Leader Environmental Technologies has, via its wholly-owned subsidiary, United Greentech Holdings Pte. Ltd., entered into a conditional share sale and purchase agreement (SPA) to dispose all of its shares held in AIWater for RMB364 million ($67.91 million). The signing of the agreement took place on Jan 12.
The shares, representing 70% of AIWater’s total share capital, will be sold to WJL Holding, who already holds the remaining 30% stake in the former.
On the same day, Leader Environmental Tech entered into another conditional share sale and purchase agreement to sell all of its shares in UG Water for RMB6 million or $1.12 million. The shares represent a 50% stake in UG Water, which wholly owns Xinwo AIWater (Hubei) Co., Ltd.
AIWater is a Chinese company that is mainly in the business of developing and utilising artificial intelligent technology in the management of wastewater treatment plants.
UG Water is an investment holding company incorporated in Singapore while Xinwo AI is a Chinese-incorporated company and is wholly-owned by UG Water. Xinwo AI is mainly in the business of the management of wastewater treatment plants, and it utilises the wastewater treatment plant management system developed by AIWater.
As at the FY2023 ended Dec 31, 2023, and 1HFY2024 ended June 30, 2024, the companies’ have a consolidated net loss after tax of RMB7.43 million and RMB3.15 million respectively.
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The companies have a book value of RMB18.12 million and RMB22.12 million for the FY2023 and 1HFY2024. Their combined net tangible asset value (NTA) is RMB15.38 million and RMB18.77 million for the same periods respectively.
The shares in these companies are not publicly traded.
Rationale for disposals
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In its Jan 13 filing, Leader Environmental Technologies says it has experienced consecutive losses for the past 2.5 years and a high cash burn rate of around RMB50 million, which makes it “challenging” to support the AIWater Group (comprising AIWater, UG Water and Xinwo AI) and the sludge treatment and membrane manufacturing business. As such, the proposed disposals aim to “reallocate resources to strengthen growth in the group's sludge treatment and membrane manufacturing businesses”.
Furthermore, the group recognises that the artificial intelligence (AI) business requires substantial capital investment for infrastructure and manpower, but pursuing additional fundraising exercises is “difficult” under the present economic conditions. Doing so will also result in the significant dilution of existing shareholder equity in the company, which is not sustainable.
The group adds that the proposed disposals provide an opportunity to maximise value for its shareholders. It will also help its focus on achieving profitability in the near term.
will result in an excess of net proceeds of around RMB319.96 million over AIWater Group, assuming the consideration is paid in cash.
After fees from the proposed transactions, Leader Environmental Technologies will have a balance of around RMB318.37 million, which will be retained for working capital requirements or plans to enhance shareholder value.
On a pro forma basis, if the proposed transactions had been completed at the end of FY2023, Leader Environmental Technologies’ net tangible assets (NTA) per share would have been 25.56 RMB cents from 4.82 RMB cents originally. If the transactions were completed on Jan 1, 2023, the group’s earnings per share (EPS) would have been at 18.02 RMB cents compared to a loss per share of 2.72 RMB cents.
Major transaction and interested person transaction
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The proposed disposals are regarded as a “major transaction” under the Singapore Exchange ’s (SGX) listing rules as the net asset value (NAV) of the assets to be sold make up 32.65% of Leader Environmental Technologies’ total NAV. The net profits attributable to the AIWater Group, compared to Leader Environmental Technologies’ net losses is 22.53%.
As such, the group says it intends to convene an extraordinary general meeting (EGM) to seek the approval of its independent shareholders.
The transactions also constitute as an interested person transaction (IPT) as Dr Lin Yucheng, a controlling shareholder of Leader Environmental Technologies, holds 50% of the shares in Feynman, which will hold 44.46% of the consortium. The consortium, in turn, will wholly own the buyer.
Under chapter 9 of the listing manual, the buyer will be an associate of Dr Lin and will be regarded as an “interested person”.
Following the completion of the transactions, Leader Environmental Technologies will cease to have any interest in AIWater, UG Water and Xinwo AI.
As at 10.42am, shares in Leader Environmental Technologies is trading 0.3 cents higher or 7.69% up at 4.2 cents.
