SINGAPORE - The Singapore Exchange (SGX) has rejected International Cement Group's (ICG) US$104.4 million proposed purchase of a company in Namibia and ordered it to commission pre-deal anti-money laundering due diligence on the source of funds for any future major transactions or very substantial acquisitions.
The watch-listed cement producer had first announced the failure to get SGX's approval for the purchase of the entire stake in cement and energy group in Schwenk Namibia in a bourse filing before trading began on Monday morning (June 24). The purchase had been classified as a very substantial acquisition (VSA) under Chapter 10 of the listing manual, but SGX said it did not meet the requirements of a VSA under Rule 1015(2), and thus was unable to approve it, said ICG.
Later during the mid-day trading break, ICG disclosed more detailed reasons for SGX's rejection of the deal.
SGX said it is of the view that the proposed acquisition does not satisfy Rule 1015(2), which requires the target business to be profitable. It said Schwenk Namibia is not profitable and the foreign exchange losses from the Schwenk loan claim will remain in the pro forma financial statements after the proposed acquisition, and will continue to affect the enlarged group's accounts.
SGX also noted that ICG does not have sufficient cash resources to fund the acquisition and intends to possibly obtain significant external loans from financial institutions and shareholders' loan.
"Such loans when considered with the potential losses of Schwenk Namibia will result in a material adverse financial impact on the enlarged group," SGX concluded.
There is no certainty that the target business will be able to generate sufficient profits to service the loans, and SGX said the acquisition would have put IGC out of a healthy financial position.
SXX also said that for any future acquisitions, SGX will be requiring IGC to implement certain safeguards. This includes commissioning its external auditors to carry out pre-deal anti-money laundering due diligence for the source of funds for any transactions classified under Rules 1014 and 1015 which cover major transactions and very substantial acquisitions/reverse takeovers respectively.
So long as the group operates in Kazakhstan, Tajikistan, Namibia and/or any other developing jurisdictions, the audit committee and the board must undertake that the company puts in place adequate and effective systems of internal controls (including financial,operational, compliance, information technology and anti-money laundering controls) and risk management systems.
For its annual audits, IGC's audit committee must require its external auditors to review its cash management procedures, including for anti-money laundering controls related to IGC's sources of financing for acquisitions, and the group's customers and suppliers.
The audit committee must also ensure that its terms of reference include, on an ongoing basis, the monitoring and reviewing of the implementation of the external auditors' and internal auditors' recommendations on internal controls including anti-money laundering.
BDO Advisory was appointed as the independent valuer for the proposed acquisition, while Stirling Coleman Capital was the financial adviser.
On Monday, ICG said that as a result of SGX's decision, the draft of the shareholders' circular will also not be approved by the bourse operator. The circular would have been despatched for an extraordinary general meeting to obtain shareholders' approval for the acquisition.
ICG had announced in March that it was planning to buy Schwenk Namibia and relevant shareholders' loans for US$104.4 million in cash, comprising US$19.3 million for all its shares and another US$85.1 million for the loans.
Schwenk Namibia owns a 69.83 per cent stake in Ohorongo Cement, which owns and operates a cement plant at North Otavi in Namibia with an annual production capacity of about 1 million tonnes. Schwenk Namibia also holds a 100 per cent interest in alternative energy sourcing firm EFF.
The firm had entered into a conditional sale and purchase agreement with vendor Schwenk Zement International Gmbh & Co Kg for the 100 per cent stake acquisition.
It had intended to fund the proposed acquisition through third-party financing or borrowings.
Shares of ICG on SGX's mainboard were trading flat at 3.2 cents as at 9.14am on Monday.