Chinese gas supplier Yingde surges after split board agrees on revised share sale plan

PUBLISHED : Wednesday, 11 January, 2017, 12:01pm
UPDATED : Wednesday, 11 January, 2017, 10:50pm

Shares of Yingde Gases Group, one of China’s largest suppliers of industrial gases, surged as much as 7.8 per cent to a 17-month high after its board, embroiled in a bitter row over a proposed share sale to a firm in an unrelated business, agreed to drop the plan and sell shares to investors via an independent selling agent instead.

But the board, which late December received an expression of interest from United States-based rival Air Products to take over Yingde, has not yet passed a proposal by chairman Zhao Xiangti to form an independent board committee to consider the takeover proposal.

“Purely to end any unnecessary speculation which is not in the best interest of the company... the majority board considers it in the best interest of the company to terminate the proposed [shares] placing ,” Yingde said in a filing to Hong Kong’s exchange on Wednesday after two board meetings were held on Tuesday. “The majority board ... has considered that equity financing is still desirable for the company.”

Fund-raising through a shares sale will help Shanghai-based Yingde’s cut debt. Its current liabilities exceeded current assets by 31 per cent as of June 30 and the company had an elevated net debt-to-shareholders’ equity ratio of 121 per cent.

The supplier of gases such as oxygen, hydrogen and nitrogen mainly to steel and chemical producers was forced to refinance a bank loan at double the interest cost earlier this month due to uncertainty over the planned shares sale amid the board row.

The “majority board” comprises three executive directors including Zhao, one non-executive director and three independent non-executive directors. It excludes ousted chief executive Sun Zhongguo and former chief operating officer Trevor Strutt, who were re-designated non-executive directors in a November board meeting that Strutt claimed was held deliberately in their absence. Their “unsatisfactory performance” was cited by the board for their removals.

Strutt’s claim was disputed by a Yingde spokesman who said the board’s legal advisor had confirmed the “legality and fairness” of the board meeting.

Sun, Shao and Strutt are all major Yingde shareholders.

Yingde’s filing said it will engage an independent placing agent to sell 189 million shares at a price not lower than HK$3.2 each, between Tuesday and March 9, to investors approved by the board.

In November the majority board proposed to sell 378 million shares to Shenzhen-listed waste-water treatment firm Beijing OriginWater Technology at the same price.

After opposition from Sun and Strutt, who claimed Zhao and OriginWater were acting in concert – a view preliminarily agreed to by the Securities and Futures Commission after an investigation – the majority board cut the proposed shares to be sold to 189 million.

That reduction meant the combined stakes of Zhao and OriginWater would not exceed the 30 per cent threshold above which they would have to offer to buy all the shares from other Yingde shareholders under Hong Kong’s takeover law.

Yingde shares traded 4.7 per cent higher at HK$4.03 at 11:08am Wednesday, 26 per cent above the proposed share placement price. They have surged 34 per cent in the previous two trading days on news of Air Product’s takeover interest.

Yingde said in the filing that due to a validity challenge initiated by Sun and Strutt against the November board meeting that removed their executive roles, the company will seek legal advice before authorising the signing of a confidentiality agreement and will engage in further discussions with Air Products on the potential takeover bid.

The potential cash offer by Pennsylvania-based Air Products, expressed in a letter sent to each of Yingde’s board directors, is not legally binding.

Separately, Yingde’s filing said Stellars Capital (Hong Kong), which also expressed an interest to buy all of Yingde’s shares via two letters to Yingde’s board late last month, has not signed a confidentiality agreement sent by Yingde and has requested a four-week extension to do so.

The majority board considered both letters not bona fide since Stellars was incorporated just a day before the first letter was sent, and because its registered office is occupied by an accountancy firm that provides company secretarial services.

Sun and Strutt considered the second letter bona fide, Yingde’s filing said.