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Pan Asian to dispose China pipe and valve unit for 14.6m yuan

PAN Asian Holdings is proposing to sell its entire stake in its China pipe and valve manufacturing unit for 14.6 million yuan (S$2.8 million) to buyers Li Wei Jiang and Li Ya Feng.

The subsidiary, called Pan Asian Manufacturing (Tianjin) Co (PAM TJ), was incorporated in China to be its headquarters in Tianjin Ecocity and also to consolidate Pan Asian's pipe and valve manufacturing operations in the market.

PAM TJ is engaged in the engaged in the manufacturing and supply of pipes, fittings, valves and other related accessories.

Its main asset is the land use rights (LUR) for a site in Tianjin Ecocity, which was purchased by PAM TJ from Sino-Singapore Tianjin Eco-City Investment and Development Co during the financial year ended Dec 31, 2011. The rights will expire in 2060.

However, the LUR has been "underutilised" and not developed as planned due to changes in Tianjin government’s environmental regulations and the economy’s outlook, the group said.

It added that PAM TJ "has not been performing" and had been left dormant since the fiscal year ended Dec 31, 2015. Moreover, the benefit of the group’s investment in PAM TJ had also not been generating returns to date.

"To continue investing in PAM TJ may pose greater risks for the group due to uncertainty over the LUR’s potential use," Pan Asian said.

Associated risks include a potential penalty enforceable by the Tianjin government for not commencing development on the land. To date, there has been no penalty imposed.

The disposal is also part of a strategic review of the group’s financial position, operational needs, long-term strategy and direction of the group, Pan Asian said.

It added that the disposal would also free up cash flow which would allow the group to focus on its core business by channelling its resources to improve production and operation efficiency.

The transaction will be satisfied fully in cash, and also subject to introducer fees of 2 million yuan to be paid to Flat Sea Marine Equipment – an independent third party.

The sale amount was arrived taking into account as at Oct 30 the net book value of the LUR, which is 5.7 million yuan; the net asset value of PAM TJ which is 9.1 million yuan; and the repayment of all intercompany balances owing to PAM TJ from PA Water Solutions (Shanghai) amounting to 4.6 million yuan.

Following the disposal, Pan Asian will recognise a gain of 3.6 million yuan, after deducting the introducer fee and PAM TJ’s net asset value.

The buyers, Li Wei Jiang and Li Ya Feng, are independent third parties and do not hold – directly or indirectly – any shares in Pan Asian.

They had on Nov 8 paid a deposit of 3 million yuan cash to Pan Asian, which is part of the sale amount.

In addition, the share transfer will be done concurrently with the payment of the remaining balance of 11.6 million yuan, to be undertaken by Feb 28, 2020 – also to be satisfied fully in cash.

The proposed disposal is also conditional on the requisite approvals and consents from shareholders and governmental authorities where appropriate.

In a separate announcement on Monday morning, Pan Asian has called for its trade suspension called on Nov 6 to be lifted. Prior to the suspension, the group’s shares closed flat at 1.8 Singapore cents on Nov 5.

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