GUANGNAN (HOLD)<1203> - Announcement & Resumption of Trading
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.
GUANGNAN (HOLDINGS) LIMITED
(Incorporated in Hong Kong with limited liability)
Announcement
A meeting was held on 25th May, 1999 between the respective
representatives and advisers of the Guangdong Provincial Government,
the GDE Group, including the Guangnan Group, the GDI Group, the Nam
Yue Group and the Financial Creditors.
An outline of a proposal for the restructuring of the GDE Group,
including the Guangnan Group, the GDI Group and the Nam Yue Group,
put forward by the Guangdong Provincial Government in its capacity as
a controlling shareholder was presented to the Financial Creditors at
the meeting. The restructuring proposal put forward for the Guangnan
Group includes, inter alia, the segregation of core and non-core
businesses/assets, a rights issue to raise funds for the repayment of
debt, and the exchange of the remaining debt for, inter alia, new
debt securities in the Guangnan Group.
Shareholders and investors are warned that the aforesaid proposal is
a preliminary proposal and may or may not proceed and their attention
is drawn to section 7 below under the heading of `Uncertainty
surrounding implementation of the restructuring proposal'.
Shareholders and investors are further warned that the waiver
mentioned under section 4 below under the heading of `Restructuring
of the GDE Group' may or may not be granted by the SFC.
1. Introduction
The Guangdong Provincial Government invited the Financial Creditors
of the GDE Group , including the Guangnan Group, to attend a
presentation on 25th May, 1999 relating to steps proposed to be taken
in connection with the comprehensive restructuring of the GDE Group
(including the Guangnan Group).
The purpose of this announcement is to inform investors of the
information presented to the Guangnan Group, its advisers and its
Financial Creditors at the Meeting concerning the proposals for the
restructuring of the GDE Group, including the Guangnan Group and the
Nam Yue Group. Information provided in this announcement in relation
to the restructuring of the GDE Group relates only to the Guangnan
Group.
It should be noted that the Board and its respective advisers have
yet to evaluate the proposal, which is subject, amongst other things,
to professional evaluation, independent shareholder approval,
approval by the Financial Creditors of Guangnan of Guangnan's debt
rescheduling, and all relevant regulatory consents (both in mainland
PRC and in Hong Kong). It should be noted that there can be no
assurance that the proposal will be effected in the form described in
this announcement or at all. The information set out in this
announcement (other than the financial and certain other information
relating to Guangnan) has been supplied to the Guangnan Group by the
Restructuring Team and has not been independently evaluated by or on
behalf of the Guangnan Group as at the date of this announcement.
2. Background
Shareholders are referred to the press release made by the Guangdong
Provincial Government and the announcement made by, amongst others,
Guangnan, on 16th December, 1998. The press release and the
announcement stated that a restructuring team had been formed in
connection with the comprehensive restructuring of the GDE Group and
its businesses and operations.
GDE indirectly owns 56.92% of the issued ordinary share capital of
Guangnan. Accordingly, Guangnan is a member of the GDE Group.
Shareholders are also referred to previous announcements made by
Guangnan, including those dated 4th January, 12th January, 14th
January and 8th February, 1999, regarding the proposed plans for
restructuring the Guangnan Group in conjunction with a comprehensive
restructuring of the GDE Group and, in particular, the announcement
of Guangnan dated 1st March, 1999 regarding the audited financial
statements of the Guangnan Group for the nine months ended 30th
September, 1998 and the announcement of Guangnan dated 30th March,
1999 regarding the audited financial statements of the Guangnan Group
for the three months ended 31st December, 1998. Shareholders are also
referred to the joint announcement of today's date by GDI, GD
Brewery, GD Building Industries and GD Tannery, which also forms part
of the comprehensive restructuring of the GDE Group.
It was stated at the Meeting that the proposed restructuring of the
GDE Group is intended by the Guangdong Provincial Government to
rebuild international creditors' and investors' confidence in the GDE
Group, to provide the GDE Group with an opportunity to revive itself
and to form a basis for solving the GDE Group's immediate financial
and operational difficulties. An outline of the measures being
proposed in relation to the Guangnan Group and as presented to the
Meeting is set out below. It was stated at the Meeting that the
Guangdong Provincial Government intends the restructuring to
strengthen the GDE Group financially to a level where it is
commercially viable and financially independent.
3. Meeting with the Financial Creditors
The Meeting was held between the Financial Creditors, the Guangdong
Provincial Government and the Groups on 25th May, 1999.
At the Meeting, the Financial Creditors were presented with an
outline of a preliminary proposal for the restructuring of the Groups
which each of the boards of directors of the relevant members of the
Groups will be asked to consider. Whilst the restructuring proposal
is being put forward as a restructuring of the Groups, ultimately it
will be for the respective boards of directors of the relevant
members of the Groups to consider and, if thought fit, implement.
The Board has not been involved in the preparation or the
presentation of the proposal which is being put forward by the
Guangdong Provincial Government for consideration by, inter alia, the
Board.
a. Current position of the Guangnan Group
A financial summary of the Guangnan Group as at 31st December, 1998,
prepared on the basis of the audited financial statements of the
Guangnan Group for the nine months ended 30th September, 1998 and the
three months ended 31st December, 1998 as announced on 1st March,
1999 and 30th March, 1999 respectively, was presented at the Meeting
as follows:-
For the year ended
31st December, 1998
EBITDA HK$7.75 million
EBITDA/Gross Interest 0.05 times
As at
31st December, 1998
HK$ million
Assets 3,156
Liabilities(Note) 4,235
Net liabilities(Note) (1,079)
Note: Excludes minority interest of HK$104 million
It was noted at the Meeting that the estimated proportion of debt
recoverable by Financial Creditors of the Guangnan Group in the event
of liquidation would average 20%. It is anticipated that in addition
to the debt owed to the Guangnan Group's Financial Creditors, a
substantial portion of other liabilities of the Guangnan Group will
need to be restructured in connection with the overall restructuring.
b. Restructuring of the Guangnan Group
An overview of the restructuring proposal and the steps involved in
the restructuring of the GDE Group, including the Guangnan Group, was
presented to the Financial Creditors at the Meeting.
The proposed restructuring of the Guangnan Group was presented at
the Meeting as follows.
Step 1: Reorganise Guangnan by separating non-core businesses
The Guangnan Group will undergo an internal reorganisation pursuant
to which it will retain the distribution of live and fresh
foodstuffs, the supermarkets and the tinplate businesses and it will
move all other businesses/assets into Asset Management Company, a
newly created company. The purpose of Asset Management Company will
be to liquidate such non-core businesses/assets, such as the farming
businesses and the investments in listed shares, over time in order
to maximise recovery to the Financial Creditors of the Guangnan
Group. Asset Management Company will be effectively wholly owned and
controlled by the Financial Creditors of the Guangnan Group and will
be deconsolidated for accounting purposes from Guangnan. The
recoverability of the debt in Asset Management Company will depend on
the cash to be generated from this company and its debts are
non-recourse to Guangnan and its subsidiaries.
Step 2: The rights issue
It is proposed that Guangnan will conduct a highly dilutive rights
issue on the basis of approximately nine new shares for every one
existing share in Guangnan at HK$0.10* per share, raising
approximately HK$775 million (approximately US$100 million) in the
process.
(* After discussion among the Restructuring Team, the rights issue
price of HK$0.09 per share as indicated at the Meeting has been
changed to HK$0.10)
Pursuant to the restructuring of the GDE Group as outlined at the
Meeting, New GDE will be established as a company to be wholly owned
by the Guangdong Provincial Government. New GDE will become the
holding company of GDE and therefore also the indirect holding
company of Guangnan. New GDE will underwrite the rights issue . The
other shareholders in Guangnan will be offered the right to
participate in the rights issue pro rata to their respective
shareholding in Guangnan.
Under the proposed structure of the rights issue, all shareholders
of Guangnan will be offered the same investment opportunity in
Guangnan. The rights issue will be conditional on the participation
in a minimum of 25% of the rights issue by shareholders or other
investors who are not connected with the GDE Group and subject to the
approval of the independent shareholders of Guangnan. This is to
ensure that there will not be less than a 25 shareholding held by
the public in Guangnan after the completion of the rights issue so
that Guangnan will be able to retain its listing status on the Stock
Exchange. Accordingly, the maximum participation of New GDE in the
rights issue will be 75% of the amount to be raised (on the basis of
HK$775 million (US$100 million) to be raised, the maximum value of
shares of Guangnan to be subscribed by New GDE will be HK$581.25
million (US$75 million)).
The proposed rights issue in Guangnan is also contingent upon the
acceptance by Financial Creditors of the Guangnan Group accepting an
exchange of the outstanding liabilities of the Guangnan Group as set
out in Step 3 below.
Under the proposed rights issue of Guangnan, although New GDE may
increase its direct holding in Guangnan from zero to a maximum of
67.5 , a mandatory offer under Rule 26 of the Takeovers Code should
not be triggered for the entire outstanding issued share capital of
Guangnan not presently owned by New GDE and parties acting in concert
with it, as New GDE will already have an indirect shareholding in
Guangnan of over 50 held through GDE.
Step 3: The restructuring of existing debt
The Financial Creditors of the Guangnan Group will exchange HK$3,782
million (US$488 million) of claims against the Guangnan Group for
HK$775 million (US$100 million) cash and a mixture of new securities
in the Guangnan Group. Such new securities will include HK$1,162.5
million (US$150 million) of various debt securities in the Guangnan
Group as well as HK$1,844.5 million (US$238 million) of securities
and equity in Asset Management Company. The new debt securities of
HK$1,162.5 million (US$150 million) will be issued by different
Guangnan entities, have different terms and will not be cross
guaranteed. Asset Management Company will be effectively wholly owned
and controlled by the Financial Creditors of the Guangnan Group and
will be deconsolidated for accounting purposes from Guangnan.
c. Guangnan Group Post-Restructuring
(For the chart sets out the existing organisational structure
of the Guangnan Group and the chart sets out the envisaged
organisational structure of the Guangnan Group after completion of the
proposed transactions, please refer to the press announcement today. It
is emphasised such structure is only preliminary, and the final structure
may well be different)
As presented at the Meeting, the outcome of the proposed
restructuring of the Guangnan Group is expected to be as follows:-
(1) Guangnan's debt will be significantly reduced;
(2) Guangnan's equity will be increased by approximately HK$775 million
(approximately US$100 million) as a result of the rights issue;
(3) the business focus of the Guangnan Group will be sharpened; and
(4) the return of the Financial Creditors of the Guangnan Group will be
enhanced through the expected recoveries by Asset Management
Company.
It is envisaged that the ownership structure of Guangnan upon
completion of the restructuring will be as follows:-
*Before Restructuring *After Restructuring
Percentage of Percentage of
total number of total number of
Shares issued shares Shares issued shares
(million) (million)
Public 390 43% 2,440(min) 26.8%
GDE 520 57% 520 5.7%
New GDE 0 0% 6,140(max)(note) 67.5%
---- ---- ----- -----
910 100% 9,100 100%
=== ==== ===== ====
Note: This represents the maximum number of shares in Guangnan to be
subscribed by New GDE under the rights issue.
* Total number of issued shares are approximate.
Before the restructuring, the Financial Creditors of the Guangnan
Group have the following:-
HK$ (millions) US$ (millions)*
Loans in Guangnan and its subsidiaries 2,511.0 324
Convertible bonds in the Guangnan Group 821.5 106
Other claims in the Guangnan Group 449.5 58
----- ---
Total 3,782 488
===== ===
After the restructuring, the Financial Creditors of the Guangnan
Group will have the following:-
HK$ (millions) US$ (millions)*
Cash 775.0 100
Debt in the live and fresh
foodstuffs and supermarket
businesses 232.5 30
Debt in the tinplate business 542.5 70
Convertible bonds in the
Guangnan Group 387.5 50
Equity and debt in Asset
Management Company 1,844.5 238
------- ---
Total 3,782.0 488
======= ===
* This represents the US dollar equivalents to the Hong Kong dollar
amounts.
4. Restructuring of the GDE Group
Pursuant to the restructuring of the GDE Group as presented to the
Meeting, New GDE will be established as a company to be wholly owned
by the Guangdong Provincial Government. New GDE will become the
holding company of GDE and therefore also the indirect holding
company of Guangnan.
As advised at the Meeting, New GDE will become the ultimate holding
company of Guangnan, this may give rise to an obligation to a general
offer under Rule 26.1 of the Takeovers Code by virtue of the chain
principle, unless it can be shown that (1) the holding in Guangnan
does not constitute a substantial part of the assets of GDE and (2)
one of the main purposes of acquiring control of GDE was not to
secure control.
New GDE will make an application pursuant to Note 6 under Notes to
Rule 26.1 of the Takeovers Code for a waiver from making a mandatory
offer on the basis that it is acquiring a member of the same group.
Shareholders and investors are referred to a press release by GDE of
today's date for further information on the GDE restructuring.
5. Restructuring of the GDI Group
The restructuring of the Guangnan Group is part of the comprehensive
restructuring of the GDE Group, which also involves the GDI Group, as
GDI is an associated company of GDE. Shareholders are referred to a
joint announcement of today's date by GDI, GD Brewery, GD Building
Industries and GD Tannery in respect of the proposed restructuring of
the GDI Group.
6. Next Steps
The Board understands that members of the Restructuring Team will be
meeting with the Financial Creditors to negotiate in greater detail
the terms and conditions of the restructuring with a view to the
Financial Creditors' ultimate endorsement of a comprehensive
restructuring plans that is mutually acceptable to the Groups, the
Guangdong Provincial Government and the Financial Creditors.
7. Uncertainty surrounding implementation of the restructuring proposal
To the extent that the proposed transactions set out above
constitute notifiable transactions, including connected transactions,
under the Listing Rules, Guangnan will be observing the requirements
and provisions of the Listing Rules and all other applicable rules
and regulations. In addition, to the extent the proposed transactions
have implications under the Takeovers Code, Guangnan and other
applicable parties will consult with the Executive and will comply
with the Takeovers Code.
It is emphasised that the restructuring proposal presented at the
Meeting and as outlined above is only preliminary. The restructuring
will be subject to relevant regulatory and legal compliance both in
Hong Kong and mainland PRC and there is no assurance either that it
will be implemented, or, if implemented that it will take the form
described in this announcement. In particular, (i) extensive
professional evaluation will be carried out on behalf of Guangnan in
relation to the proposal; (ii) the agreement of the Financial
Creditors of the Guangnan Group to its debt rescheduling will be
sought; (iii) the approval of the independent shareholders of
Guangnan will be required ; and (iv) extensive discussion and
consultation will take place between the parties to the restructuring
and the Stock Exchange and the SFC in relation to the application to
the restructuring proposals of the Listing Rules and the Takeovers
Code. There is no assurance that any consent, waiver or ruling
requested will be provided by the Stock Exchange or the SFC.
It is further emphasised that the restructuring proposal presented
at the Meeting as outlined above is being put forward by the
Guangdong Provincial Government in its capacity as a controlling
shareholder with the intention of, amongst other things, rebuilding
international creditors' and investors' confidence and to strengthen
the Groups financially. However it is for the boards of directors of
each of the companies within the Groups involved in the restructuring
to consider the proposal and, if thought in the best interests of
that company and its creditors, to implement the restructuring.
8. General
Further announcements on the restructuring will be released by
Guangnan as and when appropriate.
Trading in the securities of Guangnan on the Stock Exchange was
suspended in the morning of 25th May, 1999 at the request of
Guangnan. Application has been made to the Stock Exchange to resume
trading in the securities of Guangnan on the Stock Exchange at 10:00
a.m. on 26th May, 1999.
AS NOTED IN PREVIOUS ANNOUNCEMENTS OF GUANGNAN, INVESTORS ARE
ADVISED TO EXERCISE EXTREME CAUTION WHEN DEALING IN THE SHARES OF
GUANGNAN.
Definitions of terms used in this announcement:
Term Meaning
`Asset Management Company'
a company proposed to be established initially as a subsidiary of
Guangnan to hold the non-core businesses of the Guangnan Group
`Board'
the board of directors of Guangnan
`EBITDA'
earnings before interest, taxation, depreciation and amortization
`Executive'
the Executive Director of the Corporate Finance Division of the
Securities and Futures Commission or any delegate of the Executive
Director
`Financial Creditors'
financial creditors of the GDE Group (including the Guangnan Group),
the GDI Group and/or the Nam Yue Group, as the context may require
`GD Brewery'
Guangdong Brewery Holdings Limited, a subsidiary of GDI listed on
the Stock Exchange
`GD Building Industries'
Guangdong Building Industries Limited, a subsidiary of GDI listed on
the Stock Exchange
`GDE'
Guangdong Enterprises (Holdings) Limited
`GDE Group'
GDE and its subsidiaries, and, after the implementation of the
restructuring proposal, including New GDE
`GDI'
Guangdong Investment Limited, an associated company of GDE
`GDI Group'
GDI and its subsidiaries
`GD Tannery'
Guangdong Tannery Limited, a subsidiary of GDI listed on the Stock
Exchange
`Groups'
the GDE Group, the GDI Group, the Guangnan Group and the Nam Yue
Group
`Guangdong Provincial Government' or `GPG'
the People's Government of Guangdong Province
`Guangnan'
Guangnan (Holdings) Limited
`Guangnan Group'
Guangnan and its subsidiaries
`Listing Rules'
Rules Governing the Listing of Securities on the Stock Exchange
`Meeting'
the meeting between the respective representatives and advisers of
the Guangdong Provincial Government, the GDE Group, the GDI Group,
the Nam Yue Group and the Financial Creditors held on 25th May, 1999
`Nam Yue'
Nam Yue (Group) Company, Limited
`Nam Yue Group'
Nam Yue and its subsidiaries
`New GDE'
a new company to be established and wholly owned by the Guangdong
Provincial Government pursuant to the restructuring, and which will
become the holding company of GDE concurrently with the
implementation of the restructuring
`PRC'
People's Republic of China
`Restructuring Team'
Goldman Sachs (Asia) L.L.C., Shearman & Sterling, KPMG and Richards
Butler
`Stock Exchange'
The Stock Exchange of Hong Kong Limited
`Takeovers Code'
The Codes on Takeovers and Mergers and Share Repurchases
Note: In this announcement, figures originally expressed in HK$ have
been converted into US$ equivalents for the purposes of this announcement
at the rate of US$1.00 = HK$7.75 and vice versa, and in addition,
figures have been rounded.
By Order of the Board
Guangnan (Holdings) Limited
Frankie Li
Director
Hong Kong, 25th May, 1999
Save for the information contained in the paragraphs headed `Meeting
with the Financial Creditors' and `Restructuring of the GDE Group'
which have been provided by the Restructuring Team, the directors of
Guangnan jointly and severally accept full responsibility for the
accuracy of the information contained in this announcement and
confirm, having made all reasonable enquiries, that to the best of
their knowledge, opinions expressed in this announcement have been
arrived at after due and careful consideration and there are no other
facts contained in this announcement, the omission of which would
make any statement in this announcement misleading.
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