Yingde Gases shares slump as board row over sale proposal worsens

Industrial gases supplier sold down after ousted directors cry foul over bid to increase Beijing waste water firm’s stake

PUBLISHED : Thursday, 15 December, 2016, 8:31pm
UPDATED : Thursday, 15 December, 2016, 10:49pm

Shares Yingde Gases, one of China’s largest suppliers of industrial gases serving the steel, non-ferrous metals and chemicals sectors, slumped as much as 9.49 per cent yesterday after a board row deepened.

The Shanghai-based firm, which provides oxygen, nitrogen and argon to manufacturers, said in a filing to the Hong Kong stock exchange that two ousted directors had submitted complaint letters to market regulator, the Securities and Futures Commission.

The directors alleged that would-be investor, Shenzhen-listed waste water treatment firm Beijing OriginWater Technology, was acting “in concert” with current chairman Zhao Xiangti in a HK$1.2 billion share placement deal that would raise OriginWater’s stake from 4.21 per cent to 20.17 per cent, making it Yingde’s largest shareholder.

“Although the board, excluding the disgruntled directors, OriginWater and Zhao strenuously deny the allegation ... due to the SFC’s ongoing enquiries on the allegation which may be time-consuming ... the company is considering to restructure the proposed [shares] placing,” Zhao said in the filing.

The consideration was in view of the “urgent need” to use the proceeds to repay “an imminently repayable bank loan”, he said.

Occupation of China gas plant shows Xi’s supply-side dilemma

By changing the way the shares sale was structured, Yingde’s current board hoped to circumvent the takeover regulatory challenges brought to the attention of the SFC, he said, adding that the board was communicating with the SFC and stock exchange on this.

Yingde shares closed 4.7 per cent weaker at HK$3.01 yesterday, the lowest since late September.

The ousted directors, former chairman and chief executive Sun Zhongguo, and former chief operating officer Trevor Strutt, on Wednesday refuted Zhao’s claim that the proceeds were urgently needed to pay down Yingde’s debt.

Their argument was contained in an open letter to Yingde’s shareholders printed in a newspaper advertisement, in which they cited the six-month maximum completion time frame of the shares sale agreement to back up their argument.

Zhao said in the filing that the delay of the share sale from the originally expected November 30 completion was not expected to bring “material adverse effect” on Yingde’s operation and financial position.

Sun and Strutt claimed OriginWater and Zhao, who owns 12.38 per cent of Yingde, should be considered parties acting in concert.

Together they would control just more than 30 per cent of Yingde if the share sale was completed, exceeding the 30 per cent threshold triggering a requirement for them to make a mandatory general offer to buy all Yingde shares they did not already own, the ousted directors argued.

Sun and Strutt quoted new chief executive He Yuanping as having publicly said that he personally handled OriginWater’s investment in Yingde, which is considered in the mainland the “cheapest, fastest and simplest way to execute a hostile takeover”, to support their argument that OriginWater and Zhao wanted to control Yingde without paying a premium for a controlling stake.

Sun and Strutt have proposed to convene an extraordinary shareholders’ meeting to remove Zhao, He – also the chief financial officer of OriginWater – and three executive and non-executive directors appointed last month.

They also proposed a reinstatement of their executive roles in Yingde, and the appointment of a non-executive director.

Zhao said in the exchange filing that Sun and Strutt’s allegation of his acting in concert with OriginWater was “groundless”, adding that Sun and Strutt’s proposal of a board change was to “obtain a de facto control” over Yingde’s management.

Yingde last month shocked investors by announcing that a board meeting had passed resolutions to oust Sun and Strutt and re-designate them as non-executive directors, citing their “unsatisfactory performance”.

Sun owns 19.73 per cent of Yingde, and Strutt 9.75 per cent.

I only received on Friday afternoon, when I was flying back to Hong Kong, notice of the Saturday 9am board meeting
Former chief operating officer Trevor Strutt

Strutt said he believed there was some “sinister or secretive” motive behind the move, since the meeting was scheduled in a way that made it physically impossible for him and Sun to attend.

“I only received on Friday afternoon, when I was flying back to Hong Kong, notice of the Saturday 9am board meeting,” he told the Post.

Both Strutt and Sun, who Strutt said was having a meeting at a plant on Friday, were unable to attend, he said, adding that the meeting’s agenda was saved in a compressed file that he was only able to open on Saturday when he had access to a desktop computer, after he returned to Hong Kong late on Friday.

Sun could not be reached by phone and has not responded to emailed queries.

Yingde’s spokesman said the board’s legal advisor had confirmed the “legality and fairness” of the board meeting notice’s issuance.

Dennis Cassidy, head of corporate finance at Anglo Chinese which is advising Sun and Strutt, said the board should let Yingde’s shareholders decide on whether to accept Sun and Strutt’s proposals in the extraordinary meeting, which the board is obliged to convene within two months of the request.