-3x Short China Regulatory News (CHNS)

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, NEW ZEALAND, JAPAN, THE REPUBLIC OF IRELAND, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL. THIS ANNOUNCEMENT IS NOT AN OFFER OF SECURITIES IN THE UNITED STATES, CANADA, AUSTRALIA, NEW ZEALAND, JAPAN, THE REPUBLIC OF IRELAND, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.

30 March 2011

China Shoto plc

("China Shoto" or the "Company")

De-listing and Tender Offer

1. Introduction and summary

China Shoto (AIM:CHNS) a leading Chinese producer of industrial batteries and power supply systems, announces that it will today be publishing a circular to shareholders (the "Circular") proposing the following:

The Circular will be available on the Company's website shortly at www.chinashoto.com. Terms defined in the Circular have the same meaning in this announcement.

2. Background to and reasons for the Proposals

Following a challenging year for the Group, the Directors have conducted a detailed review of the Group's strategic options. This review has included evaluating the benefits and disadvantages of the admission of the Company's shares to trading on AIM. The Directors have concluded that it is in the best interests of the Company and Shareholders as a whole for the admission of the Company's Ordinary Shares to trading on AIM to be cancelled.

The past 12 months have seen a dramatic reduction of infrastructure spending by China's three major telecom operators. In part, this is a result of lower levels of economic stimulus from the Chinese national government. The 12th Five Year Plan identifies the development of high-efficiency, energy-saving technical equipment and products, as part of its emerging strategic industries, together with forecast GDP growth during the period of 7 per cent. per annum as opposed to an average 11.2 per cent. achieved during the period of the 11th Five Year Plan, there can no certainty about the future growth of the Group's sales to existing domestic markets. The Board had hoped that a recovery of global markets and the development of export opportunities would mitigate the fall in domestic demand. Amid an uncertain economic climate, the Group's export strategy has insufficiently penetrated overseas markets to offset the decline in the domestic market.

As a result the share price performance of the Company has been disappointing. However the Directors believe that the Group remains the largest supplier of back-up batteries to China's major telecom operators and enjoys a higher gross margin than its competitors (despite falling over the last 12 months). The Directors believe that the declining share price has overreacted and consequently the business is undervalued. This has become a source of frustration for the Board.

The Directors believe that the development of the business and its growth potential has not been adequately reflected in the value attributed by the public market to the Ordinary Shares. The reasons for this undervaluation are multiple and complex, but the Directors consider the main reason to be a lack of interest in Chinese small cap companies listed on AIM.

In addition, the Directors consider that the costs and regulatory requirements associated with maintaining a listing on AIM are a significant burden, both financially and in terms of management resource. They believe that the costs of the Company's admission to AIM outweigh the benefits.

After careful consideration, the Directors have therefore concluded that it would be in the best interests of the Company and Shareholders as a whole if the Company's admission to trading on AIM was cancelled. The Company will submit a notice to cancel its admission to trading on AIM shortly after the Annual General Meeting (assuming that the relevant Resolution is passed).

Following the cancellation of the Company's admission to trading on AIM, the Directors will consider various strategic options which may include a listing on the Hong Kong Stock Exchange, the Shanghai Stock Exchange or any other Stock Exchange. It should be noted there can be no certainty of another listing on any Stock Exchange.

3. Effect of De-listing

The principal effect of the Proposals and the De-listing in particular is that Shareholders will no longer be able to buy and sell Ordinary Shares through a public stock market. It is anticipated that cancellation of the admission to trading of the Ordinary Shares on AIM will significantly reduce the liquidity and marketability of Ordinary Shares not acquired by the Company via the Tender Offer.

Should the De-listing be approved, the Company intends to act in a manner befitting a company whose shares no longer trade through a public market. Those that remain Shareholders after the De-listing will need to be aware of the implications of this.

The principal effects that the De-listing will have on Shareholders are as follows:

Following the De-listing, as the Ordinary Shares will no longer be traded on a public market, the Company intends to use reasonable endeavours to facilitate introductions and communication among any remaining Shareholders who wish to sell their Ordinary Shares and those persons who wish to purchase Ordinary Shares. To do this Shareholders or persons wishing to acquire Ordinary Shares will be able to leave an indication with the Company that they are prepared to buy and sell Ordinary Shares at a specified price. In the event that the Company is able to match that order with an opposite sell or buy instruction, the Company will contact both parties to effect the order. In carrying out such activities, the Company will take no responsibility to match-up Shareholders wishing to sell and purchase Ordinary Shares, and no responsibility in respect of the time frame in which introductions or communications (if any) are made.

4. Summary

The Board has accordingly concluded that it is in the best interests of Shareholders as a whole that the De-listing be approved.

Under the AIM Rules for Companies, the De-listing can only be effected by the Company after securing a resolution of Shareholders in a general meeting passed by a majority of not less than 75 per cent. of the votes cast, and the expiration of a period of twenty Business Days from the date on which notice of the De-listing is given. In addition, a period of at least five Business Days following the Shareholder approval of the De-listing is required before the De-listing may be put into effect.

Resolution 9 contained in the Notice seeks Shareholder approval for the De-listing. The Company and Seymour Pierce have received irrevocable undertakings from Shareholders and beneficial owners of the Ordinary Shares holding, in aggregate, 17,573,065 Ordinary Shares, representing 75.19 per cent. of the current issued ordinary share capital of the Company, to vote in favour of the De-listing as follows:

Shareholders should note that there is no minimum acceptance level which must be reached under the Tender Offer to prevent the Board from continuing with the De-listing.

Assuming that Shareholders approve this resolution, it is proposed that the De-listing will take place on 5 May 2011.

5. Tender Offer

The Board recognises that not all Shareholders will be able or willing to continue to own Shares in the Company following the De-listing. Although it is under no formal obligation to do so, the Board is therefore arranging for Seymour Pierce to provide the Tender Offer Shareholders with the opportunity to sell Tender Offer Shares at the Tender Offer Record Date.

The Board considers that the Tender Offer:

The Tender Offer is to be effected by Seymour Pierce purchasing Tender Offer Shares as principal and then selling such Tender Offer Shares on the London Stock Exchange to the Company for cancellation pursuant to the Repurchase Agreement. The maximum aggregate number of Ordinary Shares which may be purchased in the Tender Offer is 7,959,155, representing 34.1 per cent. of the issued share capital of the Company. The price to be paid for each Ordinary Share subject to the Tender Offer is 380 pence, being a premium of:

The Company and Seymour Pierce have received irrevocable undertakings from the Directors and certain other Shareholders who currently hold, in aggregate, 15,384,615 Ordinary Shares at the date of this document, representing 65.9 per cent. of the current issued ordinary share capital of the Company, that they will not accept the Tender Offer or will procure that the Tender Offer is not accepted in respect of their holding of Ordinary Shares as follows:

Accordingly, the maximum number of Ordinary Shares which may be purchased in the Tender Offer is 7,959,155 Ordinary Shares, representing 34.1 per cent. of the issued share capital of the Company.

Tender Offer Shareholders may tender some, all, or none of their holdings. The Tender Offer will enable all Tender Offer Shareholders (excluding those who have irrevocably undertaken not to accept or procure acceptance of the Tender Offer) to sell, should they elect to do so, all or part of their holding of Tender Offer Shares.

The Optionholders have waived their Options and will therefore not be entitled to exercise Options that are vested and capable of exercise in relation to the Tender Offer.

A guide to the general tax position of Shareholders under UK law and HM Revenue & Customs practice in respect of the Tender Offer is set out in Part 4 of the Circular. All Shareholders are strongly advised to consult their professional advisers about their own tax position.

The attention of Shareholders who are citizens or nationals of or resident in jurisdictions outside the UK and who wish to participate in the Tender Offer is drawn to the section headed "Overseas Shareholders" in Part 3 of the Circular.

Full details of the Tender Offer are given in Part 3 of the Circular. Under the terms of the Tender Offer:

(a) the maximum number of Ordinary Shares subject to the Tender Offer shall be 7,959,155 Ordinary Shares; and

(b) the price to be paid for each Ordinary Share subject to the Tender Offer shall be 380 pence, being a premium of: 

i. 54.2 per cent. to the closing mid-market price of 246.5 pence per Ordinary Share on 29 March 2011, being the last business day before the announcement of the Proposals;

ii. 42.0 per cent. to the average closing mid-market price of 267.6 pence per Ordinary Share over the three month period ended 29 March 2011 being the last business day before the announcement of the Proposals; and

iii. 49.7 per cent. to the average closing mid-market price of 253.9 pence per Ordinary Share over the six month period ended 29 March 2011 being the last business day before the announcement of the Proposals.

In the light of the limited trading volumes in the Ordinary Shares and the proposed De-listing which will reduce trading opportunities further, the Directors believe that the Tender Offer provides Tender Offer Shareholders with an opportunity to sell the Ordinary Shares which might not otherwise have been available in current market conditions.

6. Repurchase

Under the terms of the Repurchase Agreement, the Company has agreed to purchase from Seymour Pierce such number of Ordinary Shares as Seymour Pierce acquires from Tender Offer Shareholders pursuant to the Tender Offer at a price per Ordinary Share equal to the Tender Offer Price. The Repurchase Agreement is conditional, inter alia, upon the Tender Offer becoming unconditional in all respects (save in respect of any condition relating to the Repurchase Agreement becoming unconditional) and not being terminated by 26 April 2011. In the event that the conditions to the Repurchase Agreement are not satisfied by 13 May 2011 (or such date as the Company and Seymour Pierce shall determine pursuant to the Repurchase Agreement), the Repurchase Agreement shall terminate.

Subject to satisfaction of these conditions, completion of the Repurchase Agreement shall take place on 28 May 2011. On completion of the Repurchase Agreement, the Company will acquire such title in the Ordinary Shares as Seymour Pierce acquired in those Ordinary Shares purchased from Tender Offer Shareholders pursuant to the Tender Offer.

Resolution 7 contained in the Notice seeks Shareholders' approval for the Repurchase by way of an ordinary resolution.

7. City Code

Although the Company is incorporated in England and Wales and the Ordinary Shares are admitted to trading on AIM, because the Company's central place of management is in China the Company is not considered to be resident in the UK for the purposes of the City Code which for the time being does not apply to the Company. Accordingly, the Company is not subject to takeover regulation in the UK under the City Code until such time as the position changes. Investors should be aware in particular that the protections afforded to shareholders by the City Code which are designed to regulate the way in which the purchase by a company of its own shares is conducted will not be available.

8. Dividend

On 30 March 2011, the Company announced a final dividend of five pence per Ordinary Share for the year ended 31 December 2010. Further details are included in the Annual Report of the Company.

The Dividend Record Date and payment date for the dividend for the year ended 31 December 2010 are 8 April 2011 and 4 May 2011 respectively. Whether or not Shareholders tender their Ordinary Shares under the Tender Offer, they will still be eligible for the dividend.

As announced on 30 March 2011, Two Stars Invest Limited which holds 15,384,615 shares (or 65.9 per cent. of the issued share capital of the Company), has opted not to take up its dividend entitlement. Mr Yang is the sole director of Two Stars Invest Limited and the beneficial owners of Two Stars Invest Limited are the following Directors or former directors of the Company:

9. Current Trading

Today, the Company announced its final results for the year ended 31 December 2010. In the results, the Chairman made the following statement;

"Against the backdrop of continuing complications both in China's domestic markets and internationally, marked in particular by a huge decrease in infrastructure construction spending by China's three telecom operators, 2010 proved to be a challenging year for China Shoto. In spite of these difficulties, the Company implemented developments that we believe position us strongly to expand the business as we continue working to create value for our Shareholders. During the year, the Company successfully completed the acquisition of Rugao Tianpeng, providing us with a battery recycling operation that enables the Group to meet environmental criteria imposed by key customers. We also continued working to maximise our existing technology advantages and customer relationships and focussed our sales strategy to maintain market share and remain the largest back-up battery supplier to China's huge telecoms sector. Further, our strong R&D capabilities resulted in the successful development of new battery types, providing opportunities into other domestic markets, such as the electric of power, railway and electric bicycle sectors. Considerable progress in our exploration of key customer potential has been made in overseas markets. We have also continued working hard to controls costs and evaluate more efficient production methods whilst maintaining overall production levels. At the end of the year, the Company disposed of its entire shareholding in Yangzhou Zhenghe for a cash consideration of RMB 4 million being a profit on disposal of RMB 820,000."

10. Expected Timetable of Events

All times stated in this expected timetable of events and in this document are London times, unless otherwise stated. If any of the above times and/or dates change, the revised times and/or dates will be notified to Shareholders by announcement through a Regulatory Information Service.

- Ends -

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