HaiKe Chemical Group - Proposed Cancellation, EGM and Exit Facility
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
("HaiKe", the "Group" or the "Company")
Proposed Cancellation of Admission of Ordinary Shares to Trading on AIM
Notice of Extraordinary General Meeting
Exit Facility by Hai Yuan Trading
Circular and Notice of EGM
A circular is being posted to Shareholders today setting out the background to, and reasons for, the Cancellation, and the reasons why the Directors consider that the Cancellation is in the best interests of the Company and its Shareholders as a whole and therefore unanimously recommend that Shareholders vote in favour of the Resolution to be proposed at an EGM on
Exit Facility by Hai Yuan Trading at
The Board is aware that Shareholders may be either unable to hold unquoted shares or are unwilling to continue to hold such shares with the reduced level of marketability that is likely to ensue following Cancellation. The Circular will contain details of the Exit Facility by Hai Yuan Trading, at
Definitions in this announcement are, unless otherwise stated, the same as those included in the Circular.
For further information:
Cardew Group +44 (0) 20 7930 0777
Set out below is the letter from the Chairman, expected timetable and definitions, extracted from the Circular:
The Company has today announced that the Directors have unanimously concluded that it is in the best interests of the Company and its Shareholders to cancel the admission of the Ordinary Shares to trading on AIM. Pursuant to Rule 41 of the AIM Rules, the Company (through its nominated adviser, Stockdale) has notified the
The Cancellation is conditional, pursuant to Rule 41 of the AIM Rules, upon the approval of not less than 75 per cent. of the votes cast by Shareholders (whether present in person or by proxy) at the Extraordinary General Meeting, notice of which is set out on page 13 of this document.
The Company is seeking Shareholders' approval of the Cancellation at the Extraordinary General Meeting, which has been convened at 11/
The purpose of this document is to seek Shareholders' approval for the Resolution, to provide you with the background to and reasons for the Cancellation and to explain the consequences of the Cancellation and why the Directors unanimously consider the Cancellation to be in the best interests of the Company and its Shareholders as a whole.
Shareholders will also find details of the Exit Facility by Hai Yuan Trading, at
2. Background to, and reasons for, the Cancellation
The Directors have conducted a review of the benefits and drawbacks to the Company and its Shareholders in retaining its quotation on AIM, and believe that Cancellation is in the best interests of the Company and its Shareholders as a whole. The perceived benefits of an admission of securities to AIM typically include access to capital markets, an enhanced corporate profile, a means to incentivise staff and a mechanism to provide a market in the Company's Ordinary Shares. The Directors have reached the view that the Company is not receiving all these benefits. In reaching this conclusion, the Directors have considered the following key factors:
- the Company operates in a highly competitive market and may require a significant injection of capital if it were to upgrade its production facilities and plant. It is the Directors' view that the continued admission to AIM is unlikely to provide the Company with access to such capital, if required, and that funding could be secured more easily if it is no longer admitted to AIM;
- the considerable cost, management time and the legal and regulatory burden associated with maintaining the Company's admission to trading on AIM are, in the Directors' opinion, disproportionate to the benefits to the Company. Cancellation will, accordingly, reduce recurring administrative costs; and
- the limited liquidity of the Ordinary Shares on AIM, together with the aggregate 55.9 per cent. aggregate interest in the Company's current issued share capital held by Directors and HiTech Chemical, resulting in a reduced free float in the Ordinary Shares, with the consequence that the AIM listing of the Ordinary Shares does not, in itself, offer investors the opportunity to trade in meaningful volumes or with frequency within an active market.
Following careful consideration, the Directors believe that it is in the best interests of the Company and Shareholders to seek the proposed Cancellation.
Following the proposed Cancellation, the Directors consider that there would be little benefit to maintaining the Company's present Articles in relation to its current admission to AIM. Pursuant to the Re-registration, the Company would also be required to adopt new articles of association by way of special resolution. Subject to the proposed Cancellation being approved, the Board intends to propose for a separate Shareholders meeting be held after the Cancellation to approve the adoption of new Articles.
3. Current Trading and Prospects
Set out below is an extract from the Company's trading update for the unaudited results for the 12 months ended
· Unaudited profit for the year was
• Unaudited total revenues for the year were CNY 850.5 million (2016: CNY 728.3 million).
• Unaudited gross profit for the year increased to CNY 125.8 million (2016: CNY 114.9 million) as the Company continued to adjust its product mix. Sales of more profitable, high-end products accounted for 26.4% of sales in the year (2016: 11.2%).
• Unaudited overall sales volumes in the year decreased 10.5% to 112,252 tons due to planned plant shutdowns (2016: 125,395 tons).
• Unaudited average selling prices in the year increased by 28.9% to
• Unaudited selling expenses in the year rose by 24.3% to CNY 50.4 million (2016: CNY 40.5 million) as a result of more aggressive sales and marketing activities to address difficult market conditions.
• Unaudited general and administrative expenses in the year increased by 21.2% to CNY 61.9 million (2016: CNY 51.1 million). This was attributable to plant shutdown costs and start-up expenses.
• Unaudited interest expenses decreased to CNY 3.9 million (2016: CNY 15.0 million). In 2016, HaiKe Trading accrued interests for non-practical significance transactions.
• Total borrowings at 31 December 2017 were
• At 31 December 2017, the Company's cash and cash equivalent balances were CNY 46.3 million (at
Note: as at
The smaller 15,000 tons per annum DMC plant which produces lower margin products was shut down from 24 April to
As stated in the interim results for the six months to
The Company is facing critically difficult market conditions and is suffering a reduction in output as a result of planned plant shutdowns for upgrading purposes. Some production facilities and plants were shut down because they could not satisfy the enhanced PRC environmental rules and regulations and this has had a direct and adverse impact on the sales of the Company. The Company is considering further technical upgrades on its high-end chemical products to meet the competitive market standards, which would require a significant injection of capital, and the Directors believe that funding could be secured more easily as an exempted company.
4. Intentions as to the future strategy of the business
The Directors consider that the Company's further development and continued success is dependent on a number of factors, including attracting new strategic investors and partners, exploring different financing options, and improving cash flow to provide capital support for its strategic development and focus on the high-end chemical industry. Following Cancellation, the Directors intend to integrate and simplify the organisational structure of the Company, so as to enable the Company to operate in this highly competitive market. After having reviewed the benefits and drawbacks to the Company in retaining its quotation on AIM, as set out in Part 2, the Directors believe that AIM is no longer a suitable platform for the Company's future development.
The Directors currently believe that once the Company has developed its operation to the point where it is able to trade profitably, it may be that a relisting on a public stock market will again be appropriate. However, no guarantees or assurances can be given as to the timing or even the likelihood of such a relisting occurring.
5. Principal effects of Cancellation
The principal effects of the Cancellation will be that:
- the Company will cease to retain a nominated adviser and broker;
- there would no longer be a formal market mechanism enabling Shareholders to trade their Ordinary Shares on AIM or any other recognised market or trading exchange;
- while the Ordinary Shares will remain freely transferable, it is possible that the liquidity and marketability of the Ordinary Shares will, in the future, be even more constrained than at present and the value of such shares may be adversely affected as a consequence;
- in the absence of a formal market and quote, it may be more difficult for Shareholders to determine the market value of their investment in the Company at any given time;
- the regulatory and financial reporting regime applicable to companies whose shares are admitted to trading on AIM will no longer apply;
- Shareholders will no longer be afforded the protections given by the AIM Rules, such as the requirement to be notified of certain events and the requirement that the Company seek shareholder approval for certain corporate actions, where applicable, including substantial transactions, financing transactions, reverse takeovers, related party transactions and fundamental changes in the Company's business, including certain acquisitions and disposals;
- the levels of transparency and corporate governance within the Company may not be as stringent as for a company quoted on AIM;
- it is the Company's intention to cancel the Company's Depositary Interests facility after the Cancellation, and, although the Ordinary Shares will remain transferable, they will cease to be transferable electronically in the form of Depositary Interests through CREST. In this instance, Shareholders who hold Depositary Interests will receive share certificates for their Ordinary Shares; and
- the Cancellation may have taxation consequences for Shareholders. Shareholders who are in any doubt about their tax position should consult their own professional independent tax adviser.
The Board considers it appropriate that, following and subject to Cancellation, the Company should undergo Re-registration and should adopt, by special resolution, new articles of association to reflect that the Ordinary Shares will no longer be traded on a public market.
Shareholders should also note that the
The above considerations are not exhaustive and Shareholders should seek their own independent advice when assessing the likely impact of the Cancellation on them.
The Company currently intends that it will continue to provide certain facilities and services to Shareholders that they currently enjoy as shareholders of an AIM company. The Company will:
- continue to communicate information about the Company (including annual accounts) to its
Shareholders, as required by the Companies Law;
- continue to hold annual general meetings; and
- continue, for at least 6 months following the Cancellation, to maintain its website, http://www.haikechemical.com, and to post updates on the website from time to time, although Shareholders should be aware that there will be no obligation on the Company to include all of the information required under AIM Rule 26 or to update the website as required by the AIM Rules.
In addition, the Company confirms that there is currently no intention to change the existing Directors
following the Cancellation.
6. Exit Facility
The Board is aware that Shareholders may be either unable to hold unquoted shares or are unwilling to continue to hold such shares with the reduced level of marketability that is likely to ensue following Cancellation. Therefore, the Exit Facility is being put in place to enable such Shareholders to sell their Ordinary Shares immediately following the Extraordinary General Meeting.
The Exit Facility is being made available by Hai Yuan Trading, a private
The Company will not be a party to any transaction effected under the Exit Facility.
Under the Exit Facility, Hai Yuan Trading will purchase Ordinary Shares at a fixed price of
Ordinary Shares held in certificated form
Shareholders who hold Ordinary Shares in certificated form and who wish to accept the Exit Facility should complete and return the Exit Facility Acceptance Form enclosed with this document, to be received by the Receiving Agents by no later than
Making available the Exit Facility is conditional on the passing of the Resolution at the EGM. Should the Resolution not be passed, and Cancellation not occur, the Exit Facility will not proceed and not be available to Shareholders.
Subject to the passing of the Resolution, it is expected that payments will be made under the Exit Facility on or around
Shareholders who hold Ordinary Shares in uncertificated form as Depositary Interests and who wish to accept the Exit Facility should take (or procure the taking of) the actions set out below to transfer to escrow (by means of a TTE Instruction) the total number of Depositary Interests in respect of which such Shareholders wish to accept the Exit Facility, specifying the Receiving Agent (in its capacity as a CREST participant under the participant ID referred to below) as the escrow agent, as soon as possible and in any event so that the transfer to escrow settles not later than
The input and settlement of a TTE Instruction shall constitute an instruction to sell the specified number of Depositary Interests at the purchase price, by transferring such Depositary Interests to the relevant escrow account as detailed below.
If a Shareholder is a CREST sponsored member, the Shareholder should refer to his/her CREST sponsor before taking any action. A Shareholder's CREST sponsor will be able to confirm details of the Shareholder's Participant ID and the member account ID under which the Shareholder's Depositary Interests are held. In addition, only the Shareholder's CREST sponsor will be able to send the TTE Instruction to Euroclear in relation to the Shareholder's Depositary Interests.
To accept the Exit Facility Shareholders should send (or, if a Shareholder is a CREST sponsored member, procure that his/her CREST sponsor sends) a TTE Instruction to Euroclear, which must be properly authenticated in accordance with Euroclear's specifications for transfers to escrow and which must contain, in addition to the other information that is required for the TTE Instruction to settle in CREST, the following details:
(a) the ISIN for the Depositary Interests which is: KYG423181083;
(b) the number of Depositary Interests to be transferred to an escrow balance;
(c) Shareholder's Member account ID;
(d) Shareholder's Participant ID;
(e) the Participant ID of the escrow agent, the Receiving Agent, in its capacity as a CREST receiving agent, which is RA10;
(f) Member account ID of the escrow agent: 29492HAI;
(g) the Corporate Action Number of the Exit Facility, which is allocated by Euroclear and is available by viewing the relevant corporate action detail, in CREST;
(h) the intended settlement date for the transfer to escrow. This should be as soon as possible and in any event no later than
(i) the standard delivery instruction with Priority 80; and
(j) contact name and telephone number inserted in the shared note field.
After settlement of the TTE Instructions, Shareholders will not be able to access the Depositary Interests, the subject of such TTE Instruction in CREST for any transaction or charging purposes, notwithstanding that, the Depositary Interests will be held by the Receiving Agent until they are transferred to the Receiving Agent, as escrow agent for Hai Yuan Trading, unless the Exit Facility becomes void or is terminated.
Shareholders are recommended to refer to the CREST Manual published by Euroclear for further information on the CREST procedures outlined above.
If Shareholders are in any doubt as to the procedure for acceptance, please contact
Unless the Exit Facility becomes void or is terminated or is extended, the outcome of the Exit Facility is expected to be announced on
Settlement of the consideration to which any Shareholder is entitled pursuant to the Exit Facility, will be made as follows:
Where the Exit Facility is accepted in relation to Depositary Interests any cash consideration will be paid by means of CREST by Hai Yuan Trading procuring the creation of an assured payment obligation in favour of the payment banks of accepting Shareholders in accordance with the CREST assured payment arrangements, expected to be not later than 4 Business Days after the day that the outcome of the Exit Facility is announced.
Ordinary Shares in certificated form
Where an acceptance of the Exit Facility relates to Ordinary Shares in certificated form cheques for the consideration will be despatched by first class post, expected to be not later than 4 Business Days after the day that the outcome of the Exit Facility is announced at the risk of the person entitled thereto. All cash payments will be made in pounds sterling by cheque drawn on a branch of a
Delivery of cash for the Ordinary Shares will be made by the Receiving Agent. The Receiving Agent will act as agent for Shareholders accepting the Exit Facility for the purpose of receiving the cash and transmitting such cash to such Shareholders.
7. Transactions following Cancellation
The proposed Cancellation, should it be approved by Shareholders at the Extraordinary General Meeting, would make it more difficult for Shareholders to buy and sell Ordinary Shares should they wish to do so.
Therefore, the Company will make arrangements for a Matched Bargain Facility to assist Shareholders to trade in the Ordinary Shares following Cancellation. The Matched Bargain Facility will be administered directly by the Company. Under the Matched Bargain Facility, Shareholders or persons wishing to acquire or dispose of Ordinary Shares will be able to leave an indication with the Company of the number of Ordinary Shares that they are prepared to buy or sell at an agreed price. In the event that the Company is able to match that order with an opposite sell or buy instruction, they would contact both parties to arrange the trade. Should the Cancellation become effective and the Company put in place the Matched Bargain Facility, details will be made available to Shareholders on the Company's website at www.haikechemical.com. However, in carrying out such activities, the Company will take no responsibility to match up Shareholders wishing to sell and purchase Ordinary Shares, and no responsibility in respect of the time frame in which introductions or communications (if any) are made or as to the price at which any trades might take place.
Due to the limited number of existing Shareholders and the illiquidity of the Ordinary Shares prior to Cancellation the Company will not maintain the Depositary Interest facility following Cancellation and the Depositary Interests facility will be cancelled. Depositary Interest holders will receive a share certificate for their cancelled Depositary Interest holding. Shareholders will be able to continue to trade their Ordinary Shares in certificated form.
8. Process for Cancellation
Under the AIM Rules, it is a requirement that the Cancellation must be approved by not less than 75 per cent. of votes cast by Shareholders at a general meeting. Accordingly the Notice of Extraordinary General Meeting set out on page 13 of this document contains a special resolution to approve the Cancellation.
Under the AIM Rules, Cancellation will not take effect until at least 5 clear Business Days have passed following the passing of the Resolution. Furthermore, Rule 41 of the AIM Rules requires any AIM company that wishes the
Accordingly, if the Resolution is passed the Cancellation will become effective at
9. Extraordinary General Meeting
There is set out on page 14 of this document a notice convening an Extraordinary General Meeting of the Company to be held at 11/
The Resolution is proposed as a special resolution, which means that it must be approved by more than 75 per cent. of votes cast by Shareholders or on behalf of Shareholders at the Extraordinary General Meeting.
Action to be taken by Shareholders holding Ordinary Shares in certificated form
Shareholders will find enclosed with this document a Form of Proxy for use in connection with the EGM. To be valid, a Form of Proxy, completed and executed in accordance with the instructions printed thereon, should be returned to Link Asset Services PXS, The Registry,
Action to be taken by holders of Depositary Interests
Holders of Depositary Interests will find enclosed with this document a Form of Direction for use in connection with the EGM. To be valid, a Form of Direction, completed and executed in accordance with the instructions printed thereon, should be returned to Link Asset Services PXS, The Registry,
10. Irrevocable Undertakings
In connection with the Extraordinary General Meeting (undertakings to vote in favour)
The Company has received irrevocable undertakings from HiTech Chemical, Mr. Xiachong Yang and Mr.
In connection with the Exit Facility (undertakings not to accept)
The Company has received an irrevocable undertaking from HiTech Chemical, not to accept the Exit Facility, in respect of all Ordinary Shares held by it (or in which it is interested), being 21,219,042 Ordinary Shares, representing approximately 55.3 per cent. of the issued share capital of the Company. HiTech Chemical will therefore remain a Shareholder following Cancellation.
The Directors consider that the Cancellation is in the best interests of the Company and its Shareholders as a whole and therefore unanimously recommend that you vote in favour of the Resolution.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Publication of this document and notice to
Last time and date for receipt of Form of Direction
Last time and date for receipt of Form of Proxy
Date and time of Extraordinary General Meeting
Last time and date for transfers to escrow in relation to Depositary Interests
accepting the Exit Facility 1.00 p.m. on
Last time and date for receipt of Exit Facility Acceptance Form 1.00 p.m. on
Exit Facility record time and date
Expected last day of dealings in Ordinary Shares on AIM
Expected time and date of Cancellation
Expected date of payment to accepting Shareholders under the Exit Facility 22 March 2018
If any of the above times and/or dates change, the revised times and/or dates will be notified to Shareholders by announcement through the
All times shown in this document are London times unless otherwise stated.
The following definitions apply throughout this document and the accompanying Notice of Extraordinary General Meeting, Form of Proxy, Form of Direction and Exit Facility Acceptance Form, unless the context requires otherwise or unless it is otherwise specifically provided:
AIM, the market of that name operated by the
the rules and guidance for companies whose shares are admitted to trading on AIM published by the
the articles of incorporation of the Company as amended from time to time
"Board" or "Directors"
the directors of the Company as at the date of this document, as detailed on page 6
any day the
the cancellation of admission of Ordinary Shares to trading on AIM, subject to passing of the Resolution and in accordance with Rule 41 of the AIM Rules
The chairman of the Board
"China" or "PRC"
this document and its attachments
"Company" or "HaiKe"
the Companies Law (as revised) of the Cayman Islands, as amended, modified or supplemented from time to time
the relevant system (as defined in the CREST Regulations) in respect of which Euroclear is the operator (as defined in those regulations)
the manual published by Euroclear governing CREST operations
the Uncertificated Securities Regulations 2001 (SI2001/3755) (as amended) relating to the operation of CREST in the UK, being the paperless settlement of trades and the holdings of uncertificated shares
diethyl carbonate, a colourless liquid with a mild pleasant odour and used as a solvent and as a component of electrolytes in lithium batteries
the depositary interests in uncertificated form representing Ordinary Shares issued to a holder on the terms set out in the DI Deed Poll
"DI Deed Poll"
the first trust deed poll constituted by
dimethyl carbonate, a colourless liquid produced from a chemical reaction between propylene oxide and methanol and widely used in medical applications
"EGM" or "Extraordinary General Meeting"
the extraordinary general meeting of the Company to be held at
the facility to be provided by Hai Yuan Trading, as described at pages 9 to 11 of this document
"Exit Facility Acceptance Form"
the form of acceptance in relation to the Exit Facility for use by Shareholders holding Ordinary Shares in certificated form
"Exit Facility Price"
"Exit Facility Record Date and Time"
"Form of Direction"
the form of direction attached to this document for use by holders of Depositary Interests in connection with the EGM
"Form of Proxy"
the form of proxy attached to this documentfor use by Shareholders in connection with the EGM
the Company and/or its subsidiaries from time to time, as the context requires
"Hai Yuan Trading"
"HiTech Chemical" or "Controlling Shareholder"
isopropyl alcohol, colourless, flammable compound with strong odour and produced through propylene hydration reaction catalysed under pressure
"Link Asset Services"
a trading name of
"Letter from the Chairman"
the letter from Mr Xiaohong Yang, the executive chairman of the Group, set out on pages 6 to 12 of this document
"Matched Bargain Facility"
a matched bargain facility administered by the Company to assist Shareholders to trade in the Ordinary Shares following Cancellation
the notice of EGM set out on page 13 of this document
ordinary shares of
Link Asset Services
Link Asset Services
"Registrar of Companies"
the Registrar of Companies of the Cayman Islands
one of the regulatory information services approved by the
the re-registration of the Company as an exempted company with the Registrar of Companies of the Cayman Islands
the special resolution to be proposed at the EGM, details of which are set out in the Notice
holder(s) of Ordinary Shares
in CREST, a transfer to escrow instruction(s)
the United Kingdom of Great Britain and Northern Ireland
In this document:
Currencies and Exchange Rate
A reference to £ is to pounds sterling, being the lawful currency of the UK.
A reference to CNY is to Chinese Renminbi, being the lawful currency of China.
A reference to US$ is to United States Dollars, being the lawful currency of the United States of America.
Unless otherwise stated in this document, the following rate of exchange from CNY to £ has been applied:
Information regarding forward-looking statements
This document contains a number of forward-looking statements relating to the Company. The Company considers any statements that are not historical facts as "forward- looking statements". They relate to events and trends that are subject to risks and uncertainties that could cause the actual results and financial position of the Company to differ materially from the information presented in the relevant forward-looking statement.
When used in this document the words "estimate", "project", "intend", "aim", "anticipate", "believe", "expect", "should", and similar expressions, as they relate to the Company or the management of it, are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this document. The Company does not undertake any obligation publicly to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, save in respect of any requirement under applicable laws, the AIM Rules and other regulations.
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