Hong Kong, 24 March 2004 - An Independent Financial Adviser (IFA) appointed by Shui On Construction & Materials Ltd (SOCAM - HKSE 0983) has concluded that the Shui On Land (SOL) transactions announced on 23 February are "overall fair and reasonable" and recommends that SOCAM's independent shareholders be advised to vote in favour of the deal at the Special General Meeting (SGM).
Previously, SOCAM established a committee consisting of its independent directors to consider and advise independent shareholders on its proposals to inject the company's stake in Rainbow City (Rui Hong Xin Cheng) as well as a cash injection of US$50 million into SOL. Mr Anthony Griffiths and Professor Michael John Enright are the two directors who make up this Independent Board Committee (IBC) and BNP Paribas Peregrine Capital Limited were appointed to provide them with impartial financial advice. The IFA is completely independent of the directors, chief executive and substantial shareholders of the Shui On Group, SOCAM or any of their respective subsidiaries or associates.
In arriving at their advice, the IFA considered all the significant and relevant factors and their Report, published today, fully supports the view that the transactions are beneficial to, and in the interests of, SOCAM shareholders.
Benefits of Asset Injection
In consideration of the injection of its stake in Rainbow City, which has a total investment value (at 30.06.03) of US$81.9 million, SOCAM will receive up to US$138.8 million worth of Ordinary shares in SOL.
The IFA report highlights the following benefits of the asset (Rainbow City) injection for SOCAM's independent shareholders:
- SOCAM will maintain an interest in Rainbow City and continue to participate actively in its development through SOL
- SOCAM will become an investor in an entity (SOL) with access to a larger land bank in the Chinese Mainland that includes not only the Taipingqiao Redevelopment Project with Shanghai Xintiandi, Corporate Avenue and luxury residential developments in downtown Shanghai - but also the existing pipeline of Shui On Group projects in Hangzhou and Chongqing
- SOCAM will avoid funding calls (estimated at up to HK$1,792.45 million over the next two years) for the future development of Rainbow City
- SOCAM will gain a substantial profit on disposal of up to US$56.9 million if, as expected, the bonus share consideration of US$8.8 million is paid in full
- Furthermore, SOCAM expects to be reimbursed the additional funding it provided for the development of Rainbow City after 30 June 2003 (a minimum of approximately HK$120 million)
Based on the independent valuation's proforma adjusted net asset value, the consideration payable by SOL for Rainbow City is at a substantially lower discount than for Taipingqiao (17.6% compared with 30.3%).
Benefits of Cash Injection
SOCAM's directors have also agreed to invest US$50 million cash in return for 50 million Junior Preference shares in SOL; SOCAM would thus increase its shareholding in SOL to more than 20% and so be in a position to equity-account SOL's earnings. The SOL Junior Preference shares carry a 7% fixed annual rate of dividend return and have priority over Ordinary shares for dividend payments. Further, these shares are convertible into Ordinary Shares at a conversion price of US$1.07 at the time of an IPO. Therefore, the cash injection would provide SOCAM with a steadier income while, at the same time, opening the prospect of a higher capital gain at the time of a listing.
The IFA's analysis of the effect of the cash injection on SOCAM's financial projections led them to conclude that it would be beneficial to the company.
The IFA report concludes that the proposed asset and cash injections are overall fair and reasonable with respect to the interests of the independent shareholders. And it advises the independent board committee to recommend that independent SOCAM shareholders should "vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Rainbow Sale and Purchase Agreement and the Cash Injection."
The SGM is scheduled to take place on 15th April, 2004.
NOTES TO EDITORS
About Shui On Group
Shui On Group, the lead developer of Shanghai Xintiandi, was founded in Hong Kong in 1971 by Mr. Vincent H.S. Lo. Through the years he has built Shui On from a small construction company into a diversified group engaged in property development, construction and construction materials with interests in Hong Kong, the Chinese Mainland and North America.
About Shui On Construction & Materials Ltd
Shui On Construction & Materials Ltd (SOCAM), a member of the Shui On Group, was listed on the Stock Exchange of Hong Kong in 1997 (HKSE 0983). SOCAM's core businesses include cement, construction, construction materials and global materials trading.
About Rainbow City (Rui Hong Xin Cheng)
Rainbow City is an integrated residential development project targeting the fast growing middle-income segment of the Shanghai market. The project covers a site area of about 354,000 square metres and is conveniently located in Hongkou District, a short journey away from the historic Bund. Rainbow City transforms existing neighbourhoods into a modern residential community complete with full amenities. The project is close to several leading universities and will soon be served by its own Metro station. The whole development will be constructed in phases and will comprise various high-rise residential blocks with a total gross floor area of approximately 1,620,000 square metres.
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