CHINA RESOURCES<0291> - Announcement & Resumption
The Stock Exchange of Hong Kong Limited takes no responsibility
for the contents of this announcement, makes no representation
as to its accuracy or completeness and expressly disclaims any
liability whatsoever for any loss howsoever arising from or in
reliance upon the whole or any part of the contents of this
announcement.
CHINA RESOURCES ENTERPRISE, LIMITED
(Incorporated in Hong Kong under the Companies Ordinance)
DISCLOSEABLE AND CONNECTED TRANSACTION
Acquisition Agreement
The Directors are pleased to announce that on 8th September, 1999,
the Company entered into the Acquisition Agreement with CRH in
relation to the acquisition by the Company of CRH's entire interest
in FCI, a wholly owned subsidiary of CRH, for a consideration of
approximately HK$2,087.3 million. The sole asset of FCI is its
entire interest in CRR whose principal businesses are engaged in
the operation of department stores and property investments in
Hong Kong.
Debt Purchase Agreement
Concurrently, CREF, a wholly owned subsidiary of the Company, also
entered into the Debt Purchase Agreement in relation to the
acquisition by CREF of CRH's entire interests, rights and titles
in the Debt for a consideration of approximately HK$632.7 million.
As CRH is the controlling shareholder of the Company holding
approximately 52.8% equity interest, the Acquisition constitutes
a connected transaction to the Company. CRH and its Associates
will abstain from voting in the EGM for approving the Acquisition.
A circular containing, inter alia, further details of the
Agreements, the advice from the independent board committee of
the Company and the independent financial adviser will be
despatched to the Shareholders as soon as practicable.
THE AGREEMENTS DATED 8TH September, 1999
Acquisition Agreement
Vendor: FCI, a wholly owned subsidiary of CRH, the controlling
shareholder of the Company, holding approximately 52.8% interest
Purchaser: the Company
Debt Purchase Agreement
Vendor: CRH
Purchaser: CREF, a wholly owned subsidiary of the Company
Assets to be acquired
--- 2 shares of US$1.00 each in FCI, representing the entire
equity interest of FCI. The sole asset of FCI is its interest in
the entire issued ordinary share capital of CRR.
--- All the rights, benefits, titles and interests of CRH in
the Debt.
Consideration
The Consideration of HK$2,720 million has been arrived at after
arm's length negotiations between the parties thereto based on
the Directors' estimate of the value of the properties, the value
of the retail business and the principal sum of the Debt.
The Consideration represents a discount of approximately 26.9%
to the unaudited pro forma net tangible asset value of the FCI
Group ("Adjusted NAV") as at 30th June, 1999 of approximately
HK$3,722 million after (i) adjustment for the property valuation
surplus and (ii) adding back the principal sum of the Debt. The
Directors consider that the Consideration is fair and reasonable
as far as the Independent Shareholders are concerned.
The Consideration will be payable in the following manner:
--- as to HK$680.61 million in cash and the issue and allotment
of the Consideration Shares upon Completion; and
--- as to HK$680 million in cash on or before 31st March, 2000.
The cash portion for the Consideration will be funded by proceeds
raised on 6th July, 1999 through the placement of the Company's
Shares to professional and institutional investors. Details of
the placement were disclosed in an announcement made by the Company
dated the same day.
The issue price of HK$12.03 per Consideration Share represents
a discount of approximately 1.8% to the closing price of HK$12.25
per Share as quoted on the Stock Exchange at the date of signing
of the Agreements. The issue price represents a discount of
respectively approximately 2.6% and 3.3% to the average of the
closing prices of the Shares for the last five and ten trading
days preceding and up to the date of the Agreements.
Conditions
The Acquisition Agreement is conditional upon, inter alia, the
following:
--- The passing of resolution(s) by the Independent
Shareholders at the EGM to approve the Acquisition Agreement; and
--- The Stock Exchange granting or agreeing to grant listing
of and the permission to deal in the Consideration Shares.
The Debt Purchase Agreement is conditional upon the following:
--- The passing of resolution(s) by the Independent
Shareholders at the EGM to approve the Acquisition Agreement: and
--- The simultaneous completion of the Acquisition Agreement.
CRH and its associates will abstain from voting on the ordinary
resolution(s) to be proposed in the EGM to approve the Agreements.
Completion
Completion of the Agreements shall take place within 14 business
days after the date when the conditions set out in the respective
agreements have been fulfilled and, in any event, not later than
30th November, 1999.
INFORMATION ON THE FCI GROUP
The FCI Group has two principal operating subsidiaries namely,
CRCDS and CAC. CRCDS and CAC was established in 1939 and 1959
respectively and each has been managed by CRH group for over 20
years. CRCDS is engaged in the operation of department stores under
the name of whilst CAC is engaged in the
operation of specialty retail stores under the name of
in Hong Kong.
At present, CRCDS and CAC together operate 11 department stores
in Hong Kong, of which the premises of six stores are owned by
the FCI Group, and the remaining stores being leased from CRH or
independent third parties.
Unaudited pro forma combined turnover, net profit before and after
taxation of the FCI Group amounted to approximately HK$1,585
million, HK$147 million and HK$133 million respectively for the
year ended 31st December, 1997; and approximately HK$1,315 million,
HK$46 million and HK$34 million respectively for the year ended
31st December, 1998. The fall in revenue and earnings was mainly
due to a sluggish retail sector which was affected by the Asian
financial crisis.
Based on the estimated value of the properties owned by the FCI
Group, the Adjusted NAV of the FCI Group as at 30th June, 1999
would have amounted to approximately HK$3,722 million.
REASONS FOR THE ACQUISITION
The Company is the principal listed subsidiary of CRH. The
principal activities of the Company currently include property
development and investment, food and beverage, infrastructure and
other investments. The Company's long-term strategy has always
been to expand its existing core business areas and develop a
retail and distribution operation in Hong Kong and the PRC. The
Directors consider that the Acquisition is in line with the
Company's business strategy. The Directors believe that the
Acquisition will increase its recurrent income base and strengthen
the Company's balance sheet. In addition, the Acquisition marks
a significant advancement for the Company towards developing a
retail and distribution business.
Investment property
The Directors notice that the FCI Group owns sizeable commercial
spaces of an aggregate gross floor area of approximately 500,000
square feet, most of which are self-occupied. All of these premises
are located in high-density commercial districts including
Causeway Bay, Mongkok, Tsimshatsui and Tsuen Wan where sizeable
retail spaces are limited. The Directors consider that if these
commercial premises are leased out instead of self-occupied, the
prevailing annual rental yield will range from 7% to 10% by
reference to similar commercial premises. The Company is assessing
relocation possibilities of the existing retail business.
The Directors consider that apart from the upside potential in
the retail business of the FCI Group, the Acquisition also provides
the Group with sizable commercial space reserves which offer the
flexibility of leasing out these premises for higher recurring
rental income or, if the circumstances are favourable, to
redevelop these premises into new commercial properties and/or
shopping arcades. A business plan will be prepared to assess the
redevelopment potential of the existing properties. This would
serve to maximize the redevelopment potential of the existing
premises for a higher recurrent income to the Group in the long
run when opportunities arise.
Retail and distribution business
The Directors also consider that the Acquisition provides an
opportunity for the Company to diversify its business into the
retail sector at an inexpensive cost. Furthermore, to better equip
for the recovery of the economy and the retail industry, the
Company has recently set up and assigned personnel to a retail
management team to manage the Company's retail business. The
Company has simultaneously recruited professional management, as
well as engaging reputable external business consultants, to
devise a business plan to revamp the FCI Group including the
corporate image, brand name rejuvenation, market segmentation and
business focus so as to reposition itself in the competitive local
retail industry.
With the set up of a professional retail management team and the
growing signs for the recovery of the local economy and the retail
industry, the Directors believe that the business environment and
conditions of the FCI Group should continue to improve in future.
Together with the potential recurrent rental income for the FCI
Group and the property redevelopment opportunities, the Directors
consider the Acquisition is in the best interests of the Company.
CONTINUING CONNECTED TRANSACTIONS
Subsisting tenancy agreements
At present, the FCI Group leases from certain subsidiaries of CRH
certain office and retail space in Hong Kong in connection with
the normal retail business operation of the FCI Group. Furthermore,
the FCI Group also leases from subsidiaries of CRH various
residential units as quarters for staff of the FCI Group.
Recurrent connected transactions
Certain subsidiaries of CRH also act as merchandisers to the FCI
Group in sourcing and supplying products to the FCI Group. In
return, the FCI Group will pay to these subsidiaries of CRH a
certain percentage of commission calculated based on the sum of
each purchase. The Directors understand that the rate of
commission varies for each type of purchase.
The Directors are in the course of ascertaining and verifying the
actual consideration payable under each type of connected
transaction mentioned herein. Based on preliminary information,
the Directors believe that the aggregate annual consideration
payable by the FCI Group under these connected transactions to
CRH would not exceed 3% of the net asset value of the Group. Further
details of these connected transactions together with the actual
consideration will be disclosed in the circular to be issued by
the Company incidental to the Acquisition.
Under the Listing Rules, each of the above-connected transactions
would normally require full disclosure and/or prior Independent
Shareholder's approval. However, as such connected transactions
were and will be entered in the normal course of business of the
FCI Group and, some of which are also occurred on a regular basis,
the Directors consider that it would be impractical for the Company
to strictly comply with the connected transactions requirements
as set out in the Listing Rules for each transaction. Accordingly,
the Company will submit an application to the Stock Exchange to
seek an exemption from the relevant connected transaction
requirements of the Listing Rules for the above-connected
transactions, subject to approval of the Independent Shareholders
at the EGM.
GENERAL
CRH is the controlling shareholder of the Company holding
approximately 52.8% interest. Accordingly, the Acquisition
constitutes a connected transaction to the Company. CRH and its
Associates will abstain from voting in the EGM to approve the
Acquisition.
An independent board committee comprising independent non-
executive directors of the Company has been appointed, subject
to the confirmation of the Stock Exchange, to advise the
Independent Shareholders in respect of the Acquisition. Vickers
Ballas Capital Limited has been appointed as financial adviser
to advise the independent board committee in respect of the same.
A circular containing, inter alia, further details of the
Acquisition, the advice from the independent board committee of
the Company and the independent financial adviser to the
independent board committee, will be despatched to the
Shareholders as soon as practicable.
At the request of the Company, the trading of its Shares on the
Stock Exchange were suspended as from 10:00 a.m. on 9th September,
1999. Application has been made by the Company to the Stock
Exchange to resume trading of its Shares from 10:00 a.m. on 10th
September, 1999.
DEFINITIONS
"Acquisition" the acquisition by the Company of the entire
interest in FCI and the Debt pursuant to the Acquisition Agreement
and the Debt Purchase Agreement
"Acquisition Agreement" a conditional agreement date 8th
September, 1999 made between CRH and the Company in relation to
the acquisition of the entire interest in FCI
"Agreements" the Acquisition Agreement and the Debt Purchase
Agreement
"Associates" as defined under the Listing Rules
"CAC" Chinese Arts & Crafts (H.K.) Limited, a company
incorporated in Hong Kong with limited liability on 23rd January,
1959 and is currently a wholly owned subsidiary of CRR
"Consideration" the aggregate consideration for the
Acquisition and the Debt purchase to be paid by the Group
"Consideration Shares" 113,000,000 new Shares to be issued and
allotted to CRH at an issue price of HK$12.03 per Share pursuant
to the Acquisition
"Completion" Completion of the Acquisition Agreement and Debt
Purchase Agreement
"Company" China Resources Enterprise, Limited, a company
incorporated in Hong Kong with limited liability and whose shares
are listed on the Stock Exchange
"CRCDS" CRC Department Store Limited, a company incorporated
in Hong Kong with limited liability on 8th February, 1939 and is
currently a wholly owned subsidiary of CRR
"CREF" CRE Finance (Hong Kong) Limited, a wholly owned
subsidiary of the Company
"CRH" China Resources (Holdings) Company Limited, the
controlling shareholder on the Company
"CRR" China Resources Retail (Group) Company Limited, a company
incorporated in Hong Kong with limited liability and is currently
100% controlled by FCI
"Debt" the principal sum of HK$632,670,000 repayable on 29th
November, 1999 by the FCI Group to CRH together with interest
accrued from Completion
"Debt Purchase Agreement" a conditional agreement date 8th
September, 1999 made between CRH and CREF in relation to the
purchase of the Debt
"Directors" directors of the Company
"EGM" extraordinary general meeting of the Company for the
approval of, inter alia, the Agreements
"FCI" Fresh Concepts International Limited, a company
incorporated in British Virgin Islands with limited liability on
18th August, 1999 and is a wholly owned subsidiary of CRH
"FCI Group" FCI and its subsidiaries
"Group" the Company and its subsidiaries
"Hong Kong" Hong Kong Special Administrative Region
"Independent Shareholders" Shareholders apart from CRH and its
Associates
"Listing Rules" Rules Governing the Listing of Securities on
the Stock Exchange
"PRC" The People's Republic of China, excluding the Special
Administrative Region of Hong Kong
"Share" share of HK$1.00 each in the share capital of the
Company
"Shareholders" Shareholders of the Company
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Subsidiaries" as defined under the Companies Ordinance
By order of the Board of
China Resources Enterprise, Limited
Lee Yip Wah, Peter
(Company Secretary)
9th September, 1999, Hong Kong
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