Qingdao Special Steel holds 57% of the equity interest in Qingdao Evergreen, and will have complete ownership of the company when the sale is completed.
The book value and net tangible asset value of Qingdao Evergreen as at Dec 31, 2023 was RMB67.4 million.
Based on the RMB39.6 million consideration to be received, and after taking into account the receipt of dividends, the sale of EnGro’s 43% equity interest would result in a loss on disposal of $1.4 million over the book value of the sale shares.
Following Qingdao Special Steel’s acquisition by a subsidiary of CITIC Group Corporation, a state-owned enterprise of China under the direction of the Qingdao Municipal Government, Qingdao Special Steel was required to terminate all joint venture (JV) agreements to which it was a party.
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As a result of the governmental directive given by the Qingdao Municipal Government, EnGro says “extensive pressure” was exerted by CITIC and Qingdao Special Steel for the sale of EnGro’s 43% stake in Qingdao Evergreen.
According to EnGro, CITIC had suggested that if the SPA was not executed and EngGro (Asia)’s entire stake in Qingdao Evergreen had not been sold to Qingdao Special Steel by mid-April, the Chinese state-owned enterprise intended to set up a “competing business” and allow the operations of Qingdao Evergreen to falter.
Given these conditions, the company decided that any delay in the sale process would only adversely affect the sale consideration.
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Other CITIC subsidiaries were also required to terminate their JV agreements after being notified that the state-owned enterprise did not intend to be party to any JV agreements.
EnGro notes that as a minority shareholder of Qingdao Evergreen, it is not involved in the day-to-day management of Qingdao Evergreen’s business.
The company notes that Qingdao Evergreen has historically not contributed significantly to its net profits. The disposal will also not result in any significant reduction of its net asset value or have a significant adverse impact on its financials and existing operations.
EnGro will convene a physical information session as part of its proceedings at its upcoming annual general meeting on April 29 to provide an avenue for shareholders to ask questions in relation to the disposal.
Shares in EnGro closed 1.5 cents higher or 1.91% up at 80 cents on April 18.
