HU An Cable announced on Thursday night the divestment of its troubled subsidiaries to Yixing Jinxiao Copper Industry Co and a transfer of shares in the subsidiaries to Plenty Jade.
The Chinese local government of Wuxi City, Guanlin Town had initiated a proposal whereby the group shall dispose of the assets and liabilities of its three Chinese subsidiaries - Wuxi Hu An Wire and Cable Co, Wuxi Shenhuan Electric Co and Shenhuan Cable Technology Co - to a potential purchaser, Yixing Jinxiao.
It has appointed RHB Securities Singapore as the financial adviser to the group for the asset disposal and the share transfer. The effective long-stop date for the asset sales at one yuan (S$0.22) is Dec 21, 2015.
Following the announcement, Hu An Cable requested on Friday for a lifting of trading halt on its shares that was imposed on Tuesday.
Hu An said that the rationale for the share transfer at US$1 is to minimise any potential claims from customers in relation to the non-compliance of certain of the group's products with the relevant specifications under the applicable regulations.
Reports were earlier issued by the Quality and Technology Supervision Bureau that certain products manufactured by Wuxi Hu An were not compliant with the relevant specifications under the applicable regulations. This led to notifications from 12 customers (which are subsidiaries of the State Grid Corporation of China) to Wuxi Hu An stating that they are terminating payments under any existing purchase contracts, removing Wuxi Hu An from the customers' approved vendor list, and the customers reserving their legal rights to obtain compensation from Wuxi Hu An for any loss or damages suffered by them.
Hu An Cable said that if the asset disposal is not implemented, the group may have to pay an aggregate unemployment compensation of approximately 100 million yuan to all its employees under the applicable PRC laws and regulations.
This compensation will be waived by the Chinese local government if the asset disposal is carried out and the employees are transferred to the asset purchaser. The group may have to pay penalties for being unable to repay the bank loans if the asset disposal does not go through.