Simultaneously Closes $15.0 Million Private Placement and $3.0 Million Convertible Notes Offering
TIANJIN, China, Sept. 21 /PRNewswire-Asia/ -- China New Energy Group Company (OTC Bulletin Board: CNER) ("China New Energy" or the "Company"), a natural gas network developer and distributor of natural gas to residential, industrial, and commercial users in small and medium sized cities in China, announced today that on September 14, 2010, the Company's wholly-owned PRC subsidiary, China New Energy Investment Co., Ltd (the "Buyer"), entered into certain equity transfer agreements (the "Equity Transfer Agreements") with Beijing Fengyin Xianghe Scientific Technology Co., Ltd. (the "Seller"), a PRC company controlled by Mr. Tang Zhixiang ("Mr. Tang"), to acquire 70% equity interests in Beijing Century Dadi Gas Engineering Co., Ltd. and Zhoulu Dadi Gas Co. Ltd. (collectively, "Dadi Gas") for a total purchase price of RMB 270 million (approximately $40 million).
On September 14, 2010, China New Energy also raised $15 million from the sale of 18.7 shares of Series C Convertible Preferred Stock and 4.0 shares of Series D Convertible Preferred Stock to China Hand Fund I, LLC ("China Hand"). Also, on September 14, 2010, the Company raised $3.0 million from the sale of convertible notes to certain accredited investors (the "Convertible Notes Offering").
"Our financing and acquisition of Dadi Gas represent major milestones for China New Energy," said Mr. Yangkan Chong, Chief Executive Officer. "With a long established brand name, a complete business model, a seasoned technical team, and its state-of-the-art technologies, we believe Dadi Gas will significantly enhance our position in China's natural gas industry. Our financing provides us with the financial strength to make this very attractive and strategic acquisition."
Dadi Gas is a vertically integrated natural gas distribution company and one of the top four private city gas companies in China. It currently operates in northern and central China and holds long term exclusive franchise agreements with local municipalities. Dadi Gas generates revenues from selling natural gas products and services to residential, commercial and industrial customers in these municipalities and from the transportation of natural gas. Beyond its city gas operations and industrial gas supply business, Dadi Gas engages in the sale and leasing of gas equipment and operates gas filling stations. Dadi Gas is the only private gas enterprise in China which owns a gas transportation unit and controls a fleet of over 100 gas transportation vehicles. Dadi Gas holds several national patents and is recognized nationally as a "high-tech" enterprise by the PRC government. As such, it enjoys national high-tech enterprise preferential tax treatment.
Mr. Chong added, "We anticipate that the acquisition will bring about substantial synergies, including guaranteed and steady supply of gas from upstream suppliers; better pricing for gas, related products and other purchases; lower transportation costs; lower operating expenses; and flexible mobilization and placement of professional and technical staff. In addition, we expect the acquisition to improve our cash flow and overall financial position, creating great opportunities for revenue, profit growth, and an increase in shareholder value."
Pursuant to the Equity Transfer Agreements, the purchase price is payable in three installments. The first installment of RMB 120 million (approximately $17.8 million) is required to be paid into a mutually managed account within five business days of the execution of the agreement (with an additional five day grace period), and will be released from this account upon the satisfaction of certain conditions. The second installment of RMB 130 million (approximately $19.3 million) is payable within 180 days (with an additional 90 day grace period) of the release of the first installment payment subject to the satisfaction of certain conditions. The third and final installment is RMB 20 million (approximately $3 million) and is required to be paid within 180 days after the payment of the second installment.
On September 14, 2010, in connection with the execution of the Equity Transfer Agreements, the Buyer entered into an Exclusive Option Agreement (the "Option Agreement"). Under the Option Agreement, after the completion of the transfer of the 70% interest under the Equity Transfer Agreements, the Buyer has the right to purchase the remaining 30% equity interest in Dadi Gas from the Seller for a purchase price of RMB 130 million (approximately $19.3 million).
The Equity Transfer Agreements replace the agreement originally executed on March 8, 2010, between China New Energy and Mr. Tang (which agreement was terminated pursuant to a Supplementary Agreement of Equity Transfer Agreement dated September 14, 2010).
The Company will finance the first installment of the purchase price with the $18 million in proceeds raised from the Private Placement and Convertible Notes Offering. The Company plans to raise capital from third party investors to fund the rest of the transaction. In connection with the closing of the Private Placement, the Company and China Hand entered into a Backstop Agreement dated as of September 14, 2010 (the "Backstop Agreement"). The Backstop Agreement provides that China Hand has committed to provide additional financing of up to $20.1 million to the extent that the Company is unable to raise capital from third party investors. The proceeds of the additional financing will be used to fund in part the payment of second and third installments of the purchase price due in connection with the acquisition of Dadi Gas.
Mr. Chong concluded, "We believe that Dadi Gas is an excellent fit with our strategy of increasing our presence in fast growing second and third tier cities in China that are located in close proximity to economically developed areas with natural gas resources. We remain optimistic about the growing market for natural gas in China, and we look forward to leveraging the Dadi Gas acquisition for additional growth opportunities."
About China New Energy Group Company
China New Energy Group Company ("China New Energy" or the "Company") is a vertically integrated natural gas company engaged in the development of natural gas distribution networks, and the distribution of natural gas to residential, industrial, and commercial users in small and medium sized cities in China. The Company generates revenues primarily from the connection fees it charges its customers for interconnecting to pipelines in its natural gas distribution networks, and fees for natural gas usage. For more information, please visit http://www.cnegc.com .
Safe Harbor Statement
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to, the Company's ability to access natural gas for distribution, and ability to identify and develop operational locations under favorable terms, changes in natural gas pricing mechanism imposed by the Chinese government, changes in the regulatory environment and future national or regional economic and competitive conditions, and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
For more information, please contact:
Company Contact:
Eric Yu, Chief Financial Officer
Email: ericyu@cnegc.com
Web: http://www.cnegc.com
Investor Relations Contact:
CCG Investor Relations
Mr. Athan Dounis, Account Manager
Phone: +1-646-213-1916
Email: athan.dounis@ccgir.com
Web: www.ccgirasia.com
