China Gaoxian inks pact to sell loss-making subsidiaries in 204 million yuan deal

YARN supplier China Gaoxian Fibre Fabric Holdings is selling off the loss-making subsidiaries that run its direct melt-spinning production facilities, under a sale and purchase agreement inked on Tuesday, although the deal is subject to shareholder approval.

Businessman Chen Jiarong has agreed to buy Huaxiang China Gaoxian International Holdings and its units for 204 million yuan (S$40.7 million), with 10 million yuan to come in cash, the board announced.

The rest of the purchase value involves the assignment of payables and receivables due or owing by China Gaoxian's remaining business, as well as the novation of a loan that the remaining business owes to third-party independent non-financial institutions.

China Gaoxian said that it had commissioned an independent valuer, Nexia TS Advisory, which issued a preliminary draft summary letter that found the value of the sale shares to be nil as at Dec 31, 2017.

Mr Chen, who deals in polyphenylene sulphide fibres, is taking the Huaxiang business off China Gaoxian's hands through his British Virgin Islands-incorporated Kingwealth International Investments. He "believes that the acquisition of Huaxiang Hong Kong will create the supply chain merger synergies for his existing businesses" such as integrating it with his chemicals business, according to China Gaoxian.

"The proposed disposal would allow the company to rationalise its financial and capital resources since the sale subsidiaries are loss-making subsidiaries and the board is of the view that further investments or a continued investment in the sale subsidiaries is unlikely to provide positive returns in the foreseeable future," the board said.

"The group believes that the proposed disposal will reduce the group's debt-to-equity gearing ratio and improve the future operational and financial performance of the group."

Assuming that the proposed disposal had gone through on Dec 31, 2017, the group's debts would have been cut from 2.34 billion yuan to 173.5 million yuan, said the group, with the negative gearing ratio narrowed from 5.43 times to 3.41 times.

China Gaoxian said that seven million yuan in net proceeds would go towards the expansion and development of the group's polyester yarn and warp knit fabric and textile trading business, while the remaining two million yuan would be used for general working capital.

Under the sale and purchase agreement, the effective date of the transaction will be July 1, regardless of when the sale is completed, said China Gaoxian. It added that a copy of the document is available for inspection at 80 Robinson Road, #02-00, for three months.

The company will have to convene an extraordinary general meeting to get shareholders' approval for the proposed disposal. It said that a circular for this would be sent out "in due course".

"Shareholders and potential investors should note that the proposed disposal is subject to the fulfilment of the conditions precedent set out above and accordingly, should exercise caution when trading in the shares," the board added.