China Metal Resources announces acquisition of Sure Victor
China Metal Resources Utilization Limited, China's largest recycled copper products manufacturer, announced that the Company entered into the Sale and Purchase Agreement with Sure Victor Global Limited on 7 February 2018, pursuant to which the Company agreed to purchase, and Sure Victor agreed to sell, 100% of the issued share capital in the Value Link Developments Limited for an aggregate consideration of HKD 741,175,000, of which HKD 287,647,000 shall be settled in cash and HKD 453,528,000 shall be settled by way of allotment and issue of Consideration Shares.
The consideration is subject to adjustment pursuant to the Earn-out Arrangement. A maximum of 94,485,000 Shares may be allotted and issued to Sure Victor, in the following manner:
1. If Value Link achieves net profits of RMB45,000,000 for the year ending 31 December 2018, based on the agreed formula pursuant to the Sale and Purchase Agreement, a maximum of 23,621,000 Consideration Shares shall be issued to Sure Victor;
2. If Value Link achieves net profits of RMB105,000,000 for the two years ending 31 December 2019, based on the agreed formula pursuant to the Sale and Purchase Agreement, a maximum of 55,116,000 Consideration Shares shall be issued to Sure Victor on an aggregated basis; and
3. If Value Link achieves net profits of RMB180,000,000 for the three years ending 31 December 2020, based on the agreed formula pursuant to the Sale and Purchase Agreement, a maximum of 94,485,000 Consideration Shares shall be issued to Sure Victor on an aggregated basis.
Assuming the maximum number of Consideration Shares is being allotted and issued to Sure Victor, 94,485,000 Shares will be issued under the Sale and Purchase Agreement, representing approximately 3.83% of the issued share capital of the Company as at the date of this announcement and approximately 3.69% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares. The Consideration Shares to be issued will rank pari passu in all respect with the Shares then in issue on the relevant issue date.
50% of the cash consideration payable by the Company for the Acquisition will be lent by Sure Victor to China Rongsheng, a subsidiary of Value Link and therefore a subsidiary of the Company upon completion of the Sale and Purchase Agreement. In the event that Value Link fails to achieve an aggregate net profits of approximately RMB69,857,000, representing approximate 38.81% of the aggregate Performance Target, for the three years ending 31 December 2020, Sure Victor shall, depending on the actual aggregate net profits achieved by Value Link compared to the aggregate Performance Target, unconditionally waive a maximum of the full amount of such loan to China Rongsheng.
Value Link is principally engaged in the production of copper products through Hubei Rongsheng Copper Co., Ltd . Hubei Rongsheng is currently 100% owned by China Rongsheng, which is a direct wholly-owned subsidiary of Value Link. Hubei Rongsheng entered into the Fixed Asset Leasing Agreement with Yunmeng Xinchengyuan, such equipment and factory premises under leases are estimated to be sufficient to produce a maximum of 50,000 tons of copper products on an annual basis. Based on the production capacity from the equipment and factory premises of Yunmeng Xinchengyuan and Hubei Zhongyi, the Company estimated that, after taking into account of the facility improvement program to be completed in mid 2018, such equipment and factory premises have the capacity of producing 70,000 tons of copper products on an annual basis. Based on the current market price of copper products such production capacity would generate a maximum revenue of approximately RMB3,290 million. On the basis of an estimated operating profit margin of 3%, being the operating profit margin of the Company's recycled copper products manufacturing business in the PRC for the six months ended 30 June 2017 and a preferential corporate income tax rate of 15% under the preferential policy for promoting the development of western China, it is estimated that Value Link could generate a maximum net profit of approximately RMB80.0 million on an annual basis.
Mr. Yu Jianqiu, Chairman of the Company, said that "Both the Company and Value Link are principally engaged in the production of copper products, we expect the acquisition to have immediate synergy effect, enabling us to diversify and strengthen our revenue sources and accelerate our growth and developments in the near future, further enhancing our leading position in the scrap copper industry. At the same time we will continue to strive to maximize the return for our shareholders."
The consideration is subject to adjustment pursuant to the Earn-out Arrangement. A maximum of 94,485,000 Shares may be allotted and issued to Sure Victor, in the following manner:
1. If Value Link achieves net profits of RMB45,000,000 for the year ending 31 December 2018, based on the agreed formula pursuant to the Sale and Purchase Agreement, a maximum of 23,621,000 Consideration Shares shall be issued to Sure Victor;
2. If Value Link achieves net profits of RMB105,000,000 for the two years ending 31 December 2019, based on the agreed formula pursuant to the Sale and Purchase Agreement, a maximum of 55,116,000 Consideration Shares shall be issued to Sure Victor on an aggregated basis; and
3. If Value Link achieves net profits of RMB180,000,000 for the three years ending 31 December 2020, based on the agreed formula pursuant to the Sale and Purchase Agreement, a maximum of 94,485,000 Consideration Shares shall be issued to Sure Victor on an aggregated basis.
Assuming the maximum number of Consideration Shares is being allotted and issued to Sure Victor, 94,485,000 Shares will be issued under the Sale and Purchase Agreement, representing approximately 3.83% of the issued share capital of the Company as at the date of this announcement and approximately 3.69% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares. The Consideration Shares to be issued will rank pari passu in all respect with the Shares then in issue on the relevant issue date.
50% of the cash consideration payable by the Company for the Acquisition will be lent by Sure Victor to China Rongsheng, a subsidiary of Value Link and therefore a subsidiary of the Company upon completion of the Sale and Purchase Agreement. In the event that Value Link fails to achieve an aggregate net profits of approximately RMB69,857,000, representing approximate 38.81% of the aggregate Performance Target, for the three years ending 31 December 2020, Sure Victor shall, depending on the actual aggregate net profits achieved by Value Link compared to the aggregate Performance Target, unconditionally waive a maximum of the full amount of such loan to China Rongsheng.
Value Link is principally engaged in the production of copper products through Hubei Rongsheng Copper Co., Ltd . Hubei Rongsheng is currently 100% owned by China Rongsheng, which is a direct wholly-owned subsidiary of Value Link. Hubei Rongsheng entered into the Fixed Asset Leasing Agreement with Yunmeng Xinchengyuan, such equipment and factory premises under leases are estimated to be sufficient to produce a maximum of 50,000 tons of copper products on an annual basis. Based on the production capacity from the equipment and factory premises of Yunmeng Xinchengyuan and Hubei Zhongyi, the Company estimated that, after taking into account of the facility improvement program to be completed in mid 2018, such equipment and factory premises have the capacity of producing 70,000 tons of copper products on an annual basis. Based on the current market price of copper products such production capacity would generate a maximum revenue of approximately RMB3,290 million. On the basis of an estimated operating profit margin of 3%, being the operating profit margin of the Company's recycled copper products manufacturing business in the PRC for the six months ended 30 June 2017 and a preferential corporate income tax rate of 15% under the preferential policy for promoting the development of western China, it is estimated that Value Link could generate a maximum net profit of approximately RMB80.0 million on an annual basis.
Mr. Yu Jianqiu, Chairman of the Company, said that "Both the Company and Value Link are principally engaged in the production of copper products, we expect the acquisition to have immediate synergy effect, enabling us to diversify and strengthen our revenue sources and accelerate our growth and developments in the near future, further enhancing our leading position in the scrap copper industry. At the same time we will continue to strive to maximize the return for our shareholders."
Posted By : Amom Remju on Mon, 12 Feb 2018