Yingde’s expelled chairman offers intriguing early surrender of his shares to PAG Asia

Market wonders why he tendered the bulk of his stake so early in the process, instead of waiting until closer to the deadline to see if he could gain a better price

PUBLISHED : Wednesday, 15 March, 2017, 9:54pm
UPDATED : Thursday, 16 March, 2017, 1:09am

Zhao Xiangti, the chairman ejected from the board of Yingde Gases Group by shareholders last week, has tendered the bulk of his shares to PAG Asia, the only investor that has tabled a binding takeover offer for the embattled firm.

Rongton Investments, owned by Zhao, sold 190 million shares at HK$6 each on Monday, reducing his stake to 2.28 per cent, a filing to the Securities and Futures Commission showed on Wednesday.

The same number of shares were bought at the same price by PAG Asia the same day, according to a separate filing on Tuesday.

A source close to Yingde confirmed Zhao has sold the shares to PAG. Zhao could not be reached by phone. PAG did not respond to emailed questions sent by the South China Morning Post.

While the development does not mean PAG has already won the protracted takeover battle, it does raise the question why Zhao tendered the bulk of his stake so early in the tender process, instead of waiting until closer the deadline to see if he could gain a better price.

The deadline for him to tender his shares is April 10, the first closing of the offer. If by then PAG Asia has amassed more than 50 per cent in Yingde, its offer will become unconditional.

Otherwise, shareholders, including Zhao, could have until up to May 9 to tender their shares, the deadline for other potential bidders to trump PAG’s offer.

United States-based Air Products is seen as the only potential counter bidder, having publicly expressed an interest in taking over the Chinese gases firm, with a non-binding US$5.50 to US$6 offer.

It has been conducting due diligence since February 22 and is yet to make any firm offer.

Mark Sun Zhongguo was re-appointed Yingde’s chairman and chief executive on Sunday, while Trevor Strutt returned to his chief operating officer position.

Zhao, Sun and Strutt are Yingde’s founding and largest shareholders.

Sun and Strutt were stripped of their executive roles at a November board meeting in their absence. There then followed four months of allegations of alleged wrongdoings by the two camps of directors, one led by Zhao, Sun and Strutt.

Last week Sun and Strutt lodged a complaint to Hong Kong police accusing Zhao of possible criminal activities including false statement, fraud, and threatening investors.

Zhao said the allegations were “baseless and spurious”.

Yingde shares on Wednesday closed 4.6 per cent higher at HK$6.54, after trading as high as HK$6.70, as investors speculated on other possible higher offers.

Air Products chairman Seifi Ghasemi told investors in the US on Tuesday: “The quality and the quantity of the due diligence [on Yingde] has significantly improved, and therefore, we are looking forward to completing our work. And, then, hopefully make an offer, which is better than what we have before.”

PAG already owns 15.4 per cent of Yingde according to the latest SFC filing, and obtained undertakings from Zhao, Sun and Strutt late last month to sell it their stakes, which could bring PAG’s total holding to 47.2 per cent.

PAG is bound by Hong Kong’s takeover rules to offer would-be sellers no more than HK$6 – the offer price it has made to holders of shares it does not already own.

It bought a 4.2 per cent stake in the business on Monday from Shenzhen-listed sewage treatment firm OriginWater, at HK$6 per share via a bloc transaction.

OriginWater was deemed by the SFC to have acted in concert with Zhao in a failed proposal by the former Zhao-led board, to sell new shares to OriginWater at HK$3.20 each to make it Yingde’s largest shareholder.

Additional reporting by Peggy Sito