Shanghai-listed firm buys Zheneng Jinjiang stake for S$289.9m, plans mandatory offer

SHANGHAI-LISTED thermal power generation firm Zhejiang Zheneng Electric Power's (ZZEP) special purpose vehicle (SPV) is looking to buy a 25.62 per cent stake in Singapore-listed waste-to-energy plant operator Zheneng Jinjiang Environment (ZJE).

The SPV, Zhejiang Zheneng Electric Power Investment (Hong Kong), plans to acquire about 372.6 million ZJE ordinary shares for close to S$289.9 million in cash, or about S$0.7781 per share.

If this acquisition goes through, the SPV will also make a mandatory cash offer for the rest of ZJE shares at a premium, with the offer price set at S$0.7781 apiece.

The news sent ZJE's mainboard-listed stock climbing on Tuesday morning. The counter gained S$0.175 or 32.7 per cent to trade at S$0.71 by the midday break, with 1.2 million shares changing hands.

The S$289.9 million consideration for the SPV's proposed stake purchase was determined based on the net asset value attributable to ZJE shareholders as at April 30, 2020, which stood at around 5.66 billion yuan (S$1.14 billion).

Shanghai-listed ZZEP is 72.18 per cent owned by state-owned energy production and investment vehicle Zhejiang Provincial Energy Group.

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The state-owned company also indirectly wholly owns Zhejiang Energy Hong Kong - the largest shareholder of ZJE with a 29.57 per cent stake as at Monday.

On Monday, the SPV inked a conditional sale and purchase agreement to buy a 3.04 per cent interest in ZJE from Jinjiang Green Energy and the other 22.58 per cent interest from Win Charm. These two sellers are ultimately controlled by a Dou family.

Holding the remaining 44.81 per cent of ZJE shares are three institutional investors, ZJE directors and public shareholders, according to ZZEP's Shanghai bourse filing.

The acquisition is subject to pre-conditions, including approval from ZZEP's shareholders at a general meeting and approvals from the authorities.

Given that ZJE's largest shareholder, wholly owned by the SPV's ultimate parent, holds a 29.57 per cent interest in ZJE, the stake purchase will result in the SPV and its concert parties holding more than 30 per cent of the total number of ZJE shares in issue.

This means the SPV will be required to make a mandatory unconditional cash offer for the rest of the 44.81 per cent of ZJE shares, under Singapore's takeover and merger rules.

Under the potential mandatory offer, the cash offer price will also be S$0.7781 per share.

The offer price is at a 44.1 per cent premium over the last transacted price of ZJE shares on Oct 9.

It is also 42.7 per cent higher than the volume-weighted average price (VWAP) for the one-month period up to that last trading date, 41.4 per cent higher than the three-month VWAP, 51.6 per cent above the six-month VWAP and at a 13.7 per cent premium to the 12-month VWAP.

The SPV offeror said it has no plans to introduce any major changes to ZJE's business, and does not intend to redeploy ZJE's fixed assets or discontinue the employment of any existing employee.

However, the offeror's board retains the flexibility at any time to consider any options which may present themselves, said the offeror's financial adviser China International Capital Corporation (Singapore) (CICC).

It plans to keep ZJE listed on the Singapore Exchange's mainboard.

But if the company loses its free float at the offer's close and trading in the shares is suspended, the SPV has no intention to undertake any action to lift the suspension and maintain ZJE's listing status.

The mandatory offer, if and when made, will be unconditional in all aspects.

It will not be made unless and until all the pre-conditions of the stake purchase are fulfilled or waived by the long stop date, which is six months from the SPA date, said CICC on Monday.

In a filing at 12.30am on Tuesday, ZJE's board noted that it will appoint an independent financial adviser (IFA) to advise the independent directors if the mandatory offer is made.

A circular containing the IFA's advice and the independent directors' recommendation on the offer will then be sent to ZJE shareholders within 14 days from the dispatch of the offer document.

The SPV offeror's sole shareholder is Shanghai-listed ZZEP, whose 72.18 per cent shareholder, state-owned Zhejiang Provincial Energy Group, constructs power supply facilities; generates electricity and steam; extracts and sells oil, coal and natural gas; and provides energy finance.

Thus, all of ZZEP, the offeror and ZJE's biggest shareholder Zhejiang Energy are under the common control of the state-owned company.

ZJE was formerly known as China Jinjiang Environment. It changed its name last November after Zhejiang Energy Group acquired a 29.79 per cent stake in ZJE from Jinjiang Green Energy.