DONGJIANG ENVIRONMENTAL COMPANY 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.
DONGJIANG ENVIRONMENTAL COMPANY LIMITED*東江環保股份有限公司
(a joint stock limited company incorporated in the People's Republic of China)
(Stock code: 00895) INSIDE INFORMATION ACQUISITION OF EQUITY INTEREST IN HENGJIAN TONGDA AND PROVISION OF GUARANTEEThis announcement is made by Dongjiang Environmental Company Limited (the "Company", together with its subsidiaries, the "Group") pursuant to Rule 13.09 and 13.10B of the Rules Governing the Listing of Securities (the ''Listing Rules'') on The Stock Exchange of Hong Kong Limited (the ''Stock Exchange'') and the Inside Information Provisions (as defined under the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong).
ACQUISITION OF EQUITY INTEREST IN HENGJIAN TONGDA Risks Warning:
1. The equity interest acquisition transaction does not constitute a connected transaction.
2. The equity interest acquisition transaction does not constitute material assets restructuring under "Administrative Measures for the Material Assets Reorganization of Listed Companies".
3. According to the requirements of articles of association and related regulations, the equity interest acquisition transaction falls within the authorization of the Board, and it does not need to propose to general meeting of the shareholders for consideration and approval.
4. The funding for the equity interest acquisition transaction is from the Company's own funding.
5. After the completion of the equity interest acquisition transaction, Hengjian Tongda will become the wholly-owned subsidiary of the Company, and shall be included into the consolidated financial statements of the Company.
6. The equity interest acquisition transaction has not been completed, there is still uncertainty in respect of the performance of the agreement. Investors are kindly advised to decide prudently, and be aware of the investment risk.
The Company intends to acquire 100% equity interest in Shenzhen Hengjian Tongda Investment
Management Co., Ltd.* ( 深圳市恒 建通達 投 資管理有限 公司 , hereinafter referred to as "Hengjian Tongda" or "Target Company") held by Hengjian Energy Environmental Group Co., Ltd. * (恆建能源環保集團有限公司，hereinafter referred to as "Hengjian Energy") with the
Company's self-owned fund of RMB147 million. The Company will also assume the obligation of the Target Company for settlement of accounts payable in the amount of RMB65 Million. The Company will, upon the transfer of the equity interest above, directly hold 100% equity interest in Hengjian Tongda, and Hengjian Tongda will become a wholly-owned subsidiary of the Company.
As at 4 February 2015, the "Resolution on Acquisition of Equity Interest in Shenzhen Hengjiang Tongda Investment Management Co., Ltd. and External Guarantee" was passed at the 18th meeting of the 5th session of the board of directors (the "Board") of the Company. According to the relevant provisions of the listing rules of Shenzhen Stock Exchange and the articles of association of the Company, the acquisition of the equity interest in Hengjian Tongda and the external guarantee fall within the authority of the Board of the Company and do not need to be
proposed to the general meeting of the shareholders for consideration.
The funding of the transaction amount for the acquisition comes from the Company's own source of funding. The acquisition is not a connected transaction and does not constitute material asset reorganization under the "Administrative Measures for the Material Assets Reorganization of Listed Companies". The "Equity Transfer Agreement" shall take effect from the time when it is signed by both parties.
Company Name: Hengjian Energy Environmental Group Co., Ltd
Type of Enterprise: limited liability company
Legal Representative: Feng Weiguo (馮衛國)
Registered Capital: RMB 200 million
Registered Address: No. 2015-601 Digital Harbor Mansion, No. 258 Gaoxin Street, Gaoxin
District (New Downtown), Urumqi, Xinjiang, PRC
Business Scope: equity investment in non-listed companies, shares holding of listed companies through non-public placing of shares or transfer of equity interest
Hengjian Energy holds 100% equity interest of Hengjian Tongda.
Company Name: Shenzheng Hengjian Tongda Investment Management Co., Ltd. Type of Enterprise: limited liability company (sole proprietorship of legal person) Date of Incorporation: 23 December 2014
Registered Address: Room 201, Building A, No. 1 Qianwan 1 Road, Qianhai Shenzhen-Hong Kong Cooperation Zone, Shenzhen City, PRC (Resident in Shenzhen Qianhai Commercial Secretary Co., Ltd.)
Registered Capital: RMB 10 million
Shareholders: Hengjian Energy holds 100% equity interest in Hengjian Tongda.
There is no connection between shareholders of the Target Company and the Company, any shareholders representing more than 5% shares of the Company, the persons in de facto control of the Company, any directors, supervisors or senior officers of the Company.
Core Business: investment management (where approval is required in accordance with the laws, administrative regulations or the decision of the State Council, such operation can only be conducted upon the receipt of the relevant approval documents in accordance with the laws); investment in industrial projects (specific projects are subject to additional application).
Hengjian Tongda holds 100% equity interest in Humen Green Source Water Co., Ltd. ("Green Source Water"). In addition, Hengjian Tongda does not hold any other assets or conduct any other business. Green Source Water signed a concession right agreement (BOT) with the Government of Humen Town in July 2006, pursuant to which, Green Source Water acquired the
rights to construct and operate Humen Ningzhou Sewage Treatment Plant and Haidao Sewage
Treatment Plant with a concession period of 25 years.
Ningzhou Sewage Treatment Plant is located in the sixth industrial zone, Nanzha Village, Humen Town, Dongguan City with an area of approximately 390,000 square meters and is mainly responsible for collecting the residents' domestic wastewater in the area to the east of Taiping Waterway of Humen, covering approximately 150 square kilometers and a population of approximately 750,000. At present, Ningzhou Sewage Treatment Plant is running its Phase I project with a daily sewage treatment capacity of 100,000 tonnes.
Haidao Sewage Treatment Plant is located in Wushansha, Weiyuan Island, Humen Town, Dongguan City with an area of approximately 50,000 square meters and is mainly responsible for collecting the domestic wastewater of residents in Weiyuan Island, covering approximately
15 square kilometers and a population of approximately 100,000. At present, Haidao Sewage Treatment Plant is sunning its Phase I project with a daily sewage treatment capacity of 10,000 tonnes.
According to the auditor's report issued by Shenzhen Yinhua Certified Public Accountants (General Partnership), the audited major financial data of Hengjian Tongda and Green Source Water for the year 2014 is as follows:
Unit: RMB
Item | Hengjian Tongda | Green Source Water |
Item | As at 31 December 2014 (Consolidated, audited) | As at 31 December 2014 (Audited) |
Total assets | 137,351,982.27 | 139,823,081.51 |
Total liabilities | 127,364,482.27 | 66,276,782.27 |
Owners' equity | 9,987,500.00 | 73,546,299.24 |
Item | 2014 | 2014 |
Operating revenue | 38,806,212.00 | 38,806,212.00 |
Operating profits | 12,629,326.94 | 12,641,826.94 |
Net profits | 11,102,335.27 | 11,114,835.27 |
According to the auditor's report issued by Shenzhen Yinhua Certified Public Accountants (General Partnership), as at 31 December 2014, the total assets in the consolidated statement of Hengjiang Tongda amounted to RMB 137,351,982.27; the current assets amounted to RMB
19,214,557.30; the non-current assets amounted to RMB 118,137,424.97. The current assets mainly consisted of cash and cash equivalents, accounts receivable, inventories and other current assets; the non-current assets consisted of fixed assets, and intangible assets; fixed assets were mainly houses and buildings, machinery equipment, office and electronic equipment and relevant auxiliary facilities; intangible assets were rights to operate BOT projects and other intangible assets.
According to the auditor's Report, as at 31 December 2014, the total liabilities in the consolidated statement of Hengjiang Tongda amounted to RMB 127,346,482.27, which were mainly other payables, long-term borrowings and tax payables, etc.
(3) Guarantee, Litigation and ArbitrationAt present, there is no guarantee, litigation or arbitration involving Hengjian Tongda and its subsidiary.
(4) The Basis for the Price
The price of this transaction uses the auditor's report as the reference basis with a comprehensive consideration as to the current operations, market shares, and the growth in future markets of the Target Company. The consideration for the Target Company is mutually agreed to be RMB 147 million. Accordingly, the Company intends to acquire 100% equity interest in Hengjian Tongda with RMB 147 million.
Source of funds: the funds for the intended acquisition come from the own source of funds of the
Company.
Parties to the transaction:
Transferee: Dongjiang Environmental Company Limited ("Party A") Transferor: Hengjian Energy Environmental Group Co., Ltd. ("Party B")
1. The parties to the Agreement mutually agree and acknowledge that, the purpose of signing and performing the Agreement is that Party A operates the Target Company by accepting the transfer of 100% equity interest of the Target Company held by Party B and corresponding shareholders' equity interest, and shares the operating income of the Target Company.
2. The parties to the Agreement mutually agree that, for acceptance of the equity interest in the Target Company, Party A shall pay Party B a total consideration of RMB 147,000,000 for the equity transfer, which is based on the external creditors' rights and debts of the Target Company and Green Source Water undertaken as both parties agreed in accordance with the Agreement and on the condition that Party A undertakes to repay the accounts payable to Party B for the Target Company.
3. The parties to the Agreement mutually agree that, within five working days after Party A pays the first installment for the equity transfer to Party B according to relevant terms of the Agreement, both parties shall sign equity transfer documents as agreed in the Agreement (including but not limited to the shareholders' resolutions of the Target Company, amendment to the articles of association of the Target Company and etc.) and handle the formalities for changes in the registration with the Administration for Industry and Commerce for transfer of equity interest in the target Company.
4. After the Agreement takes effect, Party B shall, as agreed in the Agreement, assist Green Source Water in completing the formalities or acquiring the documents for lawful existence which are necessary for the implementation of the projects under operation.
5. Both parties mutually agree that, Party A shall undertake and be entitled to the cash and cash equivalents, accounts receivable (including the service fees for sewage treatment on and before
31 December 2014), inventories, and long-term receivables as well as assets set out the in Auditor's Report. In addition, Party A shall be entitled to the operating profits of the Target Company and Green Source Water for the year of 2014 and pay corresponding enterprise income tax.
6. The bank loan of Green Source Water is RMB 61,985,000. Party B shall be responsible for handling the changes in guarantee and the guarantor. Party A (or any company designated by Party A) and Party B shall jointly apply for the change in the guarantor with Wanjiang branch of Dongguan Rural Commercial Bank to relieve Party B and its shareholders from the liability of guaranty for the loan as guarantors.
7. The accounts payable of the Target Company to Party B, which amounts to RMB 75,000,000
(as at 31 December 2014). RMB 65, 000,000 shall be borne and repaid by Party A for the Target
Company.
8. The external creditor's rights formed before the completion of the handover of the Target Company and Green Source Water and to be undertaken over by Party A shall not be waived by Party B or the Target Company without prior written consent of Party A; otherwise, Party B shall assume joint and several liabilities for compensation or Party A shall deduct such amount from the price payable by it to Party B under the equity transfer, and Party B shall account for the balance (if any).
First, by acquiring the equity interest in Hengjiang Tongda, the Company will obtain its first municipal sewage treatment operation project so as to further expand the business field of municipal sewage treatment. It will be of significance for the Company to extend the industrial chain of environmental protection and improve the overall business capacity of the urban environmental service of the Company; it will be an important supplement to the Company as a provider of urban comprehensive environmental service; and meanwhile, operating municipal sewage treatment projects will benefit the Company in enhancing the application of new technologies in sewage treatment, accumulation of the market and management experience and of strategic importance to create a comprehensive environmental service platform.
Second, operating the municipal sewage treatment projects complies with the industrial policies of the State on energy conservation and emission reduction, enabling the Company to assume social responsibilities to certain extent and creating good social benefits. Meanwhile, along with the increasing population to be served in the concession region, there will be great room for the development of the municipal sewage treatment capacity, establishing a foundation for the expansion of Ningzhou Sewage Treatment Plant and Haidao Sewage Treatment Plant. Therefore, the project is able to maintain a good sustainable growth.
Third, the municipal sewage treatment project features exclusivity in operation. After recent years of operation, the income from the project is stable and the internal rate of return is about
8%. In the future, the Company will conduct technical upgrading and reconstruction to the sewage treatment plant, and there is certain room for the increase of the sewage disposal fee. Therefore, the project may create a good economic benefit for the Company.
It is given that the amount of bank loan in total provided by Green Source Water does not exceed RMB116 million; the remaining balance at present is RMB61,985,000; and the guarantors of the loan at present are Hengjian Energy and its shareholders. After the completion of acquisition of
100% equity interest in Hengjian Tongda, it is agreed that the guarantee and the guarantor of the bank loans of Green Source Water, will be changed. The guarantee of the above-mentioned bank loans will be provided by the Company or its holding subsidiaries, and the term of the guarantee will last until May 2017.
Upon the acquisition of 100% equity interest in Hengjian Tongda by the Company, Hengjian Energy will no longer be the shareholder of Hengjian Tongda, and will not assume any guarantee liabilities for Green Source Water. Therefore, the change of the guarantor to the Company or its holding subsidiaries complies with the practical situation. Based on the due diligence investigation on Green Source Water, it is noticed that Green Source Water maintains a steady and constant growth with good prospect. In addition, upon the completion of the acquisition, the Company will have effective control over Green Source Water in respect of operation management, financial position, investment and financing, and solvency.
Therefore, the Board of the Company believes that, the provision of guarantee for Green Source Water helps solving its funding need in production and operation and will further improve its economic performance. Withfull understanding of Green Source Water, the Board believes that Green Source Water has the ability to pay the debts and will not cause great risks to the Company. The Board also agrees that the Company or its holding subsidiaries will provide guarantee for the bank loans of Green Source Water at nil consideration.
The independent directors of the Company are of the opinion that the provision of guarantee by the Company for Green Source Water to satisfy its normal production and operation needs after the completion of equity interest acquisition of Hengjian Tongda by the Company, and the change of guarantee to be provided by the Company or its holding subsidiaries is beneficial to the production and operation development of Green Source Water, and can further improve its economic performance. Besides, Green Source Water is under normal operation and has a good credit standing. Therefore, the risk undertaken for guarantee is manageable. As such, the decision of granting the guarantee is in compliance with the requirements of the articles of
association of the Company and the relevant laws and regulations, and no guarantee provided is in violation of regulations or detrimental to the interest of the Company and its shareholders. Therefore, we agree with the guarantee mentioned above.
By order of the Board
Dongjiang Environmental Company Limited* Zhang Wei YangChairman
Shenzhen, the People's Republic of China, 4 February 2015
As at the date of this announcement, the Board comprises three executive Directors, being Mr. Zhang Wei Yang, Mr. Chen Shu Sheng and Mr. Li Yong Peng; two non-executive Directors, being Mr. Feng Tao and Ms. Sun Ji Ping; and three independent non-executive Directors, being Mr. Qu Jiu Hui, Mr. Wong Hin Wing and Mr. Wang Ji De.
*For identification purpose only
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