TIDMCHWI
RNS Number : 1113X
China Western Investments PLC
30 November 2010
China Western Investments plc ("China Western" or the
"Company")
Circular to shareholders in respect of the proposed sale of the
Group's interest in the Lanzhou International Trade Centre for a
consideration of RMB 200 million in cash.
The board of China Western (the "Board") announces that it has
today posted a circular to shareholders (the "Circular") together
with a notice convening an extraordinary general meeting of the
Company to approve the sale of the Group's interest in the Lanzhou
International Trade Centre (the "Property") for a consideration of
RMB 200 million in cash (the "Disposal").
The Disposal represents a "fundamental change of business" for
China Western pursuant to Rule 15 of the AIM Rules for Companies,
due to the size of the transaction relative to the size of the
Group (the Company and its subsidiaries). As a result, the Disposal
is conditional on the approval of shareholders in general
meeting.
Unless otherwise defined, terms used in this announcement have
the defined meaning given to them in the Circular.
1. Background to and reasons for the Disposal
The Company announced on 30 June 2010 that "the Board is
disappointed that funds have not been forthcoming to complete the
development of the Property and realise the full potential of the
site" and that the Board was "undertaking a full review of the
options available to it...which may include entering into joint
ventures or outright sale of the Property and/or the hospital
operations." Since that announcement the Company has been seeking
offers for the Property in order to raise sufficient funds to pay
down debts associated with the Property which are owed to various
financial institutions, Government agencies and trade
creditors.
In recent years, the Company has received a series of loans from
shareholders and their related parties which has enabled the
Company to continue to fund the costs of the Company and the losses
associated with the Property. Efforts to source additional funds to
complete the development at the Property have not been successful
to date.
Lanzhou International Trade Building Company Limited ("LITBC"),
a subsidiary of the Company, received an offer for the Property in
late 2009 for RMB 200 million (currently approximately GBP18.9
million) in cash. Since the receipt of this offer, the Board have
endeavoured to obtain a higher offer for the Property but none has
been forthcoming to date.
The Company announced on 29 September 2010 (as part of its
interim results statement) that the Board had recently instructed a
third party independent valuer to prepare a valuation report on the
Property in order to obtain (a) the value of the development if it
were sold on an orderly market basis, and (b) the valuation of the
development on a 'Value for Sale under Repossession' valuation
(also known as a "distressed sale" valuation). The rationale for
obtaining the latter valuation was due to the fact that the Group's
creditors are in a position to force the sale of the Property
should they so wish. The findings of the independent valuer suggest
a "distressed" sale value of the Property in line with the offer
received in late 2009 referred to above.
The directors believe that the Disposal is in the best interests
of shareholders as a whole, since:
1. The Group has unsuccessfully sought funds, for almost two
years, to complete development of the Property and thereby enhance
its value. At present the total indebtedness of LITBC is
approximately RMB 210 million (excluding the liabilities of the
hospital) and its liabilities are increasing due to overdue
interest payments and continuing operating losses in respect of the
Property. LITBC is obliged to begin repayment of loans relating to
the Property from January 2011 and currently does not have
sufficient resources to do so.
2. The Board intends to apply the proceeds from the Disposal
against loans outstanding relating to the Property which will
substantially improve the Group's net debt position.
The directors have confirmed that the Purchaser is not a
"related party" as defined by the AIM Rules.
To the extent that the proceeds from the Disposal are
insufficient to repay in full loans associated with the Property
(due to the various costs associated with the Disposal), the
directors propose to enter negotiations with LITBC's creditors in
order to seek a reduction in the remaining debts, although there is
no guarantee that these negotiations will be successful.
2. Principal terms of the Disposal
The Company proposes to dispose of its entire leasehold interest
in the Property to the Purchaser for a consideration of RMB 200
million. The consideration is to be settled in cash upon
satisfaction of the conditions by LITBC under the Sale Agreement.
In accordance with the Sale Agreement, the final instalment in the
amount of RMB60 million shall be made within 10 working days from
the date when the certificates of real estate ownership and the
land use right have been transferred to and registered under the
name of the Purchaser. Details of when the other instalments are
receivable are set out in Part II of the Circular. The Sale
Agreement states that LITBC has undertaken to complete the
above-mentioned registration before 31 August 2010. Notwithstanding
the fact that many of the dates for completion of the obligations
under the Sale Agreement have passed, it has been agreed between
the parties, by a supplementary note signed on 15 October 2010,
that the performance of the Sale Agreement shall continue until it
has been fully performed. The sale proceeds will be applied in
acquiring the portion of the first floor of the Property which is
not currently owned by LITBC, payment of certain licences and
regulatory approvals and in paying off various debts of the
Company, including the bank loans and trade creditors.
The material terms of the Sale Agreement are set out in Part II
of the Circular.
Valuation report
The Board engaged Vigers Appraisal & Consulting Limited
("Vigers") to undertake an independent valuation of the Property.
As stated above, one of the bases on which a valuation was sought
was a 'Value for Sale under Repossession' valuation. The directors
believe that this is the appropriate valuation metric for
shareholders to consider given the fact that the Property must now
be sold in the absence of sourcing alternative funding for China
Western.
Vigers' valuation of the Property on a Value for Sale under
Repossessionbasis was RMB 177.8 million as at the valuation date,
being 31 August 2010.
3. The Group following the Disposal
Following the Disposal, the Group's principal asset will be its
economic interest in the hospital situated at Tian Shui in China.
Although loss-making, the hospital has been cashflow positive at
the operating level during the six month period to 30 June 2010 and
the directors are hopeful that the trading prospects will continue
to improve. The directors also believe that they will be able to
agree terms with the major creditors of LITBC such that the
liabilities will be settled for a discount to the amount recorded
within the financial statements, leading to a less indebted
subsidiary with sufficient free cash remaining to settle other
non-shareholder related liabilities within the Group.
The Group's annual report and accounts for the year ended 31
December 2009 (published on 29 June 2010) contained the following
statement in the directors' Report:
"The directors have formed a judgement at the time of approving
the accounts that there is a reasonable expectation that the
Company and Group have adequate resources to continue their
operations for the foreseeable future. This judgement is based on
the fact that the shareholder loans will remain in place and that
interest will accrue but will not be paid. The directors have
agreed to provide funds for overheads and fee costs for the holding
company for the next twelve months and the shareholder loan
providers have agreed not to seek repayment of loans or interest.
GECC, a company owned by Zhan Chun Hu, a director, has agreed to
support the Group's operations in the People's Republic of China
for the next twelve months. For this reason, the directors continue
to adopt the going concern basis in preparing the financial
statements."
As stated above, the directors intend to apply the majority of
the proceeds of the Disposal toward reducing the Group's debt
burden. Notwithstanding this, the Group following the Disposal will
still carry significant debts and thus will remain reliant on the
financial support of certain shareholders.
4. Extraordinary General Meeting
A notice convening the Extraordinary General Meeting of the
Company to be held at 1510, 15th Floor, Melbourne Plaza, 33 Queens
Road, Hong Kong at12.30 p.m. on 17 December 2010, is set out at the
end of this document. At the Extraordinary General Meeting, a
resolution will be proposed to approve the sale of the
Property.
A copy of the Circular is available at the company's website:
http://www.chwi.co.uk/
Enquiries:
Company Secretary - Harry Jeffs - 01539 723233
Shore Capital & Corporate Ltd - Pascal Keane - 020 7408
4090
This information is provided by RNS
The company news service from the London Stock Exchange
END
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