THE LEXICON GROUP LIMITED (Incorporated in the Republic of Singapore) (Company Registration No: Z) (the Company )

Transcription

1 THE LEXICON GROUP LIMITED (Incorporated in the Republic of Singapore) (Company Registration No: Z) (the Company ) PROPOSED ACQUISITION OF ZENNA OVERSEAS LIMITED The board of directors of the Company (the Board ) refers to the announcement released by the Company on 4 February 2009 (the Announcement ) in relation to the proposed acquisition of the Company of the entire share capital of Zenna Overseas Limited (the Proposed Acquisition ). All capitalized terms used herein shall unless otherwise stated, have the same meaning as the Announcement. Further to the Announcement, the Company wishes to provide further details in relation to the Proposed Acquisition: 1. The Vendor and Taihe Group The Vendor, Mr Phoon Wui Nyen, was formerly an independent director of Liang Huat Aluminium Ltd. He resigned as independent director on 8 June Mr Phoon presently holds directorships in Kuffour Holdings Limited, Baring Private Equity Asia, China Sun Fun Management Limited and China First Guarantee Co., Ltd. Taihe Group is the current majority owner of the Assets to be injected into Taihe Development. Taihe Group is a reputable property development company in Hunan Province, PRC. It is ranked as one of the largest property development companies in Hunan Province and constructed some of the toll roads leading into Yueyang, Hunan Province. Taihe Group is also involved in other businesses, such as hotel management and restaurant businesses, outside of Hunan Province. 2. Referral Fees In paragraph 3.2.4(A)(f)(iv) of the Announcement, it was mentioned that the Company shall obtain the approval of the Shareholders at the EGM for the allotment and issuance of new ordinary shares of the Company amounting to a value of up to 4%, or such other percentage as may be agreed by the Parties, of the Consideration (after adjustments are made pursuant to Clause 3.3 of the S&P Agreement) to Placer International Limited ( Placer ) to procure purchasers for the new Shares of the Company for and in connection with the Compliance Placement as Referral Fees. Placer is an investment holding company incorporated in the British Virgin Islands. Placer is not a licensed placement agent and is principally engaged in investments in Hong Kong and does not have any business in Singapore. Placer is wholly owned by Mr John Poon. Mr John Poon set up Value Capital Asset Management Private Limited, a private limited company incorporated in Singapore in April Value Capital Asset Management Private Limited is exempted by the Monetary Authority of Singapore from holding a capital markets services licence to carry on business in fund management in Singapore. Value Capital Asset Management Private Limited manages Value Capital Asset Management Limited, a Cayman Islands incorporated offshore investment company, which has invested in several listed companies principally in the form of convertible bonds. In addition, Mr John Poon has been

2 involved in the management of Peach Garden, a Chinese restaurant in Singapore since December The Company wishes to clarify that the payment of Referral Fees to Placer is for the introduction of the Company to the Vendor, Mr Phoon Wui Nyen by Mr John Poon in connection to the Proposed Acquisition, and not for the procurement of investors in connection with the Compliance Placement. 3. Adjustment to Consideration The Consideration for the Acquisition is at present estimated at S$160 million or approximately RMB800 million. The Assets are currently valued at approximately RMB1 billion based on a preliminary valuation report of the Assets from the Vendor. As mentioned in paragraph 3.2.2(d) of the Announcement, the Assets are likely to incur a debt of up to RMB 200 million in relation to the Asset Injection. The net asset value is accordingly, S$160 million or RMB800 million. In the event the Valuation falls below RMB1 billion, it is contemplated under the S&P Agreement that the Consideration amount shall be adjusted accordingly to reflect the Valuation of the Assets. As an illustration to how the adjustment works, in the event the Valuation falls below RMB1 billion to, for instance, RMB900 million, the Consideration shall be adjusted accordingly by reducing the Consideration payable to S$140 million or RMB700 million (after deducting the debt of RMB200 million incurred by the Assets for the purpose of the Assets Injection). 4. Pro-forma financial information on the Zenna Group As stated in paragraph (e) of the Announcement, in the event of a Shortfall wherein the NPAT of the Assets collectively is less than S$20 million for any of the relevant financial years, the Vendor and Taihe Group shall (i) indemnify the Company for the Shortfall and pay the Company the amount equivalent to the Shortfall within 30 days from the date of release of the audited accounts for the relevant financial year, and (ii) provide an NPAT warranty of S$20 million for an additional year in the financial year of As the Zenna Group structure will only be in place after the completion of the PRC Restructuring, which is expected to be completed in 2009, the NPAT profit warranty for FY2008 and FY2009 will be based on NPAT derived from the proforma financial statements of Zenna Group for FY2008 and FY2009 respectively. The NPAT profit warranty for FY2010 and FY2011 (if required), will be based on NPAT derived from Zenna Group's audited consolidated financial statements for FY2010 and FY2011 respectively. Pursuant to the PRC Restructuring, Zenna Group will own a subsidiary, Taihe Development, which in turn owns a hotel management company, Yueyang Taihe Hotel Co., Ltd (the Hotel Management Co ), and two properties, the Mall (as defined hereinafter) and the Hotel (as defined hereinafter). The Hotel Management Co has historical stand-alone financial information available for audit, whilst the accounts of the Mall and the Hotel have to be carved out to form the basis of the pro forma adjustments in the pro forma financial statements of the Zenna Group. As such, the proforma financial information of the Zenna Group would be prepared based on (i) audited financial statements of Zenna, (ii) audited financial statements of Yueyang Taihe Hotel Co., Ltd, and (iii) unaudited financial statements of Taihe Development. In addition, Taihe Development intends to enter into a property management agreement with Taihe Group in relation to the Mall, a common arrangement adopted by most Real Estate Investment Trusts. The effect of this arrangement will also be one of the bases for the pro forma adjustments in the pro forma financial statements of the Zenna Group. The auditors

3 shall review the appropriateness of these pro forma adjustments as well as other pro forma adjustments (if any) that may be identified by the Vendor, Taihe Group and/or the Company in the course of preparing the pro forma financial statements. 5. PRC Restructuring 1 Group structure of the Zenna Group prior to PRC Restructuring Taihe Group currently owns 10% while Zenna owns 90% of Taihe Development. The Assets comprising Yueyang Taihe Commercial Plaza (the Mall ), Yueyang Taihe Hotel (the Hotel ) and Yueyang Taihe Hotel Co., Ltd are currently owned by Taihe Group. The group structure of Zenna Group prior to the PRC Restructuring is set out as follows: Zenna (BVI) Taihe Group (PRC) 90% 10% Taihe Development (PRC - EJV) Hotel Management Co Hotel * Mall * *Note: The Hotel and Mall are assets, not companies Each of Zenna (holding 90% interest) and Taihe Group (holding 10% interest) shall have to pay up the initial 20% of the registered capital of Taihe Development (the Initial Registered Capital ), according to their shareholding percentages, which amounts to S$8.94 million (translated to approximately US$5.96 million), in accordance with the requirements under PRC laws, before any of the Assets can be injected. Zenna shall have to inject cash amounting to S$8.05 million (translated to approximately US$5.36 million) (to which the S$7 million loan was raised to satisfy part of this amount) and Taihe Group is to contribute its portion through the Assets Injection. The PRC Restructuring The PRC Restructuring comprises the: (a) Target Capital Reduction; (b) Assets Injection, and (c) Equity Restructuring. (a) Target Capital Reduction: Target Capital Reduction refers to the reduction of the amount of registered capital of Taihe Development from approximately S$44.7 million (translated to approximately US$29.8 million) to no more than S$10 million (translated to approximately US$6.67 million) such that Zenna would have paid up 100% of its 90% interest in Taihe Development based on the cash that Zenna would have injected for the Initial Registered Capital.. 1 Please note that all the figures provided in relation to the PRC Restructuring are subject to foreign exchange conversions. The registered capital of Taihe Development is denominated in US$, but for ease of understanding and reference, all figures herein are expressed in S$. The final figures converted into S$ for the purpose of announcements as at the completion of the Proposed Acquisition may vary depending on the value of Assets in the independent valuation report done by an international valuer and the prevailing exchange rates.

4 The Target Capital Reduction is subject to approval from the original government authority that approved the establishment of Taihe Development as a sino-equity joint venture company (the EJV ). (b) Assets Injection: The ownership of the Assets would, subsequent to the Target Capital Reduction, be transferred from Taihe Group, the existing owner of the Assets, to Taihe Development via separate transfer/acquisition agreements governed by PRC law. There is no requirement under PRC laws and regulations for approval in relation to an asset transfer between an EJV and a domestic non state-owned enterprise. However, as the provisions under Article 2 of the new Provisions for Foreign Investors to Merge Domestic Enterprises is unclear about the definition of foreign acquisition and the authorities in different areas have different practices, the Vendor and Taihe Group intend to submit the Assets Injection to the relevant government authorities for a review to confirm whether any formal approval is required. (c) Equity Restructuring: The remaining 10% of the equity interest in Taihe Development will be acquired by Zenna from Taihe Group. Zenna shall pay Taihe Group for the said 10% equity interest in cash. The acquisition of the 10% equity interest from Taihe Group by Zenna requires approval from the original government authority that approved the initial establishment of Taihe Development. Due to the difference in the amount of capital contribution to be contributed by Taihe Group and the value of the Assets injected, there will be a debt owing by Taihe Development to Taihe Group, which will consequently be novated to Zenna (the Novated Debt Amount ). The Novated Debt Amount is estimated to be approximately S$159 million, based on the following assumptions: (i) (ii) net value of Assets injected is RMB800 million (being RMB1 billion minus maximum debt of RMB200 million to be incurred) or approximately S$160 million; amount of capital contribution to be contributed by Taihe Group is approximately S$0.84 million (being the difference between the total initial capital injection of S$8.94 million and capital injection S$8.10 million by Zenna) Zenna shall repay the Novated Debt Amount through the issuance of 550 million Consideration Shares to a company nominated by the individual shareholders of Taihe Group, at the completion of the Acquisition. The group structure of the Zenna Group on the completion of the PRC Restructuring shall be as follows:

5 Zenna (BVI) 100% Taihe Development (EJV) 100% Development Rights to Townships Hotel Management Co Hotel Mall (Acquisition of Development Rights is a condition of the Proposed Acquisition, not PRC Restructuring) The PRC approvals outlined above have yet to be obtained as Zenna is still in the process of completing the injection of the Initial Registered Capital. 6. The Purchaser Loan As one of the conditions precedent of the S&P Agreement, the Company shall have to make available to Zenna a secured loan in an aggregate amount of S$7 million pursuant to the Loan Agreement entered into between the Company as lender and Zenna as borrower. The Purchaser Loan of S$7 million, when disbursed, would be used for Zenna to satisfy its contribution of the Initial Registered Capital of Taihe Development. Zenna has provided an undertaking to the Company that the proceeds from the Purchaser Loan will not be used for any other purposes other than for the capital contribution and will remain in the capital contribution account of Taihe Development Group until the completion of the Proposed Acquisition. At the same time, a director of the Company will be a co-signatory to the bank account to which the moneys will be deposited to ensure that the moneys are not used for any other purpose prior to completion of the Proposed Acquisition. Upon the completion of the Proposed Acquisition, the $7 million loan will essentially become an inter-company loan within the Enlarged Group if it is not repaid under the terms of the Loan Agreement. There is no intention to write-off the loan. However, the principal amount of the S$7 million and any accrued interest on the principal amount shall become immediately repayable by Zenna to the Company upon the occurrence of any event of default or if Zenna is unable to procure an unconditional banker s guarantee for an amount equivalent to the principal amount to be issued within five (5) business days

6 from the occurrence of an event of default. A notable event of default is the abortion or noncompletion of the Proposed Acquisition. As Zenna s cash of S$7 million is maintained in a capital contribution account in the PRC and may not be immediately available upon demand, the unconditional banker s guarantee for an equivalent amount serves as an alternative for the immediate repayment of the S$7 million loan to the Company in an event of default. This banker s guarantee suffices as adequate comfort from the perspective of the Company with respect to Zenna s ability to repay the loan. In the event that Zenna is unable to procure the banker s guarantee for this equivalent amount within 5 business days, the loan will become immediately repayable and the Company shall be entitled to enforce its security under the S$7 million loan, which includes, amongst others, a charge over all the shares of Zenna. 7. Effects on Shareholding Structure Paragraph 5 of the Announcement showed the pro forma effects on Shareholders after the Share Consolidation and the allotment and issuance of the Consideration Shares. The Company wishes to present the updated effects on shareholding structure after the Share Consolidation and the allotment and issuance of the Consideration Shares (1) as follows: After Share Consolidation but Before the Proposed Acquisition After the Share Consolidation and the Proposed Acquisition No. of New Shares % No. of New Shares % Current Shareholders: Lawrence Liaw Shoo Khen Ricky Ang Gee Hing 14,400, ,400, ,200, ,200, Tan Choon Wee 3,000, ,000, Other Shareholders 122,984, ,984, ,584, ,584, New Shareholders: Taihe Group ,000, Phoon Wui Nyen (and/or his nominees) Placer International Limited ,000, ,000,000 (2) ,584, Notes: (1) The financial effects of the Proposed Acquisition do not take into account the Disposal. (2) The pro forma shareholdings of Placer post Share Consolidation and Proposed Acquisition are calculated based on the assumption that the Referral Fees amount to 4% of the Consideration (without any adjustments made to the Consideration).

7 The Company wishes to further clarify that the shares held by Mr Lawrence Liaw are in the process of being transferred to a nominee shareholder for the purpose of the subsequent cancellation of the said shares. The Company shall release announcement(s) relating to the impending change in shareholdings when the transfer is completed. 8. Appointment of new directors It is intended that three new directors from the Zenna Group will be appointed to the Board pursuant to the EGM to be convened for the purpose of the Proposed Acquisition. The identities of the new directors of the Board would be disclosed in the circular to be prepared and dispatched to Shareholders in due course. 9. Caution in trading Shareholders are advised to exercise caution in trading their shares. The Proposed Acquisition is subject to numerous conditions and further due diligence by the Company. There is no certainty or assurance as at the date of this announcement that the Proposed Acquisition will be completed, or whether the Compliance Placement will occur, or that no changes will be made to the terms thereof. The Company will make the necessary announcements when there are further developments on the Proposed Acquisition and other matters contemplated by this announcement. Shareholders are advised to read this announcement and any further announcements by the Company carefully. Shareholders should consult their stock brokers, bank managers, solicitors or other professional advisors if they have any doubt about the actions they should take. BY ORDER OF THE BOARD The Lexicon Group Limited Ricky Ang Gee Hing Executive Vice Chairman and Managing Director 4 March 2009