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Sias calls on China Hongxing Sports to postpone EGM, engage with shareholders over former CEO's bid to buy subsidiaries
THE Securities Investors Association (Singapore) watchdog, or Sias, has called on China Hongxing Sports to postpone its extraordinary general meeting on March 28.
The company, which sells the "Erke" brand of sports shoes in China, could then engage shareholders in a dialogue over the majority shareholders' bid to buy China Hongxing's operating subsidiaries, Sias president and chief executive David Gerald said in a statement on Thursday afternoon.
This dialogue would be "to help them understand the issues and answer all their questions before they vote".
Mr Gerald's remarks followed the association's meeting with minority shareholders earlier in the day. That meeting, he said, was over minority concerns about the attempt to acquire the assets of the company, which has had trading in its shares voluntarily suspended since 2011.
Former China Hongxing CEO Denis Wu Rongzhao and his family, who hold about 33 per cent of the company, made a 100 million yuan (S$20.78 million) offer for the units in September 2017. Of this sum, 28 million yuan in cash would be made available for distribution to minority shareholders only.
The items for the extraordinary general meeting were announced on March 2.
These include an ordinary resolution on the proposed disposal of the subsidiaries, and a special resolution on a proposed by-law amendment that would quash payment or distribution of dividends "if to do so would render the company unable to pay its liabilities as they become due or the realisable value of its assets would thereby become less than its liabilities".
Mr Gerald said: "By voting for the proposed resolutions, shareholders will get the distributions from the disposal of the assets and still retain ownership of the company. After the disposal, the company would become a cash company which could be a potential RTO (reverse takeover) candidate. If shareholders vote against the proposals, then it would be 'status quo' for the company."
China Hongxing independent director Alfred Cheong had previously said that, after the proposed disposal is done, "the company will become a clean listed shell, which will be available for a reverse takeover in future".
The valuer for the deal, AVA Associates, pegged the reasonable market value of the subsidiaries at zero in a base-case scenario on an as-is basis.
But Mr Gerald said that "shareholders are of the view that, given the prominence of brand Erke in China, the intrinsic value of the target group should be worth more".
Meanwhile, Provenance Capital, the independent financial adviser to the company directors for this deal, has assessed that that the proposed disposal is on normal commercial terms and is not prejudicial to the interests of the company and the independent shareholders.
All the same, Sias called on the board to account to independent shareholders as to whether it has tried to obtain a better price or held an auction for the target group to obtain the best value to shareholders. "There appears to be no information on this," said Mr Gerald.
He added: "Shareholders need to ask themselves - what are my options? It could eventually be asked to delist from (the Singapore Exchange), or forced into liquidation - in which case the creditors would get first pick, leaving little or nothing for the shareholders - or wait for a possible buyout.
"With regard to the latter, the company had previously announced that they were pursuing a potential offeror, but it failed to materialise."
Mr Gerald was referring to a potential offer, which was announced in late 2014, relating to the possible delisting of the company. China Hongxing later said in May 2017 that it was "unlikely" the potential offer would materialise.
"In the circumstances, shareholders are advised to consider their vote very carefully and ask whether their decision will achieve value for the investment," he said.