TIDMCTI
RNS Number : 2339U
Cathay International Holdings Ld
27 March 2019
27 March 2019
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, IN, INTO, OR FROM ANY JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT
JURISDICTION.
DEFINED TERMS USED BUT NOT DEFINED IN THIS ANNOUNCEMENT HAVE THE
MEANINGS SET OUT IN THE CIRCULAR
Dissemination of a Regulatory Announcement that contains inside
information according to REGULATION (EU) No 596/2014 (MAR).
Cathay International Holdings Limited
("Cathay", the "Company" or the "Group")
Proposed Further Disposal of Starry Shares
The Company is pleased to announce that further to the
announcement on 30 November 2018, it will today post a circular to
Shareholders setting out proposals to dispose of its remaining
shares of up to 12,775,000 shares in Zhejiang Starry
Pharmaceuticals Co., Ltd ("Starry") which are the remaining shares
in Starry held by Group subsidiary, Lansen Pharmaceutical Holdings
Limited ("Lansen") ("Further Disposal").
The Further Disposal constitutes a Class 1 transaction under the
Listing Rules and is subject to the approval of shareholders at a
Special General Meeting to be held at Suites 1203-4, 12F, Li Po
Chun Chambers, 189 Des Voeux Road Central, Hong Kong on Friday 12
April 2019 at 10 a.m. (Hong Kong time).
The circular will be available on the investor section of the
Company's website: http://www.cathay-intl.com.hk
Background
The Company is an operator and investor in the healthcare sector
in China, aiming to take advantage of the growing domestic demand
for high quality healthcare products by identifying investment
opportunities with an emphasis on high-growth markets. One of its
principal investments is a 50.68 per cent holding in Lansen, one of
China's specialty pharmaceutical companies with a focus on
rheumatology.
Lansen holds shares in Starry which listed on the Shanghai Stock
Exchange on 9 March 2016 (with stock code 603520). Starry,
established in 1997, is a Chinese pharmaceutical company
specialising in the research and development, manufacture and
marketing of raw materials and intermediate ingredients for
non-ionic contrast agents, including Iohexol and Iopamidol (used in
interventional radiology to enhance the contrast of structures or
fluids within the body in medical imaging), and of Fluoroquinolones
including levofloxacin hemihydrate and levofloxacin HCL
(antibacterial compounds used in the treatment and prevention of
bacterial infections).
On 15 November 2010, the Group acquired interests in Starry
representing 21.5 per cent of Starry at that time, of which 20 per
cent was acquired through Lansen and 1.5 per cent through Full Keen
(then a wholly owned subsidiary of Cathay), for total consideration
of RMB 172 million (USD 25.8 million), equating to a price of RMB
8.89 per share (USD 1.33 per share). On 23 November 2012, Lansen
acquired the entire issued share capital of Full Keen. Accordingly,
following the acquisition of Full Keen, the Group's entire interest
in Starry is held through Lansen.
The Group's investment in Starry is accounted for as an interest
in an associate and has a book value of RMB 161.1 million
(approximately USD 24.3 million) as at 30 June 2018, being the date
of the Group's most recent published balance sheet.
As at 30 June 2018, Starry had net assets of RMB 877.3 million
(approximately USD 132.6 million). As at 25 March 2019, being the
latest practicable date prior to the publication of the Circular,
Starry had a market capitalisation of RMB 3.5 billion (USD 518.6
million).
At the time of Starry's listing on the Shanghai Stock Exchange
it had a valuation of RMB 1.46 billion (approximately USD 224.2
million), valuing the Group's then 16.125 per cent shareholding (as
diluted by the issue of new Starry Shares at the time of its
listing) at approximately RMB 235 million (approximately USD 36.1
million). Starry's share price rose significantly from the IPO
price of RMB 12.15 (USD 1.87) per share and the Group subsequently
sold 4,175,000 shares at RMB 43.11 (USD 6.25) each on 15 March 2017
(First Disposal) and a further 2,400,000 shares at RMB 27.22 (USD
4.24) each on 6 June 2018 (Second Disposal), representing, in
aggregate, gross sale proceeds of RMB 245.3 million (approximately
USD 36.3 million) and a gain on disposal of RMB 140.0 million
(approximately USD 20.7 million). As a result, as at the date of
the Circular, the Group holds 12,775,000 Starry Shares representing
10.65 per cent of the issued share capital in Starry.
Accordingly, the Company has already made a significant return
on the Starry Shares: the First and Second Disposals realised an
aggregate cash sum (USD 36.3 million) in excess of the total cost
of the original investment (USD 25.8 million) and a return of 320
per cent. The Second Disposal was completed on 6 June 2018 at a
price of RMB 27.22 (USD 4.24) per share. The current market price
of a Starry Share is RMB 29.01 (USD 4.32), valuing the Group's
remaining shareholding at RMB 370.6 million (approximately USD 55.2
million). A sale at this price would generate a return of
approximately 226 per cent on the original price paid. However, for
the purposes of seeking Shareholder approval for the Further
Disposal, the Company has set a minimum price of RMB 12.61 (USD
1.88) per share, being the current book cost of the Starry Shares.
A sale at this price would generate gross proceeds of RMB 161.1
million (approximately USD 24.0 million), representing a return of
42 per cent on the original cost of the Starry Shares (before
expenses and taxes, estimated at USD 860,000).
The Group's investment in Starry was originally intended to
provide Lansen with opportunities to participate in the upstream
supply business in the pharmaceutical industry value chain and
allow it to benefit from Starry's experience in areas including
bulk pharmaceuticals production technology, good manufacturing
practice certification, cost and quality control and environmental
protection. However, in practice the Group and Starry operate in
different markets and the Group has decided against participating
in the upstream supply business for the time being. Accordingly,
the Directors are of the view that there is no longer a strategic
reason to retain an interest in the Starry Shares.
Although, Starry has paid dividends historically, these have
provided a relatively low return as compared with the capital gains
made by the Group on its original investment or compared with the
current market price of Starry Shares. Accordingly, the Directors
believe that the Group would need to retain its shareholding in
Starry for many years to achieve the same cash return which they
now believe can better be achieved through the Further
Disposal.
The First Disposal and the Second Disposal realised gains on the
Group's investment in Starry and had a positive impact on the
Group's financial position. The net proceeds of the First Disposal
and the Second Disposal were used by Lansen for working
capital.
Accordingly, the Company is of the view that the Further
Disposal is in the Shareholders' interests as:
-- the investment in Starry no longer fits with the Group's strategy;
-- the cash returns achieved and achievable by selling the
Starry Shares outweigh the anticipated returns from dividend
income; and
-- the Further Disposal would yield a material return on
investment and a material amount of cash which can be applied to
the Group's working capital requirements.
2.2 Terms and Conditions of the Further Disposal
The Group intends, subject to shareholder approval, to dispose
of all or part of its shareholding in Starry, subject to the
prevailing market conditions in a gradual manner in order to
realise the remaining value of its investment in Starry.
The Further Disposal is subject to:
i) Approval by Shareholders as described in the Circular
ii) Approval by Lansen's shareholders.
In accordance with the rules of the Hong Kong Stock Exchange,
Lansen announced its intention to dispose of the remaining Starry
Shares on 30 November 2018, conditional, inter alia, on approval by
its shareholders and is expected to issue a circular to its
shareholders shortly giving notice of an extraordinary general
meeting at which such approval will be sought.
Cathay holds shares in Lansen representing 50.68 per cent of the
votes capable of being cast at any meeting of Lansen shareholders
and intends, subject to the approval of the Further Disposal by
Shareholders, to vote in favour of the resolution at the meeting of
Lansen's shareholders.
iii) Method of disposal
The Group shall dispose of all or part of the Starry Shares
through one or more on market transactions on the Shanghai Stock
Exchange.
The Further Disposal will not be completed in an off-market
transaction (known as a transfer agreement). However, if an
opportunity arises to dispose of all or part of the Starry Shares
in the future through transfer agreement, the Company will seek
separate Shareholders' approval before entering into such a
transaction.
iv) Period of authority
The authority to proceed with the Further Disposal, if approved
by Shareholders, will be valid for a period of 12 months following
the date of the SGM. If the Company has not sold all of the Starry
Shares by the end of that period, no further Starry Shares may be
sold under this authority and the Company may need to seek
shareholder authority for any future disposals.
v) The terms of the Lock-Up Undertaking, entered into at the
time of Starry's IPO and the rules of the Shanghai Stock
Exchange.
Under the terms of the Lock-Up Undertaking, within the two-year
period immediately following the first anniversary of Starry's IPO
(being the period expiring on 9 March 2019), Lansen undertook not
to dispose of more than 50 per cent of its aggregate interests in
Starry in each subsequent year. This is calculated by reference to
the aggregate interests held as at the last trading day of the
preceding calendar year. Lansen therefore continues to be bound by
the terms of the Lock-Up Undertaking and the Further Disposal will
take place in accordance with such terms.
vi) The Minimum Selling Price of RMB 12.61
The Minimum Selling Price is equal to the Group's book cost of
investment in the Starry Shares as at 30 June 2018 and represents
the lowest acceptable price at which the Starry Shares will be sold
by the Group.
In addition, the Minimum Selling Price shall also represent no
more than a 10 per cent discount to the trading price of Starry
Shares on the Shanghai Stock Exchange at the relevant times. The
maximum discount of 10 per cent is prescribed under the current
rules of Shanghai Stock Exchange.
The Board considers that the Minimum Selling Price will allow
flexibility for the Directors to accommodate fluctuations in market
conditions.
At the Minimum Selling Price, the Further Disposal would
generate cash of up to RMB 161.1 million (approximately USD 24.0
million) (before expenses and taxes, estimated at USD 860,000). At
the current market price of RMB 29.01 (USD 4.32) (as at 25 March
2019, being the latest practicable date prior to the date of the
Circular), the Further Disposal would generate cash of up to RMB
370.6 million (approximately USD 55.2 million) (before expenses and
taxes, estimated at USD 860,000). Accordingly, the Further Disposal
is expected to generate a material further cash gain which would
have a positive impact on the financial position of the Group as a
whole.
2.3 Financial position of the Group
At 30 June 2018, being the last published balance sheet for the
Group, the consolidated balance sheet showed total assets of USD
435.5 million (31 December 2017: USD 436.6 million), total
liabilities of USD 289.6 million (31 December 2017: USD 286.2
million), giving net assets of USD 145.9 million (31 December 2017:
USD 150.4 million), and net current liabilities of USD 57.0 million
(31 December 2017: USD 58.8 million).
The Group uses a series of loans and facilities with varying
maturity dates, along with cash balances, to finance the working
capital requirements of its operations. Most of these borrowings
are relatively short term, especially in China, in order to take
advantage of the lower rates of interest which are generally
available for shorter term borrowing. At 30 June 2018, being the
last published balance sheet date, the consolidated balance sheet
for the Group showed total borrowings of USD 193.2 million, of
which USD 137.2 million was due for repayment within one year, and
total cash balances of USD 51.9 million, of which USD 28.1 million
was held in pledged bank accounts (as security against borrowings).
In addition to the borrowings repayable within 12 months are
related party loans of, in aggregate USD 14.8 million, in respect
of which the lenders have confirmed that they will not demand
repayment before 30 June 2020.
This level of borrowing and requirement to repay, renew or
refinance is in line with the Group's current commercial practice
and with prior periods.
The Group has considerable experience of raising short term debt
finance. The Group has repaid borrowings of between USD 109.9
million and USD 198.2 million in each of the last three financial
years and USD 81.6 million of borrowings in the first half of 2018
(an average of USD 148.2 million per annum); and that the Group has
received funds from new borrowings of between USD 120.1 million and
USD 187.9 million in each of the last three financial years and USD
84.2 million in the first half of 2018 (an average of USD 156.5
million per annum).
Financial independence of Lansen
Lansen, the Group's largest subsidiary which is listed on the
Hong Kong Stock Exchange, is managed independently and consequently
its working capital requirements are independent of those of the
rest of the Group (although it too employs a financing strategy
based on short term borrowings). Other than operating cash flows
associated with trading between Lansen and the rest of the Group,
there are no working capital flows between Lansen and the rest of
the Group.
The Company has received dividends from Lansen of USD 6.1
million in the year ended 31 December 2017 (including a special
dividend of USD 4.0 million following the First Disposal of Starry
Shares) and USD 2.7 million in the year ended 31 December 2016.
These dividends have been used by the Company for working capital
purposes within the Group (excluding Lansen).
The Further Disposal, if it proceeds, would generate cash within
Lansen. The proceeds of the proposed disposal of the Starry Shares
are primarily intended to be used by Lansen for its working capital
purposes, rather than the wider Continuing Group. However, if
Lansen decides to pay a dividend using its retained profits and/or
the proceeds of the sale of the Starry Shares, this would be used
by the Continuing Group (excluding Lansen) for working capital
purposes.
The financial independence of Lansen within the Group and the
requirements to refinance short term borrowings is illustrated in
the following analysis.
Table 1 below sets out a summary of the net debt position (being
cash balances less borrowings) and debt related cash flows for the
Group derived from the Group's audited annual statements for the
years ended 31 December 2015, 2016 and 2017 and the most recently
published unaudited 2018 interim accounts:
Table 1: Net debt and Debt related cash flows
NET DEBT POSITION
As at
30 June
As at 31 December 2018
2015 2016 2017
USDm USDm USDm USDm
Net debt
Cathay (excluding Lansen) (79.6) (83.7) (87.1) (96.3)
Lansen (47.2) (67.9) (57.6) (45.0)
Group (126.8) (151.6) (144.7) (141.3)
DEBT RELATED CASH FLOWS
Six months
ended
Year ended 31 December 30 June
2015 2016 2017 2018
USDm USDm USDm USDm
Cash flows from financing activities
Cathay (excluding Lansen)
Proceeds from borrowings 25.3 35.0 69.3 19.2
Repayment of borrowings (22.2) (26.3) (70.5) (10.1)
Lansen
Proceeds from borrowings 94.8 120.4 118.6 65.0
Repayment of borrowings (87.7) (102.6) (127.7) (71.5)
Group
Proceeds from borrowings 120.1 155.4 187.9 84.2
Repayment of borrowings (109.9) (128.9) (198.2) (81.6)
Since 30 June 2018, the Group has operated within the terms of
its existing borrowings and all borrowings which have matured have
been repaid or refinanced in accordance with their terms.
At 25 March 2019, being the latest practicable date prior to
publishing the Circular, the Group had borrowing facilities of USD
322.6 million of which approximately USD 194.3 million had been
drawn. The table below shows the maturity profile of these
facilities and borrowings - i.e. that borrowings of USD 130.9
million are due to mature in the next 12 months and must be repaid
or refinanced during that period and that total borrowing
facilities reduce from USD 322.6 million to USD 189.6 million by
March 2020.
Table 2: Existing borrowings - maturity profile
Borrowings due for repayment
by:
March
2020
(i.e.
Total 12 months
as at from the
25 March date of March March
2019 the Circular) 2021 2022
USDm USDm USDm USDm
Borrowings
Cathay (excluding Lansen) 103.5 40.1 3.8 59.8
Lansen 90.8 90.8 - -
Total Group borrowings 194.3 130.9 3.8 59.8
Remaining balance by:
March
2020
(i.e.
Total 12 months
as at from the
25 March date of March March
2019 the Circular) 2021 2022
USDm USDm USDm USDm
Borrowing facilities
Cathay (excluding Lansen) 114.4 74.0 70.2 -
Lansen 208.5 115.6 99.1 9.0
Total Group borrowing facilities 9.0
322.6 189.6 169.3
========== =============== ====== ======
The Group will need to continue to raise new borrowing
facilities to replace existing borrowings as they mature (or to
extend the terms of existing facilities), as it has done
successfully to date. However, since 30 June 2018 and as announced
by the Company, trading within the Group has fallen further below
expectations which, if it continues, may increase the risk that the
Group will find it more difficult (and more expensive) to raise
finance when required and consequently that it may default on
existing borrowings.
2.4 Information on Starry
Management Team
The management team of Starry is as follows:
Mr. Hu Jinsheng is the Chairman of Starry.
Mr. Hu Jian is the Deputy Chairman and General Manager of Starry.
In addition, Lansen currently has a nominated non-executive
director re-elected to the board of directors of Starry following
an extraordinary general meeting held on 29 March 2017. This
re-election is for a minimum period of three years.
Financial information on Starry
The historical financial information presented below in relation
to Starry has been extracted without material adjustment from the
Group's audited consolidated accounts and the accompanying notes
for the financial years ended 31 December 2015, 2016 and 2017 and
the unaudited consolidated interim results for the six months ended
30 June 2017 and 2018.
Six months ended
Year ended 31 December 30 June
2015 2016 2017 2017 2018
USD'000 USD'000 USD'000 USD'000 USD'000
Consolidated Statement
of Profit or Loss
Share of post-tax profit
of associate 2,162 1,720 1,731 1,147 1,235
Consolidated Statement
of Financial Position
Equity attributable to
owners of Starry 67,841 116,569 131,184 n/a n/a
Proportion of the Group's
ownership interest in
Starry 21.5% 16.1% 12.6% n/a n/a
14,586 18,768 16,529 n/a n/a
Goodwill 19,282 13,427 11,593 n/a n/a
Other adjustments (178) (48) 42 n/a n/a
Carrying amount of the
Group's interest in Starry 33,690 32,147 28,164 26,605 24,347
Consolidated Statement
of Cash Flows
Adjustments to cash flows
from operating activities
Share of post-tax profit
of associate (2,162) (1,720) (1,731) n/a n/a
Cash flows from investing
activities
Dividend received from
associate 1,517 796 225 225 116
Notes:
1. The Group accounts for its interest in Starry using the
equity method. Starry, the interest being indirectly held via
Lansen, is the only interest in associate appearing in the Cathay
financial statements. As Cathay holds a 50.68 per cent interest in
Lansen, it is consolidated as a subsidiary in the Group accounts
and therefore the share of post-tax profit and dividend received
from Starry, together with the carrying value of the Group's
interest in Starry, are shown prior to any adjustments in respect
of value attributable to the minority holders of Lansen.
2. Data for the six months ended 30 June 2018 is unaudited and
is extracted from the Group interim accounts published on 31 August
2018. The interim accounts do not provide full details on
Consolidated Statement of Financial Position and Consolidated
Statement of Cash Flows in respect of associates.
Shareholders should read the whole Circular and should not rely
on the summarised financial information set out above.
2.5 Use of Proceeds
The proceeds of the Further Disposal will be received by Lansen
and will be used by Lansen for general working capital.
Lansen has in the past paid dividends including a special
dividend in 2017 following the First Disposal of Starry Shares, of
which Cathay received USD 4.0 million. If a dividend is paid by
Lansen, these proceeds would be used by the Continuing Group
(excluding Lansen) for general working capital purposes.
2.6 Effect of the Further Disposal on the Continuing Group
Assuming that the disposal of all of the Starry Shares is made
at the Minimum Selling Price, the estimated gross sale proceeds
would be approximately RMB 161.1 million (approximately USD 24.0
million) (before expenses and taxes, estimated at USD 860,000). At
the Minimum Selling Price, a nil gain/loss would be recorded in the
Continuing Group's profit and loss account and there would be no
impact to the net asset value of the Company (before expenses and
taxes, estimated at USD 860,000).
If the actual selling price is higher than the Minimum Selling
Price, the cash proceeds would be higher, a gain would be recorded
and net assets would increase by an amount equal to the excess over
the Minimum Selling Price.
Shareholders should note that the actual amounts of proceeds,
accounting gain or loss and the effects on the net assets and
earnings of the Continuing Group will depend on the actual selling
prices of the disposal of the Starry Shares.
Furthermore, the Group currently recognises its share of
Starry's post-tax profits and dividends paid by Starry. Following
the Further Disposal of all Starry Shares in full, the Continuing
Group will cease to recognise its share of Starry's post-tax
profits and dividends paid by Starry in proportion to the number of
Starry Shares sold. The amounts recognised by the Group in the
years ended 31 December 2015, 2016 and 2017 are shown above under
the heading, "Financial information on Starry".
A pro forma statement of net assets showing the effect of the
Further Disposal on the Continuing Group assuming the entire
shareholding in Starry is sold at the Minimum Selling Price is set
out in Part III of the Circular.
3. Strategy, current trading, trends and future prospects
3.1 Continuing Group
Strategy
The Company is a main market listed investment holding company
and an operator and investor in the growing healthcare sector in
the PRC. Taking advantage of growing domestic demand for high
quality healthcare products in the PRC, the Company aims to
identify investment opportunities with emphasis on high growth
healthcare markets and build them into market sector leaders. The
Company has already demonstrated a track record of identifying
investment opportunities in this area including: Lansen, a PRC
specialty pharmaceutical company focused on rheumatology, Jilin
Haizi, a PRC inositol manufacturer, Natural Dailyhealth, a company
engaged in the production and sales of plant extracts for use as
key active ingredients in healthcare products, and Botai, a company
engaged in the production and sales of collagen products.
The Group employs more than 1,800 people across the PRC,
including over 20 specialist corporate and business development
staff based at the holding company's offices in Hong Kong and
Shenzhen. The Company also has a hotel investment in Shenzhen.
Current trading, trends and future prospects
The Group faces challenging economic conditions, regulatory
changes and tough competition which have had and will continue to
have an adverse impact on revenues and profits, in particular in
the Group's healthcare businesses.
Lansen, which is the largest of the Group's Healthcare
businesses, announced its results for the year ended 31 December
2018 on 27 March 2019 in which it commented that, inter alia, as a
result of these trading conditions and operational measures aimed
at returning its operations to growth, it had recorded a
significant decrease in its net profit for the year ended 31
December 2018 as compared with that for the year ended 31 December
2017.
Haizi, Natural Dailyhealth and Botai similarly experienced
challenging trading conditions throughout 2018.
The Group has responded to these difficult trading conditions by
endeavouring to develop more of its own products, rather than
agency products, to better manage working capital and to strengthen
its cash flow. In the short-term these measures will continue to
have an adverse impact on revenues and therefore profitability, but
the Board believes that the longer-term business fundamentals are
unaffected. This revised strategy continues in to 2019.
The Hotel performed in line with expectations throughout
2018.
The Company anticipates that these trading conditions and trends
will continue in 2019.
The current trade tension between the US and China appears to be
weighing on growth as evidenced by the recent disappointing retail
sales and industrial output figures in China and may impact the
healthcare extract products such as inositol and bilberry which
have end customers based in the US. The Hotel and the cosmeceutical
businesses may also be adversely affected should the trade friction
escalate and slow down China's economy. However, the trade tension
should have little impact on the pharmaceutical business where the
focus is on the domestic market, albeit subject to intense
competition.
3.2 Starry
Starry is building a product chain covering pharmaceutical
intermediates, APIs and finished products. Starry plans to further
increase research and development in order to consolidate its
technology advantage and develop new product lines. Starry's
business plan includes product development and innovation,
marketing and brand building, internal reform and human resource
development. It will look for M&A opportunities both
domestically and internationally and will consider suitable
financing options as required.
In the first half of 2018, Starry's operation was stable with no
major changes in the external environment and internal production.
For the six months ended 30 June 2018, Starry recorded an operation
revenue of RMB 428 million. Starry has stated publicly that it aims
to generate operation revenue of RMB 900 million in 2018.
4. Working Capital
In the opinion of the Company, the Continuing Group does not
have sufficient working capital for its present requirements, that
is, for at least the next 12 months following the date of the
Circular.
For the purposes of making this working capital statement the
Company has prepared and analysed a downside working capital
forecast for the Continuing Group to illustrate the effects of a
reasonable worst case scenario, which assumes, inter alia, that the
Further Disposal does not proceed, Lansen does not pay a dividend
in 2019 and 2020, current borrowings are not renewed or refinanced
before their maturity dates and trading continues to fall below
expectations resulting in an operating loss. Under the downside
working capital forecast, the Continuing Group will incur a net
cash outflow from operating and investing activities, in addition
to the repayment of borrowings, resulting in a working capital
shortfall for the Continuing Group of USD 3.8 million arising in
May 2019 increasing to USD 58.1 million by March 2020.
The Continuing Group's major subsidiary, Lansen, manages its
working capital independently within the Group. Throughout the
period covered by the working capital statement, Lansen is forecast
to operate within its existing borrowing facilities. Therefore, the
shortfall identified above reflects the downside forecast for the
Continuing Group (excluding Lansen).
The downside working capital forecast also shows an ongoing
working capital shortfall beyond the next 12 months for the
Continuing Group, primarily due to expiry of existing borrowing
facilities and repayment of existing borrowings, and assuming
operating losses.
Therefore, the Continuing Group anticipates that it will need to
raise up to USD 58.1 million in order to maintain sufficient
working capital for the period of 12 months from the date of the
Circular. Thereafter, the Continuing Group will need to raise
sufficient funds to cover ongoing operating losses and to repay or
refinance borrowings.
The principal sources of finance to address the working capital
shortfall within the Continuing Group in the next 12 months and
beyond are expected to come from the Further Disposal, new
borrowings (or through negotiating extended terms and renewals of
existing borrowings) and achieving revenue growth under the current
strategy which returns the Continuing Group to profitability.
The Further Disposal, if it proceeds, would generate cash within
Lansen. The proceeds of the proposed disposal of the Starry Shares
are primarily intended to be used by Lansen for its working capital
purposes, rather than the wider Continuing Group and would not
therefore impact the working capital shortfall of USD 58.1 million
identified above. However, if Lansen decides to pay a dividend
using its retained profits and/or the proceeds of the sale of the
Starry Shares (Cathay received a dividend of USD 4.0 million in
2017 following the First Disposal of Starry Shares), this would
reduce the working capital shortfall.
The Continuing Group is in discussions with existing lenders to
release an additional facility in April 2019, which would provide
sufficient headroom under the downside working capital forecast
through to June 2019 at which time borrowings with a current
balance of approximately USD 55.6 million fall due for repayment.
Negotiations regarding the borrowings maturing in June will
commence over the coming weeks and the Group would normally expect
these to conclude only shortly before the date of maturity.
The Directors are confident of returning the Continuing Group to
growth over the medium term and that doing so could generate
additional cash; however, the Company has no expectation that
improving trading performance will materially reduce the Group's
working capital shortfall in the next 12 months.
Accordingly, the Directors expect that the Continuing Group will
primarily raise the working capital that it needs for the
foreseeable future from the proceeds of the Further Disposal and
new borrowings (or through negotiating extended terms and renewals
of existing borrowings).
To the extent that the Continuing Group cannot address its
shortfall through these measures, the Continuing Group may also
consider asset disposals, specifically, non-core assets such as the
hotel in Shenzhen and an associated staff accommodation block.
Lastly, if increasing borrowings and/or asset sales are not
sufficient to meet the shortfall, the Company would consider
alternative sources of finance, including, if necessary, raising
additional equity capital or liquidating part of its equity
holdings in Lansen in the open market.
If all of the above actions were unsuccessful, it is likely that
the Company would not be able to continue as a going concern. If
the Company is not able to continue as a going concern, it would
enter an insolvency process. Whilst the Continuing Group has net
assets based on the last published balance sheet, there would be no
certainty of the value that may remain for Shareholders, if any,
once all liabilities had been settled and the shares would cease
trading on the London Stock Exchange.
5. Irrevocable Voting Undertakings
Circle Finance and Mega Worldwide, the entities through which Mr
Wu Zhen Tao, Executive Chairman of Cathay, holds an interest in
Cathay Shares, have irrevocably undertaken to vote in favour of the
Resolution in respect of their respective shareholdings in the
Company, which represent approximately 61.0 per cent of the votes
capable of being cast at the Special General Meeting.
6. Action to be taken
The Resolution is subject to the approval of Shareholders. A
notice convening the SGM is set out at the end of the Circular. A
Form of Proxy for use by Shareholders or a Form of Direction for
use by DI Holders, as applicable, in connection with the SGM is
enclosed. If you are a Shareholder, you are requested to complete,
sign and return the Form of Proxy. If you are a DI Holder, you
should refer to the notes on the Form of Direction, whether or not
you intend to be present at the SGM, and return it to Link Asset
Services, The Registry, PXS 1, 34 Beckenham Road, Beckenham, BR3
4ZF, United Kingdom as soon as possible and, in any event, so as to
arrive no later than 4.00 p.m. on 8 April 2019. Shareholders should
return the Forms of Proxy so as to arrive no later than 9.00 a.m.
on 9 April 2019.
If you are a Shareholder (but not a DI Holder) the completion
and return of a Form of Proxy will not prevent you from attending
the SGM and voting in person should you subsequently wish to do so.
If you are a DI Holder, completion of the Form of Direction will
not preclude you from attending the SGM should you wish. If you are
a DI Holder and wish to attend the SGM please contact the
Depositary, Link Market Services Trustees Limited at The Registry,
34 Beckenham Road, Beckenham, BR3 4ZF, United Kingdom, not later
than 9.00 a.m. on 9 April 2019.
CREST members who wish to instruct the Depositary to vote
through the CREST system may do so by using the procedures
described in "the CREST voting service" section of the CREST
Manual. CREST personal members or other CREST sponsored members,
and those CREST members who have appointed one or more voting
service providers, should refer to their CREST sponsor or voting
service provider(s), who will be able to take the appropriate
action on their behalf.
7. Further information
Your attention is drawn to the further information contained in
Parts II to VI of the Circular. You are advised to read the whole
of the Circular rather than relying on the summary information set
out in this announcement.
8. Risk Factors
Part II of the Circular sets out risk factors associated with
the Further Disposal, those risk factors for the Group which are
impacted by the Further Disposal, and any new risk factors for the
Group arising from the Further Disposal. These factors could have
an adverse impact on the Group's results of operations, financial
condition and prospects.
9. Recommendation
The Board considers the Further Disposal to be in the best
interests of the Company and the Shareholders as a whole.
Accordingly, the Board recommends Shareholders to vote in favour of
the Resolution.
The Directors intend to vote in favour of this Resolution in
respect of their own beneficial holdings of 229,706,434 Common
Shares, representing approximately 62.2 per cent of the votes
capable of being cast at the Special General Meeting.
For further enquiries, please contact:
Cathay International Holdings Limited
Eric Siu (Finance Director) Tel: +852 2828 9289
Patrick Sung (Director and Controller)
Consilium Strategic Communications
Mary-Jane Elliott / Matthew Neal / Tel: +44 (0) 203 709
Lindsey Neville 5702
About Cathay
Cathay International Holdings Limited (LSE: CTI.L) is a main
market listed investment holding company and an operator and
investor in the healthcare sector in the People's Republic of China
(the "PRC"). The Group aims to leverage on investment opportunities
in the growing domestic demand for high quality healthcare products
in the PRC and build portfolio companies into market sector leaders
with competitive edge. Cathay has already demonstrated a track
record of identifying investment opportunities in this area
including: Lansen, a PRC specialty pharmaceutical company focused
on rheumatology and dermatology; Haizi, a PRC inositol
manufacturer; Natural Dailyhealth, a company engaged in production
and sales of plant extracts for use as key active ingredients in
healthcare products; and Botai, a company engaged in collagen
products.
The Group employs approximately 1,800 people across the PRC,
including over 20 specialist corporate and business development
staff based at the holding company's offices in Hong Kong and
Shenzhen. Cathay also has a hotel investment in Shenzhen. For more
information please visit the Company's website:
http://www.cathay-intl.com.hk.
About Lansen
Lansen, whose shares are listed on the main board of the Hong
Kong Stock Exchange, is a 50.68% owned subsidiary of Cathay. Lansen
is engaged in the manufacture, distribution and development of
specialty prescription drugs for treatment of autoimmune disorder
in rheumatology and dermatology. Lansen specialises in disease
modifying anti-rheumatic drugs ("DMARDs") for treatment of
rheumatoid arthritis ("RA") in the PRC. Lansen has established an
extensive distribution network, covering more than 1,000 hospitals
in four municipalities, 25 provinces and cities in the PRC. For
more information please visit the Lansen's website:
http://www.lansen.com.cn/en/index.aspx.
About Starry
Starry, whose shares are listed on the Shanghai Stock Exchange
(stock code 603520), is 10.6% owned by Lansen. Starry is
specialised in the research and development, manufacture, marketing
and sales of bulk pharmaceuticals and intermediates. One of the
core products of Starry is iohexol for X-CT non-ionic contrast
agents. Starry is the largest iohexol manufacturer in the PRC and
is experienced in the production management and quality control of
bulk pharmaceuticals. For more information please visit Starry's
website: http://www.starrypharm.com/en/index.aspx.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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