HUABAO INTERNATIONAL HOLDINGS 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.
(Incorporated in Bermuda with limited liability)
(Stock code: 00336)On 9 December 2015, High Praise Enterprises, an indirect wholly-owned subsidiary of the Company, and VMR Products entered into the Subscription Agreement pursuant to which High Praise Enterprises agreed to subscribe for the First Subscription Shares, representing approximately an effective interest of 22.22% of the issued share capital of VMR Products (on a fully diluted basis and as enlarged by the issue of the First Subscription Shares) at a consideration of US$10 million (equivalent to approximately HK$77.8 million), with an option to further subscribe, within five years after completion of the First Subscription, an interest which in aggregate representing approximately an effective interest of 51% (including the First Subscription Shares) of the issued share capital of VMR Products (on a fully diluted basis and as enlarged by the issue of the Second Subscription Shares) at a consideration of US$12.95 million (equivalent to approximately HK$101million). On the same day, High Praise Enterprises has served a notice to VMR Products to confirm its intention to fully exercise such option upon completion of the First Subscription according to the terms of the Subscription Agreement.
Upon completion of the Subscriptions, VMR Products will become an indirect non-wholly owned subsidiary of the Company and the financial statements of VMR Products will be consolidated into the consolidated financial statements of the Group.
As certain of the applicable percentage ratios as calculated pursuant to Rule 14.07 of the Listing Rules of the transaction scale (on an aggregated basis) contemplated under the Subscriptions exceeds 5% (but less than 25%), the Subscriptions constitute a discloseable transaction for the Company under Chapter 14 of the Listing Rules, and is therefore subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.
THE SUBSCRIPTION AGREEMENTOn 9 December 2015, High Praise Enterprises, an indirect wholly-owned subsidiary of the Company, and VMR Products entered into the Subscription Agreement pursuant to which High Praise Enterprises agreed to subscribe for the First Subscription Shares, representing approximately an effective interest of 22.22% of the issued share capital of VMR Products (on a fully diluted basis and as enlarged by the issue of the First Subscription Shares) at a consideration of US$10 million (equivalent to approximately HK$77.8 million), with an option to further subscribe, within five years after completion of the First Subscription, an interest which in aggregate representing approximately an effective interest of 51% (including the First Subscription Shares) of the issued share capital of VMR Products (on a fully diluted basis and as enlarged by the issue of the Second Subscription Shares) at a consideration of US$12.95 million (equivalent to approximately HK$101 million).
Date | 9 December 2015 |
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To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, VMR Products and each of its ultimate beneficial owners are Independent Third Parties. The Group has not engaged in any previous transactions which were related to the transaction contemplated under the Subscription Agreement in the last 12 months which would otherwise require aggregation under Rule 14.22 of the Listing Rules.
First Subscription
Pursuant to the Subscription Agreement, VMR Products has agreed to issue, and High Praise Enterprises has agreed to subscribe for the First Subscription Shares, representing approximately an effective interest of 22.22% of the issued share capital of VMR Products (on a fully diluted basis and as enlarged by the issue of the First Subscription Shares) at a consideration of US$10 million (equivalent to approximately HK$77.8 million).
The First Consideration shall be settled in the following manner:
US$7 million (equivalent to approximately HK$54.46 million) shall be by way of converting the bridge loan ('Bridge Loan') (Note) provided by High Praise Enterprises to VMR Products as part payment of the First Consideration, such that High Praise Enterprises shall relinquish its rights to enforce repayment of the Bridge Loan from VMR Products; and
US$3 million (equivalent to approximately HK$23.34 million) as final payment of the First Consideration shall be by paid by cash by High Praise Enterprises or its related companies to VMR Products on or before 17 December 2015.
The First Consideration is funded by the Group's internal resources.
Note: The Bridge Loan was provided by the Company ultimately through High Praise Enterprises to VMR Products as an initial step to implement the investment into VMR Products by the Group. The provision of the Bridge Loan enables the Company to conduct a due diligence of the VMR Products and an exclusivity period for negotiating the terms of the Subscriptions. If the Subscriptions were not proceeded with, the Bridge Loan had an 18-month maturity and would accrue interest at the rate of 3% per annum and be secured by pledges of shares from relevant shareholders of VMR Products.
Second Subscription
Under the Subscription Agreement, High Praise Enterprises has an option to further subscribe, within five years after completion of the First Subscription an interest which in aggregate representing approximately an effective interest of 51% (including the First Subscription Shares) of the issued share capital of VMR Products (on a fully diluted basis and as enlarged by the issue of the Second Subscription Shares) at a consideration of US$12.95 million (equivalent to approximately HK$ 101 million).
On 9 December 2015, High Praise Enterprises has served a notice to VMR Products to confirm its intention to fully exercise such option upon completion of the First Subscription according to the terms of the Subscription Agreement.
The Second Consideration shall be settled by way of cash payment to VMR Products by High Praise Enterprises or its related companies on or before 17 December 2015. It is intended that the Second Consideration will be satisfied by the Group's internal resources.
Upon completion of the Subscriptions, VMR Products will become an indirect non-wholly owned subsidiary of the Company and the financial statements of VMR Products will be consolidated into the consolidated financial statements of the Group.
The Consideration of Subscription Shares (total 1,373,100 shares) in aggregate amounts to US$22.95 million (equivalent to approximately HK$178 million) at the subscription price of approximately US$16.71 per share of VMR Products and the 100% equity interest value of VMR Products calculated in accordance to pro-rata basis is approximately HK$350 million.
The Consideration was arrived at after arm's length negotiation which has taken into account the total turnover of VMR Products' management account for the year ended 31 December 2014 in the amount of approximately US$44 million (equivalent to approximately HK$342 million). The Consideration also represents 1.02 times price to sales ratio (calculated using the 100% equity interest value of HK$350 million as mentioned above). Having regards to the basis set out above and also the prospects and potential of VMR Products to the Group, the Directors consider the Consideration is fair and reasonable and on normal commercial terms.
CONDITIONS PRECEDENTThe completion of the First Subscription shall be conditional upon the following documents are delivered to the legal counsels for High Praise Enterprises and held by it in escrow:
unit membership certificates evidencing the First Subscription Shares, free and clear of all encumbrances, duly endorsed and witnessed, with any and all required unit transfer tax stamp affixed thereto;
the signing of the relevant shareholders' agreement between VMR Products, High Praise Enterprises, each of the members of VMR Products; and
the signing of the employment agreements by and between VMR Products and certain of its key employees.
The completion of the Second Subscription shall be conditional upon the following documents having been delivered to the legal counsels for High Praise Enterprises and held by it in escrow:
(a) unit membership certificates evidencing the Second Subscription Shares, free and clear of all encumbrances, duly endorsed and witnessed, with any and all required unit transfer tax stamp affixed thereto.
The conditions precedent mentioned above, in each case, shall be deemed as fulfilled upon a letter issued by the legal counsels of High Praise Enterprises to VRM Product and High Praise Enterprises confirming that the documents are properly held in escrow by it.
As at the date of this announcement, the conditions precedent relating to the First Subscription has been fulfilled and completion of the First Subscription will take place on or before 18 December 2015.
Upon fulfilling the conditions precedent relating to the Second Subscription, it is intended that completion of the Second Subscription will take place on or before 18 December 2015.
The board of directors of VMR Products comprises 5 members. Upon completion of the Subscriptions, High Praise Enterprises has a right to nominate up to 3 directors to the board of directors of VMR Products.
The Group is principally engaged in the research and development ('R&D'), production, distribution and sale of flavours, fragrances, reconstituted tobacco leaves and new materials products that are innovative, functional, and applicable to tobacco industry in the PRC.
High Praise Enterprises is a company incorporated in British Virgin Islands with limited liability and is indirectly wholly-owned by the Company.
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