Joint Venture Agreement between Salcon Jiangsu (HK) Limited and Yizheng City & Rural Water Company Limited

BackDec 01, 2009
Date Announced
:
 01/12/2009  
Type
:
 Announcement
Subject
:
Joint Venture Agreement between Salcon Jiangsu (HK) Limited and Yizheng City & Rural Water Company Limited

Contents
:
1. Introduction

Further to the announcement on the execution of Co-operation Agreement with the People’s Government of Yizheng, Salcon Berhad (“Salcon” or “Company”) is pleased to announce that Salcon Jiangsu (HK) Limited (“SJHK”) has on 1 December 2009 entered into a Joint Venture Agreement (“JVA”) with Yizheng City & Rural Water Company Limited (“YCRW”) in relation to the incorporation of a sino-foreign joint venture company to be known as Jiangsu Salcon Water Environment Development Company Limited (or such other names as may be approved by the relevant authorities) (“JSWED”) in the People’s Republic of China (“PRC”) (“Incorporation”).

Announcement Details :

2. Information of the Joint Venture Parties  


2.1 Information on YCRW

    YCRW is a company established in the PRC with the registered address at 31 Zhen Zhou Xi Road, Yizheng City, Jiangsu Province, PRC. YCRW is wholly-owned by the People’s Government of Yizheng City.

2.2. Information on SJHK 

    SJHK (formerly known as Salcon Yunnan (HK) Limited) is a company incorporated in Hong Kong with the registered address at 31/F, Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong. SJHK is a wholly-owned subsidiary of the Company.

3. Rationale 

    To incorporate JSWED to undertake the following works:-
    (a) to produce potable water;
    (b) to operate the treatment of wastewater and recycled water, and the discharge of rainwater and wastewater;
    (c) to produce, install, operate and maintain water distribution pipelines;
    (d) to produce and deal in water distribution materials and equipments;
    (e) to perform water secondary pressurization;
    (f) to undertake other investment, construction and operation of water distribution and treatment projects; and
    (g) to carry out other works in relation to treatment of water and wastewater.

4. Information on the Total Capital and Investment Outlay 

    The registered capital of JSWED will be RMB60 million (approximately RM29.78 million) and will be subscribed by SJHK (“Investment”) and YCRW in 2/3 : 1/3 respectively.

    Upon the subscription of the registered capital, JSWED will be a subsidiary of SJHK.

5. Salient Features of the JVA     

    (b) transfer its interest in the JSWED to YCRW at a price to be mutually agreed after the interest has been evaluated by a valuer to be confirmed by both parties; and
    (c) the directors nominated by both parties shall agree to the transfer of interest in JSWED. 5.1 YCRW is responsible for the incorporation of JSWED within 30 days from the effective date of the JVA.
    5.2 JSWED shall be the platform to implement various works agreed in the Co-operation Agreement entered by the Company and the People’s Government of Yizheng. YCRW shall assist JSWED to procure the relevant governmental approvals at their best endeavor.
    5.3 The RMB60 million registered capital of JSWED will be subscribed by SJHK and YCRW in cash within 30 business days from the incorporation date of JSWED.
    5.4 The party who fails to subscribe the registered capital within 30 business days shall, upon receiving a notice from the other party, rectify the issues pertaining to capital subscription within 45 days, failing which, interest at a rate of 0.02% per day on the unpaid capital will be imposed on the party who fails to rectify the issues within the prescribed period. The interest will be imposed commencing from the 31st business day until the date the unpaid capital is subscribed.
    5.5 The Board of JSWED will consist of 7 members. SJHK is entitled to nominate 4 directors to the Board of Directors of JSWED whereas YCRW is entitled to nominate 3 directors.
    5.6 The chairman shall be nominated by SJHK and the deputy chairman shall be nominated by YCRW. The term of appointment for the chairman, deputy chairman and other directors is 3 years and may be reappointed.
    5.7 In the event the existing water assets and business in Yizheng City is unable to be consolidated into JSWED (or its subsidiary) within 3 years from the date of incorporation (or such other period as may be mutually agreed by both parties), SJHK can opt to:-
    (a) continue the business and holding the interest of the JSWED; or (b) transfer its interest in the JSWED to YCRW at a price to be mutually agreed after the interest has been evaluated by a valuer to be confirmed by both parties; and
    (c) the directors nominated by both parties shall agree to the transfer of interest in JSWED.

5.8 Unless otherwise decided, the JSWED will cease after 30 years from the date of incorporation.

6. Sources of Funds 

    Salcon will fund the Investment through internally generated funds and bank borrowings at the proportion of 20% and 80% respectively.

7. Prospect for the Joint Venture 

    The Incorporation and Investment are in line with the expansion plan of the core business activities of Salcon Group. The Investment is expected to contribute to the medium and long term profitability and growth of Salcon Group.

8. Liabilities to be Assumed 

    There are no liabilities to be assumed by SJHK or the Company arising from the Incorporation and Investment.

9. Financial Effects 

    The Incorporation and Investment will not have any significant effect on the earnings or net assets of Salcon Group for the financial year ending 31 December 2009, and the share capital of the Company.

    The Investment will increase the gearing of the Company to 0.51 times from 0.47 times based on the latest consolidated financial statements for the year ended 31 December 2008.

    The Incorporation and Investment are expected to contribute positively to the future earnings of Salcon Group.

10. Risk Factors 

    The risk factors for the Investment include but not limited to those associated with changes in the economic, political and regulatory conditions in the PRC such as changes to government policies and administration, interest rates, taxes and exchange control regulations.

11. Approvals Required 

    The JVA is not subject to the shareholders approval. The Incorporation and Investment are subject to the approval of the relevant authorities in the PRC.

12. Highest Percentage Ratio Applicable 

    The highest percentage ratio applicable to the Investment is 6.84%.

13. Estimated Time Frame for the Completion of the Investment 

    Barring any unforeseen circumstances and subject to the approval of the relevant authorities in the PRC being obtained, the Incorporation and Investment are expected to be completed within 3 months.

14. Directors and Substantial Shareholders Interest 

    None of the Directors and/or major shareholders of the Company, or persons connected with them have any interest, direct or indirect, in the Incorporation and/or Investment.

15. Statement by Directors 

    The Board of Directors of the Company, having taken into consideration the rationale and all relevant aspects of the Investment, is of the opinion that the Investment is in the best interest of the Company and its shareholders.

16. Documents for Inspection 

    The JVA may be inspected at the Company’s registered office at 15th Floor, Menara Summit, Persiaran Kewajipan, USJ 1, 47600 UEP, Subang Jaya, Selangor during normal office hours from Monday to Friday (except public holidays) for a duration of 3 months from the date of this announcement.