18th Sep 2007 09:00
HaiKe Chemical Group Ltd.18 September 2007 18 September 2007 HaiKe Chemical Group Limited ("HaiKe" or the "Company") Transfer of minority stake in subsidiary Summary •Minority 12.25% stake in one of HaiKe's four subsidiaries, Hi-Tech Chemical, sold by the Sinopec group to a company incorporated in the PRC with its share capital held by 44 directors and employees of HaiKe and its subsidiaries as part of Sinopec's restructuring •This stake was sold in accordance with PRC legal restrictions on permitted purchaser and price to be paid •As a condition of sale, HaiKe has established legal restrictions which safeguard its interests in Hi-Tech Chemical going forward. These include future ownership rights should PRC legal restrictions be lifted Introduction HaiKe, a petrochemical, specialty chemical and biochemical business based inChina, is pleased to announce that the minority 12.25 per cent. stake (the"Target Interest") in Shandong Hi-Tech Chemical Group Co., Ltd ("Hi-TechChemical"), previously held by Shandong Petroleum Group Co., Ltd (DongyingBranch) ("Sinopec Dongying") at the time of the Company's flotation in February2007, has been successfully acquired by Dongying Haiyuan Investment ConsultingCo., Ltd (the "Purchaser"). Hi-Tech Chemical is the largest of HaiKe's fouroperating subsidiaries. The sale of the minority 12.25 per cent stake is part of a restructuringprogramme by the State-owned China Petrochemical Corporation (commonly known asSinopec, the ultimate shareholder of Sinopec Dongying). The Purchaser is a company incorporated in the PRC and has a shareholdingstructure which mirrors that of Hi-Tech Chemical Investment Limited ("BVI Co").BVI Co is the controlling shareholder of HaiKe and its share capital is held by44 employees of HaiKe and its subsidiaries (including Xiaohong Yang (Chairman),Zaizhong Zhang (CEO), Qingyi Liu, Dongguang Liu, Wenchen Liu, Baoguang Shang,Hailun Zhang and Yuan Xu who are all directors of HaiKe and/or its subsidiaries(together the "Related Directors")). As at the date of the acquisition, the Related Directors are related parties ofthe Company as defined in the AIM Rules, and as a company whose directors areaccustomed to act in accordance with the instructions of the Related Directors,the Purchaser is also a related party of the Company. As a result, thetransaction is a related party transaction. The Board of HaiKe considers thatthe transaction is in the best interest of the Company and its shareholders as awhole. Background to the Transaction Although agreements had been put in place giving HaiKe's two wholly ownedsubsidiaries Synergy Capital Group Limited ("Synergy Capital") and Profit UnitedInvestment Company Limited ("Profit United") the pre-emptive right to purchasethe Target Interest, HaiKe or its subsidiaries were unable to purchase theTarget Interest as a result of Chinese legislation. As they are overseascompanies, the Dongying District Branch of the PRC Ministry of Commerce hasconfirmed (in the PRC official document, Dong Qu Wai Jing Mao Zi (2007) No. 37)that it would not approve an application by HaiKe, Synergy Capital or ProfitUnited to be registered as the purchaser of the Target Interest. The Purchaser has now completed the acquisition through a public auction process(as required for the sale of any State owned shares/assets) at the TianjinProperty Rights Transaction Center in China for an aggregate consideration ofRMB 8,230,000 (approximately US$ 1.09 million) which is not lower than the valuedetermined in accordance with PRC law by a State Asset Appraisal Report (ZhongZheng Ping Bao Zi (2006) No.138-1 issued by Beijing Zhongzheng Appraisal Co.,Ltd). The Target Interest, being a block of State owned shares of a company within theoil refining industry, is subject to PRC legal restrictions both in terms ofpermitted purchaser and price to be paid. The acquisition was financed by the shareholders of the Purchaser in theirpersonal capacities. As a condition for HaiKe's consent (through its subsidiaries) to theacquisition, the transaction has been conditional on: •the Purchaser giving an undertaking to HaiKe that it will not transfer the Target Interest to any third party without HaiKe's consent; •the Purchaser giving a further undertaking that it will transfer the Target Interest to HaiKe when the PRC legal restrictions no longer apply, or when it is otherwise able to do so under PRC law; •the Purchaser granting a call option to HaiKe pursuant to which it can, at any time, procure the transfer of the Target Interest to any person of its choice; •the consideration due in respect of a transfer of all or any of the Target Interest to HaiKe (or its nominee) being fixed at the price paid by the Purchaser and as determined in accordance with PRC law; •the shareholders of the Purchaser being prohibited from transferring any part of their shareholding in that company to a third party; and •any dispute in relation to the above undertakings and call option being settled through arbitration at the Hong Kong International Arbitration Centre. HaiKe has also sought the opinion of King & Wood PRC Lawyers, its advisors as toPRC law, on the legal validity and enforceability of these obligations againstthe Purchaser in the PRC. HaiKe has been advised that the Purchaser'sobligations will be valid and binding and that any award granted in favour ofHaiKe at the Hong Kong International Arbitration Centre would be fullyenforceable against the Purchaser in the PRC. While each of HaiKe's wholly-owned subsidiaries, Synergy Capital and ProfitUnited, was prevented from exercising its rights to buy the Target Interest,they have through the arrangements described above acquired significantprotective rights over the Target Interest that may be exercisable in thefuture. Additionally, as the Related Directors are shareholders of the Purchaserand are part of HaiKe's or its subsidiaries' management team, their interestshave been further aligned with those of HaiKe in order to strengthen the levelof incentivisation for future performance. Related Party Transaction As the acquisition constitutes a related party transaction for the purposes ofthe AIM Rules, the directors of HaiKe (with the exception of those of theRelated Directors who are directors of HaiKe (being Xiaohong Yang and ZaizhongZhang) due to their interests in the Purchaser and accordingly the acquisition)having consulted with HaiKe's nominated adviser, Hanson Westhouse Limited,consider that, for the reasons explained above, the terms of the acquisition arefair and reasonable insofar as HaiKe's shareholders are concerned and are in thebest interest of HaiKe and its shareholders as a whole. ENDS For further information please contact: HaiKe Johnson Lau, CFO +86 (0) 546 8289173 HansonWesthouse Tim Metcalfe +44 (0) 20 7601 6100 Anita Ghanekar Martin Davison Cardew Group Rupert Pittman +44 (0) 20 7930 0777 Shan Shan Willenbrock Emma Consett This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Haike Chemical Group