Raffles Education to raise stake in Chinese property firm for 254m yuan

RAFFLES Education Corporation is set to take control of Langfang Hezhong Real Estate Development Co, after its subsidiary entered into a sale-and-purchase agreement to raise its stake by 35.9 per cent for some 254 million yuan (S$49.2 million) in cash.

The target company is a joint venture between Raffles Education's subsidiary, Langfang Tonghui Education Consulting Co (Tonghui), and Langfang Heying Real Estate Development Co (Heying).

As at July 16, Tonghui, which is primarily engaged in the business of providing education consulting and development services, owns a 34.1 per cent stake in the target company, with the seller, Heying, owning the remaining 65.9 per cent.

The share capital of the target company is about 318.8 million yuan, and its assets consist mainly of parcels of land with a total area of 332,833 square metres.

The vacant land had previously been injected into the target company with the intention of developing it into a commercial and residential development. This was meant to increase the vibrancy of Oriental University City, a university campus located in Langfang city, Hebei, which is owned by the Raffles Education group.

However, the seller's efforts to convert the land to commercial and residential land titles over the last six years have been stalled by "numerous protracted challenges and completion of the intended mixed development is not in sight", Raffles Education said.

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As the proposed acquisition would enable Raffles Education to obtain control of the target company, this would allow it to "rationalise the land use rights" into education facilities instead, Raffles Education said. In addition, in terms of compliance requirements at the planning stage, the time frame for developing the land into education facilities is expected to be shorter than the time required to develop it for mixed residential and commercial usage.

Raffles Education added that this move would create revenue streams complementary to the group's business. "Langfang City, being strategically located between the cities of Beijing and Tianjin, is well poised to cater to the demands for educational facilities of higher education institutions," the company said.

Based on the latest management accounts of the target company as at Dec 31, 2019, the net tangible asset value of the sale shares is about 290.2 million yuan. No independent valuation on the sale shares has been carried out and the company intends to do so prior to an extraordinary general meeting to be convened to obtain shareholders' approval for the proposed deal.

A deposit of 25.4 million yuan, amounting to 10 per cent of the total consideration, shall be paid to the seller within 14 days from July 16, when the agreement was signed. The remaining amount will be paid in two tranches. The first tranche of 54.6 million yuan will be paid within two weeks of obtaining shareholders' approval, while the rest will be paid on Dec 31, 2020, or such other date mutually agreed and confirmed in writing by both parties. These will be financed through the group's internal funds.

Among other things, completion of the proposed acquisition is conditional upon shareholders' approval, and no new laws, regulations or policies that might prevent its completion.

The agreement will be terminated if the conditions precedent are not fulfilled on or before the long-stop date of Oct 15, 2020, or such other date mutually agreed by the parties in writing.

Shares of Raffles Education closed at 11 Singapore cents on Thursday, down 0.5 cent or 4.4 per cent, before this announcement. There were no trades for the day as at 9.48am on Friday.