KINETIC DEVELOPMENT GROUP LIMITED If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, registered institutions in securities, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your shares in Kinetic Mines and Energy Limited (the ''Company''), you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer, registered institutions in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.
KINETIC MINES AND ENERGY LIMITED
力 量 礦 業 能 源 有 限 公 司
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 1277)
MAJOR TRANSACTION IN RELATION TO
FINANCE LEASE AGREEMENTS
29 September 2015
Page
DEFINITIONS ... ....... ........ ....... ....... ........ ....... ........ ....... ....... 1
LETTER FROM THE BOARD .. ....... ....... ........ ....... ........ ....... ....... 3
INTRODUCTION ... ........ ....... ....... ........ ....... ........ ....... ....... 3
FINANCE LEASE AGREEMENTS .. ....... ........ ....... ........ ....... ....... 4
INFORMATION ON THE GROUP . . ....... ........ ....... ........ ....... ....... 7
INFORMATION ON SHANGHAI CONCORDS .... ....... ........ ....... ....... 7 REASONS FOR AND BENEFITS OF THE FINANCE LEASE AGREEMENTS . . . 7
FINANCIAL IMPACT OF THE FINANCE LEASE AGREEMENTS
AND INTENDED USE OF PROCEEDS . . ........ ....... ........ ....... ....... 8
GENERAL ... ....... ........ ....... ....... ........ ....... ........ ....... ....... 8
APPENDIX I - FINANCIAL INFORMATION OF THE GROUP 10
APPENDIX II - GENERAL INFORMATION 12
In this circular, unless the context otherwise requires, the following expressions have the following meaning:
''Board'' the board of Directors;
''close associate(s)'' has the meaning ascribed to it under the Listing Rules;
''Company'' Kinetic Mines and Energy Limited, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on the Stock Exchange;
''connected persons'' has the meaning ascribed to it under the Listing Rules;
''Director(s)'' director(s) of the Company;
''Finance Lease Agreement(s)'' individually or collectively, as the case may be, the nine
finance lease agreement(s) entered into between Kinetic Coal and Shanghai Concords, five of which were entered into during the period from 20 May 2015 to 28 May 2015, with the remaining four effective as of 10 August 2015, 12 August 2015, 13 August 2015 and 17 August 2015 respectively, pursuant to which Shanghai Concords purchased Machinery and Equipment from Kinetic Coal at a total consideration of RMB650,000,000, which were respectively leased back to Kinetic Coal for a term of one year;
''Group'' the Company and its subsidiaries;
''Hong Kong'' the Hong Kong Special Administration Region of the PRC;
''Independent Third Part(y)(ies)''
part(y)(ies) independent of the Company and its connected persons;
''Kinetic Coal'' 內蒙古准格爾旗力量煤業有限公司 (Inner Mongolia
Zhunge'er Kinetic Coal Limited*), a company incorporated in the PRC and an indirect wholly-owned subsidiary of the Company;
''Latest Practicable Date'' 23 September 2015 being the latest practicable date for
ascertaining certain information contained in this Circular prior to its publication;
''Listing Rules'' the Rules Governing the Listing of Securities on the Stock Exchange;
''Machinery and Equipment'' certain machinery and equipment used at the Group's
Dafanpu Coal Mine and the subject matter of the Finance Lease Agreements including but not limited to: (i) coal washing plant; (ii) underground mining structure and conveyer belt system; and (iii) trucks;
''PBOC'' the People's Bank of China;
''PRC'' or ''China'' the People's Republic of China which, for the purpose of
this announcement, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan;
''RMB'' Renminbi, the lawful currency of the PRC;
''SFO'' Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong;
''Shanghai Concords'' 上海康信融資租賃有限公司 (Shanghai Concords Financial
Leasing Co., Ltd.*), a company established in the PRC with limited liability and an Independent Third Party;
''Share(s)'' ordinary share(s) of US$0.001 each in the share capital of the Company;
''Shareholder(s)'' holder(s) of the Shares;
''Stock Exchange'' The Stock Exchange of Hong Kong Limited;
''substantial shareholder'' has the meaning ascribed to this term under the Listing
Rules;
''Supplemental Agreement(s)'' has the meaning ascribed to this under the section headed
''Letter from the Board - Finance Lease Agreements -
Lease Payments'';
''%'' per cent.
* for identification purposes only
KINETIC MINES AND ENERGY LIMITED
力 量 礦 業 能 源 有 限 公 司
(Incorporated in the Cayman Islands with limited liability)
(Stock Code: 1277)
Executive Directors:
Mr. Zhang Li (Chairman)
Mr. Gu Jianhua (Chief Executive Officer)
Mr. Zhang Liang, Johnson
Non-executive Director:
Ms. Zhang Lin
Independent non-executive Directors:
Mr. Shi Xiaoyu Ms. Liu Peilian
Mr. Zheng Ercheng
Registered office:
Clifton House 75 Fort Street
P.O. Box 1350
Grand Cayman KY1-1108 Cayman Islands
Headquarters and Principal place of business in the PRC:
Dafanpu Coal Mine Majiata Village
Xuejiawan Town
Zhunge'er Banner, Erdos City Inner Mongolia
China
Principal place of business in Hong Kong:
Unit B, 20th Floor
Two Chinachem Plaza
68 Connaught Road Central Hong Kong
29 September 2015
To: the Shareholders
Dear Sir or Madam,
MAJOR TRANSACTION IN RELATION TO
FINANCE LEASE AGREEMENTS
INTRODUCTION
Reference is made to the announcements made by the Company on 7 July 2015, 12 August 2015, 14 August 2015 and 20 August 2015 in relation to certain notifiable transactions entered into by Kinetic Coal, an indirect wholly-owned subsidiary of the Company.
As disclosed in the Company's announcements dated 7 July 2015, 12 August 2015, 14 August 2015 and 20 August 2015, Kinetic Coal entered into the Finance Lease Agreements with Shanghai Concords, an Independent Third Party, pursuant to which Shanghai Concords purchased Machinery and Equipment from Kinetic Coal for a total consideration of RMB650,000,000, which were respectively leased back to Kinetic Coal for terms of one year.
As the entering into of the Finance Lease Agreements are within a 12 month period, the Finance Lease Agreements should be aggregated in the calculation of the relevant percentage ratios to determine the classification of notifiable transactions for the purposes of the Listing Rules. As the applicable percentage ratios calculated under Rule 14.07 of the Listing Rules in respect of the transactions contemplated under the Finance Lease Agreements, when aggregated, are more than 25% but less than 75%, the Finance Lease Agreements, when aggregated, constitute a major transaction of the Company and are therefore subject to the notification, announcement and circular requirements set out in Rule 14.33 of the Listing Rules.
To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, no Shareholder or its close associate(s) is required to abstain from voting if the Company were to convene a general meeting for the approval of the Finance Lease Agreements. Written approval for the Finance Lease Agreements and the transactions contemplated thereunder has been obtained from King Lok Holdings Limited, a substantial shareholder of the Company holding 5,307,450,000 Shares representing approximately 62.96% of the issued share capital of the Company as at the date of this circular. King Lok Holdings Limited is wholly-owned and controlled by Mr. Zhang Liang, Johnson, a Director and substantial shareholder of the Company. Therefore, no general meeting will be convened to consider and approve the Finance Lease Agreements pursuant to Rule 14.44 of the Listing Rules.
The purpose of this circular is to provide you with, among other things, (i) further information on the Finance Lease Agreements; and (ii) other information as required under the Listing Rules.
FINANCE LEASE AGREEMENTS
Reference is made to the announcements made by the Company on 7 July 2015, 12 August 2015, 14 August 2015 and 20 August 2015 in relation to certain notifiable transactions entered into between Kinetic Coal and Shanghai Concords. The Finance Lease Agreements were entered into on substantially similar terms and conditions. The principal terms of the Finance Lease Agreements are set out below.
Date
The parties entered into nine Finance Lease Agreements, five of which were entered into during the period from 20 May 2015 to 28 May 2015, with the remaining four becoming effective as of 10 August 2015, 12 August 2015, 13 August 2015 and 17 August 2015 respectively.
Parties
Purchaser/Lessor: Shanghai Concords
Vendor/Lessee: Kinetic Coal
To the best of the Directors' knowledge, information and belief after having made all reasonable enquiry, Shanghai Concords and its ultimate beneficial owner(s) are Independent Third Parties.
The Finance Lease Agreements comprised (i) the sale and purchase of Machinery and Equipment and (ii) the lease back of Machinery and Equipment to Kinetic Coal, details of which are discussed below.
Sale and purchase arrangement
Pursuant to the Finance Lease Agreements, Shanghai Concords purchased Machinery and Equipment from Kinetic Coal as specified in each Finance Lease Agreement. The consideration in respect of each of the five Finance Lease Agreements entered into during the period from 20 May 2015 to 28 May 2015, was RMB50,000,000 respectively, while the consideration in respect of each of the remaining four Finance Lease Agreements, effective between the period from 10 August 2015 to 17 August 2015, was RMB100,000,000 respectively. The total consideration of the Finance Lease Agreements was RMB650,000,000, and the consideration for each Finance Lease Agreement was determined after arm's length negotiations between the parties to the Finance Lease Agreements by reference to the prevailing market price of the Machinery and Equipment. As at the date of this circular, the payments of consideration had already been satisfied by cash by Shanghai Concords.
Lease back arrangement
Pursuant to the Finance Lease Agreements, Shanghai Concords agreed to lease the Machinery and Equipment back to Kinetic Coal for respective terms of one year, each commencing from the date when the respective payments of consideration for the Machinery and Equipment under the Finance Lease Agreements were made.
Subject matter of the lease
The Machinery and Equipment comprised certain machinery and equipment owned by Kinetic Coal and used at the Group's Dafanpu Coal Mine. The total net book value of the machinery and equipment under the Finance Lease Agreements is approximately RMB669,600,000 as at 31 August 2015.
Lease payments
Pursuant to each Finance Lease Agreement, the lease rent to be paid by Kinetic Coal to Shanghai Concords was calculated based on the principal lease cost and the lease interest rate. The principal lease cost under each of the five Finance Lease Agreements entered into during the period from 20 May 2015 to 28 May 2015, was RMB50,000,000 respectively, while the principal lease cost under each of the four Finance Lease Agreements, effective between the
period from 10 August 2015 to 17 August 2015 was RMB100,000,000 respectively. The total principal lease costs under the Finance Lease Agreements amounted to RMB650,000,000. Pursuant to the Finance Lease Agreements, Kinetic Coal will repay the principal lease costs under each Finance Lease Agreement to Shanghai Concords at the end of each lease period.
As disclosed in the Company's announcements dated 7 July 2015, 12 August 2015, 14 August 2015 and 20 August 2015, the lease rents for the Finance Lease Agreements are calculated at the interest rate of 3.6% to 4.5% per annum during the lease term. Based on the aforementioned interest rate, the total lease rents payable by Kinetic Coal under the Finance Lease Agreements will be RMB27,159,600. In addition, there is a total handling fee and consultancy fee of approximately RMB10,419,000 involved in the Finance Lease Agreements. Save for the difference in repayment schedules under the Finance Lease Agreements, the terms and conditions of the Finance Lease Agreements are substantially similar. Further details of the differences in repayment schedules are as follows - for the first, second, third and fifth Finance Lease Agreements, in accordance with the respective Finance Lease Agreements, the lease rent will be payable by Kinetic Coal quarterly in four instalments in accordance with the repayment schedule set out in the respective Finance Lease Agreements. The lease rent payment date will commence on 21 September 2015, followed by two lease rent payments to be paid on a quarterly basis, and the last lease rent payment to be made at the end of the respective lease periods. For the sixth, seventh, eighth and ninth Finance Lease Agreements, in accordance with the respective Finance Lease Agreements, the lease rent will be payable by Kinetic coal at the end of the lease period.
Two supplemental agreements were entered into among Kinetic Coal, Shanghai Concords and Shanghai Minsheng Bank, an Independent Third Party, on 12 June 2015 (the ''Supplemental Agreements'', each a ''Supplemental Agreement''), pursuant to which Shanghai Concords agreed to transfer its rights to receive repayments of the principal lease costs and payments of the lease rents under the fourth and the fifth Finance Lease Agreements to Shanghai Minsheng Bank. Moreover, certain terms under the fourth Finance Lease Agreement were amended. In accordance with the terms of the related Supplemental Agreement and the fourth Finance Lease Agreement, the lease rent payment date of the fourth Finance Lease Agreement commenced on 21 August 2015, and will be followed by three lease rent payments to be made by Kinetic Coal to Shanghai Minsheng Bank on a quarterly basis, and the last lease rent payment at the end of the lease period. In addition, nine factoring cooperative agreements were entered into by the same parties during the period from 28 May 2015 to 17 August 2015, pursuant to which Shanghai Concords agreed to transfer its rights to receive payments of the principal lease costs and payments of the lease rents under the Finance Lease Agreements to Shanghai Minsheng Bank.
The lease rent was determined after arm's length negotiations between the parties to the Finance Lease Agreements by reference to the principal amounts under the Finance Lease Agreements, the prevailing market interest rate for (i) comparable finance leases; and (ii) alternative sources of financing arrangements available to the Company, including bank loans. The Group had consulted various PRC banks and had been quoted interest rates of up to approximately 40% above the one-year benchmark interest rates as announced by the PBOC in May and August 2015 respectively. The lease rent was determined after also having considered
various characteristics of the relevant Machinery and Equipment, including without limitation the nature of the Machinery and Equipment, years of use, original purchase costs, historical prices and current condition.
To the best of the Directors' knowledge, information and belief after having made all reasonable enquiries, Shanghai Minsheng Bank and its ultimate beneficial owners are Independent Third Parties.
Lessee's option to purchase
The legal title of the Machinery and Equipment under the Finance Lease Agreements will vest in Shanghai Concords throughout the respective lease periods. At the end of the respective lease periods and subject to payment by Kinetic Coal of all amounts due under each Finance Lease Agreement, Kinetic Coal will have the right to purchase the Machinery and Equipment as specified in each respective Finance Lease Agreement at a nominal purchase price of RMB1.
INFORMATION ON THE GROUP
The Company is an exempted company incorporated in the Cayman Islands with limited liability on 27 July 2010 under the Companies Law (2010 Revision) of the Cayman Islands.
The Company is an investment holding company and the principal activities of the Group are the extraction and sale of coal products.
Kinetic Coal is an indirectly wholly-owned subsidiary of the Company and is principally engaged in coal mining and sales of mineral products.
INFORMATION ON SHANGHAI CONCORDS
Shanghai Concords is a company incorporated in the PRC and is a company principally engaged in the business of financial leasing.
Shanghai Concords was introduced to the Company by China Minsheng Banking Corp., Ltd, an Independent Third Party and also the principal banker of the Company. The terms and conditions offered by Shanghai Concords under the Finance Lease Agreements were on a whole more attractive to the Company, as compared to the terms and conditions under existing bank borrowings or available alternative financing arrangements (including finance leases from other counterparts), taking into consideration interest rates and the required security package. Accordingly, having taken into account the factors as set out above, the Directors considered that the terms of the Finance Lease Agreements were favorable to the Company and its Shareholders as a whole.
REASONS FOR AND BENEFITS OF THE FINANCE LEASE AGREEMENTS
The Directors are of the view that the entering into the Finance Lease Agreements will provide the Group with additional working capital to support its business and operational activities and the funds received under the Finance Lease Agreements will be used for
repayment of existing bank borrowings of the Group. The Directors believe that the terms of the Finance Lease Agreements are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
FINANCIAL IMPACT OF THE FINANCE LEASE AGREEMENTS AND INTENDED USE OF PROCEEDS
Upon completion of the transactions contemplated under the Finance Lease Agreements, it is expected that (i) the total assets of the Group will increase to reflect the sale proceeds of the Machinery and Equipment and there will be no financial impact on the fixed assets of the Group; and (ii) the total liabilities of the Group will increase to reflect the payment obligation of the Group under the Finance Lease Agreements. While the Company considers that there is no immediate material impact on the earnings of the Group as a result of the Finance Lease Agreements, the lease rents of RMB27,159,600 and a total handling fee and consultancy fee of approximately RMB10,419,000 will be charged to the income statement of the Group over the lease period. The Directors consider that the consideration received for the Machinery and Equipment will improve the liquidity of the Group.
The total net book value of the Machinery and Equipment as at 31 August 2015 was approximately RMB669,600,000. The consideration of RMB650,000,000 represents a deficit of approximately RMB19,600,000 to the net book value of the Machinery and Equipment as at 31 August 2015. It is expected that it will not have any material impact on the earnings of the Group.
Save as described above, it is not expected that there will be any material impact on the earnings and assets and liabilities of the Group as a result of Finance Lease Agreement.
The funds received under the Finance Lease Agreements will be used for repayment of existing bank borrowings of the Group.
GENERAL
Having considered the above, the Directors (including the independent non-executive Directors) consider that the terms of the Finance Lease Agreements and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
Your attention is also drawn to the additional information set out in the appendices to this circular.
By Order of the Board
Kinetic Mines and Energy Limited Zhang Li
Chairman and Executive Director
Hong Kong, 29 September 2015
As at the date of this circular, the board of directors of the Company comprises seven directors, of whom three are executive directors, namely Mr. Zhang Li (Chairman), Mr. Gu Jianhua (Chief Executive Officer) and Mr. Zhang Liang, Johnson; one is a non-executive director, namely Ms. Zhang Lin, and three are independent non-executive directors, namely Mr. Shi Xiaoyu, Ms. Liu Peilian and Mr. Zheng Ercheng.
AUDITED FINANCIAL STATEMENTS OF THE GROUP
The audited consolidated financial information of the Group for the years ended 31 December 2012, 2013 and 2014 are disclosed in the annual reports of the Company (i) for the year ended 31 December 2012 published on 29 April 2013, on pages 43-88; (ii) for the year ended 31 December 2013 published on 30 April 2014, on pages 43-90; and (iii) for the year ended 31 December 2014 published on 27 April 2015, on pages 45-96, all of which have been published on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.kineticme.com).
MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Company since 31 December 2014, being the date to which the latest published audited financial statements of the Group were made up.
INDEBTEDNESS STATEMENT OF THE GROUP
At the close of business on 31 August 2015, being the latest practicable date for the purpose of preparing this indebtedness statement prior to the printing of this circular, the Group had the following indebtedness:
Bank Borrowings
As at the close of business on 31 August 2015, being the latest practicable date for the purpose of preparing this indebtedness statement prior to the printing of the circular, the Group had outstanding unsecured bank loans of approximately RMB500,000,000 which were guaranteed by the Company and Mr. Zhang Li.
Obligations under finance leases
As at 31 August 2015, the Group had obligations under finance leases repayable as follows:
Present value
of the minimum
lease payments
Total minimum
lease payments
RMB'000 RMB'000
Within one year 650,000 684,974
Less: total future interest expenses (34,974)
Present value of lease obligations 650 ,000
|
distributed by
|
