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.

China Environmental Technology Holdings Limited

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 646)

Discloseable transaction in relation to

the disposal of a subsidiary of the Company

On 21 February 2012 (after trading hours), Yardway Development (a wholly owned subsidiary of the Company, as vendor), the Purchaser and the Guarantor entered into the Disposal Agreement. Pursuant to the Disposal Agreement, the Group has agreed to sell (i) the entire issued share capital in Targetco (a wholly owned subsidiary of the Company held through Yardway Development Limited), and (ii) the Sale Debts at the Purchase Price in the total sum of HK$500,000. Under the same agreement, the Guarantor has agreed to guarantee the performance of the Purchaser's obligations under the Disposal Agreement.
Under the Disposal Agreement, it has also been agreed that Yardway Development will be paid by Targetco the Relevant Supply Incentive of HK$1,248,000 (subject to downward adjustment in the event of the final total contract sum for the Relevant Supply Contract being less than a prescribed amount), subject to the Relevant Supply Contract for the sale of certain dredging equipment being entered into between Targetco and a designated customer. The Relevant Supply Incentive does not form part of the Purchase Price in connection with the Disposal.
As the applicable percentage ratios (within the meaning of the Listing Rules) for the Disposal Agreement (taking into account the aggregate value of the Purchaser Price and Relevant Supply Incentive) exceed 5% but are less than 25%, the Disposal Agreement constitutes a discloseable transaction for the Company under the Listing Rules.
THE DISPOSAL AGREEMENT
Principal terms of the Disposal Agreement
The principal terms of the Disposal Agreement are summarised below:
Date: 21 February 2012
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Parties to the Disposal Agreement:
Vendor: Yardway Development, a wholly owned subsidiary of the Company
Purchaser: the Purchaser, which is owned by the Guarantor and his family relative
Guarantor: a director and a shareholder of the Purchaser
The Purchaser has been principally engaged in the business of providing machining, casting, forging, fabrication, import and export services, and has been a supplier of certain equipment to the Group. To the best of the Directors' knowledge and belief, after having made all reasonable enquiries, except for the Purchaser being a supplier of the Group, each of the Guarantor, the Purchaser and its ultimate beneficial owners is an Independent Third Party and not a connected person of the Company.
Under the Disposal Agreement, the Guarantor has agreed to guarantee the performance of the
Purchaser's obligations under the Disposal Agreement.
Subject matter to be disposed of under the Disposal Agreement
Under the Disposal Agreement, the Vendor has agreed to sell and the Purchaser has agreed to buy (i) the Sale Shares, and (ii) the Sale Debts, at the Purchase Price in the total sum of HK$500,000, subject to the terms and conditions as set out in the Disposal Agreement. Upon completion of the Disposal, Targetco will cease to be a subsidiary of the Company.
The information regarding Targetco is set out in the paragraph headed ''Information of the
Group and Reasons for the Disposal'' below.
Payment arrangement
Under the Disposal Agreement, HK$500,000 is payable as a deposit (''Deposit'') to the
Purchaser within three Business Days from the date of signing of the Disposal Agreement.
If Completion does not take place as a result of or in connection with the default on the part of the Purchaser, the Deposit in its entirety shall be forfeited by the Vendor. On the other hand, if Completion does not take place as a result of or in connection with the default on the part of the Vendor, while there is not any default on the part of the Purchaser, the Vendor shall return the Deposit to the Purchaser and indemnify the Purchaser in respect of all fees, costs and expenses incurred by the Purchaser in connection with the transaction contemplated under the Disposal Agreement up to a maximum amount equal to the Deposit.
Basis of determining the Purchase Price
The Purchase Price was determined after arm length's negotiation between the Vendor and the Purchaser, having regard to net asset value of Targetco as at 31 December 2011 which is approximately HK$3,250,000, and taking into account of dividends of HK$3,000,000 to be declared at 31 January 2012 by Targetco to the Vendor.
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Closing conditions of the Disposal Agreement and Completion
Under the Disposal Agreement, the Completion shall take place upon all the following conditions being fulfilled:
(i) the compliance by the Company of (or, as the case may be, obtaining of waiver from) any requirement under the Listing Rules (including without limitation the obtaining of the approval from independent shareholders in general meeting) as may be applicable in connection with the Disposal Agreement and the transactions contemplated under the Disposal Agreement; and
(ii) if required, all approvals, consents, authorisations and licences (so far as are necessary) in relation to the transactions contemplated under the Disposal Agreement having been obtained from the relevant parties.
If any of the above conditions are not fulfilled (or, as the case may be, waived by the Purchaser (except that the above condition (i) is not waivable) pursuant to the Disposal Agreement) at or before 5 : 00 p.m. on 31 March 2012 (or such later date as the parties to the Disposal Agreement may agree), the Disposal Agreement shall cease and terminate and none of the parties to the agreement shall have any obligations and liabilities thereunder save for any antecedent breaches.
Other major terms under the Disposal Agreement
Under the Disposal Agreement, it has been agreed between the Purchaser and the Vendor that the Relevant Supply Incentive shall be payable to the Vendor by Targetco for its contribution in procuring the conclusion of the Relevant Supply Contract. The Relevant Supply Incentive is stated to be a sum of HK$1,248,000 (which is determined based on certain prescribed percentage of the gross profit to be earned by Targetco under the Relevant Supply Contract, and subject to downward adjustment in the event of the final total contract sum for the Relevant Supply Contract being less than a prescribed amount). Payment of such Relevant Supply Incentive shall be in the following manner: -
(i) a sum of HK$624,000 shall be payable by Targetco to the Vendor within 10 business days after the Targetco receiving the down-payment for the first lot of the dredging equipment agreed to be supplied under the Relevant Supply Contract; and
(ii) the remaining balance of the Relevant Supply Incentive shall be payable within 10 business days after the Targetco receiving the down-payment for the second lot of the dredging equipments to be supplied under the Relevant Supply Contract.
Information on the Group and Targetco and reasons for the Disposal Agreement
The Group's principal businesses include trading of vehicles, machinery, equipment; environmental protection technology, equipment system integration, sewage treatment in urban areas, project technical service and licensing of related environmental protection technical know-how.
Targetco has been engaged in the business of trading and manufacturing of dredging equipment, components and provision for related services. Targetco accounted for about 7.1% of the Group's turnover for year ended 31 March 2011. The unaudited net asset value of Targetco as at 31 December 2011 amounted to about HK$3.25 million. The gain expected to
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accrue to the Company on the Disposal is about HK$250,000, which is equal to the difference between the said unaudited net asset value and the Purchase Price. The net profits (losses) of Targetco for the each of the two years ended 31 March 2011 are shown below:
(HK$)
For the year ended
31 March 2011
For the year ended
31 March 2010
(rounded to the nearest thousand) (Audited) (Audited)
Net profit (loss) before taxation and
extraordinary items (376,000) 2,624,000
Net profit (loss) after taxation and extraordinary
items (376,000) 2,283,000
Following the Group's acquisition of Fanhe (Beijing) Water Investment Co., Ltd. in April
2010 (as disclosed in the Company's announcement dated 12 April 2010), the Group has begun to diversify its business into environmental protection, sewage treatment and water purification technology. The business of trading of dredging equipment remains stagnant and does not provide significant contribution to the Group's turnover. In addition, a key management of Targetco retired in December 2011. As it is difficult for the Group to identify a suitable successor to him, the Group has decided to wind-down this line of business. The disposal of Targetco would enable the Group to exit its non-core business and focus on its emerging core business. The proceeds arising from the Disposal will be applied towards the Group's working capital.
In view of the above, the Directors believe the disposal of Targetco would enable the Group to free up resources (in particular, management as well as financial resources) and focus on its emerging business of environmental protection and sewage treatment. Accordingly, the Directors (including all the independent non-executive Directors) consider that the disposal of Targetco is beneficial to the Company and its shareholders as a whole.
The Directors (including the independent non-executive Directors) also consider that the terms of the Disposal Agreement and the Purchase Price are fair and reasonable and are in the interest of the Company and its shareholders as a whole.
Upon completion, Targetco will cease to be a subsidiary of the Company. Its financial results will not be consolidated into the Group's financial statements after the Completion.
LISTING RULES IMPLICATIONS
As the applicable percentage ratios (within the meaning of the Listing Rules) for the Disposal Agreement (taking into account the aggregate value of the Purchaser Price and the Relevant Supply Incentive) exceed 5% but are less than 25%, the Disposal Agreement constitutes a discloseable transaction for the Company under the Listing Rules.
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DEFINITIONS
In this announcement, the following terms shall have the meanings set out below, unless the context requires otherwise:
''associate(s)'' has the meaning ascribed to it under the Listing Rules
''Board'' the board of Directors of the Company
''Business Day'' a day (other than a Saturday) on which banks are open for business in
Hong Kong
''Company'' China Environmental Technology Holdings Limited, a company incorporated in the Cayman Islands with limited liability and the issued Shares of which are listed on the main board of the Stock Exchange
''Completion'' completion of the Disposal
''connected
person(s)''
has the meaning ascribed to it under the Listing Rules
''Directors'' the directors of the Company
''Disposal'' the disposal of the Sale Shares and Sale Debts by the Vendor to the
Purchaser
''Disposal
Agreement''
the sale and purchase agreement dated 21 February 2012 and entered into between Yardway Development (as vendor), the Purchaser (as purchaser) and the Guarantor (as guarantor of the Purchaser) in relation to the Disposal
''Group'' collectively, the Company and its subsidiaries
''Guarantor'' an individual person who is a shareholder and a director of the Purchaser and is also the guarantor under the Disposal Agreement, and who is an Independent Third Party
''HK$'' Hong Kong Dollar, the lawful currency of Hong Kong
''Hong Kong'' Hong Kong Special Administrative Region of the PRC
''Independent Third
Party''
a person who, to the best of the Directors' knowledge and belief, information and belief having made all reasonable enquiries, is not a connected person of the Company and is a third party independent of and not connected with the Company and its subsidiaries and its connected persons
''Listing Rules'' the Rules Governing the Listing of Securities on the Stock Exchange
''PRC'' or ''China'' the People's Republic of China
''Purchase Price'' HK$500,000, being the aggregate purchase price of the Disposal
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''Purchaser'' a private company incorporated in Hong Kong with limited liability (which is owned by the Guarantor and his family relative), being the purchaser under the Disposal Agreement and an Independent Third Party (other than being a supplier of certain equipment to the Group)
''Relevant Supply
Contract''
a contract dated 20 February 2012 and made between Targetco and a designated customer in connection with the supply of certain dredging equipment by Targetco to such customer
''Relevant Supply
Incentive''
an amount of not more than HK$1,248,000, which is conditionally payable by Targetco to the Vendor in respect of the Relevant Supply Contract
''Sale Debts'' the outstanding loan (if any) payable by Targetco to its shareholder (i.e. the Vendor) at Completion, except for those arising under the Relevant Supply Contract or any dividend declared by Targetco to the Vendor but not yet paid
''Sale Shares'' the entire issued share capital of Targetco, being 10,000 ordinary shares in Targetco
''Targetco'' Yardway Dredging Equipment Limited, a company incorporated in Hong Kong with limited liability and a wholly owned subsidiary of the Company held indirectly through Yardway Development, being the vendor under the Disposal Agreement
''Vendor'' or
''Yardway
Development''
Yardway Development Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly owned subsidiary of the Company
By order of the Board
China Environmental Technology Holdings Limited
XU Zhong Ping
Chairman
Hong Kong, 21 February 2012
As at the date of this announcement, the executive Directors are Mr. Xu Zhong Ping, Mr. Zhang Fang Hong, Ms. Song Xuan and Mr. Xu Xiao Yang; the non-executive Directors are Mr. Ge Ze Min, Mr. Fong Sai Mo and Mr. Xin Luo Lin; and the independent non-executive Directors are Mr. Wong Kam Wah, Dr. Zhu Nan Wen and Professor Zuo Jiane.
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