Huan Hsin to acquire mining company stake for S$1.06b in reverse takeover; eyes exit from SGX watch list

SINGAPORE - Chinese electronics contract manufacturer, Huan Hsin Holdings, has entered into a conditional acquisition agreement with Jade Merit Developments to purchase a 99.99 per cent equity interest in Huangshan Zhongtian Weiliang Mining Co (Huangshan Mining Co) for S$1.06 billion.

Of this amount, S$60 million will be paid in cash. The remainder will be paid by an allotment of consideration shares at an issue price of S$0.033 per share, following which the vendor, Jade Merit, will own about 87.02 per cent of the firm's enlarged share capital.

As Jade Merit will own more than 30 per cent of the group's enlarged share capital, it will be required to make a general offer for the remaining shares it does not already own, unless it is granted a waiver.

The proposed acquisition, if completed, will result in a very substantial acquisition or a reverse takeover under the Singapore Exchange (SGX) listing rules, Huan Hsin said on Monday night (March 5). The long stop date for the proposed acquisition is March 4 next year.

Huangshan Mining Co is an investment holding company incorporated in China with a registered capital of 32 million yuan (S$6.65 million). It also holds the entire interest in a vanadium mine located in China's Huangshan, along with a mining licence to mine vanadium ore of up to 115,000 tonnes per year from the Guocun Vanadium Mine - one of the largest sedimentary vanadium deposit in China, the group said.

The vendor, Jade Merit, is an investment holding company incorporated in the British Virgin Islands on Feb 2, 2018. Its sole shareholder is Singapore citizen Yip Zhao Lin, who has experience investing in the mining business. Since  2007, Mr Yip has also been the managing director of Sum V Energy, formerly known as China Minerals Group.

In conjunction with the acquisition, Huan Hsin is also proposing to undertake a share consolidation to consolidate every 20 shares of the company into one share to allow the group to meet the listing requirement of having a minimum issue price of S$0.50.

Accordingly, 30.3 billion shares (or 1.5 billion consolidated shares) will be issued as consideration shares; while 481.8 million shares (or 24.1 million consolidated shares) will be issued at a price of S$0.033 per share as introducer fee to Wellmont Investment Limited upon completion of the deal.

To fund the acquisition, Huan Hsin has also entered into a proposed subscription agreement with Oriental Straits Investment to issue 3.6 billion shares for an aggregate amount of S$80 million in two tranches - S$20 million in the first tranche, and S$60 million in the second. The long stop date for the proposed subscription is June 30 this year.

In addition, Huan Hsin will be granting Oriental Straits Investment and China Capital Impetus Investments an option to each subscribe for up to 455 million shares at an issue price of S$0.022 per share for up to S$10 million. Each option holder may exercise its option at any time during the 36-month period from the completion date of the Tranche 1 subscription, Huan Hsin said. Assuming that each option holder fully exercises its option, the company would raise S$20 million.

"The board is of the view that the proposed acquisition is in the best interests of the shareholders, as it provides the company with an opportunity to acquire an asset with a huge potential upside valuation," Huan Hsin said.

It added that the transaction is expected to give the company "a new lease of life" and support its application to the SGX-Securities Trading (SGX-ST) for the removal from its watch list.

Huan Hsin was placed on the SGX watch list on March 5, 2014 after recording pre-tax losses for three consecutive financial years then. It was required to meet the listing requirements within two years from that date, or risk being suspended or delisted from the Singapore bourse.

On May 3, 2017, SGX-ST granted Huan Hsin a further extension to March 4, 2018 to meet the requirements for its removal from the watch list. This deadline has now been extended to March 4, 2019 following the reverse takeover, and its proposed subscription of shares.

For FY17, the group incurred a net loss of S$20.6 million, compared to a net profit of S$9.8 million last year, as revenue plunged 54 per cent to S$24.4 million for the full year ended Dec 31. This substantial decline in revenue was in line with the group's on-going plan to shut down some of its loss-making plants, Huan Hsin said.

Shares in Huan Hsin Holdings last traded at S$0.026 apiece on March 1, unchanged from the previous day's close. The counter requested a trading halt on Monday morning pending its announcement, and has since requested the lifting of this halt.