12 Feb 2010 18:06
Cathay International Holdings Limited ("Cathay" or the "Company")
12 February 2010
Xian Haotian - Update on further investment in the Xian Haotian Group
The Company is pleased to announce in relation to its investments in Xian Haotian Bio-Engineering Technology Co. Limited ("Xian Haotian") and its subsidiaries and related companies (the "Xian Haotian Group") that construction of the inositol project has proceeded to the Company's satisfaction. Accordingly, the Company has decided to proceed with the further investments in the Xian Haotian Group which were approved by the Company's shareholders at the special general meeting held on 30 May 2008.
Under the terms of the arrangements approved by shareholders of the Company, the Company agreed (i) to make investments in the Xian Haotian Group of up to US$56.5 million; (ii) to issue to the senior management of the Xian Haotian Group (the "Management") up to US$12,593,584 of shares in Dragon Diligent Holdings Limited (an indirect wholly-owned subsidiary of the Company established for the purpose of making the investments into the Xian Haotian Group) ("Dragon Diligent") on completion of the second instalment of the investments; and (iii) to issue to the Management further shares in Dragon Diligent up to a maximum of US$5,630,053 subject to the Xian Haotian Group reaching certain profit targets in 2008, 2009 and 2010. Under the terms approved by shareholders of the Company, in the event that the maximum investment was made by the Company, and the maximum number of shares in Dragon Diligent were issued to the Management, the Company's interest in Dragon Diligent would be 74.4%, and the Management's interest would be 25.6%.
Going forward, inositol will be the core product of the Xian Haotian Group. To ensure that the inositol project is implemented based on the feasibility studies, the Xian Haotian Group has taken a cautious approach in the pilot phase and the time spent on this phase of the project has been longer than expected, which resulted in a delay in the first phase of construction of the inositol project.
As a result of ongoing negotiations with the Management and minority shareholders of Xian Haotian following the delay to the inositol project, the 49% interest in Xian Haotian not currently held by the Cathay Group has now been transferred to an indirect wholly owned subsidiary of Dragon Diligent for a total cash consideration of approximately RMB82.8 million (approximately US$12.1 million). The put and call option agreement entered into on 28 September 2007, and subsequently extended, lapsed with effect from the transfer.
It has been further agreed that, in place of the existing arrangements for the transfer of shares in Dragon Diligent to the Management, further incentives to Management will apply. Dragon Diligent will issue up to US$7.0 million new shares to an indirect wholly owned subsidiary of the Company. It is proposed that arrangements are put in place under which the dividends relating to such shares will be paid in whole or in part to the Management as incentives. Further, if certain criteria are met, including a successful future flotation of the business of the Xian Haotian Group on a recognised international stock exchange, part or all of such shares would be transferred to the Management.
As approved by shareholders of the Company in the Special General Meeting in May 2008, the Company may proceed to make further investments in the Xian Haotian Group through Dragon Diligent for the purpose of the development of the business of the Xian Haotian Group, such that the maximum total cash investments made and to be made in the Xian Haotian group will be US$56.5 million.
Assuming that the full investment of US$56.5 million is made by the Company and the maximum number of the new shares in Dragon Diligent is transferred to the Management, the Company would effectively hold an interest of approximately 88% of Dragon Diligent, and the Management would hold approximately 12% of Dragon Diligent.
The Xian Haotian Group is one of the Company's major investments in the healthcare and pharmaceutical sector in China and the inositol project is expected to commence production in the second quarter of 2010.
Enquiries to:
Stephen Hunt, Director Tel + 852 2828 9289
CTI.L (CTI)