SOUTH SEA DEV<0250>-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.
SOUTH SEA DEVELOPMENT COMPANY LIMITED
(Incorporated in Hong Kong with limited liability)
Recently there have been significant increases in the price and
trading volume of the shares of the Company. The Company sets out
below the recent business development and the financial position
of the Company for the information of the public.
INTRODUCTION
The board of directors (the "Directors") of South Sea Development
Company Limited (the "Company"), after discussion with The Stock
Exchange of Hong Kong Limited (the "Stock Exchange") regarding
the recent increase in the price and trading volume of the shares
of the Company (the "Shares"), wish to clarify with the
shareholders and the public investors the recent business
development of the Company.
RECENT BUSINESS DEVELOPMENT
The existing business of the Company and its subsidiaries (the
"Group") is mainly property development and investment. Save as
disclosed in the annual report for the period ended 31 March 1998
and the interim report for the period ended 30 September 1998,
there has been no material change in the Group's business,
operations and working capital since the announcement of the
interim results to date. After the announcement of the interim
results, the Group has entered into a very substantial acquisition
(the "VSA") for the acquisition of certain interest in a
development site in Shenzhen, the People's Republic of China (the
"PRC"). Further details of the transaction are contained in the
Company's circular to shareholders dated 1 February 1999.
Meanwhile, with the benefit of the past experience of CIM Company
Limited ("CIM", a substantial shareholder of 10.89% of the Company)
in the field of information technology and hybrid fiber co-axial
network, the Group would participate in the information
technology business if such opportunities materialize. There have
been brief discussions in this area intermittently during the past
year with Citic Guoan Company Limited ("Citic"), the ultimate
owner of Staverley Assets Limited, a substantial shareholder of
the Company holding approximately 25.96% of the issued share
capital of the Company. Discussions were revived in the evening
of 9 June 1999 with Citic in connection with an acquisition from
Citic of an interest of approximately 25% in Citic Guoan
Information Industry Co., Ltd. ("Guoan Information"), a PRC
company listed on the Shenzhen Stock Exchange. It is 75% owned
by Citic and 25% owned by the public. The Company intends to
acquire approximately 25% of the existing issued shares of Guoan
Information from Citic.
The main business of Guoan Information is in the information
industry, including the provision of financial and securities
information, the set up and operation of cable network (hybrid
fiber co-axial network) systems, satellite communication, the
development of mobile communication and provision of advertising
services. It also participates in the property management
business. It has operations in different regions in the PRC.
According to the audited consolidated accounts of Guoan
Information, the turnover was RMB485.97 million and RMB412.21
million for the years ended 31 December 1998 and 1997 respectively.
The audited consolidated net asset value as at 31 December 1998
and 1997 was RMB729.76 million and RMB620.57 million
respectively.
The exact structure of the transaction is to be finalized, but
it is possible, given the regulations in the PRC and the need to
obtain regulatory approval for the acquisition, that initially
the Company will only be able to secure a right to acquire the
interest in Guoan Information. The Company intends to exercise
such right to acquire the interest in Guoan Information once the
regulatory approval is obtained. The granting of the right to
acquire and the acquisition itself will constitute a connected
transaction of the Company. If the transaction goes ahead, it may
constitute a major transaction of the Company. The transaction
will possibly be financed by loans or the issue of convertible
securities or new Shares. The negotiations are progressing to an
advanced stage and the Company expects to be able to finalize the
terms of the transaction shortly. The agreement for the
transaction may or may not be signed and further announcement will
be made if appropriate.
The Company is also exploring the possibility of other joint
operations with Citic in the information technology business,
including the formation of a joint venture to engage in network
related businesses, including internet services, in the PRC. The
exact mode of cooperation is yet to be finalized. Further
information will be provided to shareholders of the Company when
appropriate.
There are also some preliminary discussions since 5 June 1999
regarding a possible acquisition of an interest of 35% to 45% in
a PRC company which is a major player in the computer software
and network development business in the PRC. It is intended that
the participation of the Company, with the experience of CIM in
network systems and software development in the PRC since the
early 90s, will help to expand and develop the existing business
of this PRC company. No mention was made of this possible
transaction in the Company's previous announcements because more
concrete discussions did not start until 10 June 1999. The vendor
will be a party not connected with the chief executive, directors
or substantial shareholders of the Company or its subsidiaries
or their respective associates (as defined in the Rules Governing
the Listing of Securities on the Stock Exchange (the "Listing
Rules")). This transaction is only at the preliminary discussion
stage and may or may not proceed.
FINANCIAL POSITION
Set out below is a summary of the audited results of the Group
for the three years ended 31 March 1998 extracted from the annual
reports of the Group for the relevant years and the unaudited
results for the six months ended 30 September 1998 extracted from
the interim report of the Group for the same period.
Six months ended
Year ended 31 March 30 September
1996 1997 1998 1998
HK$'000 HK$'000 HK$'000 HK$'000
Audited Audited Audited Unaudited
TURNOVER 292,007 392,985 712,182 69,128
Operating Profit/(Loss) 1,246 (17,754) (158,508) (64,658)
Exceptional Items 9,027 (39,424) (300,667) 0
10,273 (57,178) (459,175) (64,658)
Share of results of associated companies
(1,018) 1,116 (540 ) 1
Profit/(Loss) before taxation
9,255 (56,062) (459,715) (64,657)
Taxation (2,474) (14,500) (8,697 ) ( 4,199)
Profit/(Loss) after taxation
6,781 (70,562) (468,412) (68,856)
Minority Interests (12,730) ( 7,911) 16,608 1,666
Profit/(Loss) attributable to shareholders
(5,949) (78,473) (451,804) (67,190)
On the basis of the audited consolidated net assets of the Group
as at 31 March 1998 of approximately HK$122 million after netting
off the unaudited loss for the six months ended 30 September 1998
attributable to shareholders of approximately HK$67 million, the
proforma consolidated net assets of the Group amount to
approximately HK$55 million. On such basis, the proforma net
assets value per Share would be approximately HK$0.08 based on
677,526,681 shares of the Company in issue as at 30 September 1998.
After 30 September 1998, a total of 1,100,000,000 shares of the
Company were subscribed by Staverley Assets Limited and CIM at
a price of HK$0.50 per Share pursuant to their respective
subscription agreements with the Company, details of which are
contained in the Company's circular to shareholders dated 14
August 1998. The proceeds were used to finance the VSA. A further
533,593,678 shares were issued as a result of the following
convertible note holders of the Company exercising their
conversion rights under their convertible notes:
Noteholder Date of convertible note Conversion date
Number of shares converted
Heavy Turn Investments Limited 15 July 1997 30 November 1998
144,927,536
Strawberg Limited 22 November 1996 30 November 1998
324,395,418
Evergo Holdings (China) Company Limited 31 March 1999 7 June 1999
10,000,000
Strawberg Limited 22 November 1996 10 June 1999
54,270,724
The following is a summary of the proforma statement of net assets
of the Group based on the audited net assets of the Group as at
31 March 1998 and as adjusted:
HK$'000
Audited net assets of the Group as at 31 March 1998 122,317
Less: Unaudited consolidated loss attributable to shareholders
for the six months ended 30 September 1998 (67,190 )
Less: Unaudited reserve movements on consolidation for the six
months ended 30 September 1998 (31,173 )
Unaudited adjusted net assets before subscription of shares and
conversion of loan into equity 23,954
Subscription of shares and conversion of loan into equity:
Subscription of 1,100,000,000 shares @HK$0.50 550,000
Conversion of 144,927,536 shares @HK$0.69 100,000
Conversion of 324,395,418 shares @HK$0.50 162,198
Conversion of 10,000,000 shares @HK$0.50 5,000
Conversion of 54,270,724 shares @HK$0.58 31,477
Unaudited adjusted proforma net assets value 872,629
Total issued share capital as at 10 June 1999 2,311,120,359
Unaudited adjusted proforma net assets value per Share HK$0.38
Save as mentioned herein, the Directors of the Company are not
aware of any material adverse change in the financial position
of the Group since 31 March 1998, the date to which the latest
published audited financial statements of the Company were made up.
The Directors are of the opinion that taking into account the
financing arrangement currently under negotiation for repayment
of the Group's indebtedness and the concessions of bankers in not
calling back certain bank loans, the Group will have sufficient
working capital for its present requirements in the absence of
unforeseen circumstances.
PUBLIC FLOAT
On 10 June 1999, Strawberg Limited, a wholly-owned subsidiary of
China Strategic Holdings Limited ("CSH"), gave notice to the
Company to convert its outstanding convertible note into
54,270,724 Shares. As a result, the percentage of Shares in the
hands of the public has fallen below 25%, the minimum percentage
prescribed by Rule 8.08 of the Listing Rules.
(For the present shareholding structure of the Company, please refer to
the press announcement today.)
The Directors will take appropriate measures to ensure that at
least 25% of the Shares are in public hands. The Company and the
Directors have undertaken to the Stock Exchange that they will
use their best endeavours to ensure that the Company meets the
requirement of Rule 8.08 of the Listing Rules within one month
from the date of this announcement.
The Company has the following outstanding convertible notes in
issue:
Maximum number of
Outstanding shares to be issued
convertible upon exercise of
Noteholder amount Conversion price conversion rights
National Day Resources Limited HK$204,000,000 HK$0.84 242,857,142
New World Development Co Ltd HK$33,500,000 HK$0.50 67,000,000
Evergo Holdings (China) Co Ltd HK$28,500,000 HK$0.50 57,000,000
Further, pursuant to the subscription agreement dated 29 January
1999 between Mr. Yu Pun Hoi ("Mr. Yu") and the Company, details
of which are set out in the Company's circular to shareholders
dated 1 February 1999, Mr. Yu or his wholly-owned company has the
right until 31 December 1999 to subscribe convertible notes with
an aggregate principal amount of HK$250 million. The maximum
number of Shares convertible under such note will be 500,000,000
Shares.
Assuming full conversion of the outstanding convertible amount
of the above convertible notes in issue and issuable, the total
issued share capital of the Company will be increased to
3,177,977,501 shares.
(For the shareholding structure, please refer to the press announcement
today.)
National Day Resources Limited, New World Development Co Ltd and
Evergo Holdings (China) Co Ltd are parties not connected with the
chief executive, directors or substantial shareholders of the
Company or its subsidiaries or their respective associates (as
defined in the Listing Rules).
GENERAL
The Directors have noted the significant increases in the price
and trading volume of the Shares on the Stock Exchange. The Shares
have been trading below HK$0.20 since January 1999, reaching the
lowest price of HK$0.116 on 4 May 1999. Thereafter, the price
increased significantly, closing at HK$0.60 on 10 June 1999. The
daily trading volume since January 1999 was seldom over 1,000,000
Shares. On 5 May 1999, the trading volume shot to over 5 million,
and has been in excess of 10 million Shares per day since 24 May
1999. The Directors are not aware of any reasons for the
significant increases in the price and trading volume of the
Shares. The Directors confirm that save as disclosed herein, there
are no negotiations or agreements relating to intended
acquisitions or realizations which are discloseable under
Paragraph 3 of the Listing Agreement, neither are the Directors
aware of any matter discloseable under the general obligations
imposed by Paragraph 2 of the Listing Agreement which is or may
be of price sensitive nature.
Trading in the Shares was suspended on the Stock Exchange from
10:00 a.m. on 11 June 1999 pending the release by the Company of
this announcement. In view of the recent unusual significant surge
in the price and trading volume of the Shares on the Stock Exchange,
the Directors have been advised by the Securities and Futures
Commission that in order to maintain an orderly and fair market
in the Company's Shares, it may be considered necessary and
expedient to suspend trading in the Shares in the event that a
false market exists and / or the unusual trading activities
continue.
Application has been made by the Company for the resumption of
trading of the Shares with effect from 10:00 a.m. on 15 June 1999.
By Order of the Board
Lam Bing Kwan
Director
Hong Kong, 14 June 1999
The directors of the Company jointly and severally accept full
responsibility for the accuracy of the information contained in
this announcement and confirm, having made all reasonable
inquiries, 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 not contained in this
announcement, the omission of which would make any statement in
this announcement misleading.
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