing and registration of all documents relating to the Listing required by law in the US. The Stock Exchange has informed the Company that the Listing has been approved by the Listing Committee on the understanding that it will be subject to the approval of the Shareholders and that the proposed Waiver on the assured entitlement shall be subject to the approval of the Independent Shareholders. WARNING OF THE RISKS OF DEALING IN securities The listing of New China Homes is conditional and accordingly, the Listing may or may not proceed. Any Shareholder or holder of 2000 Warrants or other person contemplating selling or purchasing the Shares or 2000 Warrants who is in any doubt about his/her position is recommended to consult his/her professional adviser. 7. WAIVER OF ENTITLEMENT OF SHAREHOLDERS Pursuant to the Listing, the New NCH Shares will be listed by way of a public offer in the US. Under the Practice Note 15 of the Listing Rules, the existing Shareholders should be offered the New NCH Shares on an assured basis or by way of a distribution in specie under the Listing. In order for the Listing to fulfill the minimum public shareholding requirements on the Nasdaq and to enhance the liquidity of the New NCH Shares on the Nasdaq, the Directors consider that it would be impractical and costly to offer the New NCH Shares to the Shareholders. Accordingly, the Directors will put forward a resolution at the Extraordinary General Meeting for the Independent Shareholders to approve the Waiver. 8. ADOPTION OF STOCK OPTION PLAN The Listing encompasses the adoption by New China Homes of the Stock Option Plan. The Directors consider that the adoption of the Stock Option Plan would motivate the executives and management of New China Homes and accordingly, would be in the interest of New China Homes. A summary of the terms of the Stock Option Plan are set out in the circular dated 29th November, 1999 sent to the Shareholders. The Directors will put a resolution to the Shareholders at the Extraordinary General Meeting to approve the adoption by New China Homes of the Stock Option Plan. 9. PROPOSED CONNECTED TRANSACTIONS The Company has from time to time provided a corporate guarantee to a financial institution to secure financial facilities provided by the financial institution to the New China Homes Group. The financial facilities provided are also secured by certain phases of the California Gardens development. The Guarantee was provided under normal commercial terms and in the ordinary course of business. Following the Listing, it is intended that the Guarantee will discontinue. Pursuant to Rule 14.25 of the Listing Rules, details of the Guarantee will be disclosed in the next published annual report of the Company. 10. GENERAL The Independent Board Committee has been appointed to advise the Independent Shareholders as regards the Listing, the Waiver and the Stock Option Plan, and Equitas Capital Limited has been appointed as the financial adviser to advise the Independent Board Committee in this regard. Taking into account the opinion of Equitas Capital Limited, the Independent Board Committee recommended the Independent Shareholders to vote in favour of the resolutions to approve the Listing, the Waiver and the Stock Option Plan. The Company has despatched a circular dated 29th November, 1999 containing, inter alia, details of the Listing, the Waiver, the Stock Option Plan and the Guarantee, the management of New China Homes, the letter of advice from the Independent Board Committee, the letter of opinion from Equitas Capital Limited, and the notice convening the Extraordinary General Meeting to the Shareholders and, for information, holders of 2000 Warrants. The Extraordinary General Meeting has been convened to be held on Thursday, 16th December, 1999 and Shareholders are urged to take note of the notice of the Extraordinary General Meeting. TERMS USED IN THE ANNOUNCEMENT "Company" Far East Consortium International Limited, a company incorporated in the Cayman Islands and the securities of which are listed on the Stock Exchange "Directors" directors of the Company "Extraordinary General Meeting" the extraordinary general meeting of the Company to be held on Thursday, 16th December, 1999 "Group" the Company and its subsidiaries "Guarantee" corporate guarantee given by the Company in favour of a financial institution to secure financial facilities provided to the New China Homes Group "Hong Kong" The Hong Kong Special Administrative Region of the PRC "Independent Shareholders" Shareholders other than the Directors and their respective associates "Independent Board Committee" an independent committee of the board of the Company comprising Mr. Trevor John Bedford and Datuk Kee Leong Chee, the independent non-executive Directors, appointed to advise the Independent Shareholders as regards the Listing, the Waiver and the Stock Option Plan "Listing" the proposed spin-off and separate listing of the entire issued share capital of New China Homes on the Nasdaq by way of a public offering "Listing Rules" the Rules Governing the Listing of Securities on the Stock Exchange "Nasdaq" NASDAQ Stock Market in the US "NCH Shares" shares of US$1.00 each in the capital of New China Homes "New China Homes" New China Homes, Ltd., a company incorporated in the Cayman Islands and proposed to be listed on the Nasdaq and a 91.8% owned subsidiary of the Company "New China Homes Group" New China Homes and its subsidiaries "New NCH Shares" new NCH Shares to be issued pursuant to the Listing "NCH Warrants" new warrants to subscribe for New NCH Shares "PRC" the People's Republic of China, and where the context requires, excluding Hong Kong "SEC" the Securities and Exchange Commission of the US "Share(s)" shares of HK$0.10 each in the capital of the Company "Shareholders" holders of Shares "Stock Option Plan" the employee and executive stock option scheme proposed to be adopted by New China Homes "Stock Exchange" The Stock Exchange of Hong Kong Limited "Underwriter" Barron Chase Securities "Underwriting Agreement" the underwriting agreement to be entered into between, among other parties, New China Homes and the Underwriter in relation to the underwriting of the new issue of New China Homes "US" The United States of America "US$" US dollars, the legal currency of the US "Waiver" the approval to be sought by the Company at the Extraordinary General Meeting waiving the requirement for the New NCH Shares to be offered to the Shareholders on an assured basis "2000 Warrants" warrants in units of subscription rights of HK$0.90 each entitling holders thereof to subscribe in cash for Shares at any time up to 31st December, 2000 at an initial subscription price of HK$0.90 per Share (subject to adjustment) "HK$" Hong Kong dollars By Order of the Board Michael Chi Ning O'Young Managing Director Hong Kong, 29th November, 1999