29 Jul 2014 17:13
29 July 2014
ASIAN GROWTH PROPERTIES LIMITED
Related Party Transaction - Cost-Sharing Arrangement
The board of directors (the "Board") of Asian Growth Properties Limited (the "Company", together with its subsidiaries, the "Group") (AIM Stock Code: AGP), the Hong Kong based China property development and investment company, announces that on 29 July 2014, the Company together with various subsidiaries of the Company (together, the "AGP Service Recipients") have entered into an agreement (the "Cost Sharing Agreement") with South-East Asia Investment And Agency Company, Limited ("SEAI"), a wholly-owned subsidiary of S E A Holdings Limited ("SEA") (the holding company of the Company), for the use of SEAI's personnel and facilities on a cost-sharing basis for the purpose of the Group to carrying out its corporate, project and property management activities.
Cost-sharing arrangement
Subsequent to the termination of the previous management agreement with effect from 1 January 2014 and the consideration of alternative structures to provide the necessary resources to the Group, SEAI has now agreed that the Group may continue to use SEAI's personnel and facilities on a cost-sharing basis to carry out the corporate, project and property management activities of the Group. In consideration of SEAI making available its personnel and facilities to the Group, the AGP Service Recipients agree to pay their proportionate share of the costs incurred by SEAI (the "Net Costs") for the use of SEAI's personnel and facilities from 1 January 2014.
The Net Costs is the proportion of staff costs and indirect costs to be borne by the AGP Service Recipients and will be calculated by reference to the time spent by SEAI's personnel on the services to each of the AGP Service Recipients (with a mark-up of 5%), plus the reimbursable costs incurred by SEAI on behalf of the AGP Service Recipients (on a dollar-for-dollar basis). Each of the AGP Service Recipients should bear and pay its proportion of the Net Costs.
The Cost Sharing Agreement is for no fixed time period. However, the termination provisions are such that AGP and/or any of the AGP Service Recipients can terminate their participation in the Cost Sharing Agreement by giving SEAI three months' notice. AGP can also terminate the participation of an AGP Service Recipient. SEAI can terminate their participation in the Cost Sharing Agreement on three months' notice but AGP can request SEAI to extend the notice period by up to a further six months to facilitate an orderly handover.
The Board considers that the use of the personnel and facilities of SEAI on a cost-sharing basis is in the best interest of the Company. The Net Costs under the Cost Sharing Agreement is expected to be significantly lower than the management fees paid to SEAI under the previous management agreement and will avoid the Group in incurring large set up costs or difficulties in recruiting the necessary personnel to handle the corporate, project and property management activities of the Group. Assuming the Cost Sharing Agreement is in force for the year 2013, SEAI estimated that the Net Costs (excluding third party reimbursable costs) was approximately HK$110 million (£8.58 million) and compares favourably to HK$148.087 million (£11.55 million) that was paid under the previous management agreement for the year 2013, based on the exchange rate of £1 = HK$12.8184 as at 31 December 2013.
Definition of the types of costs in the Cost Sharing Agreement
"Indirect Costs" means all external and internal indirect costs incurred by SEAI, which cannot be directly attributed to a particular service provided to a particular AGP Service Recipient, including but not limited to facilities charges (including maintenance, utilities and supplies), travel costs, depreciation of fixed assets and all expenses to third parties of SEAI, including all goods and services tax, value added tax and other taxes, duties and levies chargeable to such Indirect Costs but excluding taxes, withholding taxes and/or similar levies, which are normally expected to be borne by SEAI itself, if legally required.
"Reimbursable Costs" means the sum of all external and all internal direct costs incurred by SEAI and directly attributable to a particular service provided to a particular AGP Service Recipient, which will be invoiced to the relevant AGP Service Recipient on a dollar-for-dollar basis.
"Staff Costs" means salaries and bonuses, wages for permanent and temporary employees, expatriate costs (where applicable), mandatory provident fund contributions and other pension benefits, insurance benefits and other costs and overheads directly attributable to SEAI's employees.
Other information
SEAI is a direct wholly-owned subsidiary of SEA which in turn holds an effective 97.17% shareholding interest in the Company. Accordingly, SEAI is a related party of the Company under the AIM Rules for Companies. The execution of the Cost Sharing Agreement constitutes a related party transaction of the Company under the AIM Rules for Companies.
The terms of the Cost Sharing Agreement were negotiated by the Company and SEAI and arrived at on an arm's length basis. The Company's directors that are independent of SEA and SEAI, namely Mr. Richard Öther Prickett and Mr. David Andrew Runciman, consider, having consulted with Panmure Gordon (UK) Limited, the nominated advisor of the Company, that the terms of the Cost Sharing Agreement are fair and reasonable insofar as the shareholders of the Company are concerned.
For more information, please contact:
Lu Wing Chi Tel: +852 2828 6363
Executive Director
Asian Growth Properties Limited
Richard Gray Tel: +44 207 886 2500
Andrew Potts
Panmure Gordon (UK) Limited
(Nominated Advisor)