HONG KONG, July 17, 2013 /PRNewswire/ -- Somercourt Investments Ltd ("Somercourt") is a long-term investor of Sino Prosper State Gold Resources Holdings Limited (the "Company" or "Sino Prosper"), holding approximately 7.04% of the issued share capital of the Company at the date of this release.
Reference is made to the announcements by Sino Prosper in relation to: (i) the proposed acquisition of the entire issued share capital of Success State Development Limited from Mr. Leung Ngai Man, the chairman and an executive director of Sino Prosper (the "Chairman") dated 30 December 2011 (the "Qing Jiao Transaction"); (ii) the proposed acquisition of the entire issued share capital of Treasure Join Limited from the Chairman dated 21 December 2012 (the "Micro Finance Transaction"); (iii) the voluntary update by Sino Prosper on 19 April 2013; and (iv) the 2013 annual report of Sino Prosper (together the "Announcements", and the Qing Jiao Transaction and Micro Finance Transaction together, the "Transactions"). Terms not defined in this announcement have the meaning given to them in the relevant Announcements.
Somercourt has followed with extreme concern the Announcements, conduct and intentions of Sino Prosper in relation to the Transactions.
Somercourt believes that the Transactions are not in the interests of Sino Prosper or the shareholders as a whole and announces that it intends to vote against the proposed Transactions as and when the shareholder meetings are held to consider the Transactions.
Timing
Despite the Qing Jiao Transaction and the Micro Finance Transaction being announced on 30 December 2011 and 21 December 2012 (more than 18 months and 6 months ago respectively), shareholders have still not received details of the Transactions other than as contained in the Announcements.
Somercourt considers that the continuing delay in dispatching detailed circulars to shareholders, and convening shareholder meetings to consider the Transactions is materially prejudicial to the interests of shareholders.
Deposits of RMB120m and HK$200m paid to the Chairman in relation to the Transactions
Under the terms of each of the Qing Jiao Transaction and Micro Finance Transaction, significant cash deposits were paid by the Sino Prosper group to the Chairman. These cash deposits:
1. represent the entire upfront cash consideration payable on completion of each Transaction;
2. were paid on an interest free and unsecured basis; and
3. represent respectively (i) more than 21% (Note 1) and 70% of the market capitalisation of Sino Prosper for the five business days immediately preceding the date of the Transactions; (ii) more than 102% (Note 2) and 135% of the market capitalisation of Sino Prosper for the five business days immediately preceding the date of this announcement; and (iii) approximately 79% (Note 3) and 107% of Sino Prosper's cash balance as at 31 March 2013.
Despite the deposits being returnable to the Sino Prosper group should the Transactions not proceed, Somercourt considers that in view of their excessive size and interest free and unsecured nature, and in the light of the intended timetable for the Transactions, the deposits do not represent normal commercial terms and arm's length negotiations and are not fair and reasonable and in the interests of Sino Prosper and shareholders as a whole. Somercourt considers that the deposits are, in substance, financial assistance and/or interest free loans to the Chairman as a connected person that should only have been made after the approval of independent shareholders had been obtained.
Purchase price under the Transactions
Somercourt believes that the consideration to be paid by the Sino Prosper group to the Chairman (as vendor in each of the Transactions) is excessive and unjustified in each case, and that the overall terms of the Transactions as detailed in the Announcements do not reflect normal commercial terms and arm's length negotiations and are not fair and reasonable or in the interests of Sino Prosper and shareholders as a whole:
1. the consideration of RMB550m payable under the terms of the Qing Jiao Transaction represents approximately 6.8 times the original acquisition price of RMB80m for the interest in Target PRC paid by the Chairman less than 12 months prior to the date of the Qing Jiao Transaction. Somercourt considers that the valuation of the relevant mining assets appears to be considerably above the fair market price, and represents a valuation per ounce of gold which is significantly above the comparable market value of junior gold exploration companies. In addition, the Mining Permit to the relevant gold mine is subject to renewal on application, but renewal or extension is not a condition of the acquisition; and
2. the consideration of HK$850m payable under the terms of the Micro Finance Transaction represents approximately 13 times the amount paid or invested by the Chairman. (Note 4) Somercourt considers that the valuation of what is effectively a start-up non-operational business appears to be considerably above the fair market price, and cannot be justified as being what is necessary to secure the opportunity in a province where there are already 337 such businesses in operation (according to Sino Prosper's announcement dated 21 December 2012). The Micro Finance Transaction also represents a dramatic divergence from Sino Prosper's existing ordinary course operations.
Further information requested from Sino Prosper
Somercourt awaits further details of the Transactions (as it has done for over 18 months, in the case of the Qing Jiao Transaction, and 6 months, in the case of the Micro Finance Transaction) and urges Sino Prosper fully to disclose all details of the Transactions in the shareholder circulars, including:
1. a full explanation and justification for the excessive size and the interest free and unsecured nature of the deposits, and why the directors did not consider it appropriate for independent shareholders to approve those deposits before they were paid;
2. a full explanation and justification for the seemingly excessive price being paid under each Transaction, both by reference to the original amounts paid by the Chairman to secure the opportunities and the current and future value of the businesses and assets themselves. Somercourt expects any valuation reports to explain fully and on what basis the independent valuers have independently examined, taken into account and considered reasonable any assumptions provided by Sino Prosper;
3. a full explanation of how Sino Prosper will be able to meet its obligations to pay amounts due under the relevant Promissory Notes and the Convertible Bonds; and
4. an unequivocal commitment by both Sino Prosper and the Chairman that the drop-dead dates for neither of the Transactions will be extended without prior independent shareholder approval, and that no agreement will be entered into or action taken that would in any way effect the immediate return to Sino Prosper of the full cash deposits should the Transactions not be approved by independent shareholders or not proceed for any other reason.
Somercourt is particularly concerned about the pricing and structure of the Transactions in the light of the similar transactions which have taken place in relation to China Netcom Technology Holdings Limited (Stock Code 8071) ("CNT"), another listed company of which the Chairman is the chairman and an executive director, and of which 2 of the independent non-executive directors of Sino Prosper are also independent non-executive directors.
In 2008 the CNT group acquired from the Chairman a Chinese foreign co-operative joint venture company whose principal asset was an exploration permit for a gold mining site in the PRC for HK$1.8bn. Then in 2010, the CNT group acquired from the Chairman a 51% interest in a lottery business in China for approximately HK$2.1bn. The consideration consisted of a mix of cash, shares, promissory notes and convertible bonds, and in both cases the purchase price represented a considerable uplift on the original acquisition cost of the Chairman.
Both assets were subsequently substantially written down: the mining exploration company was sold after 4 years for less than 1% of the original acquisition price (with the result that CNT suffered a loss of HK$1,799m); the 51% interest in the lottery business has been written down since its acquisition by over HK$1.7 bn (representing more than 70% of its original acquisition value); HK$938m outstanding on the promissory note issued to the Chairman in connection with the acquisition was capitalised less than 2½ years after the completion of the acquisition as the CNT group was not expected to have sufficient cashflow to be able to meet its obligations under the promissory note; and the CNT group entered into a transaction to purchase the 49% of the lottery business it did not already own from independent shareholders for HK$86.9m (representing a 95% discount to the price paid to the Chairman a year earlier, although that proposed acquisition did not ultimately proceed).
Whilst independent shareholder approval, expert valuations and independent advisors' opinions were obtained in each case, Somercourt is extremely concerned that Sino Prosper does not complete transactions of a similar nature, which do not appear to be at an arm's length with a connected person of the Company and where there is no demonstrable evidence that the Sino Prosper group will have sufficient cashflow to be able to service its obligations under the promissory and convertible debt issued as part of consideration for the Transactions, as doing so would result in the interests of minority shareholders being severely impaired.
Somercourt's intentions and request for shareholder action
Somercourt believes that the Transactions are not in the interests of Sino Prosper or shareholders as a whole and intends to vote against the proposed Transactions.
Somercourt notes that in September 2012 the shareholders voiced their unhappiness at the way in the which Sino Prosper was being run by declining to reappoint the Chairman and another director to the Board at the 2012 Annual General Meeting. However, since then, whether as a result of shareholder apathy and/or shareholders losing interest in protecting their investments in Sino Prosper and/or disposing of their interests in Sino Prosper or otherwise, the Chairman has been reappointed to the Board and all the resolutions were approved at the recent 2013 Annual General Meeting.
Unless independent shareholders take action to oppose the Transactions, Somercourt is concerned that the Transactions may be approved by default, and, if so, this will be materially prejudicial to the interests of the independent shareholders of Sino Prosper.
Somercourt has communicated its concerns on numerous occasions to Sino Prosper and its directors, including those contained in this announcement. Somercourt continues to consider all of its options and reserves its rights.
Somercourt urges shareholders of Sino Prosper who are independent of Sino Prosper, the Chairman, its directors and management and who share its concerns to contact it at the following email address:
Email: somercourt.sinoprosper@gmail.com
Phone: (+852) 9557 5891
Notes:
This Announcement is being issued for the purpose of expressing Somercourt's concern, as a shareholder of Sino Prosper, arising from the Announcements. This announcement does not constitute legal, investment or tax advice, and no offer, invitation or inducement to acquire or dispose of any shares or other securities in Sino Prosper is being made by or in connection with this announcement.
If shareholders or potential investors are in any doubt as to any aspect of this announcement or the action that they should take, they should consult their own stockbroker, bank manager, accountant or other independent professional advisor and should rely solely on their own judgment, review and analysis.
Somercourt may, at its sole discretion, at any time in the future (in open market or privately negotiated transactions) buy or sell shares or trade in options, puts, calls or other securities relating to such shares. Somercourt reserves the rights with respect to its investments in Sino Prosper as it deems appropriate, including but not limited to, communicating with the management of Sino Prosper, the Board of Sino Prosper and other investors and third parties.
The information and opinions contained in this announcement reflect Somercourt's internal analysis and opinions (and no one else's) of publicly available information. Somercourt makes no representation, warranty or undertaking, expressly or impliedly, as to the accuracy or completeness of the information contained herein. The information contained in this announcement, including data that is attributed to specific sources, has not been verified by Somercourt or any other person. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information, the calculations, the opinions, or the estimates contained in this announcement or on the assumptions on which they are based.
The information, calculations and opinions contained in this announcement should be read as at the date of this announcement (unless specified otherwise) and are subject to change without notice. Somercourt does not undertake to accept any obligation to provide access to any information, to update this announcement or to correct any inaccuracies in it.
Notes:
1. Based on the exchange rate of RMB1 to HK$1.227, being the rate set out in announcement of the Company dated 30 December 2011.
2. Based on the exchange rate of RMB1 to HK$1.264, being the prevailing rate as at the date immediately prior to the date of this announcement.
3. Based on the exchange rate of RMB1 to HK$1.227, being the rate set out in announcement of the Company dated 30 December 2011.
4. Represented by the paid-up capital of Target PRC No. 1 and Target PRC No. 2 and based on the exchange rate of RMB1 to HK$1.264, being the prevailing rate as at the date immediately prior to the date of this announcement.