The Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.
CONNECTED TRANSACTION AND NON-EXEMPT CONTINUING CONNECTED TRANSACTION
CONNECTED TRANSACTION On 8 November 2011, DSE (an indirect wholly-owned subsidiary of DCH Holdings) entered into the Sale and Purchase Agreement with DIL to purchase from DIL 49% equity interest in Smart Joint and 50% equity interest in each of Power Success and Smartways, together with the related shareholders’ loans, for a total consideration of HK$198,646,000. DCH Holdings and Mr. Mak, the sole beneficial shareholder of DIL, entered into the Sale and Purchase Agreement as DSE’s guarantor and DIL’s guarantor respectively. The transactions contemplated under the Acquisition include the arrangements mentioned below. Smart Joint is the holding vehicle for the interest in the 4S Business in respect of the “Ferrari” brand and the “Maserati” brand in Guangzhou and Shenzhen, the PRC, which is expected to expand to Xiamen, the PRC after Completion. Power Success is the holding vehicle for the interest in the 4S Business in respect of the “GAC Toyota” brand in Guangzhou, the PRC. Smartways is expected to be the holding vehicle for the interest in the distributorship of the “Ducati” brand in the PRC and Macao after Completion. After Completion, all companies forming the Target Group are expected to be accounted for as indirect non-wholly owned subsidiaries of DCH Holdings under current accounting standards.
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The Directors believe that the Acquisition represents a new chapter of a successful strategic partnership between DCH Holdings and DIL/Mr. Mak. In 2008, DCH Holdings and DIL/Mr. Mak established a joint venture in the 4S Business in respect of the “FAW Toyota” brand and the “Lexus” brand. A dedicated professional management platform has since been established for the operation, management and business development of that joint venture. The business growth, management and service quality of the 4S Business under that joint venture has earned recognition from the manufacturers of the “FAW Toyota” brand and the “Lexus” brand - three dealers were named the nation’s best dealers and additional dealerships were thereby awarded. The number of companies engaged in 4S Business under that joint venture has grown from three to eight in three years’ time, with three more companies which are expected to engage in 4S Business in 2012. The Directors believe that the Acquisition will further enhance the brand diversity of DCH Group and expand its product spectrum. The Acquisition will also bring in new elements to DCH Group's profile, with two luxury sports car brands (“Ferrari” and “Maserati”) and a high performance motorcycle brand (“Ducati”). Besides, the Directors consider that the acquisition of Power Success is in line with DCH Group's direction of 4S Business development for more luxury brand dealerships. All in all, these newly acquired dealerships/distributorship contemplated under the Sale and Purchase Agreement, together with the other existing dealerships under the above-mentioned joint venture, will create a better business platform for more synergy and for further business development, particularly in the luxury segment. As Mr. Mak (via DIL or otherwise) is a substantial shareholder of and Mr. Mak himself is a director of certain subsidiaries of DCH Holdings, both DIL and Mr. Mak are connected persons of DCH Holdings. The Acquisition therefore constitutes a connected transaction for DCH Holdings. As the applicable percentage ratios under the Listing Rules in respect of the Acquisition are less than 5%, the Acquisition is subject to the reporting and announcement requirements but is exempt from the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules. NON-EXEMPT CONTINUING CONNECTED TRANSACTION Guangzhou Junlong, an indirect wholly-owned subsidiary of Power Success which is engaged in the 4S Business in respect of the “GAC Toyota” brand, currently has a revolving facility of up to RMB30.0 million (equivalent to approximately HK$36.7 million) with China CITIC Bank with a term of one year expiring on 17 June 2012. Under such facility, China CITIC Bank will, on request, issue bank acceptance drafts for Guangzhou Junlong to purchase motor vehicles in its ordinary and usual course of business. China CITIC Bank is a non-wholly owned subsidiary of CITIC Group, the ultimate holding company of CITIC Pacific, which in turn is a substantial shareholder of DCH Holdings. China CITIC Bank is therefore a connected person of DCH Holdings. As such, the said facility will constitute a continuing connected transaction for DCH Holdings upon Completion. Since the applicable percentage ratios calculated with reference to the maximum amount of the said facility are less than 5%, the facility is subject to the reporting, annual review and announcement requirements, but is exempt from the independent shareholders’ approval requirement under the Listing Rules.
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CONNECTED TRANSACTION 1.
The Sale and Purchase Agreement
Date: 8 November 2011 Parties: (1)
Purchaser: DSE (an indirect wholly-owned subsidiary of DCH Holdings)
(2)
Seller: DIL
(3)
Purchaser’s Guarantor: DCH Holdings
(4)
Seller’s Guarantor: Mr. Mak
Assets to be acquired: 49% equity interest in Smart Joint and 50% equity interest in each of Power Success and Smartways, together with the related shareholders’ loans. The transactions contemplated under the Acquisition include the arrangements mentioned below. Smart Joint is the holding vehicle for the interest in the 4S Business in respect of the “Ferrari” brand and the “Maserati” brand in Guangzhou and Shenzhen, the PRC, which is expected to expand to Xiamen, the PRC after Completion. Power Success is the holding vehicle for the interest in the 4S Business in respect of the “GAC Toyota” brand in Guangzhou, the PRC. Smartways is expected to be the holding vehicle for the interest in the distributorship of the “Ducati” brand in the PRC and Macao after Completion. Refer to the heading “Other Terms” below for further details. Consideration: The Consideration of HK$198,646,000 was determined after arm’s length negotiation between the parties, having regard to the (i) track record of the Target Group; (ii) net asset value of the operating subsidiaries of Smart Joint and Power Success of not less than RMB65.1 million (equivalent to approximately HK$79.6 million) as at Completion; (iii) set up costs and future prospects of the distributorship of “Ducati” brand in the PRC and Macao; (iv) establishment of the 4S Business in respect of the “Ferrari” brand and the “Maserati” brand in Xiamen, the PRC as undertaken by DIL and Mr. Mak; (v) goodwill and future prospects of the Target Group; and (vi) synergy with other existing business between DSE/DCH Holdings and DIL/Mr Mak. The Consideration will be funded by internal resources of DCH Holdings.
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Payment Terms: The Consideration will be payable by DSE upon Completion in the following manner: (a)
a goodwill deposit of HK$35,838,000 paid to DIL prior to the Sale and Purchase Agreement will be applied as part payment of the Consideration; and
(b)
an amount equal to the Consideration minus the deposit mentioned in (a) above, will be payable to DIL in cash upon Completion.
If Completion does not take place for any reason and the Sale and Purchase Agreement is terminated, the deposit mentioned in (a) above will be refunded by DIL to DSE within 30 days after the termination. Conditions: Completion is conditional on: (a)
all necessary consents or approvals required of the shareholders of DCH Holdings and/or DSE, if any, under the Listing Rules for approving the terms of the Sale and Purchase Agreement and the transactions contemplated thereunder having been obtained;
(b)
any third party consents (including but not limited to the consent of relevant automobile manufacturers) required of DIL for the Acquisition having been obtained;
(c)
DIL having reorganised the Target Companies to form the Target Group;
(d)
DSE undertaking a due diligence review of the Target Group and being reasonably satisfied with such review in all material aspects;
(e)
there being no material adverse change or development (including a prospective change or development), in the position or condition, financial or otherwise, of the Target Group Companies or any of them, or in their or its earnings, business, assets or prospects prior to Completion; and
(f)
the warranties given as at the date of the Sale and Purchase Agreement and immediately prior to Completion remaining true, accurate and not misleading in all material respects.
In the event that any of the conditions have not been satisfied (or waived) on or before 30 November 2011 or such other later date as may be agreed by the parties, the Sale and Purchase Agreement will immediately terminate. Completion: Completion shall take place on the fifth business day after all the conditions have been satisfied or waived (or on such other date as DSE and DIL may agree in writing).
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Upon Completion, DSE will hold 49% of the entire issued share capital of Smart Joint and 50% of the entire issued share capital of each of Power Success and Smartways, together with the related shareholders’ loans which is expected to be approximately HK$37.8 million. As DSE will have 50% voting rights in the Target Companies and an overriding casting vote which could be exercised by DSE at the meetings of the board of directors of the Target Companies, all companies forming the Target Group are expected to be accounted for as indirect non-wholly owned subsidiaries of DCH Holdings after Completion under current accounting standards. Other Terms: Upon Completion, the parties shall enter into shareholders’ agreements in respect of the Target Companies. Pursuant to the shareholders’ agreements, amongst other things, (i) the board of directors of each of the Target Companies shall consist of 6 directors, of which 3 directors will be nominated by DIL and 3 directors will be nominated by DSE, and a director nominated by DSE shall have a casting vote at each of the meetings of the board of directors of the Target Companies; (ii) DIL and DSE shall have equal voting rights in the Target Companies; (iii) shareholders’ further contribution to the share capital of the Target Companies will be made in proportion to their respective shareholdings in the relevant Target Companies; and (iv) if DIL and/or DSE (or through their respective parent company or fellow group company) shall be required to provide any guarantees or other securities to banks or financial institutions in respect of any borrowings of the Target Group, arrangement will be made (e.g. by way of back-to-back indemnity) to ensure that such guarantees or other securities are in effect given on a several basis and in proportion to their respective shareholdings in the relevant Target Companies. DIL and Mr. Mak have undertaken to DSE to procure that Smart Joint (via its indirect whollyowned subsidiaries) shall obtain the right to operate the 4S Business in respect of the “Ferrari” brand and the “Maserati” brand in Xiamen, the PRC on or before 30 June 2012, and Smartways (via its indirect wholly-owned subsidiaries) shall obtain the right to operate under the distributorship of the “Ducati” brand in the PRC and Macao on or before 31 December 2011. Smart Joint and Smartways, upon Completion, will have the benefits in the said 4S Business and distributorship through undertakings given by DIL and Mr. Mak. DIL and Mr. Mak have further undertaken to DSE that the net asset value of the operating subsidiaries of Smart Joint and Power Success will be equal to or in excess of RMB65.1 million (equivalent to approximately HK$79.6 million) as at Completion. 50% of any such shortfall shall be indemnified by DIL and Mr. Mak to DSE on demand. The Target Companies, amongst others, shall have a right of first refusal to invest at cost in respect of any new investment opportunities offered to DIL, Mr. Mak and/or their affiliates to invest in any business which is engaged in the 4S Business in respect of the “Ferrari” brand, the “Maserati” brand, the “GAC Toyota” brand and the “Ducati” brand in the corresponding Territories as long as DSE remains a shareholder of any of the Target Companies. If the Target Companies do not take up such investment opportunities, the Target Companies shall still have a right of first refusal to acquire any disposal of such investment opportunities subsequently taken up by DIL, Mr. Mak and/or their affiliates on such terms no less favourable than the terms to be offered by DIL, Mr. Mak and/or their affiliates to a prospective purchaser for such disposal.
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DIL and Mr. Mak have undertaken to DSE, and DSE has undertaken to DIL, that they shall not, amongst others, carry on or have an interest in any businesses including the 4S Business in respect of the “Ferrari” brand, the “Maserati” brand, the “ GAC Toyota” brand and the “Ducati” brand which have been carried on by the Target Group from time to time in the corresponding Territories, for a period commencing from the date of Completion and ending on the date falling on the third anniversary date from the date when DIL or DSE (as the case may be) ceases to be a shareholder of any of the Target Companies (as the case may be). 2.
Information of the Target Group
For presentation purpose below only, information of the Target Group is prepared on the basis that as if it has been formed since 1 January 2009. As at 31 July 2011, the unaudited combined net asset value of the Target Group was approximately HK$14.0 million and the related shareholders’ loans were approximately HK$59.9 million. For the financial years ended 31 December 2009 and 2010, the unaudited net profits (both before and after taxation and extraordinary items) attributable to the Target Group were approximately as follows: Unaudited combined net profits before taxation and extraordinary items (HK$ million) 2009 2010 0.7
Unaudited combined net profits after taxation and extraordinary items (HK$ million) 2009 2010
6.1
0.7
5.4
The initial investment made by DIL and Mr. Mak towards the Target Group was approximately HK$59.9 million, comprising (i) the total amount of the registered capitals of the Target Group; and (ii) the shareholders’ loans to these companies as at 31 July 2011. 3.
Reasons for and Benefits of the Acquisition
The Directors believe that the Acquisition represents a new chapter of a successful strategic partnership between DCH Holdings and DIL/Mr. Mak. In 2008, DCH Holdings and DIL/Mr. Mak established a joint venture in the 4S Business in respect of the “FAW Toyota” brand and the “Lexus” brand. A dedicated professional management platform has since been established for the operation, management and business development of that joint venture. The business growth, management and service quality of the 4S Business under that joint venture has earned recognition from the manufacturers of the “FAW Toyota” brand and the “Lexus” brand - three dealers were named the nation’s best dealers and additional dealerships were thereby awarded. The number of companies engaged in 4S Business under that joint venture has grown from three to eight in three years’ time, with three more companies which are expected to engage in 4S business in 2012.
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The Directors believe that the Acquisition will further enhance the brand diversity of DCH Group and expand its product spectrum. The Acquisition will also bring in new elements to DCH Group's profile, with two luxury sports car brands (“Ferrari” and “Maserati”) and a high performance motorcycle brand (“Ducati”). Besides, the Directors consider that the acquisition of Power Success is in line with DCH Group's direction of 4S Business development for more luxury brand dealerships. All in all, these newly acquired dealerships/distributorship contemplated under the Sale and Purchase Agreement, together with the other existing dealerships under the above-mentioned joint venture, will create a better business platform for more synergy and for further business development, particularly in the luxury segment. The Directors (including the independent non-executive Directors) consider that the Acquisition is on normal commercial terms, in the ordinary and usual course of business of the DCH Group, fair and reasonable and in the interest of Shareholders as a whole. None of the Directors have material interest in the Sale and Purchase Agreement or are required to abstain from voting on the Board resolutions in relation to the Sale and Purchase Agreement. 4.
General
DCH Group is a diversified business conglomerate in motor vehicle sales, motor vehicle related business and services, sales of food and consumer products, as well as logistics services, supported by integrated distribution platforms and a well-established base and network in the Greater China. DIL, founded by Mr. Mak in 1992, is one of the companies operated by Mr. Mak and which is engaged in motor business, including businesses relating to the provision of vehicle sales, spare parts, maintenance services and customer survey services in the PRC. 5.
Listing Rules Implications on the Acquisition
As Mr. Mak (via DIL or otherwise) is a substantial shareholder of and Mr. Mak himself is a director of certain subsidiaries of DCH Holdings, both DIL and Mr. Mak are connected persons of DCH Holdings. The Acquisition therefore constitutes a connected transaction for DCH Holdings. As the applicable percentage ratios under the Listing Rules in respect of the Acquisition are less than 5%, the Acquisition is subject to the reporting and announcement requirements but is exempt from the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules. NON-EXEMPT CONTINUING CONNECTED TRANSACTION Guangzhou Junlong, an indirect wholly-owned subsidiary of Power Success which is engaged in the 4S Business in respect of the “GAC Toyota” brand, currently has a revolving facility of up to RMB30.0 million (equivalent to approximately HK$36.7 million) with China CITIC Bank with a term of one year expiring on 17 June 2012. Under such facility, China CITIC Bank will, on request, issue bank acceptance drafts for Guangzhou Junlong to purchase motor vehicles in its ordinary and usual course of business.
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To secure such facility, (i) Guangzhou Junlong will be required to maintain a cash balance of up to 20% of the maximum amount of the facility in a specified repayment account held with China CITIC Bank. Any bank acceptance drafts will be repaid through the repayment account after the motor vehicles have been sold; (ii) Guangzhou Junlong is further required to provide a pledge of motor vehicles in favour of China CITIC Bank to secure any outstanding sum under the facility from time to time; and (iii) a guarantee by Mr. Mak has been provided in the amount of RMB30.0 million (equivalent to approximately HK$36.7 million). China CITIC Bank is a non-wholly owned subsidiary of CITIC Group, the ultimate holding company of CITIC Pacific, which in turn is a substantial shareholder of DCH Holdings. China CITIC Bank is therefore a connected person of DCH Holdings. As such, the said facility will constitute a continuing connected transaction for DCH Holdings upon Completion. Since the applicable percentage ratios calculated with reference to the maximum amount of the said facility are less than 5%, the facility is subject to the reporting, annual review and announcement requirements, but is exempt from the independent shareholders’ approval requirement under the Listing Rules. Upon Completion, DSE is expected to provide a back-to-back indemnity in favour of Mr. Mak for an amount of RMB15.0 million (equivalent to approximately HK$18.3 million) to cover 50% of Mr. Mak’s exposure under Mr. Mak’s guarantee in support of the above facility. The Directors (including the independent non-executive Directors) consider that the said facility is on normal commercial terms, fair and reasonable and in the interest of the Shareholders as a whole. None of the Directors have material interest in the continuing connected transaction or are required to abstain from voting on the Board resolutions in relation to the continuing connected transaction. Based on publicly available information, the principal activities of China CITIC Bank are the provision of corporate and personal banking services, conducting treasury business and corresponding banking businesses, and the provision of asset management, entrusted lending and custodian services. DEFINITIONS In this announcement, unless the context otherwise requires, the following terms have the following meanings: “4S Business”
the provision of vehicle/motorcycle sales, spare parts, maintenance services and customer survey services;
“Acquisition”
the acquisition of 49% equity interest in Smart Joint and 50% equity interest in each of Power Success and Smartways, together with the related shareholders’ loans, by DSE from DIL pursuant to the terms of the Sale and Purchase Agreement;
“Board”
the board of Directors;
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“China CITIC Bank”
China CITIC Bank Corporation Limited (中信銀行股份有限 公 司 ), a joint stock company incorporated in the PRC with limited liability, the shares of which are listed on the Stock Exchange and the Shanghai Stock Exchange;
“CITIC Group”
CITIC Group (中國中信集團公司), a state-owned enterprise established under the laws of the PRC and the ultimate holding company of CITIC Pacific;
“CITIC Pacific”
CITIC Pacific Limited ( 中 信 泰 富 有 限 公 司 ), a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange;
“Completion”
completion of the Acquisition;
“connected person(s)”
has the meaning ascribed to it under the Listing Rules;
“Consideration”
the consideration for the Acquisition;
“Director(s)”
the directors of DCH Holdings;
“DCH Group”
DCH Holdings and its subsidiaries, or, where the context so requires, any of them;
“DCH Holdings”
Dah Chong Hong Holdings Limited (大昌行集團有限公司), a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange, and is a non-wholly owned subsidiary of CITIC Pacific;
“DIL”
Denker Investment Limited ( 駿 佳 投 資 有 限 公 司 ), a company incorporated in Hong Kong with limited liability;
“DSE”
Delight Star Enterprises Limited ( 愉 星 企 業 有 限 公 司 ), a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of DCH Holdings;
“Guangzhou Junlong”
廣 州 駿 龍 汽 車 有 限 公 司 (Guangzhou Junlong Motors Limited)*, a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of Power Success;
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong;
“Hong Kong” or “HK”
the Hong Kong Special Administrative Region of the PRC;
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange;
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“Macao”
the Macao Special Administrative Region of the PRC;
“Mr. Mak”
Mr. Mak Hing Lung;
“percentage ratio”
has the meaning ascribed to it under the Listing Rules;
“Power Success”
Power Success Management Limited (力昇管理有限公司), a company incorporated in Hong Kong with limited liability;
“PRC”
the People’s Republic of China which for the purpose of this announcement, excludes Hong Kong, Macao and Taiwan;
“RMB”
Renminbi, the lawful currency of the PRC;
“Sale and Purchase Agreement”
the sale and purchase agreement dated 8 November 2011 entered into between DSE, DIL, DCH Holdings and Mr. Mak in relation to the Acquisition;
“Shareholder(s)”
holders of the ordinary shares of DCH Holdings;
“Smart Joint”
Smart Joint Investment Limited (駿朗投資企業有限公司), a company incorporated in Hong Kong with limited liability;
“Smartways”
Smartways Limited ( 駿 程 控 股 有 限 公 司 ), a company incorporated in Hong Kong with limited liability;
“Stock Exchange”
The Stock Exchange of Hong Kong Limited;
“subsidiary(ies)”
has the meaning ascribed to it under the Listing Rules;
“substantial shareholder(s)”
has the meaning ascribed to it under the Listing Rules;
“Target Companies”
collectively Smart Joint, Power Success and Smartways;
“Target Group”
collectively the Target Companies and their respective subsidiaries and “Target Group Companies” shall be construed accordingly;
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“Territories”
such cities in the PRC in which the Target Group carries on businesses including the 4S Business, in particular, (i) for the “Ferrari” brand, includes Guangzhou, Shenzhen and Xiamen and such other cities in the PRC in which the Target Group carries on the 4S Business in respect of the “Ferrari” brand from time to time; (ii) for the “Maserati” brand, includes Guangzhou, Shenzhen and Xiamen and such other cities in the PRC in which the Target Group carries on the 4S Business in respect of the “Maserati” brand from time to time; (iii) for the “GAC Toyota” brand, includes Guangzhou and such other cities in the PRC in which the Target Group carries on the 4S Business in respect of the “GAC Toyota” brand from time to time; and (iv) for the “Ducati” brand, includes the PRC and Macao; and
“%”
per cent.
* For identification purposes only For the purpose of this announcement, unless the context otherwise requires, conversion of RMB into HK$ is based on the approximate exchange rate of RMB1.0000 to HK$1.2220. This translation is provided for reference and convenience only, and no representation is made, and no representation should be construed as being made, that any amounts in RMB or HK$ can be converted at the above rate or any other rates or at all.
By order of the Board Dah Chong Hong Holdings Limited Tso Mun Wai Company Secretary Hong Kong, 8 November 2011 As at the date of this announcement, the directors of DCH Holdings are:Executive directors:
Hui Ying Bun (Chairman), Chu Hon Fai, Yip Moon Tong, Mak Kwing Tim, Lau Sei Keung, Tsoi Tai Kwan, Arthur, Glenn Robert Sturrock Smith and Wai King Fai, Francis
Non-executive directors: Kwok Man Leung, Yin Ke and Fei Yiping Independent non-executive directors: Cheung Kin Piu, Valiant, Hsu Hsung, Adolf and Yeung Yue Man
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