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HKEx

China Shanhui Cement to raise HK$475mn by issuing new shares at a 92pc discount to pre-suspension share price

Formerly China’s seventh largest cement maker, Shanshui says it will sell up to 950 million shares at no less than HK 50 cents apiece

PUBLISHED : Friday, 07 October, 2016, 6:25pm
UPDATED : Friday, 07 October, 2016, 10:18pm

China Shanshui Cement Group has unveiled a long-awaited plan to raise HK$475 million by selling shares to meet its minimum public shareholding requirement as a listed firm. But the proceeds will be far too small to help it meet its obligation to repay 17.63 billion yuan of liabilities by June next year.

The Shandong province-based company, once the nation’s seventh-largest cement maker, has appointed brokerages Sun Hung Kai Financial and ABC International as agents to sell 910 million to 950 million new shares, it said late on Thursday in a filing to Hong Kong’s bourse.

“Upon completion of the [share] placing, public float of the company will be restored

which will facilitate the future fund raisings of the company to resolve its liquidity issue,” it said.

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The shares will be sold at not less than 50 HK cents each, which is 92.1 per cent less than the last closing price of HK$6.29 mid April last year, when trading in the share was halted pending a plan to restore its public float to the required level of at least 25 per cent.

The placement price is also a discount of 55 per cent to its per share unaudited net asset value of HK$1.11 on June 30.

The shares will be sold at not less than 50 HK cents each, which is 92.1 per cent less than the last closing price of HK$6.29 mid April last year, when trading in the share was halted pending a plan to restore its public float to the required level of at least 25 per cent.

The placement price is also a discount of 55 per cent to its per share unaudited net asset value of HK$1.11 on June 30.

“The minimum placing price was arrived at after arm’s length negotiation between the company and the placing agents with reference to its net current liabilities, net asset value, share price-to-book value ratio, prolonged suspension of its shares, financial liabilities and litigations involving it,” China Shanshui said.

The new shares amount to a 21.94 per cent stake in the firm’s enlarged share capital after the placement.

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If 950 million shares are sold, it will see the stake of the current largest shareholder, Henan province-based Tianrui Group, fall from 28.16 per cent to 21.98 per cent, while that of China Shanshui Investment, the former largest shareholder led by former chairman Zhang Caikui and his son Zhang Bin, would decline from 25.09 per cent to 19.59 per cent, according to the filing.

Taiwan-listed Asia Cement’s interest would be diluted from 20.96 per cent to 16.36 per cent, and that of state-backed and Hong Kong-listed China National Building Material (CNBM) would be reduced from 16.67 per cent to 13.01 per cent.

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China Shanshui said the shares’ purchasers will be “professional, institutional and other investors selected and procured by or on behalf of the placing agents.”

CNBM company secretary Chang Zhangli said the share placement’s price discounts are too high and will result in significant dilution of the original shareholders’ interest.

“I don’t know why China Shanshui’s board has agreed to such huge discounts,” he told the Post. “If they are confident of the company’s future, they shouldn’t agree to sell at such discounts.”

Tianrui Group, parent of Hong Kong-listed China Tianrui Group Cement, in April last year launched a hostile takeover by snapping up China Shanshui’s shares in the open market and became its largest shareholder.

The move resulted in the company’s public float dropping below the minimum requirement and resulted in its trading suspension.

Although an example of much needed consolidation of China’s fragmented and over-capacity-troubled cement industry, Tianrui’s takeover of China Shanshui was anything but smooth. Other major shareholders, including China Shanshui Investment, Asia Cement and CNBM have resisted its hostile takeover.

After Tianrui gained control of China Shanshui’s board, the Zhangs retreated to its headquarters in Jinan, Shandong, and held the corporate seal of its main operating subsidiary in an attempt to keep operating control, a move seen by some as legally questionable.

The Tianrui-led new Shanshui board also launched a rare law suit against the Jinan government, its mayor Yang Luyu and deputy mayor Su Shuwei in March in a Hong Kong court, alleging that they conspired with the Zhangs to install the working group, obstructed the new board from gaining access to the Jinan headquarters and concealed the company seal and litigation records.

Asia Cement and CNBM in July last year said they were considering to offer to buy out all of the other shareholders of China Shanshui, but failed to produce an offer by May.

Under a “put up” an offer or “shut up” rule under Hong Kong’s securities regulations, they were forced to announce that they decided not to proceed with any offer, which freed China Shanshui’s board from a restriction to issue new shares.

Trading of China Shanshui’s shares will remain suspended “until further notice” and is pending the restoration of the required public float, the filing said.