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Registration Prospectus (Clean) (131010)
Registration Prospectus (Clean) (131010)
Registration Prospectus (Clean) (131010)
(i) Chemical systems engineering and technology design services (CET Design Services)
Our chemical systems and components are generally used by our customers to produce ammonia and methanol, which are
subsequently used as crucial feedstock in our customers’ production systems to produce other downstream products such as
urea, compound fertiliser, methanol fuel, formaldehyde, dimethyl ether and explosives.
Preparation
System Design of raw gas
Chemical industries Petrochemical
Chemical fertilisers industry
including urea and Methanol fuel and
Gas purification compound fertilisers other related products
Ammonia / Methanol
output
Ammonia / Methanol
After-sales Ammonia / methanol Ammonia-based Methanol-based
IMPORTANT NOTE of this Prospectus. Registration of this Prospectus with the used as feedstock in products products
Authority does not imply that the Securities and Futures Act other sub-processes
This document is important. If you are in any doubt as to of Singapore, or any other legal or regulatory requirements,
the action you should take, you should consult your legal, have been complied with. The Authority has not, in any way,
financial, tax, or other professional adviser. considered the merits of the Shares (including the Vendor We intend to create long-term value for our customers through our core principles of achieving production efficiency, energy
Shares) and the New Shares, as the case may be, being saving and environmental protection.
We have made an application to the Singapore Exchange offered for investment.
Securities Trading Limited (the “SGX-ST”) for permission
to deal in and for quotation of all the ordinary shares (the Investing in the Shares involves risks which are described in
“Shares”) in the capital of Anchun International Holdings Ltd. the section entitled “Risk Factors” of this Prospectus.
(the “Company”) already issued (including the Vendor Shares
as defined herein) and the new Shares (the “New Shares”) No Share shall be allotted or allocated on the basis of this
which are the subject of this Invitation (as defined herein). Prospectus later than six (6) months after the date of registration
Such permission will be granted when our Company has been of this Prospectus by the Authority.
admitted to the Official List of the SGX-ST.
ANCHUN INTERNATIONAL HOLDINGS LTD. Acceptance of applications of the Invitation Shares (as
defined herein) will be conditional upon the SGX-ST granting
Invitation in respect of 130,000,000 Invitation
permission to deal in and for quotation of all of the existing Shares of S$0.28 each comprising 105,000,000
Principal place of business:
issued Shares (including the Vendor Shares) and the New New Shares and 25,000,000 Vendor Shares as
Shares. Monies paid in respect of any application accepted follows:-
No
No.539,
No.53
o.539,
39, Lusong
Luso
L Road will, in the event such permission is not granted, be returned
Changsha
Cha
Changs
angsha
gshaa National
Natio
National
nal Hi-tech
Hi-te Indus
IIndustrial Development
ment Zone to you at your own risk without interest or any share of (a) 2,000,000 Offer Shares at S$0.28 for each
revenue or other benefit arising therefrom, and you will Offer Share by way of public offer; and
Changsha City, Hunan Province, PRC 410205
Tel:
Te
el: (8
(86)
86) 731-8514
7 8687
not have any claim against our Company, the Vendors, the
Manager, or the Underwriter and Placement Agent. Quotation (b) 128,000,000 Placement Shares at S$0.28 for
COMPETITIVE STRENGTHS
of and dealing in the Shares will be in Singapore dollars.
Fax: (86) 731-8514 8687 each Placement Share by way of placement;
The SGX-ST assumes no responsibility for the correctness of
Leading enterprise and brand name in the PRC chemical systems engineering
any of the statements made, reports contained or opinions payable in full on application. and technology solutions industry with numerous accolades
expressed in this Prospectus. Admission to the Official List of
the SGX-ST is not to be taken as an indication of the merits • 2009 Forbes China Up & Comers award by Forbes China magazine
of the Invitation, our Company, our Subsidiary, the existing Manager, Underwriter and Placement Agent
issued Shares (including the Vendor Shares) and the New • Advanced New Technology Enterprise in 2008
Shares.
• China Petrochemical & Chemical Industries Outstanding Private Enterprise in 2005
A copy of this Prospectus has been lodged with and registered
by the Monetary Authority of Singapore (the “Authority”). KIM ENG CORPORATE FINANCE PTE. LTD. • China Chemical Industry Technology Innovation Model Enterprise in 2004
The Authority assumes no responsibility for the contents
PROSPECTUS DATED 13 OCTOBER 2010
(REGISTERED BY THE MONETARY AUTHORITY OF SINGAPORE ON 13 OCTOBER 2010)
COMPANY OVERVIEW
Leading integrated chemical systems engineering and technology solutions
provider to the PRC petrochemical and chemical industries, in particular,
manufacturers of ammonia and methanol based products
Based on our core principles of production efficiency, energy saving and environmental protection, our range of integrated
chemical systems engineering and technology solutions can be broadly categorised into 3 segments:
(i) Chemical systems engineering and technology design services (CET Design Services)
Our chemical systems and components are generally used by our customers to produce ammonia and methanol, which are
subsequently used as crucial feedstock in our customers’ production systems to produce other downstream products such as
urea, compound fertiliser, methanol fuel, formaldehyde, dimethyl ether and explosives.
Preparation
System Design of raw gas
Chemical industries Petrochemical
Chemical fertilisers industry
including urea and Methanol fuel and
Gas purification compound fertilisers other related products
Ammonia / Methanol
output
Ammonia / Methanol
After-sales Ammonia / methanol Ammonia-based Methanol-based
IMPORTANT NOTE of this Prospectus. Registration of this Prospectus with the used as feedstock in products products
Authority does not imply that the Securities and Futures Act other sub-processes
This document is important. If you are in any doubt as to of Singapore, or any other legal or regulatory requirements,
the action you should take, you should consult your legal, have been complied with. The Authority has not, in any way,
financial, tax, or other professional adviser. considered the merits of the Shares (including the Vendor We intend to create long-term value for our customers through our core principles of achieving production efficiency, energy
Shares) and the New Shares, as the case may be, being saving and environmental protection.
We have made an application to the Singapore Exchange offered for investment.
Securities Trading Limited (the “SGX-ST”) for permission
to deal in and for quotation of all the ordinary shares (the Investing in the Shares involves risks which are described in
“Shares”) in the capital of Anchun International Holdings Ltd. the section entitled “Risk Factors” of this Prospectus.
(the “Company”) already issued (including the Vendor Shares
as defined herein) and the new Shares (the “New Shares”) No Share shall be allotted or allocated on the basis of this
which are the subject of this Invitation (as defined herein). Prospectus later than six (6) months after the date of registration
Such permission will be granted when our Company has been of this Prospectus by the Authority.
admitted to the Official List of the SGX-ST.
ANCHUN INTERNATIONAL HOLDINGS LTD. Acceptance of applications of the Invitation Shares (as
defined herein) will be conditional upon the SGX-ST granting
Invitation in respect of 130,000,000 Invitation
permission to deal in and for quotation of all of the existing Shares of S$0.28 each comprising 105,000,000
Principal place of business:
issued Shares (including the Vendor Shares) and the New New Shares and 25,000,000 Vendor Shares as
Shares. Monies paid in respect of any application accepted follows:-
No
No.539,
No.53
o.539,
39, Lusong
Luso
L Road will, in the event such permission is not granted, be returned
Changsha
Cha
Changs
angsha
gshaa National
Natio
National
nal Hi-tech
Hi-te Indus
IIndustrial Development
ment Zone to you at your own risk without interest or any share of (a) 2,000,000 Offer Shares at S$0.28 for each
revenue or other benefit arising therefrom, and you will Offer Share by way of public offer; and
Changsha City, Hunan Province, PRC 410205
Tel:
Te
el: (8
(86)
86) 731-8514
7 8687
not have any claim against our Company, the Vendors, the
Manager, or the Underwriter and Placement Agent. Quotation (b) 128,000,000 Placement Shares at S$0.28 for
COMPETITIVE STRENGTHS
of and dealing in the Shares will be in Singapore dollars.
Fax: (86) 731-8514 8687 each Placement Share by way of placement;
The SGX-ST assumes no responsibility for the correctness of
Leading enterprise and brand name in the PRC chemical systems engineering
any of the statements made, reports contained or opinions payable in full on application. and technology solutions industry with numerous accolades
expressed in this Prospectus. Admission to the Official List of
the SGX-ST is not to be taken as an indication of the merits • 2009 Forbes China Up & Comers award by Forbes China magazine
of the Invitation, our Company, our Subsidiary, the existing Manager, Underwriter and Placement Agent
issued Shares (including the Vendor Shares) and the New • Advanced New Technology Enterprise in 2008
Shares.
• China Petrochemical & Chemical Industries Outstanding Private Enterprise in 2005
A copy of this Prospectus has been lodged with and registered
by the Monetary Authority of Singapore (the “Authority”). KIM ENG CORPORATE FINANCE PTE. LTD. • China Chemical Industry Technology Innovation Model Enterprise in 2004
The Authority assumes no responsibility for the contents
Leading and established management team with proven track record of delivering
sustainable growth and profitability
Xie Ding Zhong, Executive Chairman & Chief Executive Officer, has
accumulated more than 40 years of experience in the chemical industry.
Partnering with our extensive and notable Historical Net Profit (RMB ‘million), Margin (%) and
Integrated business model anchored on strong R&D capabilities and registered customer network across China in creating cash from operating activities
patents for our key technologies. long-term value for our shareholders
• Integrated business model provides operational efficiency MAJOR CUSTOMERS
• Project-driven and advance payment business model reduces inventory and credit risks China XLX group Listed on SGX-ST and HKSE*
• Margin-protected through inter-weaving operational efficiency and proprietary and patented technologies
Sinofert group Listed on HKSE*, part of Sinochem group, which is
listed on the SSE*
Shanxi Tianze group Large petrochemical & chemical group based in
Shanxi
PROSPECTS Jincheng Anthracite
Mining group
Large petrochemical & chemical group based in
Shanxi
Yunnan Yunwei group Listed on SSE*
Steady growth in production volume and capacity of ammonia and methanol in
China Haohua group Large petrochemical & chemical group based
the PRC is expected to continue in Hebei & part of the China National Chemical
Corporation group
• The PRC needs to feed 21% of the world’s population with only 9% of global arable area. Use of fertiliser is crucial in Guizhou Kailin group Chemical fertiliser & chemical group in Guizhou
ensuring the PRC’s food security.
• Persistent and stable increase in demand for fertiliser to expand crop production and in other industry uses for *HKSE: Hong Kong Stock Exchange
ammonia. *SSE: Shanghai Stock Exchange
• Methanol is an important feedstock to the petrochemical and chemical industries. The PRC’s demand for energy Premium customer base of over 320 customers across the PRC. Please
security necessitate the development of alternative fuel. refer to the sector entitled “Our Major Customers” for detailed listing of
• Increasing use of dimethyl ether as alternative fuel for cooking and heating and methanol to olefin process to produce our major customers.
ethylene and propylene, the top 2 petrochemical feedstock.
FUTURE PLANS
Existing producers required to increase capital expenditure to upgrade production
Expand our production facilities and capabilities
facilities
Increase the annual combined production capacity for chemical systems and components as well as catalysts up to 18,125 tonnes
• 83.3% and 85.2% of the PRC’s ammonia and methanol producers operate in inefficient plants producing less than and 4,100 tonnes respectively
180kt/yr and 200 kt/yr respectively.
Enhance our R&D capabilities and widen our range of innovative and cost-effective solutions
Continue to research on ways to enhance our existing technology to further reduce the energy consumption per unit product of
Coal-based ammonia and methanol synthesis technologies continue to be predominantly ammonia and methanol
used in the PRC market
Expand our sales and marketing capabilities and initiatives
• Limited natural gas and oil resources in the PRC. Cost advantages persist for coal-based synthesis technologies.
Explore opportunities in strategic investments or alliances and acquisitions
Leading and established management team with proven track record of delivering
sustainable growth and profitability
Xie Ding Zhong, Executive Chairman & Chief Executive Officer, has
accumulated more than 40 years of experience in the chemical industry.
Partnering with our extensive and notable Historical Net Profit (RMB ‘million), Margin (%) and
Integrated business model anchored on strong R&D capabilities and registered customer network across China in creating cash from operating activities
patents for our key technologies. long-term value for our shareholders
• Integrated business model provides operational efficiency MAJOR CUSTOMERS
• Project-driven and advance payment business model reduces inventory and credit risks China XLX group Listed on SGX-ST and HKSE*
• Margin-protected through inter-weaving operational efficiency and proprietary and patented technologies
Sinofert group Listed on HKSE*, part of Sinochem group, which is
listed on the SSE*
Shanxi Tianze group Large petrochemical & chemical group based in
Shanxi
PROSPECTS Jincheng Anthracite
Mining group
Large petrochemical & chemical group based in
Shanxi
Yunnan Yunwei group Listed on SSE*
Steady growth in production volume and capacity of ammonia and methanol in
China Haohua group Large petrochemical & chemical group based
the PRC is expected to continue in Hebei & part of the China National Chemical
Corporation group
• The PRC needs to feed 21% of the world’s population with only 9% of global arable area. Use of fertiliser is crucial in Guizhou Kailin group Chemical fertiliser & chemical group in Guizhou
ensuring the PRC’s food security.
• Persistent and stable increase in demand for fertiliser to expand crop production and in other industry uses for *HKSE: Hong Kong Stock Exchange
ammonia. *SSE: Shanghai Stock Exchange
• Methanol is an important feedstock to the petrochemical and chemical industries. The PRC’s demand for energy Premium customer base of over 320 customers across the PRC. Please
security necessitate the development of alternative fuel. refer to the sector entitled “Our Major Customers” for detailed listing of
• Increasing use of dimethyl ether as alternative fuel for cooking and heating and methanol to olefin process to produce our major customers.
ethylene and propylene, the top 2 petrochemical feedstock.
FUTURE PLANS
Existing producers required to increase capital expenditure to upgrade production
Expand our production facilities and capabilities
facilities
Increase the annual combined production capacity for chemical systems and components as well as catalysts up to 18,125 tonnes
• 83.3% and 85.2% of the PRC’s ammonia and methanol producers operate in inefficient plants producing less than and 4,100 tonnes respectively
180kt/yr and 200 kt/yr respectively.
Enhance our R&D capabilities and widen our range of innovative and cost-effective solutions
Continue to research on ways to enhance our existing technology to further reduce the energy consumption per unit product of
Coal-based ammonia and methanol synthesis technologies continue to be predominantly ammonia and methanol
used in the PRC market
Expand our sales and marketing capabilities and initiatives
• Limited natural gas and oil resources in the PRC. Cost advantages persist for coal-based synthesis technologies.
Explore opportunities in strategic investments or alliances and acquisitions
CONTENTS
Page
2. DEFINITIONS .......................................................................................................................... 8
1
Page
2
Page
3
Page
37. APPENDIX E – DESCRIPTION OF RELEVANT PRC LAWS AND REGULATIONS ........ E-1
4
CORPORATE INFORMATION
Share Registrar and Share Transfer : Boardroom Corporate & Advisory Services Pte. Ltd.
Agent 50 Raffles Place
#32-01 Singapore Land Tower
Singapore 048623
Underwriter and Placement Agent : Kim Eng Corporate Finance Pte. Ltd.
9 Temasek Boulevard
#08-03 Suntec Tower Two
Singapore 038989
5
Solicitors to the Manager, Underwriter : Wee Woon Hong & Associates LLC
and Placement Agent 30 Raffles Place
#19-04 Chevron House
Singapore 048622
6
Naresh Nanubhai Desai
C/o 30 Robinson Road
#13-05 Robinson Towers
Singapore 048546
7
DEFINITIONS
In this Prospectus, the accompanying Application Forms and, in relation to the Electronic Applications,
the instructions appearing on the screens of the ATMs of Participating Banks, the IB websites of the
relevant Participating Banks, unless the context otherwise requires, the following definitions apply
throughout where the context so admits:-
“Group” : Our Company and our Subsidiary following the completion of the
Restructuring Exercise
8
“SGX-ST” : Singapore Exchange Securities Trading Limited
“Solicitors” : Shook Lin & Bok LLP, Wee Woon Hong & Associates LLC, Haihua
Yongtai Law Firm and Jingtian & Gongcheng Attorneys at Law
General
“1H” : Financial period between 1 January and 30 June
“Accountants’ Reports” : Reports from the Reporting Accountants and Auditors entitled
“Audited Combined Financial Statements of Anchun International
Holdings Ltd. and its Subsidiaries for the Financial Years ended 31
December 2007, 2008 and 2009” and “Unaudited Combined
Financial Statements of Anchun International Holdings Ltd. and its
Subsidiary for the Financial Period from 1 January 2010 to 31
March 2010” as set out in Appendix A and Appendix B of this
Prospectus
“Act” or “Companies Act” : The Companies Act (Chapter 50) of Singapore, as amended,
supplemented or modified from time to time
“Adjusted NAV” : NAV per Share as at 31 March 2010 and adjusted for the
Conversion
“Application Forms” : The printed application forms for the Invitation Shares which form
part of this Prospectus
“Application List” : The list of applications for the subscription and/or purchase of the
Invitation Shares
“Audit Committee” : The audit committee of our Company as at the date of this
Prospectus
9
“Board” : Board of Directors of our Company as at the date of this
Prospectus
“Key Executives” : Our key executives as at the date of this Prospectus whose names
are set out in the section entitled “Key Executives” of this
Prospectus
“FY” or “Financial Year” : Financial year ended or, as the case may be, ending 31 December
“Invitation” : The invitation by our Company and the Vendors to the public to
subscribe for and/or purchase the Invitation Shares at the Invitation
Price, upon the terms and subject to the conditions set out in this
Prospectus
10
“Invitation Shares” : The 130,000,000 Shares which are the subject of this Invitation,
comprising 105,000,000 New Shares and 25,000,000 Vendor
Shares
“ISO9001 Quality System” : The part of the ISO9000 series “Quality System – Model for quality
assurance in design/development, productions, installation and
servicing” which covers the following areas: quality management
system, management responsibility, resource management,
product realisation, measurement, analysis and improvement
“Lufeng Plant” : Our factory plant located at No.65, Lufeng Road, Changsha
National Hi-tech Industrial Development Zone
with a site area and gross production area of
approximately 23,500 sqm and 7,000 sqm, respectively
“Lusong Plant” : Our factory plant located at No.539, Lusong Road, Changsha
National Hi-tech Industrial Development Zone
with a site area and gross production area of
approximately 57,051 sqm 15,000 sqm, respectively
“Latest Practicable Date” : 1 September 2010, being the Latest Practicable Date before the
lodgement of this Prospectus with the Authority
“Market Day” : A day on which the SGX-ST is open for trading in securities
“New Shares” : The 105,000,000 new Shares for which our Company invites
applications to subscribe for pursuant to the Invitation, upon the
terms and subject to the conditions set out in this Prospectus
“Nominating Committee” : The nominating committee of our Company as at the date of this
Prospectus
“Offer” : The offer by our Company and/or the Vendors of the Offer Shares
to the public in Singapore for subscription and/or purchase at the
Invitation Price, upon the terms and subject to the conditions set
out in this Prospectus
“Offer Shares” : The 2,000,000 Invitation Shares which are the subject of the Offer
11
“Placement Shares” : 128,000,000 of the Invitation Shares which are the subject of the
Placement
“PRC” : People’s Republic of China, but for the purposes of this Prospectus
and for geographical reference only (unless otherwise indicated)
excludes Macau, Hong Kong and Taiwan
“Pre-IPO Investors” : Sinostate Management, Able Gallery, Vision Top, China XLX, Go
Power, SkyVen, Naresh Nanubhai Desai, Wong Chao Hsiung and
Quek Yiang Hang
“Remuneration Committee” : The remuneration committee of our Company as at the date of this
Prospectus
“Securities Account” : The securities account maintained by a Depositor with CDP but
does not include a securities sub-account
“Securities and Futures Act” : The Securities and Futures Act (Chapter 289) of Singapore, as
amended, supplemented or modified from time to time
“Service Agreements” : The service agreements entered into between our Company and
our Executive Directors as described in the section entitled
“Service Agreements” of this Prospectus
“Sub-division” : The sub-division of every ordinary share into 8,000 ordinary shares
as described in the section entitled “Share Capital” of this
Prospectus
“Trust Agreements” : The trust agreements dated 2 November 2009 pursuant to which Li
Chun Yang, Dai Feng Yu, Li Bin and Liang Gong Zeng were
appointed as the trustees for and on behalf of an aggregate
number of 397 beneficiaries to hold the share interest in each of
Oriental Eagle, Dawn Vitality, Inventive Result Enterprises and
Giant Yield Global, and make general management decisions in
relation to the business operation of our Group for their benefit
“Vendor Shares” : The 25,000,000 issued and fully paid-up Shares owned by the
Vendors for which the Vendors invite applications to purchase on
the terms and subject to the conditions set out in this Prospectus
12
“WFOE” : Wholly foreign owned entity
Currencies
“S$” or “$” and “cents” : Singapore dollars and cents, respectively
“RMB” and “RMB fen” : PRC Renminbi and Renminbi fen, respectively
“MPa” : Megapascal
The expression “Business Trust” has the same meaning as in section 2 of the Business Trusts Act
(Chapter 31A of Singapore).
The expression “Controlling Shareholder” has the meaning ascribed to it in the Listing Manual.
The expression “Entity” includes a corporation, an unincorporated association, a partnership and the
government of any state, but does not include a trust.
The expressions “Depositor”, “Depository Agent” and “Depository Register” shall have the meanings
ascribed to them respectively in Section 130A of the Companies Act.
Any discrepancies in tables included herein between the total sum of amounts listed and the totals shown
are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic
aggregation of the figures which precede them.
Words importing the singular shall, where applicable, include the plural and vice versa and words
importing the masculine gender shall, where applicable, include the feminine and neuter genders and
vice versa. References to persons shall include corporations.
13
Any reference in this Prospectus, the Application Forms and Electronic Applications to any enactment is a
reference to that enactment as for the time being amended or re-enacted.
Any word defined under the Companies Act, the Securities and Futures Act or any statutory modification
thereof and used in this Prospectus, the Application Forms and Electronic Applications shall, where
applicable, have the meaning ascribed to it under the Companies Act, the Securities and Futures Act or
any statutory modification thereto, as the case may be.
Any reference in this Prospectus, the Application Forms and Electronic Applications to Shares being
allotted and/or allocated to you includes allotment and/or allocation to CDP for your account.
Any reference to a time of day in this Prospectus, the Application Forms or the Electronic Applications is
a reference to Singapore time unless otherwise stated.
Any reference to “we”, “us” and “our” in this Prospectus is a reference to our Company, our Group or any
member of our Group as the context requires.
Certain names with Chinese characters have been translated into English. Such translations are provided
solely for the convenience of Singapore-based investors. The English names may not have been
registered with the relevant PRC authorities and should not be construed as representations that the
English names actually represent the Chinese characters.
14
GLOSSARY OF TECHNICAL TERMS
To facilitate a better understanding of our business, the following glossary provides a description of some
of the technical terms and abbreviations commonly found in our industry. The terms and their assigned
meanings may not correspond to standard industry or common meanings, as the case may be, or usage
of these terms:-
“alcohol-hydrocarbonylation : A raw gas refining process which refines the raw gas through
refining process” chemical reaction instead of physical reaction to convert the gas
impurities, such as CO and CO2, into other chemicals (such as
methanol and dimethyl ether), which can be separated from the
useful gases easily
“ammonia synthesis reactor” : The ammonia synthesis reactor is a chemical system component in
which hydrogen and nitrogen is synthesised into ammonia under
the required pressure, temperature and other conditions with the
aid of a catalyst
“chemical system component” : The chemical system components include the chemical synthesis
reactors, pressure vessels, heat exchanger and separation
equipment manufactured by Hunan Anchun which are used by our
customers in their production of ammonia and methanol
“cover head” : A machinery part used to seal the two ends of the shell body of a
chemical system component
“heat exchanger” : The heat exchanger is a chemical system component used for
efficient heat transfer from one medium to another, causing the
reacting substances to be heated or cooled during the chemical
reactions in the ammonia or methanol manufacturing processes
15
“H2” : Hydrogen
“methanol synthesis reactor” : The methanol synthesis reactor is a chemical system component in
which carbon monoxide, carbon dioxide and hydrogen are
synthesised into methanol under the required pressure,
temperature and other conditions with the aid of a catalyst
“N2” : Nitrogen
“raw gas” : Raw gas for ammonia/methanol synthesis comprises N2, H2,
methane, and some gaseous impurities such as oxides of sulphur
(i.e. SO2) and oxides of carbon (i.e. CO, CO2)
16
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
All statements contained in this Prospectus, statements made in press releases and oral statements that
may be made by us or our Directors, our Key Executives or our employees acting on our behalf that are
not statements of historical fact constitute ‘‘forward-looking statements”. You can identify some of these
forward-looking statements by terms such as ‘‘may”, ‘‘will”, ‘‘would”, ‘‘could”, ‘‘expects”, ‘‘anticipates”,
‘‘intends”, ‘‘estimates”, ‘‘believes”, ‘‘plans”, or similar words and phrases. However, you should note that
these words are not the exclusive means of identifying forward-looking statements. All statements
regarding our expected financial position, business strategy, plans and prospects are forward-looking
statements.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by these forward-looking statements.
All forward-looking statements by or attributable to us, or persons acting on our behalf, contained in this
Prospectus are expressly qualified in their entirety by such factors. Given the risks and uncertainties that
may cause our actual future results, performance or achievements to be materially different than
expected, expressed or implied by the forward-looking statements in this Prospectus, we advise you not
to place undue reliance on those statements.
Neither we, the Vendors, the Manager, the Underwriter and Placement Agent, nor any other person is
representing or warranting to you that our future results, performance or achievements will be as
discussed in those statements. Further, we disclaim any responsibility to update any of those forward-
looking statements or publicly announce any revisions to those forward-looking statements to reflect
future developments, events or circumstances. We are, however, subject to the provisions of the
Securities and Futures Act and the Listing Manual regarding corporate disclosure.
17
INDUSTRY AND MARKET DATA
This document includes references to market share, market position and industry data and forecasts as
well as other macroeconomic information that we obtained from the report dated 13 September 2010
prepared by China National Chemical Information Centre (“CNCIC”) and other sources of publicly
available information such as the National Bureau of Statistics of China. In particular, market and industry
data contained in the sections entitled “Industry Overview”, “Management’s Discussion and Analysis of
Results of Operations and Financial Position” and “Prospects, Business Strategies and Future Plans” of
this Prospectus have been obtained from the abovementioned sections prepared by CNCIC (which also
references certain other third party sources) and the National Bureau of Statistics of China. Industry
publications, surveys and forecasts generally state that the information contained therein has been
obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or
completeness of such included information. While we have taken reasonable actions to ensure that the
information is extracted accurately and in its proper context, we have not independently verified any of the
data from third party sources or ascertained the underlying economic assumptions relied upon therein,
and none of us, the Vendors, or the Manager, the Underwriter and Placement Agent make any
representation as to the accuracy or completeness of that information.
18
SELLING RESTRICTIONS
This Prospectus does not constitute an offer, solicitation or invitation to subscribe for and/or purchase our
Shares in any jurisdiction in which such offer, solicitation or invitation is unlawful or is not authorised or to
any person to whom it is unlawful to make such offer, solicitation or invitation. No action has been or will
be taken under the requirements of the legislation or regulations of, or of the legal or regulatory
authorities of, any jurisdiction, except for the filing and/or registration of this Prospectus in Singapore in
order to permit a public offering of our Shares and the public distribution of this Prospectus in Singapore.
The distribution of this Prospectus and the offering of our Shares in certain jurisdictions may be restricted
by the relevant laws in such jurisdictions. Persons who may come into possession of this Prospectus are
required by our Company, the Vendors, the Manager, the Underwriter and Placement Agent to inform
themselves about, and to observe and comply with, any such restrictions at their own expense and
without liability to us.
Persons to whom a copy of this Prospectus has been issued shall not circulate to any other person,
reproduce or otherwise distribute this Prospectus or any information herein for any purpose whatsoever
nor permit or cause the same to occur.
Hong Kong
The contents of this Prospectus have not been reviewed by any regulatory authority in Hong Kong. You
are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of
this document, you should obtain independent legal advice. Please note that (i) Shares may not be
offered or sold in Hong Kong by means of this Prospectus or any other document other than to
professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance
of Hong Kong (Cap. 571) and any rules made thereunder (“professional investors”), or in other
circumstances which do not result in the document being a “prospectus” as defined in the Companies
Ordinance of Hong Kong (Cap. 32) or which do not constitute an offer or invitation to the public for the
purposes of the Companies’ Ordinance, and (ii) no person may issue or have in its possession for the
purposes of issue, whether in Hong Kong or elsewhere, this Prospectus or any other advertisement,
invitation or document relating to the Shares which is directed at, or the contents of which are likely to be
accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of
Hong Kong) other than with respect to Shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional investors.
19
DETAILS OF THE INVITATION
Acceptance of applications of the Invitation Shares (as defined herein) will be conditional upon the
completion of the Invitation, which is subject to certain conditions, including the SGX-ST granting
permission to deal in and for quotation of all our existing issued Shares (including the Vendor Shares)
and the New Shares. In the event that completion of the Invitation does not occur or such permission
from the SGX-ST is not granted or for any other reason, monies paid in respect of any application
accepted will be returned to you at your own risk, without interest or any share of revenue or other benefit
arising therefrom and you will not have any claim against our Company, the Vendors, our Directors, the
Manager or the Underwriter and Placement Agent.
Under the Securities and Futures Act, the Authority may, in certain circumstances issue a stop order (the
“Stop Order”) to our Company, directing that no Invitation Share or no further share to which this
Prospectus relates, be allotted and/or allocated or issued and/or sold. Such circumstances will include a
situation where this Prospectus (i) contains a statement or matter, which in the opinion of the Authority is
false or misleading; or (ii) omits any information that should be included in accordance with the Securities
and Futures Act; or (iii) does not, in the opinion of the Authority, comply with the requirements of the
Securities and Futures Act; or (iv) where the Authority is of the opinion that it is in the public interest to
issue a Stop Order.
In the event that the Authority issues a Stop Order and where applications to subscribe for and/or
purchase the Invitation Shares to which this Prospectus relates have been made prior to the Stop Order,
and:
(a) where the Invitation Shares have not been issued and/or sold to you, your application shall be
deemed to have been withdrawn and cancelled and our Company (on behalf of itself and the
Vendors) shall, within fourteen (14) days from the date of the Stop Order, return to you at your own
risk all monies you have paid on account of your application for the Invitation Shares, without
interest or any share of revenue or other benefit arising therefrom; or
(b) where the Invitation Shares have been issued and/or sold to you, the issue and/or sale of the
Invitation Shares shall be deemed to be void and our Company shall (on behalf of itself and the
Vendors), within fourteen (14) days from the date of the Stop Order, return to you at your own risk
all monies you have paid on account of your applications for the Invitation Shares, without interest
or any share of revenue or other benefit arising therefrom; or
(c) where the Invitation Shares have been transferred to you, the sale of the Invitation Shares shall be
deemed to be void and our Company (on behalf of itself and the Vendors) shall (i) if no documents
purporting to evidence title to those Invitation Shares have been issued to you, within seven (7)
days from the date of the Stop Order, pay to you at your own risk all monies paid by you for those
Invitation Shares, or (ii) if documents purporting to evidence title to those Invitation Shares have
been issued to you, within seven (7) days from the date of the Stop Order, inform you to return
such documents to our Company within fourteen (14) days from that date and within seven (7)
days from the date of receipt of such documents or the date of the Stop Order, whichever is earlier,
pay to you at your own risk all monies paid by you for those Invitation Shares.
In each of the above instances where monies are refunded to you pursuant to a Stop Order, you will not
have any claim against our Company, the Vendors, our Directors, the Manager, or the Underwriter and
Placement Agent.
20
The SGX-ST assumes no responsibility for the correctness of any of the statements made, reports
contained or opinions expressed in this Prospectus. Admission to the Official List of the SGX-ST is not to
be taken as an indication of the merits of the Invitation, our Company, our Subsidiary, our existing issued
Shares (including the Vendor Shares) and the New Shares.
A copy of this Prospectus together with copies of the Application Forms have been lodged with and
registered by the Authority. The Authority assumes no responsibility for the contents of this Prospectus.
Registration of this Prospectus by the Authority does not imply that the Securities and Futures Act, or any
other legal or regulatory requirements, have been complied with. The Authority has not, in any way,
considered the merits of our existing issued Shares (including the Vendor Shares) or the New Shares, as
the case may be, being offered or in respect of which the Invitation is made, for investment. We have not
lodged or registered this Prospectus in any other jurisdiction.
Neither our Company, the Vendors, our Directors, the Manager, the Underwriter and Placement Agent,
nor any other parties involved in the Invitation is making any representation to any person regarding the
legality of an investment in our Shares by such person under any investment or other laws or regulations.
No information in this Prospectus should be considered as being business, legal or tax advice. You should
consult your own professional or other advisers for business, legal or tax advice regarding an investment
in our Shares. No person has been or is authorised to give any information or to make any representation
not contained in this Prospectus in connection with the Invitation and, if given or made, such information
or representation must not be relied upon as having been authorised by our Company, the Vendors, our
Directors, the Manager, or the Underwriter and Placement Agent. Neither the delivery of this Prospectus
and the Application Forms nor any documents relating to the Invitation shall, under any circumstances,
constitute a continuing representation or create any suggestion or implication that there has been no
change in our affairs or in the statements of fact or information contained in this Prospectus since the
date of this Prospectus. Where such changes occur, we will promptly make an announcement of the
same to the SGX-ST and to the public and, if required, lodge a supplementary or replacement prospectus
with the Authority and make an announcement of the same to the SGX-ST and to the public and will
comply with the requirements of the Securities and Futures Act. You should take note of any such
announcement and, upon release of such an announcement, shall be deemed to be given notice of such
changes. Save as expressly stated in this Prospectus, nothing herein is, or may be relied upon as, a
promise or representation as to the future performance or policies of our Company or our Subsidiary.
In the event that a supplementary or replacement prospectus is lodged with the Authority, the Invitation
shall be kept open for at least fourteen (14) days after the lodgement of such supplementary or
replacement prospectus.
We are subject to the provisions of the Securities and Futures Act and the Listing Manual regarding
corporate disclosure. In particular, if after this Prospectus is registered but before the close of the
Invitation, we become aware of:-
(b) an omission from this Prospectus of any information that should have been included in it under
Section 243 of the Securities and Futures Act; or
(c) a new circumstance that has arisen since the Prospectus was lodged with the Authority which
would have been required by Section 243 of the Securities and Futures Act to be included in this
Prospectus if it had arisen before this Prospectus was lodged,
that is materially adverse from the point of view of an investor, we may lodge a supplementary or
replacement prospectus with the Authority pursuant to Section 241 of the Securities and Futures Act.
21
Where prior to the lodgement of the supplementary or replacement prospectus, applications have been
made under this Prospectus to subscribe for and/or purchase our Invitation Shares and:
(a) where the Invitation Shares have not been issued and/or sold to you, our Company (on behalf of
itself and the Vendors) shall either:
(i) within two (2) days (excluding any Saturday, Sunday or public holiday) from the date of
lodgement of the supplementary prospectus or replacement prospectus, give you notice in
writing of how to obtain, or arrange to receive, a copy of the same and provide your with an
option to withdraw your applications and take all reasonable steps to make available within a
reasonable period the supplementary or replacement prospectus to you who have indicated
you wish to obtain, or who have arranged to receive, a copy of the supplementary or
replacement prospectus; or
(ii) within seven (7) days from the date of lodgement of the supplementary or replacement
prospectus, give you the supplementary or replacement prospectus, as the case may be,
and provide you with an option to withdraw your applications; or
(iii) treat the applications as withdrawn and cancelled, in which case your applications shall be
deemed to have been withdrawn and cancelled, and our Company shall (on behalf of itself
and the Vendors), within seven (7) days from the date of lodgement of the supplementary or
replacement prospectus, return all monies paid in respect of any application to you at your
own risk, without interest or any share of revenue or other benefit arising therefrom; or
(b) where the Invitation Shares have been issued and/or sold to you, our Company shall (on behalf of
itself and the Vendors) either:
(i) within two (2) days (excluding any Saturday, Sunday or public holiday) from the date of
lodgement of the supplementary prospectus or replacement prospectus, give you notice in
writing of how to obtain, or arrange to receive, a copy of the same and provide you with an
option to return to our Company the Invitation Shares, which you do not wish to retain title in,
and take all reasonable steps to make available within a reasonable period the
supplementary or replacement prospectus to you who have indicated you wish to obtain, or
who have arranged to receive, a copy of the supplementary or replacement prospectus; or
(ii) within seven (7) days from the date of lodgement of the supplementary or replacement
prospectus, give you the supplementary or replacement prospectus, as the case may be,
and provide you with an option to return to our Company the Invitation Shares, which you do
not wish to retain title in; or
(iii) (A) in the case of the New Shares, deem the issue as void and refund your payments for the
New Shares (without interest or any share of revenue or other benefits arising therefrom and
at your own risk) within seven (7) days from the date of lodgement of the supplementary or
replacement prospectus; and (B) in the case of the Vendor Shares, deem the sale of the
Vendor Shares as void, and in the case where documents to evidence title to the Vendor
Shares (“title documents”) have been issued to you, within seven (7) days from the date of
lodgement of the supplementary or replacement prospectus, inform you to return the title
documents within fourteen (14) Market Days from the date of lodgement of the
supplementary or replacement prospectus, and within seven (7) days from receipt of the title
documents or the date of lodgement of the supplementary or replacement prospectus,
whichever is the later, refund your payments for the Vendor Shares (without interest or any
share of revenue or other benefits arising therefrom and at your own risk) within seven (7)
Market Days from the date of lodgement of the supplementary or replacement prospectus,
and you will not have any claim against our Company, the Vendors, the Manager, the
Underwriter and Placement Agent.
22
If you wish to exercise your option under paragraph (a)(i) and (ii) above to withdraw your
application in respect of the Invitation Shares, you shall, within fourteen (14) days from the date of
lodgement of the supplementary or replacement prospectus, notify our Company of this,
whereupon our Company shall (on behalf of itself and the Vendors), within seven (7) days from the
receipt of such notification, return to you all monies you have paid on account of your application
for and/or purchase of such Invitation Shares, without interest or any share of revenue or other
benefit arising therefrom, at your own risk.
If you wish to exercise your option under paragraph (b)(i) and (ii) above to return the Invitation
Shares issued and/or sold to you, you shall, within fourteen (14) days from the date of lodgement
of the supplementary or replacement prospectus, notify our Company of this and return all
documents, if any, purporting to be evidence of title to those Shares, to our Company, whereupon
our Company shall (on behalf of itself and the Vendors), within seven (7) days from the receipt of
such notification and documents, if any, return to you all monies you have paid for those Shares
without interest or any share of revenue or other benefit arising therefrom and the issue and/or
sale of those Shares shall be deemed to be void.
This Prospectus has been prepared solely for the purpose of the Invitation and may only be relied upon
by you in connection with your application for and/or purchase of the Invitation Shares and may not be
relied upon by any other person or for any other purpose.
This Prospectus does not constitute an offer of, or invitation or solicitation to subscribe for and/or
purchase the Invitation Shares in any jurisdiction in which such offer or invitation or solicitation is
unauthorised or unlawful nor does it constitute an offer or invitation or solicitation to any person
to whom it is unlawful to make such offer or invitation or solicitation.
Copies of this Prospectus and the Application Forms and envelopes may be obtained on request, subject
to availability, from:-
and from members of the Association of Banks in Singapore and members of the SGX-ST and merchant
banks in Singapore.
The Application List will open immediately upon the registration of the Prospectus with the
Authority and will remain open until 12.00 noon on 21 October 2010 or for such further period or periods
as our Directors may, in consultation with the Manager decide, subject to any limitations under all
applicable laws, PROVIDED ALWAYS THAT where a supplementary prospectus or replacement
prospectus has been lodged with the Authority pursuant to Section 241 of the Securities and
Futures Act, the Application List shall be kept open for at least fourteen (14) days after the
lodgement of the supplementary prospectus or replacement prospectus.
Details of the procedures for application for the Invitation Shares are set out in Appendix C entitled
“Terms, Conditions and Procedures for Application and Acceptance” of this Prospectus.
23
INDICATIVE TIMETABLE FOR LISTING
The indicative timetable is set out below for the reference of applicants:-
21 October 2010, 12.00 noon Close of Application List and closing date and time for the Invitation
28 October 2010 Settlement date for all trades done on a “ready” basis
The above timetable is only indicative as it assumes that the date of closing of the Application List will be
on 21 October 2010, the date of admission of our Shares to the Official List of the SGX-ST will be
25 October 2010, the SGX-ST’s shareholding spread requirement will be complied with and the New
Shares will be issued and fully paid-up prior to 25 October 2010.
The above timetable and procedure may be subject to such modification as the SGX-ST may, in its
absolute discretion, decide, including the decision to permit commencement of trading on a “ready” basis
and the commencement of such trading.
In the event of any changes in the closure of the Application List or the time period during which the
Invitation is open, we will publicly announce the same:
(i) through a SGXNET announcement to be posted on the Internet at the SGX-ST website
http://www.sgx.com; and
Results of the Invitation including the allotment and/or allocation of the Invitation Shares and balloting (in
the event of an over-subscription for the Offer Shares) will be provided through the channels in (i) and (ii)
above.
You should consult the SGX-ST announcement of the “ready” trading date on the Internet (at the SGX-ST
website http://www.sgx.com) or the newspapers, or check with your brokers on the date on which trading
on a “ready” basis will commence.
24
THE INVITATION
Invitation Size : 130,000,000 Invitation Shares comprising 105,000,000 New Shares and
25,000,000 Vendor Shares. The New Shares, which form part of the
Invitation, will, upon issue and allotment, rank pari passu in all respects with
our existing issued Shares.
Purpose of Invitation : Our Directors consider that the listing and quotation of our Shares on the
Official List of the SGX-ST will enhance our public image and enable us to
tap the capital markets for the expansion of our business operations.
The Offer : The Offer comprises an invitation by our Company and the Vendors to the
public in Singapore to subscribe for and/or purchase of the 2,000,000 Offer
Shares at the Invitation Price, subject to and on the terms and conditions of
this Prospectus.
The Placement : The Placement comprises an offering by the Placement Agent on behalf of
our Company and the Vendors of 128,000,000 Placement Shares at the
Invitation Price by way of placement, subject to and on the terms of this
Prospectus.
Listing Status : Prior to the Invitation, there has been no public market for our Shares. Our
Shares will be quoted on the SGX-ST, subject to our admission to the
Official List of the SGX-ST and permission for dealing in and for quotation of
our Shares being granted by the SGX-ST and that no Stop Order is issued
by the Authority.
25
PLAN OF DISTRIBUTION
Prior to the Invitation, there has been no public market for the Invitation Shares. The Invitation Price was
determined by the Vendors and us in consultation with the Manager, the Underwriter and Placement
Agent based on market conditions and estimated market demand for our Shares determined through a
book-building process. The Invitation Price is the same for all Invitation Shares and is payable in full on
application.
In the event of an under-subscription for the Offer Shares as at the close of the Application List,
that number of Offer Shares not subscribed for and/or purchased shall be made available to satisfy
excess applications for the Placement Shares to the extent there is an over-subscription for the
Placement Shares as at the close of the Application List.
In the event of an over-subscription for the Offer Shares as at the close of the Application List
and/or the Placement Shares are fully subscribed or over-subscribed as at the close of the
Application List, the successful applications for the Offer Shares will be determined by ballot or
otherwise as determined by our Directors in consultation with the Manager, and approved by the
SGX-ST.
Pursuant to the terms and conditions in the Placement Agreement signed between our Company,
the Vendors and the Placement Agent dated 13 October 2010, the Placement Agent has agreed to
subscribe for and/or purchase and/or procure subscriptions and/or purchasers for the Placement
Shares at the Invitation Price. The Placement Agent may, at its absolute discretion, appoint one or
more sub-placement agents.
In the event of an under-subscription for the Placement Shares as at the close of the Application
List, that number of Placement Shares not subscribed for and/or purchased shall be made
available to satisfy excess applications for the Offer Shares to the extent that there is an over-
subscription for the Offer Shares as at the close of the Application List.
Subscribers of Placement Shares may be required to pay brokerage (and if so required, such
brokerage will be up to 1.0% of the Invitation Price), as well as stamp duties and other similar
charges.
26
None of our Substantial Shareholders or Directors intends to subscribe for and/or purchase Shares
in the Invitation. None of the members of our Company’s management or our employees intend to
subscribe for and/or purchase more than 5% each of the Invitation Shares in the Invitation. To the
best of our knowledge, we are unaware of any person who intends to subscribe for and/or
purchase more than 5% of the Invitation Shares.
Further, no Share shall be allotted or allocated on the basis of this Prospectus later than six
months after the date of registration of this Prospectus.
Please also refer to the section entitled “Management, Underwriting and Placement Arrangements”
of this Prospectus for further details.
27
CLEARANCE AND SETTLEMENT
Upon listing and quotation on the SGX Mainboard, our Shares will be traded under the book-entry
settlement system of the CDP, and all dealings in and transactions of the Shares through SGX-ST will be
effected in accordance with the terms and conditions for the operation of securities accounts with the
CDP, as amended from time to time.
Our Shares will be registered in the name of CDP or its nominee and held by CDP for and on behalf of
persons who maintain, either directly or through Depository Agents, securities accounts with CDP.
Persons named as direct securities account holders and Depository Agents in the Depository Register
maintained by the CDP, rather than CDP itself, will be treated, under our Articles and the Companies Act,
as members of our Company in respect of the number of Shares credited to their respective securities
accounts.
Persons holding our Shares in securities accounts with CDP may withdraw the number of Shares they
own from the book-entry settlement system in the form of physical share certificates. Such share
certificates will, however, not be valid for delivery pursuant to trades transacted on the SGX Mainboard,
although they will be prima facie evidence of title and may be transferred in accordance with our Articles.
A fee of S$10.00 for each withdrawal of 1,000 Shares or less and a fee of S$25.00 for each withdrawal of
more than 1,000 Shares is payable upon withdrawing the Shares from the book-entry settlement system
and obtaining physical share certificates. In addition, a fee of S$2.00 or such other amount as our
Directors may decide, is payable to the share registrar for each share certificate issued and a stamp duty
of S$10.00 is also payable where our Shares are withdrawn in the name of the person withdrawing our
Shares or S$0.20 per S$100.00 or part thereof of the last-transacted price where it is withdrawn in the
name of a third party. Persons holding physical share certificates who wish to trade on the SGX
Mainboard must deposit with CDP their share certificates together with the duly executed and stamped
instruments of transfer in favour of CDP, and have their respective securities accounts credited with the
number of Shares deposited before they can effect the desired trades. A fee of S$20.00 is payable upon
the deposit of each instrument of transfer with CDP.
Transactions in our Shares under the book-entry settlement system will be reflected by the seller’s
securities account being debited with the number of Shares sold and the buyer’s securities account being
credited with the number of Shares acquired. No transfer of stamp duty is currently payable for the
Shares that are settled on a book-entry basis.
A Singapore clearing fee for trades in our Shares on the SGX Mainboard is payable at the rate of 0.04
per cent of the transaction value subject to a maximum of S$600.00 per transaction. The clearing fee,
instrument of transfer deposit fee and share withdrawal fee may be subject to Singapore Goods and
Services Tax at the prevailing rate of 7.0%.
Dealings of our Shares will be carried out in Singapore dollars and will be effected for settlement on CDP
on a scripless basis. Settlement of trades on a normal “ready” basis on the SGX Mainboard generally
takes place on the third Market Day following the transaction date, and payment for the securities is
generally settled on the following business day. CDP holds securities on behalf of investors in securities
accounts. An investor may open a direct account with CDP or a sub-account with a CDP Depository
Agent. The CDP Depository Agent may be a member company of the SGX-ST, bank, merchant bank or
trust company.
28
USE OF PROCEEDS AND LISTING EXPENSES
The total net proceeds from the Invitation (after deducting the estimated expenses in relation to the
Invitation of approximately S$3.8 million) is estimated to amount to approximately S$32.6 million.
Listing expenses include professional fees, underwriting and placement commissions and brokerage fees,
and miscellaneous expenses. The professional fees and miscellaneous expenses will be borne by our
Company. The underwriting and placement commissions and brokerage fees will be borne by our
Company and the Vendors in the proportion in which the Invitation Shares are offered by our Company
and each of the Vendors.
Note:-
(1) We expect these expansion plans to be completed within one and a half years from the date of our Company’s admission to
the SGX-ST. In the event of any material delay in the completion of such expansion plans, we will publicly announce the
reasons for such delay and expected completion timing on the SGXNET.
Please refer to the section entitled “Prospects, Business Strategies and Future Plans” of this Prospectus
for more details on our future plans and use of proceeds.
In the event that the amount set aside to meet our Company’s portion of the estimated expenses listed
above is in excess of the actual expenses incurred in the connection with the Invitation, such excess
amount will be applied towards our working capital purposes.
Pending the deployment of the net proceeds as aforesaid, the net proceeds may be added to our Group’s
working capital, placed as deposits with banks or financial institutions, or used for investments in short-
term deposits, money market or debt instruments, as our Directors may deem appropriate in their
absolute discretion.
29
The foregoing represents our best estimate of our allocation of our net proceeds from the Invitation based
on our current plans and estimates regarding our anticipated expenditures. Actual expenditures may vary
or deviate from these estimates, and we may find it necessary or advisable to re-allocate our net
proceeds within the categories described above.
In the event that there is any material deviation from the stated use of net proceeds from the Invitation,
we will publicly announce the reasons for such deviations on the SGXNET, and seek approval from our
Shareholders.
We shall announce on the SGXNET as and when the proceeds of the Invitation have been materially
disbursed, and provide a status report on the use of proceeds of the Invitation in the annual report(s) of
our Company.
In the opinion of our Directors, no minimum amount must be raised from the Invitation.
None of the proceeds of the Invitation will be used to discharge, reduce or retire any indebtedness of our
Group.
In accordance with applicable accounting standards, the underwriting and placement commissions and
brokerage fees to be borne by our Company, as well as the professional fees and miscellaneous
expenses to be borne by the Company, will be offset against the gross proceeds raised from the New
Shares in our share capital account. The remaining professional fees and miscellaneous expenses will be
treated as expenses in our financial statements, which is expected to amount to approximately S$2.0
million in FY2010.
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MANAGEMENT, UNDERWRITING AND PLACEMENT ARRANGEMENTS
Pursuant to the management and underwriting agreement dated 13 October 2010 (the “Management and
Underwriting Agreement”) entered into between our Company, the Vendors, the Manager and the
Underwriter, our Company and the Vendors have appointed the Manager to manage the Invitation.
The Manager will receive a management fee from our Company for its services rendered in connection
with the Invitation.
Pursuant to the Management and Underwriting Agreement, the Underwriter agreed to underwrite the
Offer Shares for a commission of 3.5% of the Invitation Price for each Offer Share, payable by our
Company and each of the Vendors in the proportion in which the Offer Shares are offered by our
Company and each of the Vendors. The Underwriter may, at its absolute discretion, appoint one or more
sub-underwriters for the Offer Shares.
Pursuant to the placement agreement dated 13 October 2010 (the “Placement Agreement’’) entered into
between our Company, the Vendors and the Placement Agent, the Placement Agent agreed to subscribe
for and/or purchase or procure subscriptions and/or purchasers for the Placement Shares for a placement
commission of 3.5% of the Invitation Price for each Placement Share, payable by our Company and each
of the Vendors in the proportion in which the Placement Shares are offered by our Company and each of
the Vendors. The Placement Agent may, at its absolute discretion, appoint one or more sub-placement
agents for the Placement Shares.
For the Offer Shares, the brokerage will be paid by our Company to members of the Association of Banks
in Singapore, members of the SGX-ST and merchant banks in respect of successful applications made
on Application Forms bearing their respective stamps, or to the Participating Banks in respect of
successful applications made through Electronic Applications at their respective ATMs at the rate of
0.25% of the Invitation Price for each Offer Share, or in the case of DBS Bank, 0.50% of the Invitation
Price for each Offer Share. In addition, DBS levies a minimum brokerage fee of S$10,000 that will be
payable by our Company.
Subscribers of the Placement Shares may be required to pay brokerage of up to 1.0% of the Invitation
Price to the Placement Agent (or any sub-placement agent appointed by the Placement Agent), as well
as stamp duties and any other similar charges (subject to any GST, where applicable).
The Management and Underwriting Agreement may be terminated by the Manager on behalf of the
Underwriter at any time on or before the close of the Application List on the occurrence of certain events
including, inter alia:-
(a) any change or any development involving a prospective change or any crisis in national, regional or
international monetary, financial, political, industrial, legal, taxation, exchange controls or economic
conditions (including but without limiting thereto, conditions in the stock market, in the foreign
exchange market, inter-bank market and conditions with respect to interest rates, in Singapore and
overseas); or
(b) any change or introduction, or any prospective change or introduction of any legislation, regulation,
policy, directive, order, guideline, notice, request or interpretation or application thereof, by any
government body in Singapore or elsewhere, the Securities Industry Council of Singapore, or the
SGX-ST, the Authority or relevant authorities in the PRC or elsewhere; or
(c) the issue of a Stop Order by the Authority in accordance with Section 242 of the Securities and
Futures Act; or
(d) foreign exchange controls in Singapore and overseas or any occurrence of a combination of any
such changes or developments or crisis, or any deterioration of any such conditions; or
(e) any adverse change, or any development involving a prospective adverse change, in the condition
(financial or otherwise) of the Company or of the Group as a whole,
31
which event or events shall in the opinion of the Manager or the Underwriter (1) result or be likely to
result in a material adverse fluctuation or adverse conditions in the stock market in Singapore or
elsewhere or (2) be likely to prejudice the success of the offer, subscription or sale of the Invitation
Shares (whether in the primary market or in respect of dealings in the secondary market) or (3) make it
impossible, impracticable or uncommercial to proceed with any of the transactions contemplated in the
Management and Underwriting Agreement or (4) be likely to have a material adverse effect on the
business, trading position, operations or prospects of the Company or of the Group as a whole or (5) be
such that no reasonable underwriter would have entered into the Management and Underwriting
Agreement or (6) result or be likely to result in the issue of a Stop Order by the Authority pursuant to the
Securities and Futures Act or (7) make it uncommercial or otherwise contrary to, or outside the usual
commercial practices of underwriting in Singapore for, the Underwriter to observe or perform or be
obliged to observe or perform the terms of the Management and Underwriting Agreement.
In the event the Management and Underwriting Agreement is terminated, our Company reserves the
right, at the absolute discretion of the Directors, to cancel the Invitation.
The Placement Agreement is conditional upon the Management and Underwriting Agreement not being
terminated or rescinded pursuant to the provisions of the Management and Underwriting Agreement.
Save as disclosed above, we do not have any material relationship with the Manager, Underwriter and
Placement Agent or any sub-placement agent in relation to the Invitation.
32
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and is subject to, the more detailed information and
financial statements (including the notes thereto) appearing elsewhere in this Prospectus. You should
carefully consider all the information presented in this Prospectus, particularly the matters set out in the
section entitled “Risk Factors” of this Prospectus before making an investment decision.
OUR COMPANY
On 29 October 2009, our Company was incorporated in Singapore under the Singapore Companies Act
as a private company limited by shares under the name of “Anchun Holdings Pte. Ltd.”. On 9 September
2010, we changed our name from “Anchun Holdings Pte. Ltd.” to “Anchun International Holdings Pte. Ltd.”
so as to align with our strategic direction of business development. On 14 September 2010, we were
converted into a public limited company and changed our name to “Anchun International Holdings Ltd.”.
Our Company registration number is 200920277C. Our registered office is located at 1 Robinson Road,
#17-00 AIA Tower, Singapore 048542 whereas we carry out our principal business at No.539, Lusong
Road, Changsha National Hi-tech Industrial Development Zone, Changsha City, Hunan Province, PRC
. Our telephone number is (86)-731- 8514 8687
and our facsimile number is (86)-731- 8514 8687.
OUR BUSINESS
We are a leading integrated chemical systems engineering and technology solutions provider to the PRC
petrochemical and chemical industries, in particular, manufacturers of ammonia and methanol based
products. Since our inception, we have established a track record of operational excellence, technological
breakthroughs and national awards for our achievements. In addition, we have obtained several
enterprise awards and accolades, including 2009 Forbes China Up & Comers award by Forbes China
magazine (ranked 98th enterprise across all industries nationwide for enterprise growth potential) and
2005 China Petrochemical and Chemical Industries Outstanding Private Enterprise
by China Petroleum and Chemical Industries Association.
A detailed discussion of our business and the services we provide is set out in the section entitled
“History and Business” of this Prospectus.
Integrated business model anchored on strong R&D capabilities and registered patents for our key
technologies
Widely-recognised as a leading enterprise and brand name in the PRC chemical systems
engineering and technology solutions industry
A detailed discussion of our competitive strengths is set out in the section entitled “Competitive Strengths”
of this Prospectus.
33
OUR FINANCIAL PERFORMANCE
Our financial performance for the periods under review is summarized below:-
Audited Unaudited
Please refer to the section entitled “Management’s Discussion and Analysis of Results of Operations and
Financial Position” of this Prospectus and the Accountants’ Reports for further details.
Enhance our R&D capabilities and widen our range of innovative and cost-effective solutions
In view of our Group’s future plans, our Directors consider that the listing of our Shares on the SGX-ST
will provide our Group with a new channel to gain access to the capital markets, promote our corporate
profile and further enhance our Group’s image, all of which are in the interests of our Group’s future
growth and development.
A detailed discussion of our future plans is set out in the section entitled “Prospects, Business Strategies
and Future Plans” of this Prospectus.
34
ISSUE STATISTICS
(b) after adjusting for the estimated net proceeds of the New Shares and based RMB52.9 fen
on the post-Invitation share capital of 505,000,000 Shares
Premium of Invitation Price per Share over the Adjusted NAV per Share:-
(a) before adjusting for the estimated net proceeds of the New Shares and 314.3%
based on the pre-Invitation share capital of 400,000,000 Shares
(b) after adjusting for the estimated net proceeds of the New Shares and based 167.3%
on the post-Invitation share capital of 505,000,000 Shares
EARNINGS
Historical net EPS of our Group for FY2009 based on the pre-Invitation share RMB18.8 fen
capital of 400,000,000 Shares
Historical net EPS of our Group for FY2009 had the Service Agreements been in RMB18.5 fen
place from the beginning of FY2009(2) and based on the pre-Invitation share capital
of 400,000,000 Shares
Historical price earnings ratio based on the Invitation Price and the historical net 7.7 times
EPS of our Group for FY2009 had the Service Agreements been in place from the
beginning of FY2009(2)
Historical net operating cash flow per Share of our Group for FY2009 had the RMB14.1 fen
Service Agreements been in place from the beginning of FY2009(2) and based on
the pre-Invitation share capital of 400,000,000 Shares
Historical price to net operating cash flow ratio based on the Invitation Price and the 10.0 times
historical net operating cash flow per Share for FY2009 had the Service
Agreements been in place from the beginning of FY2009(2)
35
MARKET CAPITALISATION
Market capitalisation based on the Invitation Price and post-Invitation share capital S$141.4 million
of 505,000,000 Shares
Notes:-
(1) Calculated based on the exchange rate of S$1.00 = RMB5.049 as at the Latest Practicable Date.
(2) Had the Service Agreements been in existence for FY2009, the aggregate remuneration (including contributions, bonus, and
benefits-in-kind) paid to the Executive Directors would have been approximately RMB2.3 million (approximately S$0.5 million)
instead of approximately RMB1.1 million (approximately S$0.23 million) and the profit after tax of our Group would have been
approximately RMB73.9 million (approximately S$15.7 million) instead of approximately RMB75.2 million (approximately
S$16.0 million).
(3) Net operating cash flow is defined as net cash generated from operating activities which is derived from profit before tax after
adjustments as set out in the Audited Combined Financial Statements.
36
RISK FACTORS
You should evaluate carefully each of the following considerations and all of the other information set forth
in this Prospectus before deciding to invest in our Shares. Some of the following considerations relate
principally to the industry in which we operate and our business in general. Other considerations relate
principally to general social, economic, political and regulatory conditions, the securities market and
ownership of our Shares, including possible future dilution in value of our Shares.
If any of the following considerations and uncertainties develop into actual events, our business, financial
condition or results of operations could be materially and adversely affected. In such case, the trading
price of our Shares could decline due to any of these considerations, and you may lose all or part of your
investment.
Apart from the specific factors listed below and general business and economic conditions to which all
commercial businesses are exposed to, we are of the view that we are not vulnerable in any material way
to any other factors which can be reasonably anticipated.
In particular, we are vulnerable to the risk of rising steel prices, which are determined by demand and
supply conditions in the global and the PRC markets as well as government policies. The cost of steel
material accounted for an average of approximately 73.4%, 71.7%, 73.8% and 69.4% of our total cost of
sales for FY2007, FY2008, FY2009 and 1Q2010, respectively. Please refer to the section entitled
“Management’s Discussion and Analysis of Results of Operations and Financial Position” of this
Prospectus for more information on the cost of our steel purchases. Our contracts are negotiated with our
customers based on existing market prices of materials, possible selling prices of our products/services
and our intended gross margins. Hence, we fix the prices of required materials at approximately the same
time as the contracts we sign with our customers so as to protect our gross margins. Nevertheless,
should there be any significant increases in steel prices, and we are unable to pass on such increases in
prices to our customers or find alternative suppliers/sources of direct materials who are able to supply us
the direct materials at competitive prices, our business and financial performance will be adversely
affected. As at the Latest Practicable Date, we have not encountered any instances where we were
unable to pass on significant increases in steel prices to our customers.
Our products and technology solutions may become obsolete due to technological developments
in the market and our R&D activities may not yield the benefits that we expect
We constantly strive to develop new products and technology solutions in order to meet our customers’
preferences and market demands. R&D activities require considerable human resources and capital
investment. As at the Latest Practicable Date, we have over 120 project/process engineers who actively
participate in the R&D process through their respective job functions. For FY2007, FY2008, FY2009 and
1Q2010, we spent approximately RMB9.1 million, RMB8.8 million, RMB8.8 million and RMB5.9 million on
our R&D activities, accounting for approximately 7.9%, 7.2%, 3.0% and 8.7% of our total revenue,
respectively.
37
We may not be able to accurately anticipate trends in technological or product developments and market
demand. If the anticipated development trend or market demand does not materialise, our R&D efforts
may become obsolete. Furthermore, our R&D efforts may not be successful or yield the anticipated level
of economic benefits. Even if our R&D efforts are successful, we may not be able to apply these newly
developed technologies to our products that will be accepted by the market or apply them in a timely
manner to take advantage of the opportunities presented in the market, which in turn may have an
adverse impact on our business and financial performance.
In addition, the level of economic benefits that can be derived from newly developed technology solutions
or products may be affected by how quickly our competitors can replicate these technology solutions or
products or develop newer or cheaper alternatives. If our technology solutions or products are replicated,
replaced or made redundant in a manner that we did not anticipate, our revenue may not offset the costs
incurred in developing the new technology solutions and products, and our competitiveness, business and
financial performance may be adversely affected.
We cannot assure you that our licensees as well as third parties will not misappropriate our intellectual
property, or that our competitors will not independently develop alternative technologies that are
equivalent or superior to technologies based on our intellectual property. We had submitted a petition to
an Intermediate People’s Court in the PRC against one of our PRC competitors for infringing our alcohol-
hydrocarbonylation refining process technology in 2006. After careful evaluation, we withdrew the petition
in the same year as there was no significant impact on our operations and business. The legal regime
governing intellectual property in the PRC is still evolving and the level of protection of intellectual
property rights in the PRC differs from that in other jurisdictions. The degree of protection of our
proprietary intellectual property against the infringing parties may not be sufficient and it may be difficult
for us to obtain sufficient compensation from the infringing parties.
We have entered into confidentiality agreements with our key R&D personnel and other contractual
agreements with our employees, as well as limited the access to and distribution of our proprietary
intellectual property to protect our proprietary intellectual property. However, our efforts in this regard may
be inadequate to deter misappropriation of our proprietary information or we may be unable to detect
unauthorised use and take appropriate steps to enforce our legal and proprietary rights. Policing
unauthorised use of our proprietary intellectual property is difficult and there can be no assurance that
the steps taken by us will prevent misappropriation of our proprietary intellectual property.
Where litigation is necessary to safeguard our proprietary technical know-how, or to determine the validity
and scope of the proprietary rights of others, this could result in substantial costs and diversion of our
resources, which could have a material adverse effect on our business, financial performance or future
prospects.
We may be affected by the level of business activities and financial performance of our
customers, in particular our major customers
Our financial results are affected by the level of business activities of our customers, and their financial
performance, which in turn is affected by the general shifts in economic conditions especially in the
petrochemical and chemical industries, level of economic activities in the industries and markets that they
serve, the demands for their products as well as the cost of their products affected by fluctuations in the
prices of their raw materials. This is particularly so for our major customers as they contribute to a large
portion of our revenue. For example, the revenue contribution from our 5 major customers in FY2009 was
74.6% of our FY2009 revenue in aggregate. Please refer to the section entitled “Our Major Customers” of
this Prospectus for details on our major customers.
38
In addition, as our customers are in the petrochemical and chemical industries, their business activities
and financial performance are affected by the applicable laws and regulations in these industries, such as
environmental protection measures, including the policies and procedures established by local authorities
designed for the implementation of such laws and regulations. We cannot assure you that our customers
had been able to comply or are able to continue to comply with all the relevant PRC laws, regulations and
measures. Further, there is no assurance that the current PRC laws and regulations will not be changed
in the future. In the event that our customers are unable to comply with such laws and regulations,
penalties such as fines or suspension of business may be imposed on them.
Therefore, a change or decline in the level of business activities of our customers, or deterioration of their
financial performance or positions may result in our customers undertaking less production capacity
expansion/capital expenditure projects and therefore requiring less of our products and services, or delay
and/or cancellation of the projects they have awarded to us, which could have a material adverse effect
on our business, revenues and financial performance.
Our customers may make claims against us and/or terminate our services in whole or in part
prematurely should we fail to satisfy their requirements and expectations
Any defect or malfunction in our system designs, products and/or technology solutions, or failure to satisfy
the requirements and expectations of our customers, could lead to claims made against us and/or
termination of our services in whole or in part. This may arise from unsatisfactory design or workmanship,
staff turnover, human errors, misinterpretation of and failure to adhere to regulations and procedures.
Further, as our system designs, products and technology solutions are applied in the process of
manufacture of chemicals, if it is established that any damages in and/or loss of property, as well as
personal injuries and/or death resulted from defects in or malfunction of our system designs, products
and/or technology solutions, we may be required to further compensate our customers and/or victims for
such loss, damages, personal injuries and/or death.
In addition, we may also be subject to potential liability from legal suits for any losses suffered by our
customers due to delay of delivery of our products or services.
In the event that we are involved in any legal dispute or court proceedings with our customers, our
reputation will be adversely affected and we may have to spend a significant amount of resources to
defend ourselves, which may adversely affect our business and financial performance. As at the Latest
Practicable Date, we have not encountered any form of termination by our customers.
Our financial performance may fluctuate from period to period due to the nature of our business
We are vulnerable to revenue volatility due to the nature of our business. We derive a substantial portion
of our revenue from the sale of our chemical systems and components as well as provision of technology
design services, both of which are project-based in nature. As such products and services mainly relate
to production capacity expansion projects which are capital expenditure items of our customers, our
customers typically do not make recurrent purchases of the same quantum and/or types of products
and/or services from period to period. For instance, our chemical systems and components comprise (i)
outer layer, which are the pressure vessels; and (ii) inner layer components which include chemical
synthesis reactors, heat exchanger and separation equipment. The average replacement cycle for the
outer and inner layer components are 10-15 years and 5-10 years respectively. Nevertheless, many
39
existing systems in the PRC are considered either technologically outdated or not economically viable in
the long run. Ammonia and methanol production systems with production capacities of less than 180 kt/yr
and 200 kt/yr respectively are considered to be inefficient and not economically viable in the long run.
Please refer to the section entitled “Industry Overview” for more information on the ammonia and
methanol industry in the PRC. Currently, our Group’s ammonia and methanol synthesis reactors have
production capacities of up to 330 kt/yr and 300 kt/yr respectively. Please refer to the section entitled “Our
Chemical Systems and Components and Manufacturing Process” for more information.
Accordingly, in the event that we are not able to continuously and consistently secure new contracts of
similar or higher value and volume, our business and financial performance would fluctuate and may be
adversely affected.
Furthermore, we recognise proceeds from the sale of our chemical systems and components as revenue
only upon the acceptance of our chemical systems and components by our customers, which is after the
successful commissioning and acceptance-testing of the entire production system. The commissioning
and acceptance-testing of the entire production system is dependent on, inter alia, the length of time
required for the completion of our chemical systems and components, the installation schedule of the
remaining production system and our customers’ production schedule. Notwithstanding that we may have
already received milestone payments in accordance with our contracts with our customers (which are
recorded as advances from customers on our balance sheet), our revenue recognised during any given
period reflects the quantity of our chemical systems and components which have been successfully
commissioned and passed the acceptance-testing by our customers during that period, and may be
affected by, inter alia, any rescheduling by our customers, and may not be indicative of the actual demand
of our chemical systems and components during that period due to the production/delivery lead time as
aforementioned. As production/delivery lead time for each contract will differ, this may cause further
fluctuation in our financial performance from period to period.
There is no guarantee on the timeliness of all or any part of our customers’ payments and whether they
will be able to fulfil their obligations, which may arise from their financial difficulties, cashflow difficulties,
deterioration in their business performance, or a downturn in the global economy. If such events or
circumstances occur, our financial performance and our operating cash flow may be adversely affected.
Please refer to the section entitled “Credit Management” of this Prospectus for further details.
In addition, our business will also require skilled employees, such as technicians, engineers and research
personnel, to develop new products and technology solutions. There can be no assurance that we will be
able to attract, train and retain the necessary skilled employees to accomplish our business objectives.
40
Although we have entered into employment contracts with our Executive Directors, Key Executives and
skilled employees, we cannot assure you that we will be able to continue to engage their services in the
future after the aforesaid agreements have lapsed or are terminated. The loss of the services of the
above-mentioned personnel without adequate replacements or the inability to attract new qualified
personnel at a reasonable cost would have an adverse effect on us. Please refer to the section entitled
“Directors, Key Executives and Employees” of this Prospectus for further details.
We are dependent on our existing licenses, certificates and permits in relation to the manufacture
of our products and/or provision of our design services
We are required to obtain various licenses, certificates and permits issued by the relevant government
authorities for the manufacture of our products and provision of our design services in the industries and
markets we serve. Please refer to section entitled “Permits, Approvals, Certifications & Government
Regulations” of this Prospectus for further details of such licenses, certificates and permits. There can be
no assurance that these licenses, certificates and permits will be renewed in future or that we will be able
to maintain these or any of these licenses, certificates and permits for the manufacture of our products
and provision of our design services. Should any of these licenses, certificates or permits not be renewed
and thus result in the discontinuance of production of certain products or termination of qualification of
providing design services, our business and financial performance would be adversely affected.
In the event that we are unable to obtain license agreements on terms acceptable to us, we may need to
cease our operations in relation to a particular range of products or technologies. We may also be subject
to significant damages or injunctions against the development and sale of certain of our products or use
of our technologies. As at the Latest Practicable Date, to the best of our knowledge, we have never
infringed on any third party’s intellectual property rights.
Our production activities may be affected due to fire, power shortage, natural calamities or
outbreak of severe communicable diseases in the PRC
Our production activities may be disrupted due to factors beyond our control, such as the occurrence of
fire, disruptions in the power supply, or natural calamities resulting in significant loss or damage to our
production facilities, direct materials and inventory. These would adversely affect our production
capabilities, result in longer lead time for production and delayed delivery to our customers. The
occurrence of such events could damage our reputation and may, as a result, lead to potential
compensation claims from our customers and affect our ability to attract new businesses.
In addition, the PRC has experienced outbreaks of several communicable diseases such as the
occurrence of bird flu or severe acute respiratory syndrome (“SARS”) in the last few years. If any of our
employees are affected by such severe communicable disease outbreaks, we may be required to
temporarily shut down and quarantine all relevant staff to prevent the spread of the disease, which could
adversely affect and/or disrupt our production and the relevant plants and impact our financial
performance. Further, such outbreak of communicable diseases, if uncontrolled, could have an adverse
effect on the overall business sentiments and environment in the PRC, which in turn may have an
adverse impact on our business and operations.
41
We may not have sufficient insurance coverage
We have maintained insurance coverage for our plant and equipment and our employees, details of which
are set out in the section entitled “Insurance” of this Prospectus. However, we currently do not maintain
any insurance policies against loss of key personnel and business interruption, product liability claims or
delays or damages in in-progress projects. There is no assurance that our insurance coverage would be
sufficient and as such, any uninsured loss or a loss in excess of insured limits will have a material impact
on our business and financial performance.
Our inability to maintain our competitiveness would adversely affect our financial performance
We face competition from competitors which are able to manufacture products that are similar to ours and
compete with us on key attributes which include scale and capacity of our production facilities, pricing,
brand name, timely delivery and customer service. Please refer to the sections entitled “Competition” and
“Competitive Strengths” of this Prospectus for details on competitors and our competitive strengths.
Competition in the products we manufacture could increase as a result of new market entrants, or our
competitors may be able to price their products more attractively, or may develop or acquire technology
that is comparable to or more advanced than our proprietary technologies. In addition to local
competitors, we also face competition from foreign companies, which may have access to greater
financial, technological and other resources than we do.
There is no assurance that we will be able to compete successfully in the future. Any failure by us to
remain competitive would adversely affect our financial performance.
Prolonged disruptions to the global credit and capital markets and their impact on the PRC
economy may materially and adversely affect our liquidity, financial performance, prospects and
future expansion plans
Since the second half of 2008, the general slowdown in the global economy and challenging market
conditions have resulted in reduced liquidity, greater volatility, a reduction in available financing and a lack
of market confidence. These factors, combined with declining consumer confidence and increased
unemployment around the world, have precipitated a global economic slowdown and may lead to reduced
orders, pressure on selling prices and longer trade receivables turnover days. Given the dramatic change
in the overall credit environment and global economy, it is difficult to predict how long these conditions will
exist and the extent to which we may be affected.
In addition, we cannot assure you that measures implemented by governments around the world to
stabilise the credit and capital markets will improve market confidence and the overall credit environment
and economy. As a result, prolonged disruptions to the global credit and capital markets could limit our
financing options, increase our financing cost or cause our financing to be more expensive or subject to
less favourable terms, which in turn may materially and adversely affect our liquidity, financial
performance, prospects and future expansion plans.
Currently, our sales, purchases and operating expenses are denominated in RMB and we do not face any
foreign exchange risk. However, in the future we may purchase machinery and equipment or transact with
foreign customers and/or suppliers in foreign currencies. To the extent that we make such purchases or
enter into such transactions which are payable and/or receivable in currencies other than RMB, any
changes in the foreign currency exchange rate will affect our sales value and/or cost of purchases. Any
significant depreciation of RMB against foreign currencies would materially and adversely affect our
financial performance.
42
Furthermore, there is no assurance that the RMB will not be subject to devaluation due to legislative
intervention by the PRC government or adverse market movements. Any devaluation in the RMB will
adversely affect the dividends (in foreign currency terms) received by our Company, and then by our
Shareholders.
Cessation of income tax incentives will have an adverse impact on our net profit
On 16 March 2007, the National People’s Congress of the PRC
passed the New Income Tax Law, which took effect as of 1 January 2008. Pursuant to the New Income
Tax Law, a unified enterprise income tax rate of 25% and unified tax deduction standards will apply
equally to both domestic enterprises and foreign-invested enterprises. In accordance with Article 28 of the
New Income Tax Law, enterprises which are accredited as advanced new technology enterprises are
entitled to enjoy tax reduction under the current income tax laws in accordance with the requirements and
periods specified by the current income tax laws. Hunan Anchun has renewed its status as an Advanced
New Technology Enterprise in November 2008, and is therefore subject to a reduced income tax rate of
15% for a period of three years ending November 2011. Had our Group been subjected to the income tax
rate of 25%, our income tax payable and net income after tax for FY2007, FY2008, FY2009 and 1Q2010
would have been approximately RMB2.0 million, RMB1.8 million, RMB18.8 million and RMB7.0 million,
and RMB19.3 million, RMB18.4 million, RMB66.4 million and RMB20.8 million, respectively.
There is no assurance that there will not be further change to laws relating to taxation which may result in
the removal, loss, suspension or reduction of the above tax incentives, and we cannot assure you that
Hunan Anchun can be maintained as a high technology enterprise and therefore enjoy such reduced
income tax rate in future. In the event that such tax incentives currently granted to Hunan Anchun cease
or expire, our Group’s financial performance will be adversely affected.
Uncertainty in the PRC legal system may make it difficult for us to predict the outcome of any
disputes that we may be involved in
The PRC legal system is based on the PRC Constitution and is made up of written laws, regulations,
circulars and directives. The PRC government is still in the process of developing its legal system, so as
to meet the needs of investors and to encourage foreign investment. As the PRC economy is undergoing
development generally at a faster pace than its legal system, some degree of uncertainty exists in
connection with whether and how existing laws and regulations will apply to certain events or
circumstances.
Some of the laws and regulations, and the interpretation, implementation and enforcement thereof, are
still subject to policy changes. There is no assurance that the introduction of new laws, changes to
existing laws and the interpretation or application thereof or the delays in obtaining approvals from the
relevant authorities will not have an adverse impact on our business or prospects.
Further, precedents on the interpretation, implementation and enforcement of the PRC laws and
regulations are limited, and unlike other common law countries such as Singapore, decisions on
precedent cases are not binding on lower courts. As such, the outcome of dispute resolutions may not be
consistent or predictable as in the other more developed jurisdictions and it may be difficult to obtain swift
or equitable enforcement of the laws in the PRC, or obtain enforcement of judgment by a court of another
jurisdiction.
43
Our business and financial performance are highly susceptible to changes in the PRC’s political,
economic and social conditions as our revenue is currently wholly derived from our operations in
the PRC
Since 1978, the PRC government has undertaken various reforms of its economic systems. Such reforms
have resulted in economic growth of the PRC in the last three decades. However, many of the reforms
are unprecedented or experimental, and are expected to be refined and modified from time to time. Other
political, economic and social factors may also lead to further readjustment of the reform measures. This
refinement and adjustment process may consequently have a material impact on our operations in the
PRC or a material adverse impact on our financial performance. Our business and financial performance
may be adversely affected by changes in the PRC’s political, economic and social conditions and by
changes in policies of the PRC government or changes in laws, regulations or the interpretation or
implementation thereof.
PRC foreign exchange control may limit our ability to utilise our revenue effectively and affect our
ability to receive dividends and other payments from Hunan Anchun
Our Subsidiary, Hunan Anchun is subject to the PRC rules and regulations on currency conversion. In the
PRC, the State Administration for Foreign Exchange (“SAFE”) regulates the conversion of the RMB into
foreign currencies. Currently, foreign investment enterprises (“FIEs”) are required to apply to SAFE for
“Foreign Exchange Registration Certificates for FIEs”. With such registration certifications (which need to
be examined annually), FIEs are allowed to open foreign currency accounts including the “basic account”
and “capital account”. Currently, conversion within the scope of the “basic account” (e.g. remittance of
foreign currencies for payment of dividends, etc.) can be effected without requiring the approval of SAFE.
However, conversion of currency in the “capital account” (e.g. for capital items such as direct investments,
loans, securities, etc.) still requires the approval of SAFE.
The applicable law in respect of conversion of RMB into other currencies is the Regulation on Foreign
Exchange Controls of the PRC (“Regulation”), which came into effect on 1 April 1996 and amended as of
14 January 1997 and 5 August 2008. The Regulation regulates the general matters in connection with
foreign exchange control on a broad perspective. Under the Regulation:-
(a) Conversion of RMB into foreign currencies for the use of recurring items, including the distribution
of dividends and profits to foreign investors of FIEs is permissible and the approval of SAFE is not
required, and FIEs are permitted to remit foreign currencies from their foreign currency bank
accounts in the PRC upon presentation to the banks of board resolutions which authorise the
distribution of profits or dividends and subject to other requirements being satisfied.
(b) However, conversion of RMB into foreign currencies for capital items, such as repatriation of
capital, repayment of loans and for securities investment, is still under control and needs the
approval of SAFE, where such approval procedures by the local SAFE branch should not create
any legal obstacles for the FIEs. Nevertheless, the time taken to obtain approval will depend on
SAFE and the foreign investors of FIEs may not receive the approval on a timely basis, which may
affect their timing of receipt of the repatriated funds for the said capital items.
In addition, as part of PRC foreign exchange control, the Notice on Issues concerning Foreign Exchange
Management in Financing by PRC Residents by Overseas Special Purpose Vehicle (“SPV”) and Return-
investments
(“Notice 75”) promulgated by SAFE, which came into force on 1 November 2005, may also affect the
repatriation of funds by Hunan Anchun to our Company in the form of dividend income or otherwise.
Notice 75 generally applies to matters concerning foreign exchange control specifically on equity
financing and round-trip investment through SPVs by domestic residents. Under Notice 75:-
(a) SPVs are foreign companies that are established by or controlled by PRC residents for raising
financing outside of PRC by way of equity issue or convertible debt. Such PRC residents
(“Relevant PRC Residents”) are required to file an “overseas investment foreign exchange
registration” before the establishment of such SPV and subsequently, to update such registration
on the occurrence of specified events (“Specified Events”) such as (i) the injection of assets or
44
shares of a PRC domestic company into the SPV; (ii) subsequent equity financing by such SPV
outside of the PRC; (iii) capital reduction; and (iv) share transfers or share swaps. Subject to
completion of the aforesaid registration, payment of dividends, profits and other payments to such
SPV will be permitted.
(b) The Relevant PRC Residents are required to repatriate, within 180 days, distributed dividends or
profits which such Relevant PRC Residents receive from a SPV and/or income deriving from
changes in their shareholdings in such SPV.
(c) Failure by such Relevant PRC Residents to comply with Notice 75 would subject the Relevant PRC
Residents to certain penalties, and may in turn affect the ability of the FIE to repatriate its revenues
to the relevant SPV in the form of dividend income or otherwise under the applicable PRC rules on
foreign exchange control.
Liang Gong Zeng, Dai Feng Yu, Li Chun Yang and Li Bin, who are PRC-resident shareholders and have
control over our Company for the purposes of Notice 75, are deemed Relevant PRC Residents under
Notice 75. Therefore, they are required to repatriate, within 180 days, distributed dividends or profits they
receive from our Company and/or income deriving from changes in their shareholdings in our Company.
In addition, they are required to complete the aforesaid registration with the local SAFE with regard to
their ownership of our Company, as well as changes in their ownership of our Company in connection
with the Restructuring Exercise in compliance with the requirements of Notice 75.
Liang Gong Zeng, Dai Feng Yu, Li Chun Yang and Li Bin have completed the aforesaid registration with
the local SAFE with regard to their ownership of our Company through Giant Yield Global, Dawn Vitality,
Oriental Eagle and Inventive Result Enterprises.
Notwithstanding that our Company and the relevant PRC residents, namely, Liang Gong Zeng, Dai Feng
Yu, Li Chun Yang and Li Bin, have complied with all the relevant PRC laws and regulations on foreign
exchange control as at the date of this Prospectus, there is no assurance that the current PRC laws and
regulations on foreign exchange control will not be changed or even tightened in the future. In the event
that there is a further tightening of the PRC laws and regulations on the foreign exchange control, the
ability of Hunan Anchun to repatriate such revenues to our Company in the form of dividend income or
otherwise may be adversely affected.
PRC tax polices may have an effect on the dividends declared by Hunan Anchun
Under the Enterprise Income Tax Law of the PRC and its implementation regulations, the dividends from
the PRC companies to their foreign shareholders are subject to a withholding tax generally at a rate of
10%, unless it is entitled to tax incentives or tax exemption under the relevant tax treaties. Pursuant to the
Avoidance of Double Taxation Agreement between Singapore and China
dated 11 July 2007 and the Circular in
relation to How to Understand and Determine “Beneficial Owner” under Taxation Conventions
dated 27 October 2009 issued by the State Taxation
Administration of PRC, the withholding tax rate on the dividend distribution by the foreign investment
enterprise shall be 5% of the total dividend declared if the beneficial owner of the dividends is a company
that holds at least 25% of the share capital of the company paying the dividend. In the event that a
company is not considered as a beneficial owner of the dividends by the local tax bureau, the preferential
tax rate on the dividends distribution does not apply and the withholding tax rate shall be 10% instead.
Therefore, if our Company is not considered as the beneficial owner of the dividend by the local tax
authorities, our Company will be subjected to a withholding tax rate of 10%.
However, there is no assurance that our Company will be eventually deemed as the beneficial owner of
the dividends by the local tax authorities and entitled to the preferential 5% withholding tax rate as
aforementioned. In the event that such preferential 5% withholding tax rate does not apply, it may affect
the amount of dividends paid out by Hunan Anchun, and therefore our Group’s financial performance may
be adversely affected.
45
RISKS RELATING TO AN INVESTMENT IN OUR SHARES
There is no prior market for our Shares and the Invitation may not result in an active or liquid
market for our Shares
Prior to this Invitation, there has been no public market for our Shares. The SGX-ST has approved our
application to list our Shares on the SGX-ST. However, we cannot assure you that an active public
market will develop or be sustained after the Invitation. Active, liquid trading markets generally result in
lower price volatility and more efficient execution of buy and sell orders for investors. Liquidity of a
securities market is often a function of the volume of the underlying shares that are publicly held by
unrelated parties.
The Invitation Price has been determined through a book-building exercise and negotiations between our
Company, the Vendors, the Manager, the Underwriter and Placement Agent, and may not be indicative of
prices that will prevail in the trading market. You may not be able to resell your Shares at or above the
Invitation Price. Volatility in the trading price of our Shares may be caused by factors outside our control
and may be unrelated or is disproportionate to our financial performance.
Our share price may be volatile in future which could result in substantial losses for investors
purchasing Shares pursuant to the Invitation
The trading price of our Shares may fluctuate significantly and rapidly after the Invitation as a result of,
among others, the following factors, some of which are beyond our control:-
Future sale or issuance of Shares could adversely affect our share price
Any future sale, availability or issuance of Shares can have a downward pressure on our share price. The
sale of a significant amount of Shares in the public market after the Invitation, or the perception that such
sales may occur, could materially and adversely affect the market price of our Shares. These factors also
affect our ability to sell additional equity securities. Except as otherwise described in the section entitled
“Moratorium” of this Prospectus, there will be no restriction on the ability of our existing Shareholders to
sell their Shares either on the SGX-ST or otherwise.
Negative publicity which includes those relating to any of our Directors, Key Executives or
Substantial Shareholders may adversely affect our share price
Negative publicity or announcement relating to any of our Directors, Key Executives or Substantial
Shareholders may adversely affect the market perception or the share performance of our Company,
whether or not it is justified. Examples of these include unsuccessful attempts in joint venture,
acquisitions or takeovers, or involvement in insolvency proceedings.
We may require additional funding for our growth plans, and such funding may result in a dilution
of your investment
We attempted to estimate our funding requirements in order to implement our growth plans as set out in
the section entitled “Prospects, Business Strategies and Future Plans” of this Prospectus.
46
In the event that the costs of implementing such plans exceed these estimates significantly or that we
come across opportunities to grow through expansion plans which cannot be predicted at this juncture,
and our funds generated from our operations prove insufficient for such purposes, we may need to raise
additional funds to meet these funding requirements.
These additional funds may be raised by issuing equity or debt securities or by borrowing from banks or
other resources. We cannot ensure that we will be able to obtain any additional financing on terms that
are acceptable to us, or at all. If we fail to obtain additional financing on terms that are acceptable to us,
we will not be able to implement such plans fully. Such financing even if obtained, may be accompanied
by conditions that (i) increase our vulnerability to general adverse economic and industry conditions, (ii)
limit our ability to pay dividends or require us to seek consent for the payment of dividends, (iii) require us
to dedicate a portion of our cash flow from operations to payments of our debts, which would
consequently reduce the availability of our cash flow to fund capital expenditures, working capital
requirements and other general corporate purposes, or (iv) restrict our freedom to operate our business
by requiring lender’s consent for certain corporate actions.
Further, in the event we raise additional funds by way of a limited placement or by a rights offering or
through the issuance of new shares, any Shareholders who are unable or unwilling to participate in such
an additional round of fund raising may suffer dilution in their investment.
Investors may find it difficult to commence legal action in Singapore or enforce a Singapore
judgement against our Group or management
Our Group’s operations and significant assets are located outside Singapore. Our management
comprises persons who are non-residents of Singapore and whose substantial assets are located outside
Singapore.
Accordingly, Shareholders may encounter difficulties in effecting service of process in Singapore for
commencement of a legal action against our Group or management, or the enforcement of a Singapore
judgement against the assets of our Group or our management.
Investors in our Shares would face immediate and substantial dilution in the Adjusted NAV per
Share and may experience future dilution
Our Invitation Price of 28.0 cents is higher than our Group’s Adjusted NAV per share of 10.5 cents based
on the post-Invitation issued share capital. If we were liquidated immediately following this Invitation, each
investor subscribing to this Invitation would receive less than the price they paid for their Shares. Please
refer to the section entitled “Dilution” of this Prospectus for further details.
Control by our Controlling Shareholder, Ace Sense, who will beneficially own approximately 21.4%
of our enlarged share capital after the Invitation, may limit your ability to influence the outcome of
decisions requiring the approval of Shareholders
After the completion of the Invitation, our Controlling Shareholder, Ace Sense (wholly-owned by our Non-
Executive Director, Xie Ming, who is the daughter of our Executive Chairman and CEO, Xie Ding Zhong),
will beneficially own approximately 21.4% of our enlarged share capital after the Invitation. As a result,
Ace Sense will be able to significantly influence all matters requiring approval by our Shareholders. Such
concentration of ownership will place it in a position to affect significantly our corporate actions such as
mergers or takeover attempts (notwithstanding that the same may be synergistic or beneficial to our
Group) in a manner that could conflict with the interests of our public Shareholders.
47
EXCHANGE RATES
The reporting currency of our Group is RMB. The following table sets forth, for the financial periods
indicated, the exchange rate of RMB to one Singapore dollar, based on the average of the closing
exchange rates on the last trading day of each month during each financial period. Where applicable, the
exchange rates in this table are used for our Company’s financial statements disclosed elsewhere in this
Prospectus:-
RMB / S$ 1.00
Average(1) Closing
The table below sets forth the highest and lowest exchange rates of RMB to one Singapore dollar for
each month for the six months prior to the Latest Practicable Date of this Prospectus. The table below
indicates how much RMB can be bought with one S$:-
RMB / S$ 1.00
Highest Lowest
As at the Latest Practicable Date, the exchange rate was S$1.00 = RMB5.049.
The above exchange rates have been calculated with reference to exchange rates quoted from
Bloomberg L.P.(2) and should not be construed as representations that the RMB or S$ amounts (as the
case may be) actually represent such S$ or RMB amounts, could have been, or could be, converted into
S$ or RMB (as the case may be) at any particular rate, the rate indicated above or at all.
For the convenience of potential investors, certain parts of this Prospectus contain translations of RMB
amounts into S$ and vice versa. Unless otherwise noted, the exchange rate used for these translations
was S$1.00 = RMB5.049.
Notes:-
(1) The average exchange rates between RMB and S$ are calculated using the average of the exchange rates on the last day of
each month during the financial period year or period.
(2) Source: Bloomberg L.P.. Please note that Bloomberg L.P. has not consented to the inclusion of the information and thereby is
not liable for such information under Section 253 and 254 of the Securities and Futures Act. Our Directors are aware that
Bloomberg L.P. does not guarantee or assume any responsibility that the information is accurate, current or reliable, or may
be used for any purpose other than for general reference. We are unable to verify the accuracy of the contents of the relevant
information and have included such information in its proper form and context in this Prospectus.
48
DIVIDEND POLICY
No dividend has been declared by our Company since incorporation. The dividends declared by Hunan
Anchun in FY2007, FY2008 and FY2009 were RMB1.23 million, RMB25.4 million and RMB48.0 million
respectively. The aforementioned dividends relate to past profits attributable to the existing shareholders
of Hunan Anchun prior to the Restructuring Exercise. The dividends declared in FY2007 and FY2008
have been fully paid. The dividend declared in FY2009 has been partially paid, of which RMB36.2 million
remains unpaid as at the date of this Prospectus. Please refer to the sections entitled “Capitalisation and
Indebtedness” and “Interested Person Transactions” of this Prospectus for more details.
We currently do not have a formal dividend policy. Past dividends declared are not indicative of future
dividend payment. There can be no assurance that dividends will be paid in the future or as to the timing
or amount of any dividends that are to be paid in the future. The declaration and payment of future
dividends will depend upon our operating results, financial conditions, other cash requirements including
capital expenditure, the terms of borrowing arrangements (if any), dividend yield of comparable
companies (if any) listed in Singapore and other factors deemed relevant by our Directors.
We expect to declare dividends either in S$ or RMB and make payment of the dividends in S$.
Shareholders should note that there will be exchange rate exposure in respect of dividends declared in
RMB and subsequently paid to them in S$ equivalent amounts. Shareholders whose Shares are held
through CDP will receive their dividends in S$. CDP will make the necessary arrangement to convert
these dividends received from our Company in RMB into S$ equivalent at such foreign exchange rate as
CDP may determine for onward distribution to such Shareholder entitled thereto. Neither our Company
nor CDP will be liable for any loss howsoever arising from the conversion of the dividend entitlement of
Shareholders holding their Shares through CDP from RMB into S$ equivalent.
49
CAPITALISATION AND INDEBTEDNESS
The following table shows our cash and cash equivalents, capitalisation and indebtedness of our Group:-
(a) on an actual basis as at 31 March 2010 based on our Unaudited Combined Financial Statements;
(b) on an actual basis as at 1 September 2010 (being a date no earlier than 60 days prior to the
lodgement of the Prospectus) based on our Group’s management accounts; and
(c) as adjusted for the Conversion and net proceeds from the issue of New Shares pursuant to the
Invitation and application of the net proceeds from the Invitation.
You should read this table in conjunction with the Accountants’ Reports as set out in Appendix A and
Appendix B of this Prospectus and the section entitled “Management’s Discussion and Analysis of
Results of Operations and Financial Position” of this Prospectus.
As adjusted
for the net
proceeds
As at from the
As at 1 September issue of the
RMB ’000 31 March 2010 2010 New Shares (6)
Indebtedness
Convertible loan (1) 14,967 – –
Bank loans (interest-bearing, secured and non-guaranteed) (2)
4,875 – –
Other loans (interest-free, non-secured and non-guaranteed) (3) 16,485 73,395 73,395
Dividends payables (4) 43,200 36,200 36,200
Net gearing ratio (5) net cash net cash net cash
Notes:-
(1) Based on the terms of the convertible loan agreement, the convertible loan was automatically converted to 800 ordinary
shares of our Company prior to the Invitation. Pursuant to the Conversion, the Pre-IPO Investors have received an aggregate
of 800 Shares (prior to the Sub-division) and the convertible loan settled. Please see the section entitled “Restructuring
Exercise” of this Prospectus for further details.
(2) The bank loans were secured by the pledge of certain properties. Upon the full repayment of the bank loans, such
encumbrances on our properties were released on 25 August 2010. Further details of our banking facilities are set out in the
section entitled “Liquidity and Capital Resources” of this Prospectus.
(3) Other loans as at 31 March 2010 pertained to (i) loan of approximately RMB2.0 million from one of the Pre-IPO Investors
(which has been settled in May 2010); and (ii) Hunan Anchun‘s past shareholders’ loans of approximately RMB14.5 million.
These past shareholders refer to the shareholders of Hunan Anchun prior to the Restructuring Exercise, namely the
registered shareholders Xie Ding Zhong, Li Chun Yang, Jiang Jing Fu and Yan Chao Jian and certain beneficiaries whose
shareholding interests in Hunan Anchun were held in trust by the registered shareholders. As part of the negotiations
between the Pre-IPO investors and Hunan Anchun‘s past shareholders, the past shareholders had agreed to provide the
RMB75 million funds to be received for the sale of the entire share capital of Hunan Anchun back to Hunan Anchun as loans
to supplement the working capital of our Group. Please refer to the section entitled “Restructuring Exercise” for more
information. As at 1 September 2010, such past shareholders’ loans has increased to approximately RMB73.4 million (as
adjusted for foreign exchange translation) from 31 March 2010 due to receipt of the remaining loan proceeds pursuant to the
loan agreements between Hunan Anchun and the past shareholders as aforementioned. These loans are renewable on a
yearly basis up to five years by Hunan Anchun, and are interest-free for the first year. Please refer to the section entitled
“Interested Person Transactions” of this Prospectus for further details.
50
(4) Dividends payables as at 31 March 2010 pertained to the remaining RMB43.2 million dividends payables to past
shareholders of Hunan Anchun in respect of the RMB48.0 million dividends declared by Hunan Anchun in FY2009 (of which
RMB4.8 million has been paid in 1Q2010). Another RMB7.0 million has been paid subsequently and accordingly, the amount
of remaining dividends payables as at the Latest Practicable Date stood at RMB36.2 million. The aforementioned dividends
relate to past profits attributable to the existing shareholders of Hunan Anchun prior to the Restructuring Exercise. The
directors of Hunan Anchun had considered the adequacy of the liquidity and resources of Hunan Anchun prior to declaring
such dividends (the RMB48 million dividends declared in FY2009 represented 63.9% and 83.0% of the Group’s net profits
and net cash flow from operating activities for FY2009 respectively). Based on PRC rules, there is no time limit for the
payment of dividends to shareholders. Accordingly, pursuant to an agreement between Hunan Anchun and its past
shareholders dated 18 June 2010, it was agreed that (i) Hunan Anchun will withhold the remaining payments for the RMB36.2
million dividends payables for a year from the date of such agreement and such amount due will be interest-free during the
year; and (ii) in the event that such amount due is extended beyond the first year, interest will be charged based on the
annual prevailing benchmark lending rates of the People’s Bank of China. Please refer to the sections entitled “Dividend
Policy” and “Interested Person Transactions” of this Prospectus for further details.
(5) Net gearing ratio is computed based on (indebtedness – cash and cash equivalents) divided by shareholders’ equity.
In respect of the abovementioned past shareholders’ loans of approximately RMB73.4 million and
dividend payables of RMB36.2 million, our Group expects to repay these balances in the future through
existing working capital and future cashflows generated from operating activities.
Save as disclosed above and in the section entitled “Material Commitments and Contingencies” of this
Prospectus, as at the Latest Practicable Date, our Group has no other borrowings or indebtedness and
liabilities under acceptances (other than normal trading bills) or acceptance credits, mortgages, charges,
obligations under finance leases, guarantees or other material contingent liabilities.
51
DILUTION
Dilution is the amount by which the Invitation Price paid by the applicants for our Invitation Shares in this
Invitation exceeds our NAV per Share of our Group immediately after this Invitation. Based on the
Unaudited Combined Financial Statements, our NAV per Share as at 31 March 2010, as adjusted for the
Conversion of the convertible loan, but before adjusting for the net proceeds from the Invitation (the
“Adjusted NAV”) and based on the pre-Invitation share capital of 400,000,000 was 6.8 cents per Share. (1)
Note:-
(1) The Adjusted NAV per Share was translated based on the exchange rate of RMB5.049:S$1.00 as at the Latest Practicable
Date.
Based on the issue of 105,000,000 New Shares at the Invitation Price pursuant to the Invitation and after
deducting estimated listing expenses incurred in connection with the Invitation, the Adjusted NAV of our
Group as at 31 March 2010 after the Invitation would have been 10.5 cents per Share as based on the
Unaudited Combined Financial Statements. This represents an immediate increase in Adjusted NAV of
3.7 cents per Share to our existing Shareholders and an immediate dilution of 17.5 cents per Share to
our new public investors. The following table illustrates this per Share dilution:-
As at
31 March 2010
(cents)
The following table summarises the total number of Shares acquired by our Directors, Substantial
Shareholders and their Associates at any time during the past three years before the Latest Practicable
Date, the total consideration paid to us and the average price per Share paid by our Directors, Substantial
Shareholders, other Shareholders (after adjusting for the Restructuring Exercise and Sub-division) and by
our new public investors pursuant to the Invitation:-
Number of
Shares Total Average price
Acquired Consideration per Share
S$ (cents)
Directors
Xie Ding Zhong – – –
Liang Gong Zeng (1)
– – –
Dai Feng Yu (2)
– – –
Xie Ming (3)
– – –
Ma Ong Kee (6),(11)
– – –
Andrew Bek (9)
– – –
Pan De Run – – –
Lee Gee Aik – – –
Tan Min-Li – – –
52
Number of
Shares Total Average price
Acquired Consideration per Share
S$ (cents)
Other Shareholders
China XLX(8), (11) 19,600,000 4,315,561 22.02
Vision Top (6), (11)
13,104,000 2,885,231 22.02
Able Gallery (9), (11)
16,000,000 2,000 0.01
Other Pre-IPO Investors (10), (11)
22,896,000 5,041,230 22.02
New public investors 130,000,000 36,400,000 28.00
Notes:-
(1) Giant Yield Global is an investment holding company incorporated in the British Virgin Islands. Liang Gong Zeng, who is our
Executive Director and COO, owns 25.41%, with the remaining 74.59% held on trust by him for the 103 beneficiaries under
the Trust Agreements. Please refer to the section entitled “Trust Agreements” of this Prospectus for details.
(2) Dawn Vitality is an investment holding company incorporated in the British Virgin Islands. Our Executive Director, Ms Dai
Feng Yu, owns 25.24%, with the remaining 74.76% held on trust by her for the 143 beneficiaries under the Trust Agreements.
Please refer to the section entitled “Trust Agreements” of this Prospectus for details.
(3) Ace Sense is an investment holding company incorporated in the British Virgin Islands. Our Non-Executive Director, Xie Ming,
who is the daughter of our Executive Chairman and CEO, Xie Ding Zhong, is deemed interested in the Shares held by Ace
Sense by virtue of her 100% shareholding interest held in Ace Sense.
(4) Oriental Eagle is an investment holding company incorporated in the British Virgin Islands. Our Head of Sales and Marketing
Department, Li Chun Yang, owns 31.57%, with the remaining 68.43% held on trust by him for the 11 beneficiaries under the
Trust Agreements. Please refer to the section entitled “Trust Agreements” of this Prospectus for details.
(5) Inventive Result Enterprises is an investment holding company incorporated in the British Virgin Islands. Our Head of System
Design Department, Li Bin, owns 24.90%, with the remaining 75.10% held on trust by him for the 140 beneficiaries under the
Trust Agreements. Please refer to the section entitled “Trust Agreements” of this Prospectus for details.
(6) Sinostate Management and Vision Top are investment holding companies incorporated in the British Virgin Islands. Sinostate
Management and Vision Top are wholly owned by Ma Ong Kee, who is our Non-Executive Director.
(7) Go Power is an investment company incorporated in the British Virgin Islands. It is a substantial shareholder of China XLX
which owns approximately 28.1% of the shareholding interest in China XLX, a Singapore- and Hong Kong-listed company.
Yan Yun Hua, a PRC natural person, owns 100% of the shareholding interest in Go Power, of which approximately 12.7% is
held for her own beneficial interest and approximately 87.3% is held by her on trust for 1,463 beneficiaries, comprising of
PRC natural persons or entities, being current and past employees/business associates of China XLX and their related
persons. Go Power is deemed interested in the 4.9% shareholding interest held by China XLX in our Company. Go Power and
its PRC shareholders are not related to our Directors, Key Executives and Controlling Shareholders of our Company.
(8) China XLX is a company dual-listed on both SGX-ST and Hong Kong Stock Exchange, which is not related to the Directors,
Key Executives and Controlling Shareholders of our Company.
(9) Able Gallery is an investment holding company incorporated in the British Virgin Islands. Able Gallery is wholly owned by
Andrew Bek, who is the alternate Director to our Non-Executive Director, Ma Ong Kee.
53
(10) Other Pre-IPO Investors include SkyVen, Naresh Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang. SkyVen is a
company incorporated in Singapore. It is a private equity investment fund, established and managed in Singapore. Its
shareholders comprise mainly institutional investors and high net worth individuals. The investment manager is SkyVen Asset
Management Pte Ltd. The shareholders of SkyVen and SkyVen Asset Management Pte Ltd (which is owned by Peter Tan
Boon Huan and Chew Ghim Bok) are not related to any of our Directors, Key Executives or Controlling Shareholders of our
Company.
Naresh Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang are individual investors who are not related to our
Directors, Key Executives and Controlling Shareholders of our Company.
(11) Total consideration paid by the Pre-IPO Investors includes the monies paid for the subscription of shares in our Company and
the investment in our Company through the convertible loan agreement, which was translated based on an exchange rate of
RMB5.049:S$1.00. Please refer to the section entitled “Restructuring Exercise” of this Prospectus for more details.
54
SHARE CAPITAL
Our Company (Registration No. 200920277C) was incorporated in Singapore on 29 October 2009 under
the Companies Act as a private company limited by shares under the name of “Anchun Holdings Pte.
Ltd.”. On 9 September 2010, we changed our name from “Anchun Holdings Pte. Ltd.” to “Anchun
International Holdings Pte. Ltd.” so as to align with our strategic direction of business development.
As at the Latest Practicable Date, the issued share capital of our Company was S$16,049,200 comprising
50,000 ordinary shares.
Pursuant to the written shareholders’ resolutions dated 9 September 2010 and 12 October 2010, in lieu of
extraordinary general meetings, our shareholders approved, inter-alia, the following:-
(a) the sub-division of each ordinary share in the existing issued share capital of our Company into
8,000 ordinary shares;
(b) conversion of our Company into a public limited company and the change of our name to “Anchun
International Holdings Ltd.”;
(d) the issue of 105,000,000 New Shares pursuant to the Invitation which when fully paid, allotted and
issued, will rank pari passu in all respects with the existing issued Shares (the “Issue of New
Shares”); and
(e) that our Directors be authorised to: (i) allot and issue Shares in our Company (other than the New
Shares); and (ii) issue convertible securities and any Shares in our Company pursuant to the
conversion of such convertible securities (whether by way of rights, bonus or otherwise) at any time
and from time to time thereafter upon such terms and conditions, whether for cash or otherwise,
and for such purposes and to such persons as our Directors may think fit for the benefit of our
Company, provided that the aggregate number of Shares and convertible securities to be issued
pursuant to such authority shall not exceed 50% of the post-Invitation issued shares of our
Company (excluding treasury shares) and provided that the aggregate number of Shares to be
issued other than on a pro-rata basis to the then existing shareholders of our Company shall not
exceed 20% of the post-Invitation issued share capital of our Company, and, unless revoked or
varied by our Company in general meeting, such authority shall take effect from the date of listing
of our Shares on the SGX-ST and shall continue to be in force until the conclusion of our next
annual general meeting or the date by which our next annual general meeting is required by law or
by our Articles to be held, whichever is earlier.
For the purposes of this resolution, and pursuant to Rules 806(3) and 806(4) of the Listing Manual,
“post-Invitation issued share capital” shall mean the enlarged issued and paid-up share capital of
our Company after the completion of the Invitation, after adjusting for: (i) new Shares arising from
the conversion or exercise of any convertible securities; (ii) new Shares arising from the exercise of
share options or the vesting of share awards outstanding or subsisting at the time such authority is
given, provided the options or awards were granted in compliance with the Listing Manual; and (iii)
any subsequent consolidation or sub-division of Shares.
As at the date of this Prospectus, our Company has only one class of shares in the capital of our
Company, being the Shares. The voting rights and privileges of our Shares are stated in our Articles, a
summary of which is set out in Appendix D entitled “Selected Extracts of our Articles of Association” of
this Prospectus.
There are no founders, management, deferred or unissued Shares reserved for any purpose. The New
Shares shall have the same interest and voting rights as our existing issued Shares that were issued
prior to this Invitation and there are no restrictions to the free transferability of our Shares.
55
Details of changes in our issued and paid-up share capital since as at 31 December 2009, and
immediately after the Invitation are as follows:-
Number of
Shares S$
Save as set out in this section and the subsequent paragraph, there was no change in the issued and
paid-up share capital of our Company or our Subsidiary within the three years preceding the date of
lodgement of this Prospectus:-
Our Company
Issue Price Number Resultant
Purpose of Issue or S$ per of shares Issued
Date of Issue investment)/Consideration Share issued(1) Capital
(S$)
Note:-
(1) Prior to the Sub-division.
56
Hunan Anchun
Increase Resultant
in Paid-up Paid-up
Date of Issue Purpose of Issue Capital Share Capital
(RMB) (RMB)
28 September 1998 Issued and fully paid-up Shares as at incorporation 1,064,000 1,064,000
18 November 2001 Increase in capital contribution 11,236,000 12,300,000
31 December 2008 Increase in capital contribution 19,700,000 32,000,000
24 March 2010 Increase in capital contribution 43,000,000 75,000,000
Save as disclosed in this section and the foregoing paragraph, no share in or debenture of our Company
or any of our Subsidiary has been issued, or is proposed to be issued, as fully or partly paid-up for cash,
or for a consideration other than cash, within the three years preceding the date of lodgement of this
Prospectus.
Save as disclosed in this section, no option to subscribe for or purchase shares in or debentures of our
Company or our Subsidiary has been granted to, or was exercised by any person.
57
RESTRUCTURING EXERCISE
Our Group was formed through the Restructuring Exercise in preparation for the listing of our Company
on the SGX-ST. Pursuant to the Restructuring Exercise, our Company became the holding company of
our Group.
Pursuant to the Trust Agreements dated 2 November 2009, Li Chun Yang, Dai Feng Yu, Li Bin and
Liang Gong Zeng were appointed as trustees to each of Oriental Eagle, Dawn Vitality, Inventive
Result Enterprises and Giant Yield Global to hold the shareholding interests in each of the
abovementioned BVI companies on trust for 397 beneficiaries who are existing and past
employees of our Group as well as the related persons of these employees. Please refer to the
section entitled “Trust Agreements” of this Prospectus for details.
The Acquisition was carried out on an arm’s length basis, and the purchase consideration was
based on, inter alia, the valuation of approximately RMB78.4 million by an independent valuer
Hunan Rongxin Asset Valuation Co., Ltd. on 18 November 2009,
which had taken into account, inter alia, the NAV of Hunan Anchun of approximately RMB82.4
million as at 31 January 2009. The purchase consideration was fully paid in cash by May 2010.
Following the completion of the Acquisition, Hunan Anchun became a wholly-owned subsidiary of
our Company.
58
The relevant PRC legal requirements
On 8 August 2006, the Ministry of Commerce (the “MOC”), China Security and Regulatory
Commission (the “CSRC”), State Administration for Foreign Exchange
(the “SAFE”) and three other PRC authorities promulgated the Rules on the
Mergers and Acquisitions of Domestic Enterprise by Foreign Investors
(“Provision 10”), which came into effect on 8 September 2006, and was revised on 22
June 2009.
Article 11 of Provision 10 provides that, where a PRC domestic entity or individual intends to take
over its domestic related entities through an offshore entity which is lawfully established or
controlled by such PRC domestic entity or individual, it shall be subject to the examination and
approval of the MOC. Articles 39 and 40 of Provision 10 provide that, the listing of offshore special
purpose vehicles (“SPV”), which are directly or indirectly established or controlled by the PRC
domestic entities or individuals, are subject to prior approval from the CSRC (the “CSRC
Approval”). “SPV” means an overseas company which is directly or indirectly controlled by a PRC
domestic company or natural person, for the purpose of listing abroad by using its PRC domestic
company’s interests. Accordingly, if it is established that the offshore entity is a SPV as defined in
Articles 39 and 40, pursuant to Article 11 of Provision 10, the acquisition of related PRC domestic
entities by the SPV will need to be approved by the MOC.
Further, on 21 September 2006, the CSRC promulgated the Guidelines on Domestic Enterprises
Indirectly Overseas Issuing or Listing and Trading Their Securities
(the “CSRC Permit Guidelines”), which provides that the listing of
SPVs referred to in Articles 39 and 40 of Provision 10 are subject to the CSRC Approval.
In addition, the MOC authorises the provincial level authority to verify and approve foreign-invested
enterprises in the encouraged category and permitted category set out in the Catalogue for the
Guidance of Foreign Investment Industries (the “Catalogue”) with a total investment value of less
than US$100 million.
On 26 November 2009, given that Hunan Anchun’s total investment is less than US$100 million,
the Acquisition was approved by the Committee and Hunan Anchun was changed to a wholly
foreign-owned enterprise on 31 December 2009.
In respect of the applicability of Article 11 of Provision 10, Haihua Yongtai and Jingtian Gongcheng,
have also opined that, pursuant to the confirmation letters in respect of the applicable laws and
regulations to the Acquisition issued by the Committee on 9 December 2009 and Department of
Commerce of Hunan Province (the “DCHP”) on 30 December 2009 respectively,
given that the foreign investors, being Ma Ong Kee (a Malaysian Citizen), through Sinostate
Management, and Xie Ming (a US citizen), through Ace Sense, collectively hold 55% of
shareholding interests in our Company, and that our Company is not set up and controlled by
domestic residents, our Company does not fall within the definition of SPV in Provision 10.
Accordingly, the Acquisition does not require any approvals from MOC or CSRC pursuant to
Provision 10, and Article 11 of Provision 10 does not apply to the Restructuring Exercise.
59
(d) Second share subscription in the share capital of our Company
On 18 December 2009, the issued and paid-up share capital of our Company was increased to
S$9,200, comprising 9,200 ordinary shares, pursuant to a cash injection of S$8,200 by the BVI
Shareholders and one new BVI company, Vision Top, which is currently controlled by Ma Ong Kee,
our Non-Executive Director. Accordingly, the shareholding proportion in our Company was changed
to Vision Top (6.96%), Sinostate Management (14.78%), Ace Sense (29.35%), Oriental Eagle
(14.13%), Dawn Vitality (11.2%), Inventive Result Enterprises (11.2%) and Giant Yield Global
(12.39%).
(e) Third share subscription in the share capital of our Company and the convertible loan
investment
Pursuant to a convertible loan agreement dated 22 December 2009, supplemented by a deed of
accession and ratification dated 30 April 2010, it was agreed that:-
(i) the BVI Shareholders, Vision Top, Able Gallery, China XLX, Go Power, SkyVen, Naresh
Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang shall subscribe for an aggregate
of 40,000 ordinary shares at S$1.0 per share in the share capital of our Company;
(ii) Vision Top, China XLX, Go Power, SkyVen, Naresh Nanubhai Desai, Wong Chao Hsiung and
Quek Yiang Hang shall invest RMB80.0 million (the “Loan”) in our Company through a
convertible loan (the “Convertible Loan Investment”); and
(iii) the Convertible Loan Investment shall be used for the Acquisition as described in paragraph
(c) above, and the balance shall be retained by our Group for working capital purposes. In
addition, the amount paid to the vendors of Hunan Anchun shall be immediately transferred
to Hunan Anchun as a loan. Please refer to the section entitled “On-going Interested Person
Transactions” of this Prospectus for details.
Subsequently, through a capital injection of S$40,000, the share capital of our Company was
increased from S$9,200, comprising 9,200 ordinary shares, to S$49,200, comprising 49,200
ordinary shares on 3 May 2010, and the resultant shareholding proportion in our Company was
changed to Ace Sense (27.44%), Sinostate Management (6.10%), Oriental Eagle (13.21%), Dawn
Vitality (10.47%), Inventive Result Enterprises (10.47%), Giant Yield Global (11.59%), Vision Top
(3.03%), Able Gallery (4.07%), China XLX (4.54%), Go Power (3.8%), SkyVen (3%), Naresh
Nanubhai Desai (1.8%), Wong Chao Hsiung (0.25%) and Quek Yiang Hang (0.25%)(1).
Note:-
(1) The figures do not add up to 100% due to rounding.
Conversion
Based on the terms of the convertible loan agreement, the convertible loan will be automatically
converted to 800 ordinary shares of our Company prior to the Invitation.
On 2 August 2010, our Company issued the conversion notices (as prescribed under the
Convertible Loan Investment) to Vision Top, China XLX, Go Power, SkyVen, Naresh Nanubhai
Desai, Wong Chao Hsiung and Quek Yiang Hang, pursuant to which the Loan was converted into
an aggregate of 800 shares in the share capital of our Company, which were allotted and issued to
Vision Top (146 shares), China XLX (218 shares), Go Power (182 shares), SkyVen (144 shares),
Naresh Nanubhai Desai (86 shares), Wong Chao Hsiung (12 shares) and Quek Yiang Hang (12
shares), respectively (the “Conversion”).
Following the Conversion, the resulting shareholding structure of our Company was Ace Sense
(27.00%), Sinostate Management (6.00%), Vision Top (3.28%), Able Gallery (4.00%), Oriental
Eagle (13.00%), Dawn Vitality (10.3%), Inventive Result Enterprises (10.3%), Giant Yield Global
(11.4%), China XLX (4.90%), Go Power (4.10%), SkyVen (3.24%), Naresh Nanubhai Desai
(1.94%), Wong Chao Hsiung (0.27%) and Quek Yiang Hang (0.27%).
60
It is noted that Go Power is an investment holding company incorporated in the BVI and ultimately
owned by unrelated PRC nationals. Yan Yun Hua, a PRC natural person, holds 12.7% beneficial
interest in Go Power, with the remaining 87.3% held in trust by Yan Yun Hua for certain
beneficiaries (PRC natural persons or entities) under a trust agreement. Accordingly, the
participation of Go Power in the Convertible Loan Investment has resulted in the change in the
direct shareholding of our Company held and controlled by non-PRC persons from 55.0% to 50.9%
after taking into account the shares issued and allotted to Go Power following the Conversion.
In addition, Go Power currently holds 28.1% interest in China XLX, which also participated in the
Convertible Loan Investment with a direct investment interest of 4.9%. Pursuant to Section 7(4A) of
the Act, as Go Power holds not less than 20% of voting rights in China XLX, Go Power (and Yan
Yun Hua) is deemed interested in China XLX’s 4.9% shareholding interest in our Company.
However, China XLX is a company dual-listed in Singapore and Hong Kong with its own self-
governing board of directors and management, and neither Go Power nor Yan Yun Hua holds a
majority interest in China XLX. Accordingly, neither Go Power nor Yan Yun Hua is considered to
have control over China XLX’s interests in our Company.
The Legal Advisers to our Company on the PRC Law, Haihua Yongtai Law Firm, has advised that
since Go Power and Yan Yun Hua are not related to our Company or the existing shareholders of
our Company, Article 11 of Provision 10 is not applicable with respect to the interests held and
controlled by Go Power and Yan Yun Hua in the share capital of our Company, and our Company is
not deemed to be the SPV as defined in the Articles 39 and 40 of Provision 10.
Notwithstanding the above-mentioned change to the shareholding structure, Haihua Yongtai and
Jingtian Gongcheng have both provided their confirmation that the above-mentioned change will
not have any impact on their respective initial legal opinions that the Acquisition does not require
any approvals from MOC or CSRC pursuant to Provision 10, and that Article 11 of Provision 10
does not apply to the Restructuring Exercise.
Accordingly, following the Restructuring Exercise as described above, save for the entry of Ace
Sense in place of Xie Ding Zhong, and the participation of the Pre-IPO Investors, the ultimate
shareholders of our Company remained substantively the same as those of Hunan Anchun prior to
the Acquisition. Please refer to the section entitled “Trust Agreements” of this Prospectus for more
details.
61
In addition, there was an amount owing from Anchun Biotech to Hunan Anchun of approximately
RMB745,000 relating to certain expenses previously paid on behalf of Anchun Biotech by Hunan
Anchun. Pursuant to an agreement between Hunan Anchun and Anchun Biotech dated 24 June
2010, Hunan Anchun agreed to waive the collection of such amount due from Anchun Biotech as a
gesture of goodwill (as Anchun Biotech is a new start-up, it has low cash balances and hence will
be unable to repay Hunan Anchun in the near term) and accordingly, there are no amounts owing
from Anchun Biotech to Hunan Anchun as at 30 June 2010. The above transaction was not carried
out on an arm’s length basis. Our Group does not expect to enter into any future transactions of the
above nature.
The disposal of Anchun Biotech did not result in any material financial impact to our Group. The
revenue of Anchun Biotech was approximately nil, RMB30,000 and RMB10,000 for FY2007,
FY2008 and FY2009, respectively. The loss after tax of Anchun Biotech was approximately nil,
RMB1.2 million and RMB0.5 million for FY2007, FY2008 and FY2009, respectively. In addition, our
Group recognised a gain on disposal of RMB1.7 million in FY2009 in relation to the disposal of
Anchun Biotech. Accordingly, had Anchun Biotech been disposed prior to the periods under review,
our Group’s profit after tax would have been RMB22.7 million, RMB22.5 million and RMB74.0
million for FY2007, FY2008 and FY2009 respectively, instead of RMB22.7 million, RMB21.3 million
and RMB75.2 million for FY2007, FY2008 and FY2009, respectively.
62
GROUP STRUCTURE
Our Company
100%
Hunan Anchun
OUR SUBSIDIARY
Details of our Subsidiary, Hunan Anchun, are as follows:-
% Ownership
/ % voting
Date and Place Principal Business/ power held by
Name of Company of Incorporation Principal Place of Business our Company
Hunan Anchun 29 September 1998 High technology development and transfer of 100
Changsha City, achievements for oil, coal, natural gas and
Hunan Province, biochemical industry; design, manufacture and
PRC general contracting for sale of chemical new
technological process, new equipment
integration; projects for energy saving and
environmental protection; development and
sale of software and electric products;
manufacture and sale of chemical products
(excluding dangerous products)/Hunan
Province, PRC
Hunan Anchun is not listed on any stock exchange. We do not have any associated companies.
63
INDUSTRY OVERVIEW
This is an executive summary extracted from an industry report entitled “Report on Technologies and
Equipment in China’s Fertiliser and Methanol Industries” prepared by the Fertiliser Department of China
National Chemical Information Centre (the “CNCIC Report”) for the purposes of incorporation in this
Prospectus and issued to our Company on 13 September 2010. This CNCIC Report contains certain
statements that are “forward-looking” and are based on underlying assumptions containing variables that
may have changed since the date of issue. This information has not been independently verified by us,
the Manager, Underwriter and Placement Agent, or any of our and their respective affiliates or advisors.
The information may not be consistent with other information compiled within or outside the PRC. Please
see the section entitled “Cautionary Note On Forward-looking Statements” of this Prospectus.
CNCIC, formerly the Scientific and Technological Information Research Institute of the Ministry of
Chemical Industry of PRC, is a comprehensive information research centre which specialises in the
market research of the PRC chemical fertiliser industry. It is a state-owned enterprise and receives
funding support from the Ministry of Science and Technology of the PRC. At present, the centre has more
than 300 research specialists and operates over 10 chemical-related websites and publishes over 10
periodicals.
The Fertiliser Department of CNCIC is one of the most authoritative and renowned consulting
organisations in the PRC engaged in the investment consultancy and market analysis of fertilisers and
chemical products, and performs feasibility studies of chemical projects. At the present, it has more than
100 experienced professionals and several different kinds of professional information databases and has
provided information services for thousands of fertiliser enterprises, chemical enterprises, government
organisations and research institutes in the PRC and abroad, such as China XLX Fertiliser Ltd., Sinofert
Holdings Limited and Shindoo Chemi-Industry Co., Ltd..
Because of its many uses, ammonia is one of the most highly produced inorganic chemicals. The
worldwide ammonia production capacity and volume in 2009 were 187,500 kt/year and 152,500 kt/yr
tonnes respectively. Global production capacity and volume are expected to increase to approximately
200,000 kt/yr and 170,000 kt/yr respectively in 2012. Consuming more than 1% of all man-made power,
the production of ammonia is a significant component of the world energy budget.
64
The PRC has both the largest production capacity and volume of ammonia globally. Approximately 510
PRC ammonia producers with more than 600 ammonia production facilities accounted for the total
production capacity and volume of 63,000 kt/yr and 51,400 kt/yr respectively, or approximately 34% of the
global production capacity and volume in 2009. The number of ammonia producers and their respective
total and average production volume in each of the provinces, autonomous regions and municipalities in
the PRC in 2009 are set out below:
Average
No. of Production production
Area producers Volume (kt/yr) volume (kt/yr)
Source: CNCIC
After a series of consolidation in recent years, the number of ammonia producers was reduced to 510 in
2009 from over 1,600 in the 1980s. The distribution of production capacities of PRC ammonia producers
in 2009 is set out below:
Source: CNCIC
Production facilities with production capacities of less than 180 kt/yr are typically considered within the
ammonia industry to be inefficient and are not economically viable in the long run. Accordingly,
notwithstanding that majority of the ammonia producers have production capacities of less than 180 kt/yr,
they only accounted for 48.8% of total production volume in 2009.
65
Ammonia is an important raw material used in the production of fertilisers such as urea and other
compound fertilisers. More than 90% of ammonia used in the PRC is the production of fertiliser. The use
of fertiliser can increase crop production yield by 40% to 60%. With only 9% of the global arable area
supporting 21% of the world’s population, fertilisers play an important role in ensuring the PRC’s food
security. Accordingly, the agriculture industry in PRC enjoys preferential policies which include VAT
exemption as well as subsidies on electricity and transportation.
The remaining 10% of ammonia produced in the PRC is used for the production of other industrial
products such as nitric acid, urea-formaldehyde resin, caprolactam, acrylonitrile, phenolic resin, etc. In
addition, it can also be used as refrigerant and corrosion inhibitor.
The top 10 ammonia producing countries and their respective production capacities and volumes for
2009 is set out below:
70,000
60,000
50,000
40,000
kt/yr
30,000
20,000
10,000
0
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66
Coal-based ammonia synthesis technologies being the predominant production technique used in
the PRC
While different types of raw materials such as natural gas and ammonia synthesis technologies exist for
the production of ammonia, coal and coal-based ammonia synthesis technologies were the predominant
raw materials and technologies for the production of ammonia historically. This is because the PRC has
relatively limited natural gas and oil resources as compared to coal, which resulted in the average
historical production volume of ammonia from natural gas and oil to account for approximately 20.8% and
2.1% of the total ammonia production volume respectively. The percentage of ammonia produced by the
various types of raw materials from 2005 to 2009 is as follows:-
Coal remains as the predominant raw material used in the production of ammonia in the PRC. The
production volume of coal-based ammonia accounted for approximately 76.4% of the total production
volume in 2009.
75,000 100.0%
60,000 80.0%
45,000 60.0%
kt/yr
30,000 40.0%
15,000 20.0%
0 0.0%
2000 2002 2004 2006 2008 2010(F) 2012(F)
Production utilisation rate ranges between 80.2% and 90.1% between 2000 and 2009. Production
utilisation rate, as measured by dividing production volume by production capacity, of between 80% and
90% is considered normal for the ammonia industry as a result of the inclusion of smaller-scale,
uneconomically-viable ammonia production facilities as well as scheduled maintenance time of the
remaining ammonia production facilities.
67
Production capacity and volume are expected to grow steadily from 63,000 kt/yr and 51,360 kt/yr
respectively in 2009 to 70,000 kt/yr and 63,000 kt/yr respectively in 2012, representing a CAGR of
approximately 3.6% and 7.0% in the same period. The key reasons underpinning such expected steady
growth in the ammonia industry are as follows:-
a) Persistent and stable increase in demand for fertiliser to expand crop production and in other
industry uses for ammonia
To maintain food self-sufficiency for a growing middle class, the PRC government will continue its
preferential policies to increase crop production yield, including but not limited to direct subsidies
for purchasing agricultural machinery and tools as well as promoting steady growth of the
production volume of fertiliser. Total direct subsidies from such preferential policies amounted to
RMB120.0 billion in 2009. It is expected that crop production will increase by at least 1% every year
from 2010 to 2012, increasing the total crop production from 530,800 kt/yr in 2009 to 547,000 kt/yr
in 2012. The growth in crop production is expected to contribute significantly to the growth in
demand for fertiliser and consequently, ammonia.
Furthermore, as the chemical fibre and plastic industry continues to develop in the PRC, industrial
uses and demand of ammonia is expected to increase from approximately 5,000 kt in 2009 to
7,000 kt in 2012 to produce chemical products such as caprolactam (an organic compound which
is the precursor to synthetic polymer), artificial silk and phenol formaldehyde resin.
At its peak, the number of ammonia producers numbered over 1,600 in the 1980s. Many of these
producers operate ammonia production facilities which are considered to be inefficient, with
production outputs lower than 80.0 kt/yr. Such production facilities typically have a comprehensive
energy consumption of between 1,600 and 1,800 kg standard coal/tonnage ammonia (i.e., the
amount of standard coal in kg required to produce a ton of ammonia). According to “The Norm of
Energy Consumption per Unit Product of Synthetic Ammonia” published by Standardization
Administration of PRC in 2008, the comprehensive energy consumption level above 1,500 kg
standard coal/tonnage ammonia is considered inefficient. Furthermore, according to “Admittance
Condition of Ammonia Industry” which will be published by National Development and Reform
Commission in 2010, production activities at ammonia production facilities with a comprehensive
energy consumption of more than 1,500 kg standard coal/tonnage ammonia will be prohibited from
2015 onwards. Comprehensive energy consumption of less than 1,500 kg standard coal/tonnage
ammonia is typically achieved with production capacities of more than 80 kt/yr.
Notwithstanding that comprehensive energy consumption production facilities of less than 1,500 kg
standard coal/tonnage ammonia is typically achieved with production capacities of more than 80
kt/yr, production capacities of less than 180 kt/yr are typically considered within the ammonia
industry to be inefficient and are not economically viable in the long run. Over 83.3% of the existing
ammonia producers operate production facilities with production capacities of less than 180 kt/yr. It
is expected that these ammonia producers will either upgrade and expand their existing production
capacities or undergo further consolidation to increase their competitiveness in the market.
As a result of the expected increase in demand for ammonia from agriculture and other industries, the
domestic demand for ammonia is expected to increase from 51,636 kt/yr in 2009 to 60,000 kt/yr in 2012,
representing a CAGR of approximately 5.1% in the same period.
68
The largest use of methanol by far is in making other chemicals. About 40% of methanol is converted to
formaldehyde, which is further processed into products as diverse as plastics, plywood, paints,
explosives, and permanent press textiles. Methanol is also used widely in the production of
pharmaceutical products, pesticides, dyestuffs, plastics, synthetic fibre, synthetic rubber, solvents and
fuel.
Methanol is an important material for the chemical industry in the PRC. Approximately 87.7% of all
methanol produced in the PRC is used as a type of fuel or as raw material for the production of
formaldehyde, methyl tertiary butyl ether (“MTBE”), dimethyl ether (“DME”) and acetic acid. DME can be
used as aerosol spray propellant or be blended with liquefied petroleum gas (“LPG”) for home heating
and cooking.
The PRC has both the largest production capacity and volume of methanol globally. Approximately 250
PRC methanol producers accounted for the total production capacity and volume of 28,400 kt/yr and
13,200 kt/yr respectively, or approximately 30% of the global production volume in 2009. Methanol can be
produced singly from dedicated methanol synthesis reactors or as a by-product during the production
process of ammonia. Approximately 180 of these methanol producers produced methanol as a by-
product. Production capacities from such co-producing facilities are usually below 200 kt/yr.
The distribution of production capacities of PRC methanol producers in 2009 is set out below:-
Source: CNCIC
Production facilities with production capacities of less than 200 kt/yr are typically considered within the
methanol industry to be inefficient and are not economically viable in the long run. Accordingly,
notwithstanding that 85.2% of the methanol producers have production capacities of less than 200 kt/yr,
they only accounted for 45.0% of total production volume in 2009. Such methanol production facilities of
less than 200 kt/yr would require hardware and technological upgrade to be economically viable.
The proportion of methanol production volume in various provinces, autonomous regions and
municipalities in the PRC in 2009 are set out below:-
Henan, 14.0%
Others, 19.5%
Chongqing, 4.2%
Shanghai, 4.6%
Hebei, 5.4%
Shandong , 12.0%
Hainan, 5.4%
The majority of the methanol production facilities set up in recent years are located in areas rich in coal
resources, such as Inner Mongolia and Henan.
69
Coal-based methanol synthesis technologies being the predominant production technique used in
the PRC
As aforementioned, as the PRC has relatively limited natural gas and oil resources as compared to coal,
the average historical production volume of methanol from natural gas and coke oven gas accounted for
approximately 35.2% and 5.0% of the total methanol production volume respectively. The percentage of
methanol produced by the various types of raw materials from 2005 to 2009 is as follows:-
Source: CNCIC
Source: CNCIC
Production utilisation rate ranges between 46.5% and 82.4% between 2005 and 2009. The low production
utilisation rate was due mainly to the switch by operators of co-production facilities to concentrate on
increasing production volume for ammonia instead of methanol in 2009. The switch by these operators
was due mainly to the higher average selling price of ammonia of RMB2,400 per tonne as compared to
RMB1,900 for methanol in 2009. Furthermore, methanol producers with methanol production facilities of
less than 200 kt/yr generally face higher average cost of production as compared to the other methanol
producers operating methanol producing facilities of more than 200 kt/yr. Accordingly, these methanol
producers generally lowers the utilisation rate of their methanol producing facilities when the average
selling price of methanol exceeds their average cost of production, contributing to the industry-wide low
production utilisation rate.
70
Notwithstanding that, strong growth in the methanol industry is expected to increase both production
capacity and volume of methanol from 28,400 kt/yr and 13,200 kt/yr respectively in 2009 to 33,000 kt/yr
and 23,100 kt/yr respectively in 2012, representing an increase in production utilisation rate from 46.5%
in 2009 to 70.0% in 2012 as a result of the following:-
As the PRC government seeks to ensure its energy security, it is increasingly seeking alternative
fuel sources. DME is a promising fuel in diesel engines, petrol engines, and gas turbines owing to
its high cetane number (a measurement of combustion quality). In addition, the use of blended
DME and LPG as an alternative cooking or heating fuel in the PRC is expected to increase.
Accordingly, the industry demand for methanol as a result of an increase in demand for DME, is
expected to increase from 1,380 kt/yr in 2007 to 4,200 kt/yr in 2012, representing a CAGR of
24.9%
Furthermore, using the methanol to olefin (“MTO”) process, methanol can also be converted to
ethylene and propylene, the two largest chemicals produced by the petrochemical industry. Such
breakthrough in technologies is expected to increase the demand for methanol from nil in 2007 to
4,650 in 2012. The table below sets out the forecasted growth in methanol consumption as a result
of increase in demand for other methanol-based chemicals:-
Source: CNCIC
218 of the existing methanol production facilities have production capacities in the PRC of less than
200 kt/yr, and would require hardware and technological upgrade to be economically viable.
Increase in competition is expected to result in industry consolidation, leading to a slower absolute
growth in production capacities while increasing overall production efficiency of the PRC methanol
industry through the replacement of existing low-efficiency methanol production facilities. The
higher growth rate in demand for methanol than production capacities growth rate is expected to
increase the production utilisation rate to 70.0% in 2012.
As a result of the increase in demand for methanol as alternative fuel and for other uses, the
domestic demand for methanol is expected to increase from 11,050 kt/yr in 2007 to 22,300 kt/yr in
2012, representing a CAGR of approximately 15.1%.
71
Prospects of coal-based ammonia and methanol synthesis technologies
Coal-based ammonia and methanol synthesis technologies are expected to continue to dominate the
PRC market, with increasing focus on increasing scale of production and adopting environmentally
friendly technologies with low energy consumption
While natural gas is an excellent raw material for the production of ammonia and methanol, China has
limited natural gas resources as compared to coal. In addition, current natural gas-based ammonia and
methanol production facilities are mainly located in the southwest and northwest part of the PRC, which
is far away from the fertiliser consumption market, mainly located in the eastern and middle part of China.
Furthermore, the Natural Gas Utilisation Policy, as promulgated by National Development and Reform
Commission in 2007 specifies that ammonia and methanol producers are prohibited from using natural
gas in the production of ammonia and methanol, due mainly to tight supply of natural gas and high
consumption levels for natural gas in China. As a result of the above, the use of coal as raw materials for
the production of ammonia and methanol is expected to continue to dominate the PRC ammonia and
methanol industry, and accordingly, coal-based ammonia and methanol synthesis technologies are
expected to be the dominant technologies used in the PRC.
The PRC is the largest ammonia and methanol producing country in the world, accounting for
approximately 34% and 30% of the global production volume of ammonia and methanol in 2009,
respectively. As aforementioned, coal is predominantly used as raw materials for the production of
ammonia and methanol. Accordingly, there is strong demand for coal-based ammonia and methanol
synthesis technologies, chemical systems and components as well as catalysts. Hunan Anchun operates
one of the largest R&D centres in the PRC, based on the number and qualifications of its research
personnel and their collective research capability, as well as one of the largest manufacturing facilities for
the ammonia and methanol related systems and technologies in the PRC, based on its manufacturing
and production capacity. It is widely considered to be a leading enterprise and brand name in the PRC,
providing integrated chemical systems engineering and technology solutions to the PRC petrochemical
and chemical industries, in particular, manufacturers of ammonia and methanol based products.
72
HISTORY AND BUSINESS
HISTORY
On 29 October 2009, our Company was incorporated in Singapore under the Companies Act as a private
company limited by shares under the name of “Anchun Holdings Pte. Ltd.”. Pursuant to the Restructuring
Exercise as described under the section entitled “Restructuring Exercise” of this Prospectus, our
Company became the holding company of our wholly-owned Subsidiary, Hunan Anchun. On 9 September
2010, we changed our name from “Anchun Holdings Pte. Ltd.” to “Anchun International Holdings Pte. Ltd.”
so as to align with our strategic direction of business development. On 14 September 2010, our name
was changed to Anchun International Holdings Ltd. in connection with our conversion to a public
company limited by shares.
The origins of our business can be traced back to 1993 when our Subsidiary’s predecessor, Hunan
Anchun Energy Saving Technology Co., Ltd. (“Anchun Energy Saving”) was
set up as a joint venture by our founding management team, led by our Executive Chairman and CEO,
Xie Ding Zhong, with a state-owned enterprise to engage in the research and development of ammonia
synthesis reactors as well as provision of technical consultant services to fertiliser manufacturers.
Subsequently, the joint venture was discontinued and the operations of Anchun Energy Saving were
ceased. Thereafter, our founding management team and then employees established our Subsidiary,
Hunan Anchun, to carry on the business in September 1998 with an initial share capital of
RMB1,064,000.
From our inception, our aim was to become an integrated chemical systems engineering and technology
solutions provider to the PRC petrochemicals and chemical industries (in particular, manufacturers of
ammonia and methanol based products), as we seek to capture value at each of the value-chain such as
research and development, system design and development, system production, and overall project
management. In 1994, leveraging on our research and development expertise and reputation in the
fertiliser industry, we acquired the capabilities to produce proprietary ammonia synthesis reactors (up to
Φ600) with annual capacity of up to approximately 25,000 tonnes and started to market these products to
our customers.
In the same year, as a testament to its technological innovation, outstanding operational results and great
economic benefits, our methanol-methane technology (patent number: ZL 94 1 10903.8) was endorsed
by the Technology Department of the Ministry of Chemical Industry of PRC to be applied in the ammonia
industry.
In 1995, the proprietary ammonia synthesis reactor technology developed by our founding management
team was awarded the National Scientific and Technological Progress Award (2nd-highest honours)
by the National Science and Technology Committee of PRC in recognition of
its stable and outstanding operational performance in energy saving and production efficiency.
In 1996, we developed a new technology for the gas distribution processes in ammonia synthesis
systems (patent number: ZL96 1 18424.8), which greatly improved
synthesis efficiency and reduced energy consumption. In addition, we obtained the Class C engineering
design qualifications to provide certain engineering design services for chemical systems and processes.
Thereafter, we successfully assimilated our aforementioned gas distribution processes technology into
our proprietary ammonia synthesis reactor technology as well as our engineering design capabilities.
Pursuant thereto, we began providing such integrated chemical systems and components and technology
solutions to our customers, such as Hunan Qiaokou Nitrogen Fertiliser Factory and
Hunan Xiangyin Nitrogen Fertiliser Factory .
In 1998, we clinched an expansion project commissioned by Hunan Hengyang Nitrogen Fertiliser Factory
and successfully applied our newly developed alcohol-hydrocarbonylation refining
process technology (patent number: ZL 02 1 09000.9), which became one of our
core competitive technologies. We continued to modify and improve upon such technology over the years.
As a testament to the alcohol-hydrocarbonylation refining process technology’s outstanding operational
73
performance, wide applicability and breakthrough in technological achievements as well as its contribution
to the development of the PRC chemical industry, we were conferred the China Petroleum and Chemical
Industrial Technology Progress Award (2nd-highest honours) by
China Petroleum and Chemical Industries Association in 2002 and the 2003 National Scientific and
Technological Progress Award (2nd-highest honours) by the State
Council in 2004.
In 2000, we focused our R&D efforts on increasing the production capacity of our ammonia synthesis
reactors, so as to meet the increasing demand for larger scale ammonia synthesis reactors. Accordingly,
we successfully developed a breakthrough in our ammonia synthesis reactor technology where we
overcame the limitations of our previous reactors and improved our ammonia synthesis reactors to Φ1600
reactors with annual capacity of up to approximately 150,000 tonnes. These were readily accepted by our
customers such as Yueyang Fertiliser Factory (currently part of Hunan Tian Run Chemical Development
Co., Ltd. , a company listed on the Shenzhen Stock Exchange in the
PRC). In 2005, we submitted the patent application in respect of this technology to the State Intellectual
Property Office of the PRC and received the registered patent in 2008 (patent number: ZL 2005 1
0032358.3).
In this year, we also commenced the production of oxidative catalysts with an annual production capacity
of approximately 300 tonnes.
In 2003, we obtained the Class A national engineering design qualifications to provide certain
engineering design services in respect of chemical system and components, technological process,
instruments and electrical equipment nation-wide. As a testament to the quality of our engineering design
capabilities, the project we undertook for Feng Xi Fertiliser Group, Linyi Branch Company
was awarded the 2003 Chemical Industry Outstanding Engineering Design
(2nd-highest honours) by the China Petroleum and Chemical
Engineering Survey and Design Association in 2004.
In 2004, to meet the increasing demand for our chemical systems and components, we established
Lufeng Plant with a production area of approximately 5,000 sqm and expanded our production capacity to
approximately 1,600 tonnes annually. In addition, we successfully developed our methanol synthesis
reactor (up to Φ2800) with annual capacity of up to approximately 120,000 tonnes, which was registered
as a patent for invention with the State Intellectual Property Office of the PRC in 2007 (patent number: ZL
2004 1 0046980.5). Our first customer for this technology was Shandong Deqilong Chemical Co., Ltd.
(currently part of the Sinofert Holdings Limited ), a
listed company on the Hong Kong Stock Exchange.
In 2007, we expanded our production area at our Lufeng Plant from approximately 5,000 sqm to
approximately 7,000 sqm. As a result of the expansion, our production capacity of chemical systems and
components increased from approximately 3,000 tonnes to approximately 4,370 tonnes. We also doubled
our manufacturing capacity of oxidative catalysts, resulting in an increase in the annual production
capacity to approximately 1,200 tonnes. In addition, we started to manufacture pressure vessels of
varying specifications and pressures up to 10MPa for use in our chemical systems so as to reduce our
reliance on third party suppliers and expand our product range.
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In the same year, as a testament to its innovative design, improved synthesis efficiency and reduced
energy consumption, our methanol synthesis reactor technology was endorsed by the China Nitrogen
Fertiliser Industry Association and Shandong Fertiliser Industry Association
to be applied in the methanol industry. Such endorsement increased the market
awareness of our methanol synthesis reactor and enabled us to attract and secure more customers in the
chemical industry.
In December 2007, we set up Anchun Biotech as a wholly-owned subsidiary of Hunan Anchun with an
initial share capital of RMB2,000,000. It was engaged in the business of manufacture and sales of health
supplements. In order to streamline our Group’s business and resources for the purpose of the Invitation,
we disposed of all the equity interest in Anchun Biotech and transferred certain intangible assets
including 6 trademarks, 1 patent and 2 production permits for health supplements which were registered
under Hunan Anchun’s name but which were not relevant to Hunan Anchun’s business. Please refer to
the section entitled “Restructuring Exercise” of this Prospectus for more information.
In mid 2008, we established our Lusong Plant with a gross production area of approximately 15,000 sqm
and expanded our combined production capacity at our Lufeng Plant and Lusong Plant to approximately
8,750 tonnes of chemical systems and components and approximately 1,500 tonnes of catalysts for
FY2008. In addition, we obtained additional qualifications to manufacture high pressure vessels of varying
specifications and pressures up to 100MPa, which allowed us to increase our product range of pressure
vessels.
In the same year, we integrated our methanol synthesis reactor technology into our ammonia synthesis
systems. Such integration of technologies allowed our customers to produce both ammonia and methanol
concurrently, enabling them to achieve flexibility in production and wider product portfolio, as well as
outstanding energy saving results.
In 2009, our combined production capacity at our Lufeng Plant and Lusong Plant reached approximately
13,125 tonnes of chemical systems and components and approximately 1,650 tonnes of catalysts. In
addition, we further improved the production capacity and efficiency of our ammonia synthesis reactors to
Φ2500 reactors with annual capacity of up to approximately 300,000 tonnes and successfully installed
such reactors for Henan Xinlianxin Fertiliser Co., Ltd. . We also improved the
production capacity of our methanol synthesis reactor to Φ3800 reactors with annual capacity of up to
approximately 300,000 tonnes.
In 2010, we further improved the production capacity and efficiency of our ammonia synthesis reactors to
Φ2600 reactors with annual capacity of up to approximately 330,000 tonnes and successfully secured an
order from Guizhou Kailin Group for such reactor.
In addition, we expanded our engineering design services under our Class A national engineering design
qualifications to include all engineering design services for chemical engineering within the chemical,
petrochemical and pharmaceutical industries as well as specific environmental engineering for waste
water, waste gas and solid waste treatment. Tapping on our existing R&D and manufacturing capabilities,
we believe this has further strengthened our competitiveness in the PRC petrochemical and chemical
industries as we have become a leading integrated chemical systems engineering and technology
solutions provider to these industries, in particular, manufacturers of ammonia and methanol based
products.
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BUSINESS OVERVIEW
We are a leading integrated chemical systems engineering and technology solutions provider to the PRC
petrochemical and chemical industries, in particular, manufacturers of ammonia and methanol based
products. Since our inception, we have established a track record of operational excellence, technological
breakthroughs and national awards for our achievements. In addition, we have obtained several
enterprise awards and accolades, including 2009 Forbes China Up & Comers award by Forbes China
magazine (ranked 98th enterprise across all industries nationwide for enterprise growth potential) and
2005 China Petrochemical and Chemical Industries Outstanding Private Enterprise
by China Petroleum and Chemical Industries Association.
Based on the CNCIC Report dated 13 September 2010, we have one of the largest R&D and
manufacturing capabilities for ammonia and methanol related systems and technologies in the PRC.
Please refer to the sections entitled “Industry Overview” and “Research and Development” of this
Prospectus for more information.
Our integrated business model is anchored on our strong R&D capabilities and registered patents for our
key technologies, and allows us to capture value across the value chain from system design, system
production and project management, and after-sales. Based on core principles of production efficiency,
energy saving and environmental protection, our range of integrated chemical systems engineering and
technology solutions can be broadly categorised as follows:-
(ii) Chemical systems and components, including alcohol-hydrocarbon reactors technology, ammonia
synthesis reactor technology and methanol synthesis reactor technology, pressure vessels and
other auxiliary equipment; and
As a testament of our success in achieving our core principles of production efficiency, energy saving and
environmental protection, we have been accorded awards by the PRC government and national bodies
such as 2003 National Scientific and Technological Progress Award (2nd-highest honours)
by the State Council in recognition of outstanding operational results,
economic and social benefits of the alcohol-hydrocarbonylation refining process technology being a
technological progress; and 2007 State Focus Environmental Protection Application Technology (Grade
A) by China Environmental Protection
Industry Association in affirmation of our alcohol-hydrocarbonylation refining
process technology being energy saving and environmentally acceptable to prevent environmental
pollution and ecological damage.
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Our chemical systems and components are generally used by our customers to produce ammonia and
methanol, which are subsequently used as crucial feedstock in our customers’ production system to
produce other downstream products such as urea, compound fertiliser, methanol fuel, formaldehyde,
dimethyl ether and explosives. The following diagram illustrates our value chain vis-à-vis our customers’
value chain, products and industry applications:-
Our Customers’
Our Customers’ Our Customers’ Products and
Our Value
Our Value Chain
Chain
ProductionProcess
Production Process Industry Applications
chemical uses
systems (More than 90% of
engineering ammonia produced Other industries
and Ammonia / Methanol in the PRC are used Feedstock for
System production and
technology synthesis in the manufacture of various industries
project management
solutions chemical fertilisers) such as
pharmaceutical and
solvents industries
Ammonia / Methanol
output
Ammonia / Methanol
Please refer to the section entitled “Our Integrated Business Model” of this Prospectus for more
information.
We have a leading and established management team who have an average of approximately 32 years of
relevant professional experience in our industry, and have been working together since the founding years
of our Group. Since our inception, we have also established an extensive and notable customer base
across the PRC. As at the Latest Practicable Date, we have a customer base of approximately 320
customers (of which certain customers belong to the same group of companies) across 26 province-level
administrative units comprising provinces, autonomous regions and municipalities in the PRC. Our
customers include notable groups such as China XLX Fertiliser Ltd. (dual-listed on both SGX-ST and
Hong Kong Stock Exchange), Shandong Hualu Hengsheng Chemical Co., Ltd.
(listed on Shanghai Stock Exchange) and Sinofert Holdings Limited (listed
on Hong Kong Stock Exchange), Guizhou Kailin Group and Shanxi Jincheng Anthracite
Mining Group .
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COMPETITIVE STRENGTHS
We believe our competitive strengths are as follows:-
Our top management are considered leading professionals in our industry and have been respectively
accorded various individual awards for their professional achievements. Some of them also hold key
appointments in various national industry associations and bodies, such as Methanol Technology
Committee of National Chemical Ammonia Synthesis Design Centre
, China Chemical Industry Environmental Protection Association ,
Synthetic Ammonia Design Committee of China Petroleum and Chemical Engineering Survey and Design
Association . Please refer to the section entitled
“Directors, Key Executives and Employees” of this Prospectus for more information on our management
team. We believe that our management team’s extensive experience and contacts within our industry will
enable us to anticipate and cater to the requirements and demand of our customers and industry,
allowing us to continue our business expansion and growth going forward.
Integrated business model anchored on strong R&D capabilities and registered patents for our
key technologies
By leveraging on our strong R&D capabilities and registered patents for our key technologies, we are
focused on providing integrated chemical systems engineering and technology solutions based on core
principles of production efficiency, energy saving and environmental protection to the PRC petrochemical
and chemical industries, in particular, manufacturers of ammonia and methanol based products. Our
Class A national engineering design qualifications (which include all engineering design services for
chemical engineering in the chemical, petrochemical and pharmaceutical industries as well as specific
environmental engineering for waste water, waste gas and solid waste treatment) and integrated business
model allow us to capture value across the value chain from system design, system production and
overall project management, and after-sales. Our range of integrated chemical systems engineering and
technology solutions can be broadly categorised as follows:-
Please refer to the section entitled “Our Integrated Business Model” of this Prospectus for more
information.
Based on the CNCIC Report, we are one of the largest R&D centres of the ammonia industry and
methanol industry in the PRC and one of the largest manufacturing bases of equipment for ammonia and
methanol industries. Our R&D activities are initiated and led by our Executive Chairman and CEO Xie
Ding Zhong and Executive Director Dai Feng Yu. As at the Latest Practicable Date, we have over 120 of
our project/process engineers who actively participate in the R&D process through their respective job
functions. Our research philosophy emphasises collaboration across technical and functional boundaries
and applying leading-edge technologies to solve customer and industry problems. We also work with
reputable academic institutions and research institutes to jointly undertake specific R&D projects on an
ad-hoc basis. These collaborations allow us to adapt and adopt the technical expertise of the relevant
academic institutions and external research institutes thereby boosting our competitiveness. Our R&D
initiatives are focused on developing and introducing new technologies to cater to our customers’ evolving
needs and thereby expanding our range of integrated products and solutions.
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As at the Latest Practicable Date, we have 13 registered patents and another 4 patent pending
applications in the PRC. Our patents include key technologies such as our multi-layer radial ammonia
synthesis reactor and methanol synthesis reactor. Please refer to the sections entitled “Research and
Development” and “Intellectual Property - Patents” of this Prospectus for more information.
1994, Developed our proprietary ammonia synthesis reactors (up to Φ600) with annual capacity
1995 of up to 25,000 tonnes
This technology was awarded the National Scientific and Technological Progress Award
(2nd-highest honours) by the National Science and Technology
Committee of PRC in 1995
1996 Developed a new technology for the gas distribution processes in synthesis systems,
which greatly improved synthesis efficiency and reduced energy consumption
2003, Obtained the Class A national engineering design qualifications to provide certain
2004 engineering design services in respect of chemical systems and components,
technological process, instruments and electrical equipment nation-wide
One of our projects was awarded the 2003 Chemical Industry Outstanding Engineering
Design (2nd-highest honours) by the China Petroleum and
Chemical Engineering Survey and Design Association
in 2004
2006 Developed the multi-layer radial ammonia synthesis reactor. This further improved the
production capacity and efficiency of our ammonia synthesis reactors to Φ2000 reactors
with annual capacity of up to approximately 200,000 tonnes
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Year Significant achievements
2007 Our methanol synthesis reactor technology was endorsed by the China Nitrogen Fertiliser
Industry Association and Shandong Fertiliser Industry Association
for its innovative design, improved synthesis efficiency and reduced
energy consumption
2009 Improved the production capacity and efficiency of our ammonia synthesis reactors to
Φ2500 reactors with annual capacity of up to approximately 300,000 tonnes
Improved the production capacity of our methanol synthesis reactor to Φ3800 reactors
with annual capacity of up to approximately 300,000 tonnes
2010 Improved the production capacity and efficiency of our ammonia synthesis reactors to
Φ2600 reactors with annual capacity of up to approximately 330,000 tonnes
Obtained our Class A national engineering design qualifications to include all engineering
design services for chemical engineering in the chemical, petrochemical and
pharmaceutical industries as well as specific environmental engineering for waste water,
waste gas and solid waste treatment
Please refer to the section entitled “History” of this Prospectus for more information on the above.
Widely-recognised as a leading enterprise and brand name in the PRC chemical systems
engineering and technology solutions industry
We believe that in recent years we have become widely-recognised as a leading enterprise and brand
name in the PRC chemical systems engineering and technology solutions industry. As testament to our
leading position and in addition to our established track record of operational excellence, technological
breakthroughs and national awards as aforementioned, we have obtained several enterprise awards and
accolades, including:-
2009 Forbes China Up & Comers award by Forbes China magazine (ranked 98th enterprise across
all industries nationwide for enterprise growth potential)
Please refer to the section entitled “Awards and Accreditation” of this Prospectus for more information on
the above.
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Extensive and notable customer network across the PRC
Since our inception, we have also established an extensive and notable customer base across the PRC.
As at the Latest Practicable Date, we have a customer base of approximately 320 customers (of which
certain customers belong to the same group of companies) across 26 province-level administrative units
comprising provinces, autonomous regions and municipalities in the PRC. Our major customers include
notable groups such as:-
China XLX group (dual-listed on both the SGX-ST and the Hong Kong Stock
Exchange)
Please refer to the section entitled “Our Major Customers” of this Prospectus for more information on our
customers. Other notable customers include Shandong Hualu Hengsheng Chemical Co., Ltd.
(listed on the Shanghai Stock Exchange), Jiangsu Huachang Chemical
Co., Ltd. (listed on the Shenzhen Stock Exchange) and subsidiary of
Sichuan Meifeng Chemical Industry Co., Ltd. (listed on the Shenzhen Stock
Exchange).
To ensure our market presence and attend to existing and potential customers across the PRC, we have
a dedicated sales and marketing team headed by our Head of Sales and Marketing, Li Chun Yang.
For example, pressure vessels are classified based on the pressure that a pressure vessel can bear, from
low pressure (below 1.6MPa) to ultra-high pressure (above 100MPa). As such, any entity engaged in
design and manufacture of pressure vessels shall obtain the relevant design qualification and
manufacture qualification respectively, pursuant to which the category of pressure vessels that such entity
can design or manufacture is clearly prescribed in the design or manufacture qualification certificate.
Accreditation of such design qualification or manufacture qualification will take into account, inter alia, the
qualification and experience of the designer and/or technicians, quality control system, and testing
capability (for manufacture of pressure vessels). We currently have both the design qualification and
manufacturing qualification, which allow us to design and manufacture high pressure vessels of varying
specifications and pressures up to 100MPa.
In addition, any entity engaged in the business of provision of engineering design in the PRC shall obtain
engineering design qualifications. Such qualifications are classified into four categories including
comprehensive engineering design qualifications, industry engineering design qualifications, specialised
engineering design qualifications and engineering design qualifications for special project by taking into
account, inter alia, the designer’s track record, technical capabilities and human resources, independent
design capabilities and industry reputation. We currently possess Class A national engineering design
qualifications, which allows us to perform all engineering design services for chemical engineering within
the chemical, petrochemical and pharmaceutical industries as well as specific environmental engineering
for waste water, waste gas and solid waste treatment.
Please refer to the section entitled “Permits, Approvals, Certifications & Government Regulations” of this
Prospectus for further details.
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In addition to the above regulatory qualifications, customers of our industry also place much emphasis on
requisite management expertise and experience, track record and R&D and technical capabilities during
their selection of vendors. As such, these factors generally enable larger and more established
companies such as our Group to be more competitive vis-à-vis smaller competitors and restrict new
entrants to our industry.
(i) Chemical systems engineering and technology design services (“CET Design Services”);
(ii) Chemical systems and components, including alcohol-hydrocarbon reactors technology, ammonia
synthesis reactor technology and methanol synthesis reactor technology, pressure vessels and
other auxiliary equipment (“CSC Business”); and
Our chemical systems and components are generally used by our customers to produce ammonia and
methanol, which are subsequently used as crucial feedstock in our customers’ production system to
produce other downstream products such as urea, compound fertiliser, methanol fuel, formaldehyde,
dimethyl ether and explosives. The following diagram illustrates our value chain vis-à-vis our customers’
value chain, products and industry applications:-
Our Customers’
Our Customers’ Our Customers’ Products and
Our Value
Our Value Chain
Chain
Production
ProductionProcess
Process Industry Applications
chemical uses
systems (More than 90% of
engineering ammonia produced Other industries
and Ammonia / Methanol in the PRC are used Feedstock for
System production and
technology synthesis in the manufacture of various industries
project management
solutions chemical fertilisers) such as
pharmaceutical and
solvents industries
Ammonia / Methanol
output
Ammonia / Methanol
82
As illustrated above, our chemical systems and components used by our customers can be broadly
categorised into three main sub-processes in their production of ammonia and methanol, namely (i)
preparation of raw gas; (ii) gas purification; and (iii) ammonia/methanol synthesis. These three sub-
processes are briefly described as follows:-
(i) Preparation of raw gas – depending on whether natural gas or coal is used as the raw material,
either the heterogeneous catalytic process or the gasification process is used to prepare the
natural gas or coal respectively for the next process.
(ii) Gas purification – raw gas is purified and refined to remove the gaseous impurities, such as CO,
CO2 and SO2, from the reaction gas which mainly contains H2 and N2. Such process can be further
divided into three sub-processes, namely, (1) gas conversion process where CO and vapour are
converted into CO2 and hydrogen, (2) gas desulphurisation and decarbonisation process where
oxides of sulphur and oxides of carbon are removed, and (3) gas refining process where the
remaining CO and CO2 are removed so that the reaction gas compositions will be in compliance
with industrial standards required for ammonia or methanol synthesis.
(iii) Ammonia/methanol synthesis – H2 and N2 are synthesised into ammonia in an ammonia synthesis
reactor by subjecting the aforementioned gases under pre-determined temperature, pressure and
other conditions with the aid of catalyst, before being deposited in storage tanks for further use as
feedstock to produce other downstream products such as urea, compound fertiliser and explosives.
CO, CO2 and H2 are synthesised into methanol in a methanol synthesis reactor by subjecting the
aforementioned gases under pre-determined temperature, pressure and other conditions with the
aid of catalyst, before being deposited in storage tanks for further use as feedstock to produce
other downstream products such as methanol fuel, formaldehyde and dimethyl ether.
(i) Production efficiency – Given that coal and natural gas are the main raw materials for ammonia
and methanol production systems, and the limited and precious nature of such natural resources,
improvement of production efficiencies of our chemical systems operated by our customers are
important as these will lead to increases of production yields per measure of direct material input.
Hence, greater production efficiency will lead to lower levels of coal and natural gas usage in our
customers’ industry.
(ii) Energy saving – Energy resources and consumption (such as electricity) are critical to our
operations and our chemical systems operated by our customers. Hence, energy saving
innovations will lead to reduction of consumption levels of energy by our operations and our
chemical systems.
(iii) Environmental protection – Due to the nature of the petrochemical and chemical industries,
pollution control is important as pollution may lead to widespread economic, social and
environmental impacts. Hence, we seek to design and manufacture chemical systems with minimal
or nil emissions of pollutants into the environment.
Furthermore, we also place emphasis on workplace safety, product safety and quality to ensure that our
operations and use of our chemical systems will not result in any work safety issues to our production
workers or those of our customers.
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Effects of our technology solution and products
By leveraging on our strong R&D capabilities and registered patents for our key technologies, we are
focused on providing integrated chemical systems engineering and technology solutions to our customers
based on the above core principles of production efficiency, energy saving and environmental protection.
Through such focus and efforts over the years, we have developed and patented several technologies
and products. We set out below examples of certain patented technologies and products that
demonstrate our core principles:-
(i) Alcohol-hydrocarbonylation refining process technology – This technology eliminates the discharge
of toxic fluid or other pollutants such as CO and CO2 to the environment. As the chemical system
which employs this technology is a closed-system, there is no emission of pollutants into the
environment when this technology is used. On the other hand, the previous gas refining process
technologies utilised by our customers prior to the adoption of our alcohol-hydrocarbonylation
refining process technology usually results in discharge of toxic fluid which has high bronze
concentration, CO and CO2, where each of these pollutant emissions is harmful to our
environment. In addition, our alcohol-hydrocarbonylation refining process technology recycles CO
and CO2 produced during the chemical synthesis processes through our alcohol-
hydrocarbonylation reactors and separation equipment, into other useful chemicals such as
methanol and dimethyl ether, thereby increasing the production yield over previous technologies.
(ii) Gas distribution technology – This technology, which is applied to both our ammonia synthesis
reactors and methanol synthesis reactors, increases production yield and reduces energy
consumption through the optimization of the quantity and flow directions of various gases in the
respective synthesis reactors, thereby increasing the synthesis reaction rate of ammonia and/or
methanol.
(iii) Ammonia and methanol synthesis reactor technologies - Our innovative reactor technologies are
proven to have high production efficiencies and energy saving levels. For example, through our
customised chemical system design, we are able to reduce the energy consumption of our
customers by re-using the heat generated through the chemical synthesis process to generate,
inter alia, steam which is then directed through carefully planned piping and heat exchange
systems to maintain and/or achieve certain pressures which are optimal for our chemical synthesis
reactors in the production of ammonia or methanol. Furthermore, our ammonia and methanol
synthesis reactor processes generally do not result in any emissions of pollutants into the
environment.
(i) 2003 National Scientific and Technological Progress Award (2nd-highest honours)
by the State Council in recognition of outstanding operational results, economic and
social benefits of the alcohol-hydrocarbonylation refining process technology being a technological
progress
(iii) Underpinning Technology for Recycling Economy of the Nitrogen Fertiliser Industry (2007-2010) –
waste treatment solutions in nitrogen fertiliser production
by China Nitrogen Fertiliser Industry Association
in recognition of its great environmental protection benefits and outstanding energy saving
results
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(iv) Underpinning Technology of the Nitrogen Fertiliser Industry – methanol synthesis reactor
technology by China Nitrogen Fertiliser
Industry Association in recognition of its innovative design, improved synthesis
efficiency and reduced energy consumption
Please refer to the section entitled “Awards and Accreditation” of this Prospectus for more information on
other awards and accreditations received by our Group.
On the part of our customers, they are generally subjected to the compliance of PRC environmental laws
and regulations on matters such as control of atmospheric pollution, discharge of waste water and other
pollutants due to the chemical nature of their production processes. Nevertheless, as our integrated
chemical systems engineering and technology solutions and systems are designed and manufactured
based on our core principles and in consideration of such environmental compliance needs by our
customers, the operations of our systems (when properly operated by our customers) will generally
comply with the relevant PRC environmental laws and regulations. To date, to the best of our knowledge,
we are not aware of any breach of environmental laws and regulations by our customers, which were due
to the defects of our technologies and/or products.
Our system design teams, led by our Head of System Design Department, Li Bin, are responsible
for providing our customers with our CET Design Services. These teams are cross-functional in
nature, comprising a combination of various members such as research engineers, project and
process engineers, budgeting and costing personnel and quality assurance personnel. We provide
chemical systems engineering and technology design services in a fully computerised
environment, using specialised software such as AutoCAD, SPDA, SW6, CAESAR2, MX-JJPJ and
GPCAD.
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Our CET Design Services contracts, which typically relate to our customers’ new expansion of
production capacity or enhancement of their existing production systems, are generally secured
through direct marketing and/or tendering process. Before securing the contracts, our cross-
functional system design team will be involved in extensive discussions with our customers to
understand the specific requirements of the project that they will be undertaking. Based on our
strong R&D capabilities and existing technical expertise, we are able to present to our customers
on various existing and in-development technological and system design options that are available
to them based on their project size and budget and advise them on the optimal combination of
technology and system design. If required, we will also provide feasibility studies. Once a
preliminary system design proposal is confirmed in consultation with our customers, we will
formally sign the contracts with our customers and our customers are required to make an advance
payment of up to 30% of the total contract value.
Upon securing the contracts, our cross-functional system design team will conduct site visits at our
customer’s factory sites and work with our customers to prepare the detailed design proposal,
taking into consideration of their specific technical specifications, requirements and factory layout.
Our detailed design proposal will include the blue-prints for the chemical systems, site-construction
and control instruments, project management plans as well as the operating procedures and
manual. Our system design process will usually take up to 3 - 6 months to complete, and where
necessary, we will fine-tune and adjust our designs based on our customers’ feedback.
As part of regulatory requirements, we have attained, inter alia, a Class A national engineering
design qualifications to provide engineering design services for chemical engineering within the
chemical, petrochemical and pharmaceutical industries as well as specific environmental
engineering for waste water, waste gas and solid waste treatment. Due to the specialised nature of
our industry, certain permits, certifications and licenses from the relevant authorities are necessary
to conduct operations in this industry. Such engineering design qualifications are classified into
different categories, taking into account, inter alia, the designer’s track record, technical capabilities
and human resources, independent design capabilities and industry reputation. Please refer to the
section entitled “Permits, Approvals, Certifications & Government Regulations” of this Prospectus
for further details.
As a demonstration of the quality of our engineering design capabilities, the project we undertook
for Feng Xi Fertiliser Group, Linyi Branch Company was awarded the
Chemical Industry Outstanding Engineering Design (2nd-highest honours)
by the China Petroleum and Chemical Engineering Survey and Design Association
in 2003. In addition, our engineering design for the ammonia
synthesis and urea production system for Shandong Deqilong Chemical Co., Ltd.
(currently part of the Sinofert Holdings Limited , a listed
company on the Hong Kong Stock Exchange, was awarded the Excellent Engineering Design of
Hunan Province (First-prize) by Construction Department of Hunan Province in 2005.
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We set out below details on these sub-processes:-
After our chemical systems and components and/or our catalysts are delivered to the
customer’s factory site, our customer or its sub-contractors will undertake assembly and
installation work on-site. Under our specific guidance and instructions, our customer or its
sub-contractors will integrate our chemical systems and components to the rest of our
customers’ basic infrastructure facilities such as emission outlets and utilities supplies as well
as the other aspects of our customers’ sub-processes.
Once the customer confirms that our chemical systems and components are in working
order and comply with their specifications as provided in the contract, our chemical systems
and components are handed over to the customer and an acceptance report will be issued
by the customer.
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III. After-Sales Services
Our contracts usually provide for a retention sum, which generally amounts to approximately 5% of
the contract value. The retention monies are usually payable after the warranty period.
In general, we offer our customers on-site rectification warranty for up to 12 (twelve) months.
Pursuant to this warranty, we are obliged to provide free on-site rectification works against any
defects. Following the expiration of the warranty period, we provide maintenance services as well
as supply replacement components and catalysts to our customers for separate fees.
Our sales and marketing team will also visit our customers after the warranty period to obtain
feedback on the performance of our chemical systems and components. We believe that such
after-sale visits is critical as it keeps us abreast of our customers’ future needs and allow our
research engineers to improve upon their chemical systems engineering and technology design
services, creating a virtuous cycle which improves our chances of securing future business
opportunities.
As our customers would take into consideration the required project lead times when placing
orders with us, the length of time that customers normally place their orders in advance and our
order books get filled are approximately the same as the above project lead times for the
respective segment.
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Our chemical systems and components can be broadly categorised as follows:-
Underpinning the ammonia synthesis reactor is our patented multi-layer radial ammonia
synthesis reactor technology. Currently, our ammonia synthesis reactors have annual
capacity of up to approximately 330,000 tonnes.
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(iii) Methanol synthesis reactor
The methanol synthesis reactor is a chemical system component in which carbon monoxide,
carbon dioxide and hydrogen are synthesised into methanol under the required pressure,
temperature and other conditions with the aid of catalyst. It is considered to be the most
crucial production device in the methanol production process as its performance will largely
determine the methanol output and energy consumption.
In 2007, as a testament of its innovative design, improved synthesis efficiency and reduced
energy consumption, our methanol synthesis reactor was endorsed by the China Nitrogen
Fertiliser Industry Association and Shandong Fertiliser Industry
Association to be applied in the methanol industry. Such endorsement
increased the market awareness of our methanol synthesis reactor and enabled us to attract
and secure more customers in the chemical industry.
Underpinning the heat exchanger and separation equipment is our patented steam generator
technology and ammonia synthetic gas cooling and condensing separator technology.
Pressure vessels are normally classified in accordance with the pressure rating from low pressure
to ultra-high pressure. For safety reason, design and manufacture of pressure vessels requires
specific license under the PRC laws and regulations and such license is classified into several
categories according to the types of pressure vessels and the technical capability of the designer
or the manufacturer. Please refer to the section entitled “Permits, Approvals, Certifications &
Government Regulations” of this Prospectus for details.
Currently, we have the qualification to design and manufacture pressure vessels of varying
specifications and pressures up to 100MPa.
Processing of
Procurement direct materials
Painting, packing
& testing of into product Assembly Testing
& warehousing
direct materials components &
testing
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We set out below details on these sub-processes:-
(i) Procurement and testing of direct materials: Based on the project planning, we procure direct
materials, mainly stainless steel and carbon steel, from our pre-selected suppliers. For fabrication
purpose, we also procure certain machinery parts and components such as electrical components,
fastener, seal components and safety accessories. We conduct quality testing on all of the direct
materials, machinery parts and components.
(ii) Processing of direct materials into product components and testing: According to the
necessary technical specifications required, the direct materials are processed by cutting, drilling,
punching, gas cutting, bending, welding and polishing to form the specified product components.
Various tests will be conducted to ensure that sizes, characteristics, properties and structures are
in line with the technical standards and specifications required.
(iii) Assembly: Product components such as shell body, flange, fastener, seal components and safety
accessories are further assembled into finished products according to the necessary technical
standards and specifications.
(iv) Testing: Overall testing includes non-destructive testing, pressure testing, air tightness testing are
conducted on finished products as a whole.
(v) Painting, packing and warehousing: Finished products which pass inspection stages and the
final test are painted, packed and stored in the warehouse, ready for despatch to customers.
Oxidative catalysts can be sub-divided into alcohol-hydrocarbon catalysts and ammonia synthesis
catalysts. Our alcohol-hydrocarbon catalysts are developed exclusively for use in our proprietary alcohol-
hydrocarbonylation refining process. Our proprietary alcohol-hydrocarbonylation refining systems and
related proprietary alcohol-hydrocarbon catalysts were new technologies and products developed by our
Group and we believe there are currently no similar systems and/or catalysts offered by other companies.
Accordingly, our customers who had procured our proprietary alcohol-hydrocarbonylation refining systems
are reliant on us to supply alcohol-hydrocarbon catalysts to them. As such, our alcohol-hydrocarbon
catalysts are generally able to command higher margins than our other types of catalysts as there are
currently no known substitutable catalysts for use in our proprietary alcohol-hydrocarbonylation refining
systems. Our ammonia synthesis catalysts are used in ammonia synthesis reactor systems to increase
the rate and efficiency of ammonia synthesis reaction and enhance rate of production, where such
oxidative catalysts undergo deoxidising and remove electrons from other chemical substances. Ammonia
synthesis catalysts are commonly supplied by other manufacturers in the industry and hence our
ammonia synthesis catalysts would generally have lower margins as compared to our alcohol-
hydrocarbon catalysts.
Reductive catalysts are a form of synthesis catalysts that offers greater efficiency as compared to
ammonia synthesis catalysts. Reductive catalysts are produced by deoxidising the oxidative catalysts,
where the oxidative catalysts undergo deoxidising and remove electrons from other chemical substances.
The reductive catalysts we manufacture can shorten the production lead time of ammonia from 7 days to
6 hours, as compared to existing oxidative catalysts produced by other manufacturers in the PRC. Due to
the more advanced production nature of reductive catalysts, our reductive catalysts generally command
better margins as compared to ammonia synthesis catalysts.
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An illustration of our Group’s manufacturing process for the catalysts is as follows:-
Smashing &
Blending Fusion Cooling Sifting Packaging
Smoothening
(i) Blending: The raw materials such as iron ore powders and other chemical reagents are mixed
together.
(ii) Fusion: The mixed raw materials are then sent to the fusion furnace and are heated to
approximately 1,600 degree Celsius. At this stage, raw materials are melted into metallic liquor
after the removal of contaminants.
(iii) Cooling: The heated metallic liquid flows through the cooling tank where cold water on the outer
layer of the cooling tank solidify the metallic liquid into solid catalyst block.
(iv) Smashing and smoothening: The cooled catalyst blocks are then crushed and smashed into
smaller catalyst pieces, and further smoothened.
(v) Sifting: Sieves of different diameters are used to screen catalyst pieces. Catalyst pieces that are
too small to be deemed useful are collected and recycled into step (ii) – fusion process, and the
remaining processes are repeated. On the other hand, catalyst pieces that are outsize will be left
on the top sieve and gathered to repeat step (iv) – smashing and smoothening process.
(vi) Packaging: The finished products are packed and stored in the warehouse.
We carry out periodic maintenance and servicing for our production equipment. Save for such planned
maintenance and servicing shutdowns, we have not experienced any major shutdown or disruption to our
manufacturing operations.
Save that the utilisation of pressure vessels for manufacture of reductive catalysts shall comply with the
Regulations on Safety Supervision over Special Equipment ,
there is no PRC regulatory requirement or environmental issues that may materially affect our utilisation
of our fixed assets, all of which are located in PRC.
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Production Capacity and Utilisation
Our production capacity is generally limited by our production built-in area, equipment and manpower. The following table illustrates the aggregate maximum
production capacity and the approximate utilisation rate for the production of our chemical systems and components and catalysts at our Lufeng Plant and
Lusong Plant (which commenced operations in 2H2008) for each of FY2007, FY2008, FY2009 and 1Q2010:
Notes:-
(1) CSC Business - The maximum annual production capacity of the production equipment used for the production of our chemical systems and components in FY2007, FY2008, FY2009 and
1Q2010 was calculated based the two factory premises located at Lufeng Plant and Lusong Plant, which have production areas of 7,000 sqm and 15,000 sqm respectively. Based on their
respective production areas, Lufeng Plant and Lusong Plant have a daily production capacity of approximately 14.6 tonnes and 29.2 tonnes per 14 man-hours respectively. Save that Lusong Plant
commenced operations in 2H2008 and had an aggregate of 150 operating days in FY2008, the number of operating days each year is 300 days. Without the capacity expansion attributed to the
new Lusong Plant which commenced operations in 2H2008, our Group would have to rely only on the older Lufeng Plant which has an estimated production capacity of approximately 4,370
tonnes per annum, as opposed to the new Lusong Plant which has an estimated production capacity of approximately 8,755 tonnes per annum. In addition, the newer and bigger facilities at
Lusong Plant allowed fabrication of more large-sized structures and consequently, the securing of contracts with higher value for our CSC Business. In line with the opening of the Lusong Plant
and increased production capacity from 2H2008 onwards, our Group was able to pursue more contracts of higher values where such contracts secured subsequently were mostly completed in
FY2009 onwards. Hence, the capacity expansion attributed to the new Lusong Plant was crucial to our Group’s business expansion in our CSC Business from FY2008 onwards.
(2) Catalyst Business - The maximum annual production capacity of the production equipment used for the production of catalysts in FY2007, FY2008, FY2009 and 1Q2010 varies between different
types of catalysts, namely oxidative and reductive catalysts. For the production of oxidative catalysts, the maximum annual production capacity was calculated based on three 8 man-hours shift
per day with a total of 330 operating days per year. Each oxidative catalyst production line has a daily production capacity of approximately 1.8 tonnes per day. In FY2007 and FY2008, there were
two oxidative catalyst production lines. In view of the increase in orders for our oxidative catalysts in FY2008, we added another production line in FY2009. The third production line started
operation in the last quarter of FY2009 with an aggregate of 82 operating days. For the production of reductive catalysts, the maximum annual production capacity was calculated based on
production cycles. One production cycle requires 6 operating days of 24 hours each. The reductive catalyst production line has the capacity to produce approximately 5.5 tonnes per cycle. The
maximum annual production capacity was calculated based on a total of 330 operating days per year. The reductive catalyst production line which started operation in FY2008 had an aggregate
of 55 cycles in FY2008.
(3) During FY2008, our actual production output and utilisation rates were relatively high as we deliberately increased our actual production output due to materials requirements of secured contracts
due for delivery in early FY2009 and anticipation of economic upturn and improved sales demand in FY2009. In addition, we were able to increase our actual production output from 2H2008 with
the increase in our production capacities as a result of the completion of our new production facilities at Lusong Plant in mid 2008. Accordingly, the actual production output in FY2008 was in
excess over actual sales volumes in FY2008, where such excess production output resulted in our higher inventory balances as at end of FY2008. Please also see the section entitled “Inventory
Management” of this Prospectus for more information.
(4) During FY2009, the decrease in the utilisation rates of the chemical systems and components production equipment was due mainly to the increase in production capacity by 50%, from 8,750
tonnes in FY2008 to 13,125 tonnes in FY2009, despite an absolute increase in actual production output. The decrease in utilisation rates of the catalysts production equipment in was mainly due
to lower actual production output in FY2009 versus FY2008 as we had deliberately increased our actual production output in FY2008 in anticipation of greater demand for our catalysts in FY2009
as aforementioned.
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Notwithstanding that we have disclosed in the above the production capacity and actual production
volumes of our CSC Business during the periods under review, the sales volumes (in tonnes) of our CSC
Business and the computation of average sales value per tonne cannot be used reliably as a measure of
our revenue and profitability, respectively. This is because each of our chemical systems may be
designed, manufactured and assembled according to our customers’ specifications and requirements. As
the various products under our chemical systems and components business have different pricing and
physical attributes, and may be customised according to our customers’ specifications, the aggregate
inventory and sales volumes in tonnes of our chemical systems and components business during the
periods under review cannot accurately reflect the economic values and trends of our chemical systems
and components inventories and sales for the corresponding periods.
On the other hand, our catalyst products are generally standard products. Accordingly, the aggregate
inventory and sales volumes in tonnes of our catalyst products during the periods under review are
relatively more in line with the economic values and trends of our catalysts inventories and sales for the
corresponding periods, save for effects arising from changing inventories and sales mix and selling
prices. Please refer to the section entitled “Management’s Discussion and Analysis of Results of
Operations and Financial Position” of this Prospectus for more information.
Power Supply
Electricity is the principal source of energy for our manufacturing operations. To date, we have not
experienced any prolonged power shortages or stoppages which have material and adverse effects on
our operations.
QUALITY CONTROL
We believe that having an established quality management system is one of the main factors contributing
to our success and is crucial to us maintaining our reputation as a manufacturer of quality products. As a
testimony to our commitment, efforts as well as capability in maintaining a quality management system,
we have been accredited by Moody International Certifications Ltd., for compliance with the requirements
of ISO 9001 Quality System since January 2001.
We conduct quality checks on all the products manufactured and oversee the implementation of the
quality controls at every stage of our production process in line with our quality management system. The
following quality control procedures have been implemented in our production process in line with our
quality management system:-
For our system design, we ensure the design of every project is carried out in line with (i) the
relevant PRC laws and regulations; (ii) the relevant technical specifications and industry standards;
and (iii) our customers’ requirements.
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(c) Quality control during manufacturing process
Before the production, incoming direct materials are subject to inspections by our quality control
personnel to ensure that they are supplied by approved suppliers, and that the quality, grade and
quantity of such direct materials conform to our specifications and requirements as well as our
quality control standards. For direct materials which fail to comply with these specifications, these
direct materials will be rejected or modified for other utilisation.
We continuously monitor our manufacturing process and carry out inspections at systematic
intervals throughout the process to ensure consistency in the quality of the chemical systems and
components and catalysts. Our quality control personnel and production personnel conduct tests
and inspections at the various stages of production to ensure that defective semi-completed
products do not proceed to the next stage of the production. In particular, the pressure vessels are
subject to further testing and examination by the local Administrative Department of Safety
Inspection for Special Equipment . Any defective part will be removed
from the production line and get rectified if possible, thereby minimising defective products from
being produced.
As to system design, we will maintain close communication and engage constant discussion with
our customers so that we can modify our engineering design in accordance with customers’
feedback and requirements and relevant technical specifications and industry standards, and avoid
affecting the progress and quality.
In addition, after the chemical systems and components are sent to customers’ factory sites, they
undergo a series of inspections and testing to ensure compliance with our quality standards and
customers’ design and specifications.
Upon the successful testing and commissioning of our system design and/or chemical systems and
components by our customers, the warrant period (which is usually a period of 12 months)
commences and during this period, we will attend to any complaints regarding defects in the
equipment or systems.
As at the Latest Practicable Date, we have not encountered any instances where our products or
services were materially rejected by our customers due to quality concerns.
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SALES AND MARKETING
Our Head of Sales and Marketing Department, Li Chun Yang, heads our sales and marketing department
which is staffed by 19 sales and marketing personnel as at 31 March 2010. Our sales and marketing
team is responsible for formulating sales and marketing strategies through market research and survey,
cultivating new customers and businesses, participation in open tenders and direct marketing,
maintaining customer relationships, coordinating and providing pre-sale and after-sale customer services.
Even though we have customers who approach us directly as a result of our reputation or customer
referrals, we place emphasis on promoting market awareness of our products and technology solutions.
Our sales and marketing strategies include:-
For existing customers, our sale personnel may also conduct meetings and visits to obtain
feedback on the performance and operating results of our products and the systems we designed
so as to understand their changing needs. Given that these existing customers are already using
and familiar with our chemical systems and components, whenever we successfully develop new
product and technology and after analysing their applicability and compatibility to the existing
customers’ production systems, we will introduce them to our customers for their consideration.
As at the end of FY2009, we have a customer base of approximately 320 different customers (of which
certain customers belong to the same group of companies) across 26 province-level administrative units
comprising provinces, autonomous regions and municipalities in PRC. As part of our future plans, we
intend to expand our sales and marketing capabilities and initiatives. Please refer to the section entitled
“Business Strategies and Future Plans” of this Prospectus for more information.
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AWARDS AND ACCREDITATION
Our Group’s commitment to excellence is evidenced by the following national and provincial
awards/accreditations:-
5 April 1999 Golden Medal for Gas-solid Organising Committee of Affirmation of the ammonia
Ammonia Synthesis Reactor in China Inventions and New synthesis reactor technology
China Fair of Inventions and Technologies Fair being a technological
New Technologies sponsored and breakthrough
by the State Intellectual Specialist Committee of
Property Office of PRC China Inventions and New
Technologies Fair
20 January 2003 National Scientific and State Council of PRC In recognition of outstanding
2004 Technological Progress Award operational results, economic
(2nd-highest honours) – and social benefits of the
alcohol-hydrocarbonylation alcohol-hydrocarbonylation
refining process technology refining process technology
being a technological
progress
March 2004 2003 Outstanding Engineering China Petroleum and The alcohol-hydrocarbonylation
Design (2nd-highest honours) Chemical Engineering Survey refining and ammonia
– engineering design provided and Design Association synthesis system is well-
to Feng Xi Fertiliser Group, designed and stable, and it
Linyi Branch Company has achieved satisfactory
operational and outstanding
energy-saving results
December 2004 China Chemical Industry China Petroleum and Affirmation of technological
Technology Innovation Model Chemical Industries innovation capabilities
Enterprise Association
September 2005 2005 China Petrochemical and China Petroleum and Affirmation of integrated
Chemical Industries Chemical Industries capabilities and growth
Outstanding Private Enterprise Association potential in the petrochemical
and chemical industries
2005 Excellent Engineering Design Construction Department of The ammonia synthesis and
of Hunan Province (First-prize) Hunan Province urea production system is
– engineering design provided well-designed and stable,
to Shandong Deqilong and it has achieved
Chemical Group Co., Ltd. satisfactory operational and
outstanding energy-saving
results
November 2006 Scientific and Technological China Nitrogen Fertiliser In recognition of great
Progress Award (First-prize) – Industry Association environmental protection
waste treatment solutions in benefits and outstanding
nitrogen fertiliser production energy-saving results
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Date Awards Certification Body Significance
November 2006 Underpinning Technology for China Nitrogen Fertiliser Endorsed by the China
Recycling Economy of the Industry Association Nitrogen Fertiliser Industry
Nitrogen Fertiliser Industry Association in recognition of
(2007-2010) – waste treatment its great environmental
solutions in nitrogen fertiliser protection benefits and
production outstanding energy saving
results
February 2007 2007 State Focus China Environmental Affirmation of the application
Environmental Protection Protection Industry of the alcohol-
Application Technology (Grade Association hydrocarbonylation refining
A) process technology being
energy saving and
environmentally acceptable
to prevent environmental
pollution and ecological
damage
October 2007 Top 500 China Chemical China Chemical Enterprise Affirmation of our business
Industry Profitable Enterprise Management Association and operations being
and profitable in the chemical
China National Chemical industry
Information Association
January 2008 Proprietary Technology China Petroleum and Affirmation of our proprietary
Certificates Chemical Engineering rights over the alcohol-
Survey and Design hydrocarbon reactors
Association technology, ammonia
synthesis reactor technology
and methanol synthesis
reactor technology, which are
popular and innovative
technologies
November 2008 Advanced New Technology Science and Technology Affirmation of our strong
Enterprise Department of Hunan R&D capabilities and
Province , competitive strengths
Finance Department of
Hunan Province
, State Taxation Bureau
of Hunan Province
, Local Taxation
Bureau of Hunan Province
August 2009 Underpinning Technology of China Nitrogen Fertiliser Endorsed by the China
the Nitrogen Fertiliser Industry Industry Association Nitrogen Fertiliser Industry
– methanol synthesis reactor Association in recognition of
technology its innovative design,
improved synthesis efficiency
and reduced energy
consumption
8 April 2010 Certificate of Registration for Moody International Quality control for
Compliance of ISO 9001 : Certification Ltd. manufacture of chemical
2008 Quality Management systems and components,
System catalyst as well as provision
of technology solutions being
in compliance with the ISO
9001 : 2008 standards
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Date Awards Certification Body Significance
August 2009 Underpinning Technology of China Nitrogen Fertiliser Endorsed by the China
the Nitrogen Fertiliser Industry Industry Association Nitrogen Fertiliser Industry
– XA201 ammonia synthesis Association in recognition of
catalyst technology its superior performance in
the ammonia synthesis
process
January 2009 2009 Forbes China Up & Forbes China magazine Affirmation of its growth
Comers potential
Our major customers who accounted for 5% or more of our business for FY2007, FY2008, FY2009 and
1Q2010 are as follows:
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Notes:-
(1) “A” refers to chemical systems engineering and technology design services; “B” refers to chemical systems and components;
and “C” refers to catalysts.
(2) We supplied the full range of our products and services to various customers within Jincheng Anthracite Mining group
(“JAMG”) , namely Shandong Mingshui Chemical Joint-stock Co., Ltd. , Shanxi Jinfeng
Coal Chemical Co., Ltd. , Jiangsu Hengsheng Fertiliser Co., Ltd. ,
Dafeng Jingli Fertiliser Co., Ltd. , Kaifeng Jinkai Chemical Co., Ltd.
and Hubei Sanning Chemical Joint-stock Co., Ltd. . To the best of our knowledge and belief,
JAMG is based in Shanxi province and is a large petrochemical and chemical group in the PRC.
(3) We supplied the full range of our products and services to various customers within Shanxi Tianze group ,
namely Shanxi Tianze Coal Chemical Co., Ltd. and Jincheng Tianze Yongfeng Fertiliser Co.,
Ltd. . To the best of our knowledge and belief, Shanxi Tianze group is based in Shanxi
province and is a large petrochemical and chemical group in the PRC.
(4) We supplied the full range of our products and services to Zhonghua Pingyuan Chemical Co., Ltd.
(formerly known as Shandong Deqilong Chemical Co., Ltd. ), which is part of the Sinofert group
. To the best of our knowledge and belief, Sinofert group has various presences across the PRC and is a large
chemical fertiliser group in the PRC, of which the holding company of the Sinofert group, Sinofert Holdings Limited, is listed
on the Hong Kong Stock Exchange. Sinofert group is part of the Sinochem group , which is also listed on the
Shanghai Stock Exchange.
(5) We supplied the full range of our products and services to Henan Xinlianxin Chemical Co., Ltd. , an
affiliate of the China XLX group , in FY2007 and FY2008, and Henan Xinlianxin Fertiliser Co., Ltd.
, which is the main operating subsidiary of the China XLX group , in FY2008 and
FY2009. To the best of our knowledge and belief, the plant and equipment procured by Henan Xinlianxin Chemical Co., Ltd.
from us were being utilised by and subsequently transferred to the China XLX group. China XLX group is based in Henan
province and is a large chemical fertiliser and chemical group in the PRC, of which the holding company of the China XLX
group, China XLX Fertiliser Ltd., is dual-listed on both the SGX-ST and the Hong Kong Stock Exchange.
As part of our sales and marketing initiatives, we had entered into a memorandum of understanding with China XLX group to
enhance mutual cooperation in respect of new technologies and equipment used in the production of chemical fertilisers on
30 April 2010 which is valid for two years from the date of the memorandum. Such cooperation include (i) Hunan Anchun and
China XLX group notifying each other at the first instance in respect of any new development in technologies or equipment
and requirements for new technologies and equipment, as the case may be; (ii) giving priority to each other in the
procurement or supply of such technologies and equipment respectively. Nevertheless, such memorandum is not legally-
binding and terms of any future transactions between both parties shall be negotiated on arm’s length basis and subject to
the execution of formal sale and purchase contracts. We may also enter into similar collaborations with other customers as
and when the opportunities arise.
(6) We supplied the full range of our products and services to Guizhou Kailin Jianjiang Fertiliser Co., Ltd.
, which is part of the Guizhou Kailin group . To the best of our knowledge and belief, Guizhou Kailin
group is a chemical fertiliser and chemical group based in Guizhou province, PRC.
(7) We supplied chemical systems and components to Fujian Shunchang Fubao Industry Co., Ltd.
, which is part of the Fubao group . To the best of our knowledge and belief, Fubao group is a chemical fertiliser
and chemical group based in Fujian province, PRC.
(8) We supplied chemical systems engineering and technology design services as well as chemical systems and components to
Shandong Ruixing (Runyin) Biochemical Co., Ltd. . To the best of our knowledge and
belief, it is a chemical fertiliser and chemical enterprise based in Shandong province, PRC.
(9) We supplied chemical systems engineering and technology design services as well as chemical systems and components to
Yunnan Yunwei Group Co., Ltd. . To the best of our knowledge and belief, Yunnan Yunwei Group Co.,
Ltd. is a petrochemical and chemical enterprise based in Yunnan province, PRC, and is listed on the Shanghai Stock
Exchange.
(10) We supplied chemical systems and components to China Haohua Group Chemical Co., Ltd. ,
which is part of the China Haohua Chemical group (“CHC group”) . To the best of our knowledge and
belief, CHC group is based in Hebei province and is a large petrochemical and chemical group under the China National
Chemical Corporation group (“ChemChina”) .
(11) We supplied the full range of our products and services to Shanxi Yangmei Fengxi Fertiliser Group Co., Ltd.
and Yangmei Group Shenzhou Fertiliser Factory , both of
which are part of the Yangmei group . To the best of our knowledge and belief, Yangmei group is based in Shanxi
province and has diversified business interests (including chemical fertiliser and chemical industries) with two listed entities
on the Shanghai Stock Exchange and Shenzhen Stock Exchange respectively.
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During the periods under review, our major customers generally did not make recurrent purchases from
us of the same quantum (if any) and/or same types of products and/or services in consecutive financial
years/periods. This was due mainly to the nature of our products and services, which mainly relate to
production capacity expansion/enhancement and hence capital expenditure projects of our customers.
Accordingly, our customers typically will not execute such production capacity expansion/enhancement
plans and capital expenditure projects in consecutive periods. Please refer to the section entitled “Risk
Factors - Our financial performance may fluctuate from period to period due to the nature of our
business” of this Prospectus for more information.
In addition to the above major customers, our other notable customers include Shandong Hualu
Hengsheng Chemical Co., Ltd. (listed on the Shanghai Stock
Exchange), Jiangsu Huachang Chemical Co., Ltd. (listed on the Shenzhen
Stock Exchange) and subsidiary of Sichuan Meifeng Chemical Industry Co., Ltd.
(listed on the Shenzhen Stock Exchange).
To the best of our Directors’ knowledge, we are not aware of any information or arrangements which
would lead to a cessation or termination of our current relationship with any of our major customers of our
business.
Go Power and China XLX participated in the investment in our Company through the Convertible Loan
Investment. Upon the Conversion, Go Power and China XLX will hold 4.1% and 4.9% shareholding
interest in the pre-Invitation share capital of our Company, respectively. Please refer to the section entitled
“Restructuring Exercise” of this Prospectus for details. Pursuant to Section 7(4A) of the Act, as Go Power
holds not less than 20% of voting rights in China XLX, Go Power (and Yan Yun Hua) is deemed interested
in China XLX’s 4.9% shareholding interest in our Company. As such, Go Power is a Substantial
Shareholder of our Company by virtue of its 4.1% direct interest in our Company and 4.9% deemed
interest held through China XLX.
Henan XLX, one of our major customers, is the wholly-owned subsidiary of China XLX in the PRC
(collectively, the “China XLX group”). Go Power, which owns approximately 28.1% of the shareholding
interest in China XLX, is deemed interested in Henan XLX.
Save as disclosed above, none of our Directors or Substantial Shareholders or their respective associates
has any interest, direct or indirectly, in any of the above major customers, or vice versa. Please refer to
the sections entitled “Restructuring Exercise”, “Shareholding and Ownership Structure” and “Potential
Conflict of Interests” of this Prospectus for more information.
We typically select our suppliers for each of the direct materials used in our production having regard to
criterions such as pricing, product quality and ability to deliver on time. To facilitate timely purchases of
direct materials, we keep a list of qualified suppliers who had demonstrated reliability in product quality
and delivery time as well as pricing competitiveness. Such list is subject to review by our senior
management and our Executive Director and COO, Liang Gong Zeng, on an annual basis.
We have access to a large pool of suppliers for our direct materials as our production facilities are located
in Changsha City, which has a multimodal transportation network connecting it to major cities in the PRC.
Our direct materials are currently sourced from within the PRC and therefore, all of our purchases are
transacted in RMB. Accordingly, we are not subjected to any significant risk in exchange rates fluctuations
in the purchase of direct materials.
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We do not enter into long term contracts with our suppliers and we do not hedge or have the intention to
hedge the price or volume of our direct materials in the near future due to, inter alia, our practice of fixing
the prices of the direct materials required at approximately the same time as the contracts we signed with
our customers. Please refer to the section entitled “Inventory Management” of this Prospectus for more
information.
Our major suppliers of direct materials who accounted for 5% or more of our total purchases for FY2007,
FY2008, FY2009 and 1Q2010 are as follows:
Materials
Name of Supplier supplied Percentage of total purchases (%)
FY2007 FY2008 FY2009 1Q2010
Wuhan Tongshun Metal Products Co., Ltd. Steel 24.1 20.0 16.7 13.2
Hunan Jinghua Metal Co., Ltd. Steel 15.8 4.6 1.6 0.7
Changzhou Jiangyang Stainless Steel Co., Ltd. Steel 5.5 3.1 1.5 3.4
Xuchang Peiyang Materials Co., Ltd. Steel 5.2 11.3 18.0 11.3
Jiangsu Changshu Yixing Steel Co., Ltd. Steel 4.8 5.1 3.5 1.2
Hunan Ruilin Trading Co., Ltd. Steel 4.2 4.6 5.5 3.8
Wuxi Xinyutong Stainless Steel Co., Ltd. Steel 3.4 5.1 2.3 5.4
Hunan Shunxing Stainless Steel Trading Steel 1.3 1.9 5.2 5.5
Co., Ltd.
Taian Shankou Forging Co., Ltd. Steel 0.5 2.3 5.4 2.7
Hangzhou Tongdi Heavy Forging Co., Ltd. Steel 0.4 0.8 6.1 4.3
During the periods under review, the above year-to-year fluctuations in our purchases from amongst our
major suppliers were due mainly to competitive pricing reasons as well as changes in mix of
specifications, materials and quality requirements.
To the best of our Directors’ knowledge, we are not aware of any information or arrangements which
would lead to a cessation or termination of our current relationship with any of our major suppliers of our
business.
None of our Directors or Substantial Shareholders or their respective associates has any interest, direct
or indirectly, in any of the above major suppliers, or vice versa.
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RESEARCH AND DEVELOPMENT
Our R&D activities are initiated and led by our Executive Chairman and CEO, Xie Ding Zhong, assisted
by our Executive Director, Dai Feng Yu, both of whom hold key appointments in various national and
provincial industry associations and bodies, such as Methanol Technology Committee of National
Chemical Ammonia Synthesis Design Centre ,
China Chemical Industry Environmental Protection Association , and Chemistry and
Chemical Industry Academy of Hunan Province . As at the Latest Practicable Date,
we have over 120 of our project/process engineers who actively participate in the R&D process through
their respective job functions.
Golden Medal in China Fair of Inventions and New Technologies sponsored by the State
Intellectual Property Office of PRC by the Organising Committee of China Inventions and New
Technologies Fair and Specialist Committee of China Inventions
and New Technologies Fair
13 registered patents and another 4 patent pending applications in the PRC, and 1 international
patent pending in the United States, Canada and European Union (1)
Advanced New Technology Enterprise by Science and Technology Department of Hunan Province
, Finance Department of Hunan Province , State Taxation
Bureau of Hunan Province , Local Taxation Bureau of Hunan Province
Notes:-
(1) Pursuant to the relevant patent laws in the United States, a patent shall be applied for in the name or names of the actual
inventor or inventors. Therefore, in the process of the patent application, the patent applicants are the individual inventors
instead of Hunan Anchun. The individual inventors have affirmed that this patent is an employee invention, patent ownership
of which shall be registered under Hunan Anchun. They have relinquished the ownership rights over this patent to Hunan
Anchun and undertaken to transfer the patent to Hunan Anchun after the international patent is successfully registered in the
United States, Canada and European Union. Please refer to the section entitled “Intellectual Property – Patent” of this
Prospectus for more detail.
(2) The three proprietary technologies are alcohol-hydrocarbon reactors technology, ammonia synthesis reactor technology and
methanol synthesis reactor technology.
(3) The three underpinning technologies are methanol synthesis reactor technology, XA201 ammonia synthesis catalyst
technology and waste treatment solutions in nitrogen fertiliser production.
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Please refer to the sections entitled “Awards and Accreditation” and “Intellectual Property” of this
Prospectus for more information.
We rely on feedback from our customers and market resources such as exhibition and seminars,
websites and international and domestic professional journals and publications, to understand market
demands and our customers’ needs, technology development trends and our competitors’ products and
technologies. By leveraging on our strong R&D capabilities and manufacturing expertise, we are able to
commercialise our R&D efforts into successful new technologies and products within a shorter period.
In response to our customers’ needs, we are in the process of developing two new chemical systems and
components, namely, (i) the gas making system and components , which are used to
process the coal and obtain raw gas for ammonia and methanol synthesis; and (ii) raw gas conversion
system and components , which are used to convert CO and water
vapour (H2O) into CO2 and H2 in the raw gas purification process. The two new technologies aim to
resolve the current technological restrictions and environmental issues, such as unstable and intermittent
reactions, low efficiency, waste of energy and pollutions. If successful, we will be able to expand our
product range and technology solutions to better serve our customers, as well as reinforce our leading
position and enhance our competitiveness in the PRC chemical systems engineering and technology
solutions industry.
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INTELLECTUAL PROPERTY
Trademarks
We believe that our trademarks have significant value and are important to our brand-building efforts and
the marketing of our business.
As at the Latest Practicable Date, Hunan Anchun owns the following trademarks:-
Note:-
(1) Class 7 is used for products including synthesis reactor; fertiliser equipment; condensing tower; ammonia separating tower;
water scrubber. Class 35 is for product to be used in advertisement; tender and quotation; organisation for technology
exhibitions; management and consulting of human resources; documents copy; words processing; accounting; business
information; advertisements posting.
Our Directors are not aware of any reason which would cause or lead to non-renewal of the above
trademark registrations in respect of our trademarks.
To the best of our Directors’ knowledge and belief, our Company is not aware of any third party that is
currently using a trademark similar to our trademarks in the PRC.
Patents
We believe that our patented technologies have significant value and are important to our business and
profitability.
As at the Latest Practicable Date, Hunan Anchun has obtained the following patents in the PRC:-
Patent
No. Patent Type Name Number Validity Term Date of Grant
1 Invention Patent Flow dividing process for ZL96 1 From 22-11-1996 03-03-2006
ammonia or alcohol synthesis 18424.8 To 21-11-2016
reaction system
3 Invention Patent Multistage gas solid chemical ZL 2005 1 From 09-11-2005 26-03-2008
reactor 0032358.3 To 08-11-2025
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Patent
No. Patent Type Name Number Validity Term Date of Grant
7 Utility Model Patent Radial cold pipe bundle ZL 02 2 From 07-02-2002 22-10-2003
for gas-solid phase reactor 23452.7 To 06-02-2012
9 Utility Model Hanging water pipe isothermal ZL 2005 2 From 09-11-2005 21-03-2007
Patent methyl alcohol reactor 0052396.0 To 08-11-2015
11 Utility Model Synthesis reactor and reaction ZL 2006 2 From 18-04-2006 08-08-2007
Patent heat utilisation 2 in 1 device 0050709.3 To 17-04-2016
In addition, we have applied for an international patent under the Patent Cooperation Treaty (“PCT”) for
the technology known as a joint process for preparing alcohol-ether, alcohol-hydrocarbon and
synthesising ammonia in the United States, Canada and the
European Union in 2003 (the “PCT Patent”).
However, pursuant to the relevant patent laws in the United States, a patent is applied for in the name or
names of the actual inventor or inventors. Therefore, in the process of the PCT Patent application in the
United States, the PCT Patent’s applicants are the individual inventors who are all employees of Hunan
Anchun, namely, Xie Ding Zhong, Dai Feng Yu, Feng Yong and Li Chun Yang, rather than Hunan Anchun.
Pursuant to the confirmation letter dated 17 April 2003 and notarised declaration dated 29 June 2010,
each of Xie Ding Zhong, Dai Feng Yu, Feng Yong and Li Chun Yang has affirmed that the PCT Patent is
an employee invention, patent ownership of which shall be registered under Hunan Anchun. They have
relinquished the ownership rights over this patent to Hunan Anchun and undertaken to transfer the PCT
Patent to Hunan Anchun after the PCT Patent is successfully registered in the United States.
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In addition, the following patents have been submitted under Hunan Anchun’s name to the State
Intellectual Property Office of the PRC and subject to its further review:-
Note:-
(1) On 6 August 2010, the State Intellectual Property Office of the PRC notified Hunan Anchun that the patent right in respect of
the utility model patent (No. 201020003302.1) has been approved in principle, subject to the payment of the applicable patent
registration fee and the completion of the relevant registration procedures by 21 October 2010. Thereafter, the State
Intellectual Property Office of the PRC will announce the registration of the patent accordingly and Hunan Anchun will be
officially granted the patent right. The patent right will be effective after the announcement date for a period of ten years from
the application date.
We have also entered into confidentiality agreements with our employees who may come into possession
of our proprietary technologies in the course of their employment with us, and control access to, and
distribution of, our documentation of our proprietary technologies.
Industrial Lands:-
Approximate
Land Area Use/
No. Description and Location (sqm) Tenure Activities Encumbrance
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Buildings
Approximate
Built-in Area
No. Description and Location (sqm) Use/Activities Encumbrance
Fixed Assets
Other material fixed assets used by our Group comprise the equipment deployed at our Lufeng Plant and
Lusong Plant, details of which are set out in the section entitled “Production Facilities, Equipment and
Capacity” of this Prospectus.
As at the end of 1Q2010, net book value of our property, plant and equipment amounted to RMB117.2
million. Our Group has obtained all relevant certificates for its land use rights and buildings.
STAFF TRAINING
The training that we conduct can be divided into basic training, compulsory training and enhancing
training.
Basic training includes orientation training and occupational safety training. Orientation training is to
educate the new employees on company policies and basic skills and knowledge as would be relevant to
their respective job functions. Occupational safety training is to educate our production staff on
occupational safety at our production facilities and to train them on safety precautions which they are
expected to adopt in the course of their work. This includes knowledge about handling machinery and
emergency situations such as the occurrence of accidents or fires or other situations which may require
medical attention.
Compulsory training is training required by laws and regulations, which are for the purpose of maintaining
our employees’ relevant qualifications and accreditations and keeping them informed of the skills and
knowledge necessary for their respective job functions. Such training is normally given by relevant
accrediting bodies, governmental and industrial organisations and quality assurance associations.
Enhancing training is for the purpose of improving our employees’ professional skills and updating them
on the latest development trends and technologies. We also engage external trainers to conduct training
or select employees to participate in short-term training courses.
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INSURANCE
We maintain insurance for our full-time employees which provides coverage for retirement, work-related
accidents, retrenchment, maternity benefits and medical expenses.
As at the Latest Practicable Date, we also hold property insurance policies to cover Hunan Anchun’s fixed
assets including plant and equipment with a total coverage of approximately RMB122.2 million.
All the above policies are in existence and the premiums have been paid thereon. These insurance
policies are reviewed annually to ensure that the coverage is adequate. Our Directors believe that the
coverage from these insurance policies is adequate for our present operations.
Currently, we have not taken up any product liability insurance for the products manufactured by us or for
our work-in-progress products as it is neither an industry requirement nor practice within our industry to
do so. Since our inception, we have not experienced any significant product defects to date. Please also
refer to the section entitled “Risk Factors – We may not have sufficient insurance coverage” of this
Prospectus for more information.
The entity with the business scope of engineering investigation and design must comply with the
Provisional Measures on the Certification of Qualification of Engineering Investigation and Design Entities
, promulgated by the National Development and
Reform Commission of the PRC on 30 June 1986. Any entity engaged in the business of engineering
investigation and design shall obtain the certificate of qualified engineering investigation and design
entity. The certificate of qualified engineering investigation and design entity is classified into four
categories including Class A, B, C and D, taking into account various factors including industrial
reputation, technology and equipment, technical personnel, etc.. Class A or B can undertake engineering
investigation and design within its business scope in the nation-wide projects. Entity with Class C can
only undertake engineering investigation and design within its business scope in its own region or
industry. Entity with Class D can only undertake engineering investigation and design within its business
scope in its own county or entity.
The Administrative Regulation for the Qualification of Construction Engineering Investigation and Design
was promulgated by the Ministry of Construction of the PRC
(superseded by the Ministry of Housing and Urban-Rural Development of PRC )
on 30 December 2006 and came into force on 1 September 2007. The Qualification Standards of
Engineering Design ( hereinafter the “Standards”) was promulgated by the Ministry of
Construction of the PRC (superseded by the Ministry of Housing and Urban-Rural Development of PRC
) on 29 March 2007. Under the two regulations, any entity engaged in the
business of engineering investigation and design shall obtain the requisite qualifications for engineering
investigation and design. The engineering design qualifications are classified into four categories
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including comprehensive engineering design qualifications, industry engineering design qualifications,
specialised engineering design qualifications and special engineering design qualifications, taking into
account, inter alia, creditworthiness, track record, technical capabilities and human resources, technology
equipment and management level. Each entity can only engage in the engineering design business within
the prescribed scope in the engineering design certificate.
The entity with the comprehensive engineering design qualifications can provide engineering design
services to the 21 industries as prescribed in the Standards. The entity with the industry engineering
design qualifications can provide engineering design services for a specific industry. The entity with
specialised engineering design qualifications can provide the engineering design services to specific
field(s) in a specific industry. The entity with special engineering design qualifications can provide the
engineering design services and/or construction in respect of a particular technology. The valid term of
engineering design certificate is five years.
The Trial Measures for the Implementation of Administrative Permit for Special Equipment
was promulgated by the General Administration of Quality
Supervision, Inspection and Quarantine of the PRC on 2 June 2003, pursuant to which the design of
special equipment and the manufacture of special equipment require the administrative permit
respectively. The administrative permit for special equipment shall be issued by the General
Administration of Quality Supervision, Inspection and Quarantine of the PRC uniformly. Any entity without
such permit is not permitted to carry out the prescribed business activities.
The production of special equipment (including design, manufacture, maintenance, installation and
reconstruction) or the use, check, test and inspection of special equipment shall comply with the
Regulations on Safety Supervision over Special Equipment ,
which was promulgated by the State Council, came into force on 1 June 2003 and revised on 24 January
2009. Under the regulation, special equipment means pressure vessel, pressure pipeline, elevator, lifting
appliances, passage transport ropeway, special automobiles in the factory or comprehensive
entertainment facilities and boilers dangerous to people’s life and safety. Entity that designs and/or
manufacture special equipment shall obtain corresponding administrative permit from the safety
supervision department of special equipment under the State Council (the “State Safety Supervision
Department”). Factors taken into account include the qualification and experience of the designer and/or
technicians, quality control system, management, and testing capability (for manufacture of special
equipment) etc. Entity that uses and/or manufactures special equipment shall be inspected by the State
Safety Supervision Department in the course of installation, reconstruction and material maintenance.
The Measures on the Supervision and Management of the Manufacture of Boiler and Pressure Vessel
was issued by the General Administration of Quality Supervision,
Inspection and Quarantine of the PRC on 1 July 2002 and came into force on 1 January 2003 (the
“Regulation on Boiler and Pressure Vessel”). Any entity which manufactures pressure vessels shall obtain
manufacturing license. In addition, the entity is subjected to compulsory supervision in respect of the
safety and product function of boiler and pressure vessels by qualified inspection body or organisation
designated by the local provincial quality and technology supervision authority. Such supervision shall be
carried out in the process of the manufacturing of the boiler and pressure vessels. The valid duration of
the license is four years. The General Administration of Quality Supervision, Inspection and Quarantine of
the PRC and its local related departments are responsible for the implementation of the Regulation on
Boiler and Pressure Vessel.
110
On October 31 2007, the National Development and Reform Commission and MOFCOM jointly
promulgated the Catalogue of Industries for Guiding Foreign Investment (as amended in 2007)
, which came into effect on 1 December 2007 (the
“Catalogue”). The Catalogue lists out the industries and economic activities which are encouraged,
restricted or prohibited by the PRC government for foreign investment. The Catalogue does not specify
which business activities are in the permitted category. Instead, if the business activities are not listed in
the encouraged, the restricted or the prohibited category, they shall be construed as being in the
permitted category. Pursuant to the Catalogue, the manufacture of catalyst, development of energy-
saving technology and development and manufacture of software product are within the encouraged
category. None of Hunan Anchun’s business activities are listed in the limited or banned category.
Save as disclosed above, as at the Latest Practicable Date, our business operations in the PRC are not
subject to any special legislation or regulatory controls which have a material effect on our business and
operations, other than those generally applicable to companies and businesses operating in the PRC set
out under Appendix E entitled “Description of Relevant PRC Laws and Regulations”.
We have obtained all the necessary licenses and permits for our business operations in the PRC and
have complied with all relevant laws and regulations of the PRC. In addition, we will carry out renewal for
all the relevant licenses and permits as and when required. Our Directors are not aware of any reason
which would cause or lead to non-renewal of any of the necessary licenses and permits for our business
operations in the PRC. The necessary licenses and permits obtained by our Group are as follows:-
8 October Design License of Special Qualification for the design 7 October General
2006 Equipment in PRC of pressure piping 2010(1) Administration of
(Pressure Pipe) Quality Supervision,
Inspection and
Quarantine of PRC
22 November Design License of Special Qualification for the design 21 November General
2007 Equipment in PRC of pressure vessels 2011 Administration of
(pressure vessel) Quality Supervision,
Inspection and
Quarantine of PRC
Note:-
(1) Our Company has passed the examination and inspection conducted by the relevant authority for renewal of the Design
License of Special Equipment in PRC (Pressure Pipe), and we expect the renewed license to be issued in due course.
111
.
Licenses, permits and Valid Term/
Date certificates Remark Renewal Period Authority
COMPETITION
We believe that the primary elements of competition for our business are industry reputation, R&D and
technical capability, quality, customer service, management expertise and experience.
To the best of our knowledge and belief, we believe that our main competitor in our industry in the PRC is
Nanjing GoodChina Chemical Technologies Co., Ltd. . In addition, we also
face competition from international companies, such as KBR group, Uhde GmbH group and Haldor
Topsøe group.
None of our Directors, Key Executives or Substantial Shareholders have any interest, direct or indirect, in
any of our above competitors.
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SELECTED FINANCIAL INFORMATION
The following selected group financial information should be read in conjunction with the full text of this
Prospectus, including the Audited Combined Financial Statements as set out in Appendix A and the
Unaudited Combined Financial Statements as set out in Appendix B of this Prospectus, where the
selected group financial information has been derived from.
During the Restructuring Exercise, there was neither any major alteration in Hunan Anchun’s business
activities nor combination with any other businesses. Hence, other than Hunan Anchun’s existing
business activities, our Group did not conduct any other new or additional business activities as a result
of the Restructuring Exercise.
Our Group combined financial statements (as found in Appendices A and B of this Prospectus) have
been prepared in accordance with Singapore Financial Reporting Standards (“SFRS”). In the preparation
of our financial statements, FRS 103 Business Combinations (“FRS 103”) is not applicable since the
Restructuring Exercise does not constitute a business combination under FRS 103 as there is no
combination of businesses as aforementioned. Furthermore, the shareholder group of our Company
remained substantively the same as those of Hunan Anchun, save for the entry of Xie Ming in place of
Xie Ding Zhong and the Pre-IPO Investors.
FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors (“FRS 8”) requires that in the
absence of specific guidance in SFRS, management shall use its judgement in developing and applying
an accounting policy that is relevant and reliable. In making that judgement, management may also
consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual
framework to develop accounting standards, to the extent that these do not conflict with the SFRS
framework or any other FRS or interpretation.
As there is no specific SFRS guidance on the consolidation method to be used in the preparation of our
Group combined financial statements, our management in consultation with our Reporting Accountants
and Auditors, Ernst & Young LLP, have determined that the pooling of interests method would be the most
appropriate method. The assets and liabilities of our Company and our Subsidiary are reflected at their
carrying amounts reported in the combined financial statements. Any difference between the
consideration and the share capital of the Subsidiary acquired is reflected within equity as merger
reserve. The statement of comprehensive income reflects the results of our Company and our Subsidiary
for the entire periods under review.
On the other hand, the purchase method of consolidation was deemed as inappropriate as it requires the
acquiring entity to, inter alia, record the net assets acquired at its fair market value in its financial
accounts and record any excess of the purchase price over the fair market value of the net assets as
goodwill. Accordingly, the financial statements prepared by using the purchase method would not be
reflective of the fact that notwithstanding the Restructuring Exercise, our Group’s business activities are
the same as the existing business activities of Hunan Anchun and there was neither any major alteration
in Hunan Anchun’s business activities nor combination with any other businesses.
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OPERATING RESULTS OF OUR GROUP
Audited Unaudited
Notes: -
(1) For comparative purposes, EPS (based on the pre-Invitation share capital) for the periods under review is computed based
on the net profit attributable to Shareholders and the pre-Invitation share capital of 400,000,000 Shares. Please refer to the
Audited Combined Financial Statements and Unaudited Combined Financial Statements in Appendix A and Appendix B of
this Prospectus for more information on EPS computation.
(2) For comparative purposes, EPS (based on the post-Invitation share capital) for the periods under review is computed based
on the net profit attributable to Shareholders and the post-Invitation share capital of 505,000,000 Shares.
114
FINANCIAL POSITION OF OUR GROUP
Audited as at Unaudited as at
RMB’000 31 December 2009 31 March 2010
Non-current assets
Property, plant and equipment 114,853 117,219
Intangible assets 143 207
Land use rights 16,632 16,541
Deferred tax assets 846 886
Investment securities 933 933
Prepayments 6,131 11,123
Current assets
Inventories 95,831 98,601
Trade and other receivables 47,355 63,886
Prepayments 10,793 16,176
Cash and cash equivalents 88,410 79,853
Current liabilities
Trade and other payables 69,300 87,980
Advances from customers 160,030 155,558
Other liabilities 9,061 3,679
Loans and borrowings 19,200 4,875
Income tax payable 3,145 6,600
Non-current liabilities
Loans and bank borrowings 14,745 14,967
Derivative financial instrument 34 34
Deferred tax liabilities – 257
Shareholders’ equity
Share capital 45 45
Other reserves 58,310 101,310
Accumulated profits 48,057 30,120
Notes:-
(1) NAV per Share has been computed based on the respective net assets as at 31 December 2009 and 31 March 2010, and
the pre-Invitation share capital of 400,000,000 Shares.
(2) Adjusted NAV per Share has been computed based on the respective net assets as at 31 December 2009 and 31 March
2010, adjusted for the conversion of the Pre-IPO Investors’ convertible loan as at the respective balance sheet dates and the
pre-Invitation share capital of 400,000,000 Shares.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL POSITION
OVERVIEW
We are a leading integrated chemical systems engineering and technology solutions provider to the PRC
petrochemical and chemical industries, in particular, manufacturers of ammonia and methanol based
products. Since our inception, we have established a track record of operational excellence, technological
breakthroughs and national awards for our achievements. In addition, we have obtained several
enterprise awards and accolades, including 2009 Forbes China Up & Comers award by Forbes China
magazine (ranked 98th enterprise across all industries nationwide for enterprise growth potential) and
2005 China Petrochemical and Chemical Industries Outstanding Private Enterprise
by China Petroleum and Chemical Industries Association.
Our integrated business model is anchored on strong R&D capabilities and registered patents for our key
technologies, and allows us to capture value across the value chain from system design, system
production and project management, and after-sales. Based on core principles of production efficiency,
energy saving and environmental protection, our range of integrated chemical systems engineering and
technology solutions can be broadly categorised as follows:-
(i) Chemical systems engineering and technology design services (“CET Design Services”);
(ii) Chemical systems and components, including alcohol-hydrocarbon reactor technology, ammonia
synthesis reactor technology and methanol synthesis reactor technology, pressure vessels and and
other auxiliary equipment (“CSC Business”); and
(iii) Oxidative and reductive catalysts and other products (“Catalysts Business”).
Our chemical systems are generally used by our customers to produce ammonia and methanol, which
are subsequently used as crucial feedstock in our customers’ production system to produce other
downstream products such as urea, compound fertiliser, methanol fuel, formaldehyde, dimethyl ether and
explosives. Please refer to the section entitled “Business Overview” of this Prospectus for more
information.
In addition, we have a diversified customer base of approximately 320 different customers (of which
certain customers belong to the same group of companies) across 26 province-level administrative units
comprising provinces, autonomous regions and municipalities in the PRC. Our major customers include
notable state-owned and/or publicly-listed groups such as Jincheng Anthracite Mining group
, Sinofert group , China XLX group , Yunnan Yunwei
Group Co., Ltd. and China Haohua Chemical group . Please
refer to the section entitled “Our Major Customers” of this Prospectus for details.
No segmental information by geographical location is presented since all our revenue in FY2007,
FY2008, FY2009 and 1Q2010 was derived in the PRC.
Revenue
Our revenue from our product and service offerings as an integrated chemical systems engineering and
technology solutions provider can be categorised into three business segments as follows:-
CET Design Services, which refers to revenue derived from chemical systems engineering and
technology design services such as feasibility studies, system design and solutions for production of
ammonia and methanol. Please refer to the section entitled “Our Value Chain – System Design Process”
of this Prospectus for more information.
116
CSC Business, which refers to revenue derived from manufacture and supply of our chemical systems
and components and related project management contracts. Please refer to the sections entitled “Our
Value Chain – System Production and Project Management Process” and “Our Chemical Systems and
Components and Manufacturing Process” of this Prospectus for more information.
Catalysts Business, which refers to revenue derived from supply of catalysts and other products. Please
refer to the section entitled “Our Catalysts and Manufacturing Process” of this Prospectus for more
information on our Catalysts Business. Revenue from other products mainly relates to revenue of health
products previously sold by Anchun Biotech, which was insignificant and accounted for only
approximately 0.01%, 0.2% and nil of our revenue from Catalysts Business for FY2007, FY2008 and
FY2009 respectively. Anchun Biotech was subsequently disposed as part of our Restructuring Exercise.
Please refer to the sections entitled “Restructuring Exercise” and “Interested Person Transactions” of this
Prospectus for more information on the disposal of Anchun Biotech.
Due to the strategic importance and uses of ammonia (primarily for manufacture of agricultural chemical
fertilisers) and methanol (manufacture of fuel, formaldehyde, methyl tertiary butyl ether, dimethyl ether
etc), the PRC ammonia and methanol industries and its production capacities has been growing steadily
and is poised to continue such growth trend going forward. The strong industry conditions and prospects
for our Group arose from customer needs due to new production capacity expansion and upgrading of
existing facilities, many of which are considered to be already inefficient and are not economically viable
in the long run. Please refer to the section entitled “Industry Overview” of this Prospectus for details.
Riding on such positive industry conditions and trend, our Group was able to achieve strong growth in our
business operations and financial performance during the periods under review.
We set out below the breakdown of our revenue by business segments for FY2007, FY2008, FY2009,
1Q2009 and 1Q2010:
CET Design Services 13,722 12.0 7,616 6.3 15,883 5.4 1,480 1.4 8,148 12.1
CSC Business 87,057 75.8 92,543 76.5 259,566 88.0 96,302 92.2 55,277 82.1
Catalyst Business 14,001 12.2 20,850 17.2 19,392 6.6 6,663 6.4 3,870 5.8
Total 114,780 100 121,009 100 294,841 100 104,445 100 67,295 100
From FY2007 to FY2008, our total revenue increased by approximately RMB6.2 million, or 5.4%, from
RMB114.8 million in FY2007 to RMB121.0 million in FY2008, notwithstanding the general slowdown in
economic conditions in the PRC during FY2008. From FY2008 to FY2009, our total revenue increased
significantly by approximately RMB173.8 million, or 143.6%, from RMB121.0 million in FY2008 to
RMB294.8 million in FY2009, as we were able to achieve strong business growth, in particular our CSC
Business, during FY2009 in line with the positive effects of the government economic stimulus plan to
increase domestic demand and stimulate economic growth by investing an estimated RMB4.0 trillion in
various areas as a response to the global financial crisis, as announced by the State Council of the PRC
on 9 November 2008. Such economic stimulus initiatives boosted overall optimism in the PRC economy
and led to positive effects in the economy, resulting in overall GDP growth and increased investments in
fixed assets by manufacturers of chemical material and chemical products as well as growth of production
capacities of the ammonia and methanol industry in the PRC in 2009. Furthermore, in line with the
opening of our Lusong Plant in mid 2008, we had expanded our production capacities for our CSC
Business from 2H2008 which allowed us to pursue more contracts of higher value, where such contracts
secured were subsequently mostly completed in FY2009 onwards. Please refer to the section entitled
“Review of Results of Operations - FY2008 vs. FY2009” of this Prospectus for details of the above.
117
In line with the positive economic conditions in the PRC, our strong revenue performance in FY2009 has
continued into the following year. For 1Q2010, our total revenue was RMB67.3 million (notwithstanding it
was lower than our total revenue in 1Q2009). In addition, our order books as at the Latest Practicable
Date stood at approximately RMB256.4 million of unfulfilled secured contracts which we expects to
deliver RMB235.5 million and RMB20.9 million worth of contracts in FY2010 and FY2011 respectively.
The above fluctuations of our revenues during the periods under review will be further explained in the
subsequent section “Review of Results of Operations” of this Prospectus.
Our revenues may be affected by, inter alia, the following key factors:
Our products or services may not be completed within the same financial year/period in which the
contract was secured. Hence, the overall revenue recognised in that financial year/period is
determined by the contract values and the number of successful installation of products and
completion of services occurred in that financial year/period. In addition, depending on the contract
terms, a retention sum of 5% of the contract value may be required as deposits for assurance of
product quality, which will be released to us after the expiry of the defects liability period. The
defects liability period is typically 12 months after delivery of the goods. The retention sum is based
on the contract signed and determined at the contract negotiation stage, depending on our
customers’ requirement. The retention sums are only recognised as revenue together with the
corresponding cost of sales of such retention sums after the applicable defects liability period.
Generally there would not be significant corresponding cost of sales (arising from revenue from
retention sums) as all cost of sales relating to the production of the products or provision of the
services would have already been recognised together with the aforementioned initial revenue
recognition upon successful installation of products and completion of services. As a result,
increased contribution from retention sums revenue in any given period will generally improve our
gross profit margins for that period (such as during 1Q2010).
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(d) Our ability to keep abreast with technological advances
We are in an industry where technology plays a critical role in influencing the demand for our
products and services. Hence, our ability to stay abreast of technological advancements and to
introduce new and enhanced products/services on a timely basis is a key factor affecting our
revenue.
(e) Competition
Competition in our industry could increase as a result of new market entrants, or our competitors
may be able to price their products/services more attractively, or may develop or acquire
technology that is comparable to or more advanced than our proprietary technical know-how. In
addition to local competitors, we also face competition from foreign companies, which may have
access to greater financial, technological and other resources than we do. Our revenue will be
affected if we fail to compete successfully with our competitors in terms of technology, pricing,
design, quality and timely project delivery.
(f) General economic, social and political conditions of the PRC economy
Currently, all of our revenue are derived from customers within the PRC. As such, fluctuations in
the general economic, social and political conditions of the PRC will have an impact on the demand
of our products.
Please refer to the section entitled “Risk Factors” of this Prospectus for a more comprehensive discussion
of the above and other factors which may affect our business operations and financial performance.
Seasonality - Due to the nature of our industry, our business is generally not subject to seasonality on a
calendar-year basis, save for during the Chinese New Year holidays where many of our customers
generally do not accept delivery for a period of two to three weeks.
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Cost of Sales
Breakdown of cost of sales by business segment
The following table provides a breakdown of our cost of sales by business segment for FY2007, FY2008,
FY2009, 1Q2009 and 1Q2010:
Cost of Sales by
Segments Audited Unaudited
CET Design Services 1,682 2.7 526 0.8 2,214 1.3 227 0.3 915 3.4
CSC Business 54,762 88.0 54,054 83.9 162,550 92.3 59,612 93.1 23,964 90.3
Catalyst Business 5,805 9.3 9,838 15.3 11,275 6.4 4,196 6.6 1,670 6.3
Total 62,249 100 64,418 100 176,039 100 64,035 100 26,549 100
We set out below further descriptions of our cost of sales under each segment:-
For the periods under review, the above trends of the costs of sales of the business segments were
generally in line with the corresponding revenue trends of the respective segment. The above fluctuations
of the costs of sales during the periods under review will be further explained in the subsequent section
“Review of Results of Operations” of this Prospectus.
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Please see below for further discussion on the trends and breakdown of our costs of sales by direct
material, direct labour and manufacturing and other overheads.
- Other materials 6,214 10.0 8,182 12.7 12,066 6.8 4,158 6.5 2,486 9.3
Sub-total for direct 51,908 83.4 54,349 84.4 141,927 80.6 54,180 84.6 20,901 78.7
materials
Direct labour 2,339 3.7 2,862 4.4 8,784 5.0 2,511 3.9 1,705 6.4
Manufacturing and 8,002 12.9 7,207 11.2 25,328 14.4 7,344 11.5 3,943 14.9
other overheads
Total 62,249 100 64,418 100 176,039 100 64,035 100 26,549 100
Direct materials used in our CSC Business comprised mainly steel materials (such as carbon steel,
stainless steel and other steel parts), other production materials and packaging material. Direct
materials used in our Catalysts Business comprised mainly production materials (such as copper
and cobalt) and packaging material. Our direct materials cost is dependent, inter alia, on our
production volume and average materials costs.
We have access to a large pool of suppliers for our materials as our production facilities are
located in Changsha City, which is highly-accessible to other manufacturing and industrial hubs in
the PRC. Please refer to the section entitled “Our Major Suppliers” of this Prospectus for more
information. Our materials are currently sourced from within the PRC and therefore, all of our
purchases are transacted in RMB. Accordingly, we are not subjected to any significant risk in
exchange rates fluctuations in the purchase of direct materials.
Generally, we do not enter into long term contracts with our suppliers and we currently do not
hedge or have the intention to hedge the price or volume of our materials in the near future due to,
inter alia, our cost mark-up approach to contract negotiation with our customers. Our contracts are
negotiated with our customers based on existing market prices of materials, possible selling prices
of our products/services and our intended gross margins. Hence, we fix the prices of required
materials at approximately the same time as the contracts we signed with our customers so as to
protect our gross margins. Please refer to the section entitled “Inventory Management” of this
Prospectus for more information.
121
Steel materials was the most significant component in our materials costs, and accounted for
73.4%, 71.7%, 73.8%, 78.1% and 69.4% of our overall cost of sales in FY2007, FY2008, FY2009,
1Q2009 and 1Q2010 respectively. Our steel purchase costs are subjected to price fluctuations in
the commodity metal markets. Our average steel purchase costs for FY2007, FY2008, FY2009 and
1Q2010 were approximately RMB22,400/tonne, RMB21,400/tonne, RMB10,900/tonne, and
RMB13,600/tonne respectively, which were generally in line with the fluctuations of steel market
prices over the same periods. Notwithstanding such market movements in steel prices, we were
generally able to maintain stable gross margins for our CSC Business and Catalysts Business as
we adopt a cost mark-up approach to contract negotiation with our customers as aforementioned.
Direct labour costs accounted for 3.7%, 4.4%, 5.0%, 3.9% and 6.4% for FY2007, FY2008, FY2009,
1Q2009 and 1Q2010 respectively. The increasing trend in nominal direct labour costs for the
periods under review was generally in line with the corresponding increasing trend in our business
and sales activities for the periods under review.
Manufacturing and other overheads accounted for 12.9%, 11.2%, 14.4%, 11.5% and 14.9% for
FY2007, FY2008, FY2009, 1Q2009 and 1Q2010 respectively. The decrease in manufacturing and
other overheads by approximately RMB0.8 million from RMB8.0 million in FY2007 to RMB7.2
million in FY2008 was due mainly to the decrease in sales tax in relation to our CET Design
Services, in line with the decrease in revenue from our CET Design Services over the same period.
The increase in manufacturing overheads from FY2008 to FY2009 was in line with the increase in
business activities for our Group. Due to the expansion in production capacity in mid FY2008 and
the relatively fixed nature of manufacturing overheads (mainly as a result of depreciation charges),
the increase in our manufacturing overheads from FY2008 to FY2009 was more-than-proportionate
when compared to the increase of our revenue for the same period.
Our costs of sales are affected by, inter alia, the following key factors:
(i) The supply and prices of materials (in particular steel materials), which are affected by, inter alia,
market volatility, market demand and supply conditions and governmental regulations. Should there
be any significant increases in the price of our materials, and if we are unable to pass on such
increases in prices to our customers or find alternative suppliers/sources of materials that are able
to supply us materials at competitive prices, our financial performance will be adversely affected;
(iii) System disruptions arising from disruption of electricity supply or machinery breakdown.
Please refer to the section entitled “Risk Factors” of this Prospectus for a more comprehensive discussion
of the above and other factors which may affect our business operations and financial performance.
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Gross Profit and Gross Profit Margin
The following tables provides a breakdown of our gross profit and gross profit margin by business
segment for FY2007, FY2008, FY2009, 1Q2009 and 1Q2010.
Gross Profit by
Segments Audited Unaudited
CET Design Services 12,040 22.9 7,090 12.5 13,669 11.5 1,253 3.1 7,213 17.8
CSC Business 32,295 61.5 38,489 68.0 97,016 81.7 36,690 90.8 31,333 76.8
Catalyst Business 8,196 15.6 11,012 19.5 8,117 6.8 2,467 6.1 2,200 5.4
Total 52,531 100 56,591 100 118,802 100 40,410 100 40,746 100
Our gross profit margin is affected by our sales mix, selling prices of our products and services and
relative cost of sales. Our overall gross profit margin was 45.8%, 46.8%, 40.3%, 38.7% and 60.5% for
FY2007, FY2008, FY2009, 1Q2009 and 1Q2010 respectively. The decrease in our overall gross profit
margin to 40.3% in FY2009 was mainly due to general decreases in all our segmental gross profit
margins. In 1Q2010, our overall gross profit margin increased to 60.5% due to general increases in all our
segmental gross profit margins, in particular increase in our CSC Business gross profit margin to 56.7%
(explained further below). Nevertheless, we do not expect such increase in our overall gross profit margin
in 1Q2010 to continue for the rest of FY2010. Accordingly, we expect our overall gross profit margin for
FY2010 to be not as high as that of 1Q2010, but instead closer to the range of our overall gross profit
margins for the past three financial years. Please also refer to the section entitled “Trend Information” of
this Prospectus.
We set out below further descriptions of our gross profit margins under each segment:-
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(ii) CSC Business
Our gross profit margin from CSC Business was relatively stable, with a simple average gross profit
margin of 38.7% for FY2007, FY2008 and FY2009 as we adopt a cost mark-up approach to
contract negotiation with our customers. Nevertheless, our gross profit margins in this segment
were relatively higher at 41.6% and 56.7% in FY2008 and 1Q2010 respectively as a result of
greater-than-proportionate contribution from retention sums being recognised as revenue in these
periods (RMB6.2 million and RMB6.6 million in FY2008 and 1Q2010 respectively). Such retention
sums are based on the contracts signed and determined at the contract negotiation stage,
depending on the customers’ requirement. The retention sums are only recognised as revenue
together with the corresponding cost of sales of such retention sums after the applicable defects
liability period, which is typically 12 months. Generally there would not be significant corresponding
cost of sales (arising from revenue from retention sums) as all cost of sales relating to the
production of the products or provision of the services would have already been recognised
together with the aforementioned initial revenue recognition upon successful installation of products
and completion of services. As a result, increased contribution from retention sums revenue in any
given period will generally improve our gross profit margins for that period (such as during FY2008
and 1Q2010). For illustrative purpose, the percentage contribution of our CSC Business’s retention
sums revenue in 1Q2010 was 9.8% of total revenue as compared to 0.8% in 1Q2009 respectively.
Our relatively higher finance and other income in FY2008 were mainly due to higher government grants
of RMB5.3 million recognised and received in FY2008. The government grants relate to grants received
from the government for our research and development efforts and recognised as income and are usually
one-off in nature.
Our relatively higher marketing and distribution expenses in FY2008 was mainly due to additional
marketing and distribution expenses attributed to marketing and promotional expenses relating to Anchun
Biotech’s health products launch in the same year, where such expenses will not recur going forward
since Anchun Biotech has been disposed as part of our Restructuring Exercise.
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Administrative expenses
Administrative expenses comprise research and development, depreciation and amortisation, office staff
and directors’ remuneration, travelling and transportation expenses, allowance/written off of debts and
inventories, rental, maintenance and utilities expense, professional fee, loss on disposal of property, plant
and equipment, donations, other sundry expenses as well as other general expenses. Our administrative
expenses represented 19.0%, 23.9%, 9.2%, 4.4% and 15.4% of our revenue in FY2007, FY2008,
FY2009, 1Q2009 and 1Q2010 respectively. The general increasing trend in nominal administrative
expenses for the periods under review was in line with our expanding business activities over the same
periods.
Finance costs
Finance costs mainly comprised interest expense on our bank borrowings, loans from
employee/shareholders and convertible loan. Our finance costs represented 0.9%, 2.0%, 0.7%, 0.2% and
0.5% of our revenue in FY2007, FY2008, FY2009, 1Q2009 and 1Q2010 respectively. The marginally
higher interest expense during FY2008 was mainly due to higher bank borrowings taken to partially
finance the expansion of our production capacities in the same year.
Singapore
Our Company was incorporated in the Republic of Singapore in FY2009. The corporate income tax rate
applicable to our Company in Singapore was 17% in FY2009. Our Company had no taxable income for
FY2009 and 1Q2010.
PRC
Our Subsidiary, Hunan Anchun was taxed according to the prevailing tax regulations in the PRC and the
corporate income tax applicable to Hunan Anchun in FY2007 was 15%, pursuant to “Regulations on the
Tax Policy for the National Advanced New Technology Industries Development Zone”
, issued in 1991. Furthermore, according to the Enterprise Income Tax Law of the
PRC, promulgated by the State Council and the Administrative Measure for Determination of Advanced
New Technology Enterprises, issued by the Ministry of Science and Technology, Finance and State
Administration of Tax and effective on 1 January 2008, Advanced New Technology Enterprises that
require key state support are subject to the applicable enterprise income tax rate of 15%.
Given that Hunan Anchun has received the certificate of Advanced New Technology Enterprise since
2007, it enjoys the preferential income tax rate of 15% from 1 January 2007 to 31 December 2012.
Without such tax incentive, the normal applicable tax rate is currently 25%.
The above fluctuations of our respective profit and loss items during the periods under review will be
further explained in the subsequent section “Review of Results of Operations” of this Prospectus.
Inflation
Our financial performance during the periods under review was not materially affected by inflation.
125
REVIEW OF RESULTS OF OPERATIONS
FY2007 vs. FY2008
Revenue
Our revenue increased by approximately RMB6.2 million, or 5.4%, from RMB114.8 million in FY2007 to
RMB121.0 million in FY2008, notwithstanding the general slowdown in economic conditions in the PRC
during FY2008. Our major customers and their respective revenue contributions in FY2008 were mainly
Jincheng Anthracite Mining group (RMB26.4 million), Guizhou Kailin group (RMB8.7 million) and Fubao
group (RMB7.7 million), as compared to our major customers in FY2007, namely Jincheng Anthracite
Mining group (RMB30.2 million), Shanxi Tianze group (RMB18.2 million), Sinofert group (RMB11.4
million) and China XLX group (RMB10.1 million). The aggregate percentage contribution from our 3 major
customers in FY2008 was 35.3% as compared to aggregate 60.9% from 4 major customers in FY2007.
Please refer to the section “Our Major Customers” of this Prospectus for more information.
The increase in revenue was mainly due to increases in revenues from our CSC Business and Catalyst
Business, which were partially offset by a decrease in revenue from our CET Design Services, further
described as follows:-
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In terms of gross profit margin, our overall gross profit margin marginally increased from 45.8% in
FY2007 to 46.8% in FY2008. This was mainly due to improvement in margins of (i) our CET Design
Services from 87.7% in FY2007 to 93.1% in FY2008, which was due to greater-than-proportionate
decline in cost of sales of CET Design Services as compared to the decrease in corresponding revenue
as we incurred less manpower and other costs in this segment due to decreased business needs; and (ii)
our CSC Business from 37.1% in FY2007 to 41.6% in FY2008, which was mainly due to higher retention
sums being recognised as revenue in FY2008 of RMB6.2 million as aforementioned (which improved our
gross profit margin in this period since there were generally no significant corresponding costs of sales as
explained earlier). These were offset by decrease in margin of our Catalyst Business from 58.5% in
FY2007 to 52.8% in FY2008 due to change in sales mix where there was greater contribution from lower
margin products.
Administrative expenses
Administrative expenses increased by RMB7.1 million, or 32.4%, from RMB21.9 million in FY2007 to
RMB29.0 million in FY2008. The increase in administrative expenses was due mainly to (i) increase in
salaries and other staff related expenses of RMB3.7 million due mainly to increase in bonuses payment
of RMB1.9 million and increase in staff welfare expenses of RMB0.9 million, as well as travelling and
transportation expenses of RMB0.4 million; (ii) increase in maintenance and utilities expenses of RMB0.7
million as well as depreciation expenses of RMB0.7 million as a result of an expansion in our production
facilities; and (iii) one-off share-based payment charge of RMB1.7 million in FY2008 as a result of the
issuance of shares to certain employees of Hunan Anchun to reward their past efforts and contributions
to the business. In conjunction with FRS 102 Share-based Payment, the RMB1.7 million share-based
payment charge was based on fair value of the aforementioned shares issued to the employees, which
was based on the share valuation report dated 31 May 2010 issued by an independent valuer Nexia TS
Pte. Ltd..
Finance costs
The increase in finance costs by RMB1.3 million from RMB1.1 million in FY2007 to RMB2.4 million was
due mainly to the increase in interest expense for bank loans by RMB0.9 million from RMB0.6 million in
FY2007 to RMB1.5 million in FY2008. The increase in interest expense for bank loans was due to the
higher average bank borrowings in FY2008 that were undertaken to partially finance the expansion of our
production facilities.
127
Net profit attributable to Shareholders
As a result of the foregoing, our net income decreased by RMB1.4 million, or 6.2%, from RMB22.7 million
in FY2007 to RMB21.3 million in FY2008.
According to the CNCIC Report, the production capacities of the ammonia and methanol industry in the
PRC grew at 5.5% and 21.5% respectively between 2008 and 2009. The aforesaid growth rates in
production capacities were in absolute terms and did not include the replacement of obsolete or
economically inefficient manufacturing plants (where such information on replacement production
capacity is not available from CNCIC). Accordingly, the actual capital expenditures by the ammonia and
methanol manufacturers during any given period should be higher than the corresponding increases in
the absolute production capacities of ammonia and methanol due to replacement production capacities.
Furthermore, in line with the opening of our Lusong Plant in mid 2008, we had expanded our production
capacities for our CSC Business from 2H2008 which allowed us to pursue more contracts of higher value,
where such contracts secured were subsequently mostly completed in FY2009 onwards. Without the
capacity expansion attributed to the new Lusong Plant which commenced operations in 2H2008, our
Group would have to rely only on the older Lufeng Plant which has an estimated production capacity of
approximately 4,370 tonnes per annum for our CSC Business, as opposed to the new Lusong Plant
which has an estimated production capacity of approximately 8,755 tonnes per annum for our CSC
Business. In addition, the newer and bigger facilities at Lusong Plant allowed fabrication of more large-
sized structures and consequently, the securing of contracts with higher value for our CSC Business. In
line with the opening of the Lusong Plant and increased production capacity for our CSC Business from
2H2008 onwards, our Group was able to pursue more large contracts where such contracts secured
subsequently were mostly completed in FY2009 onwards. Hence, the capacity expansion attributed to the
new Lusong Plant was crucial to our Group’s business expansion in our CSC Business from FY2008
onwards. Please refer to the section “Production Facilities, Equipment and Capacity – Production
Capacity and Utilisation” of this Prospectus for more information.
Our major customers and their respective revenue contributions in FY2009 were mainly Jincheng
Anthracite Mining group (RMB105.0 million), Shanxi Tianze group (RMB24.8 million), China XLX group
(RMB52.5 million), Guizhou Kailin group (RMB18.6 million) and Shandong Ruixing Runyin Biochemical
Co. Ltd. (RMB19.2 million), which were significantly more than our major customers’ revenue contribution
in FY2008. The aggregate percentage contribution from our 5 major customers in FY2009 was 74.6% as
compared to aggregate 35.3% from 3 major customers in FY2008. Please refer to the section “Our Major
Customers” of this Prospectus for more information.
Note:-
(1) Please note that the National Bureau of Statistics of China has not consented to the inclusion of the information and thereby
is not liable for such information under Section 253 and 254 of the Securities and Futures Act. Our Directors are aware that
the National Bureau of Statistics of China does not guarantee or assume any responsibility that the information is accurate,
current or reliable, or may be used for any purpose other than for general reference. We are unable to verify the accuracy of
the contents of the relevant information and have included such information in its proper form and context in this Prospectus.
128
The increase in our revenue can be attributed to increases in revenues from our CET Design Services
and CSC Business, which was partially offset by a marginal decrease in revenue from our Catalysts
Business, further described as follows:-
In terms of gross profit margin, our overall gross profit margin decreased from 46.8% in FY2008 to 40.3%
in FY2009. This was mainly due to (i) greater-than-proportionate increase in gross profits percentage
contribution from our CSC Business from 68.0% in FY2008 to 81.7% in FY2009, which caused our
overall gross profit margin to decline as our CSC Business typically has lower margins as compared to
other segments; and lower gross profit margins from all 3 business segments, described as follows:-
129
Our CET Design Services margins decreased from 93.1% in FY2008 to 86.1% in FY2009 as a result of
greater-than-proportionate increase in cost of sales of CET Design Services as compared to the increase
in corresponding revenue as we incurred more manpower and other costs in this segment due to
increased business needs. Our CSC Business margins decreased from 41.6% in FY2008 to 37.4% in
FY2009 due mainly to greater-than-proportionate increase in overheads, which mainly pertained to higher
depreciation charges in FY2009 due to expansion of our production facilities in mid FY2008 as
aforementioned. Our Catalyst Business margin decreased from 52.8% in FY2008 to 41.9% in FY2009 as
a result of us offering competitive prices for marketing purposes as aforementioned.
Administrative expenses
Administrative expenses decreased marginally by approximately RMB1.9 million, or 6.6%, from RMB29.0
million in FY2008 to RMB27.1 million in FY2009. The decrease in administrative expenses was due
mainly to (i) the absence of one-off share based payment charge of RMB1.7 million in FY2008 as a result
of the issuance of shares to certain employees of Hunan Anchun to reward their past efforts and
contributions to the business; and (ii) marginal decrease in other general and administrative expenses of
RMB0.2 million.
Finance costs
Finance costs decreased by approximately RMB0.3 million or 12.5% from RMB2.4 million in FY2008 to
RMB2.1 million in FY2009, which was mainly due to the decrease in interest expenses as a result of
lower average interest-bearing borrowings in FY2009.
130
1Q2009 vs. 1Q2010
Revenue
In line with the positive economic conditions in the PRC, our strong revenue performance in FY2009 has
continued into the following year. For 1Q2010, our total revenue was RMB67.3 million, notwithstanding it
was lower than our total revenue in 1Q2009. Our revenue decreased by approximately RMB37.1 million,
or 35.6%, from RMB104.4 million in 1Q2009 to RMB67.3 million in 1Q2010, as our revenue recorded in
1Q2009 was relatively strong as we had delivered several large contracts on the back of strong recovery
in economic conditions in the PRC during the same period. Nevertheless, we have strong order books
from unfulfilled secured contracts as at the Latest Practicable Date, please refer to the section entitled
“Prospects, Business Strategies and Future Plans” of this Prospectus for more information.
Our major customers and their respective revenue contributions in 1Q2010 were mainly Jincheng
Anthracite Mining group (RMB5.0 million), Yunnan Yunwei Group Co., Ltd. (RMB22.3 million). China
Haohua group (RMB14.7 million) and Yangmei group (RMB5.7 million). The aggregate percentage
contribution from our 4 major customers in 1Q2010 was 71.0% as compared to aggregate 74.6% from 5
major customers in FY2009. Please refer to the section “Our Major Customers” of this Prospectus for
more information.
The decrease in revenue was mainly due to decreases in revenue from our CSC Business and Catalysts
Business, which were partially offset by an increase in revenue from our CET Design Services, further
described as follows:-
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Cost of sales and gross profit margin
Cost of sales decreased by approximately RMB37.5 million or 58.6% from RMB64.0 million in 1Q2009 to
RMB26.5 million in 1Q2010. The decrease in cost of sales was mainly due to (i) the decrease in the cost
of sales for our CSC Business by RMB35.6 million, or 59.7%, from RMB59.6 million in 1Q2009 to
RMB24.0 million in 1Q2010, which was due mainly to the decrease in direct material costs by RMB33.3
million or 61.4% from RMB54.2 million in 1Q2009 to RMB20.9 million in 1Q2010. These were in turn
mainly due to the 42.6% decrease in revenue from CSC Business as well as greater-than-proportionate
contribution from retention sums revenue in our CSC Business during 1Q2010 (see below for details);
and (ii) the decrease in the cost of sales for our Catalysts Business by RMB2.5 million, or 59.5%, from
RMB4.2 million in 1Q2009 to RMB1.7 million in 1Q2010. The greater than proportionate decrease in the
cost of sales for the Catalysts Business as compared to the 41.9% decrease in revenue for the Catalysts
Business was due mainly to better gross profit margins as a result of the relatively greater proportion of
its alcohol-hydrocarbonylation catalysts sold during 1Q2010, which has higher margins as compared to
our other catalysts (see below for details). These decreases were partially offset by the increase in the
cost of sales for our CET Design Services by RMB0.7 million, or 350.0%, from RMB0.2 million in 1Q2009
to RMB0.9 million in 1Q2010, which was in line with the increase in revenue from CET Design Services
for the same period. These fluctuations in segmental cost of sales were generally in line with the
corresponding fluctuations in segmental revenue between 1Q2009 and 1Q2010 as aforementioned.
As a result of the foregoing, our overall gross profit increased marginally by approximately RMB0.3 million
or 0.7 % from RMB40.4 million in 1Q2009 to RMB40.7 million in 1Q2010 and our gross profit margin
increased from 38.7% in 1Q2009 to 60.5% in 1Q2010. The improvement in our overall gross profit margin
was mainly due to significant increase in margins of our CSC Business from 38.1% in 1Q2009 to 56.7%
in 1Q2010, which was mainly a result of greater-than-proportionate contribution from retention sums of
RMB6.6 million being recognised as revenue in our CSC Business during 1Q2010 (which improved our
gross profit margin in this period since there were generally no significant corresponding costs of sales as
explained earlier). For illustrative purpose, the percentage contribution of our CSC Business’s retention
sums revenue to in 1Q2010 was 9.8% of total revenue as compared to 0.8% in 1Q2009 respectively.
Furthermore, the greater-than-proportionate increase in gross profits percentage contribution from our
CET Design Services from 3.1% in 1Q2009 to 17.8% in 1Q2010 also caused our overall gross profit
margin to significantly improve as our CET Design Services typically has higher margins as compared to
other segments. In addition, the margins of our CET Design Services and Catalyst Business were also
higher in 1Q2010 as compared to 1Q2009. Gross profit margin of CET Design Services increased from
84.7% in 1Q2009 to 88.7% in 1Q2010, where we generally obtained better pricing for contracts
completed in 1Q2010 due to relatively better economic conditions at the times when such design
contracts were secured. Gross profit margin of Catalyst Business increased from 37.0% in 1Q2009 to
56.8% in 1Q2010, due mainly to change in sales mix and selling prices where there was greater-than-
proportionate contribution from sales of our specialised alcohol-hydrocarbon oxidative catalyst for use in
our proprietary alcohol-hydrocarbonylation refining systems. As mentioned in the section entitled “Our
Catalysts and Manufacturing Process” of the Prospectus, our alcohol-hydrocarbon oxidative catalysts for
our alcohol-hydrocarbonylation refining systems were able to command higher margins than other types
of catalysts as there are currently no known substitutable catalysts for use in our proprietary alcohol-
hydrocarbonylation refining systems. For illustrative purpose, our specialised alcohol-hydrocarbon
oxidative catalyst contributed approximately 66% of the 1Q2010 revenue from Catalysts Business as
compared to approximately 58% of the 1Q2009 revenue from Catalysts Business.
Notwithstanding the above, we do not expect such increase in our overall gross profit margin in 1Q2010
to continue for the rest of FY2010 as we do not expect overall proportion of contribution from retention
sums revenue to total revenue of FY2010 to be as high as 1Q2010 as aforementioned. Our overall gross
profit margin was 45.8%, 46.8%, 40.3%, 38.7% and 60.5% for FY2007, FY2008, FY2009, 1Q2009 and
1Q2010 respectively. Accordingly, we expect our overall gross profit margin for FY2010 to be not as high
as that of 1Q2010, but instead closer to the range of our overall gross profit margins for the past three
financial years. Please also refer to the section entitled “Trend Information” of this Prospectus.
132
Finance and other income
Finance and other income increased by approximately RMB0.3 million or more than 100% from
approximately RMB21,000 in 1Q2009 to approximately RMB0.3 million in 1Q2010. The increase was
mainly due to increase in interest income of RMB0.2 million.
Administrative expenses
Administrative expenses increased significantly by approximately RMB5.8 million, or 126.0%, from
RMB4.6 million in 1Q2009 to RMB10.4 million in 1Q2010. The increase in administrative expenses was
due mainly to (i) increase in R&D expenses of RMB4.5 million due to increased R&D activities; (ii)
increase in staff and staff related cost of RMB0.4 million due to additional headcount to meet growing
administrative manpower needs; and (iii) net increase in other general and administrative expenses of
RMB0.9 million.
Finance costs
Finance costs increased by approximately RMB0.1 million or 50.0% from RMB0.2 million in 1Q2009 to
RMB0.3 million in 1Q2010. The increase was mainly due to the increase in interest expenses arising from
the Pre-IPO Investors’ convertible loan which was partially offset by decrease in interest expenses arising
from lower bank borrowings.
Non-current assets
Non-current assets comprised property, plant and equipment, intangibles assets, land use rights, deferred
tax assets and investment securities. As at 31 March 2010, our non-current assets amounted to
approximately RMB146.9 million or 36.2% of our total assets, comprising property, plant and equipment
of approximately RMB117.2 million, intangibles assets of approximately RMB0.2 million, land use rights of
approximately RMB16.5 million, deferred tax assets of approximately RMB0.9 million, investment
securities of approximately RMB0.9 million and long-term prepayments of approximately RMB11.1 million.
Long-term prepayments are prepayments made to contractors for the acquisition of property, plant and
equipment, such as the construction of the Group’s R&D and office building. Such prepayments were
made within a year but were classified as long-term due to the nature of the assets for which such
prepayments were made for.
133
Our property, plant and equipment was the most significant component of our non-current assets and
comprised leasehold buildings, plant and equipment, motor vehicles, furniture and fittings and
construction-in-progress. Leasehold buildings accounted for approximately RMB61.5 million or 52.5% of
our property, plant and equipment whereas other plant and equipment accounted for approximately
RMB55.7 million or 47.5% of our property, plant and equipment as at 31 March 2010.
Current assets
Current assets comprised inventories, trade and other receivables, prepayments, and cash and cash
equivalents. Our current assets as at 31 March 2010 amounted to approximately RMB258.5 million or
63.8% of our total assets.
As at 31 March 2010, our inventories amounted to approximately RMB98.6 million or 38.1% of our
current assets, where our inventories comprised direct materials of RMB21.3 million, work-in-progress of
RMB47.1 million and finished goods of RMB30.2 million. As most of the materials used in the CSC
Business are stainless steel or carbon steel, such inventories are unlikely to become obsolete or
experience any diminution in value. Materials used in the Catalysts Business have a general expiry period
of 2 years, while finished goods have a general expiry period of 5 years. Further, approximately 70% of
the direct materials inventories were backed by customer orders while 100% of all work-in-progress and
finished goods were backed by customer orders. Furthermore, our inventories relate to our leading
advanced technologies and products which are considered to be at the forefront of our industry in the
PRC. Accordingly, it is unlikely for our inventories to become obsolete or experience any diminution in
value.
Trade and other receivables amounted to approximately RMB63.9 million or 24.7% of our current assets.
Trade receivables amounted to RMB32.5 million as at 31 March 2010, of which RMB6.6 million were past
due but not impaired. As at the Latest Practicable Date, RMB1.8 million of such past due trade
receivables remain to be collected. To the best of our knowledge and belief, no further allowance for
impairment for these receivables are required as such trade receivables are considered recoverable
because these customers are still operational and currently have low insolvency risk.
Prepayments amounted to approximately RMB16.2 million or 6.3% of our current assets and cash and
cash equivalents amounted to approximately RMB79.9 million or 30.9% of our current assets as at 31
March 2010.
Current liabilities
Current liabilities comprised trade and other payables, advances from customers, other liabilities, loans
and borrowings and income tax payables. Our current liabilities as at 31 March 2010 amounted to
approximately RMB258.7 million.
As at 31 March 2010, trade and other payables amounted to approximately RMB88.0 million or 34.0% of
our current liabilities. Of this, dividends payables to past shareholders of Hunan Anchun amounted to
RMB43.2 million. As at the Latest Practicable Date, RMB36.2 million of such dividends payables remains
to be paid. According to PRC rules, there is no time limit for the payment of dividends to shareholders.
Please refer to the section “Capitalisation and Indebtedness” of this Prospectus for more information.
Advances from customers relate to payments received from our customers in respect of secured
contracts which we have yet to deliver, and comprised (i) initial advance payment of 30% of the contract
value and (ii) subsequent progress payments, each between 25% and 40% of the contract value based
on the progress of the project as provided for in the contract. The contracts usually provided for 2 – 3
subsequent payments at various milestones (such as after 1 – 2 months after the execution of the
contracts, upon completion of certain percentage of the production process as well as upon delivery)
depending on the type of products/services provided and negotiation with the customers. Such advances
from customers amounted to approximately RMB155.6 million or 60.1% of our current liabilities as at 31
March 2010, which comprised approximately RMB92.0 million of initial advance payment and
approximately RMB63.6 million of subsequent progress payment.
Other liabilities amounted to RMB3.7 million or 1.4% of our current liabilities, loans and borrowings
amounted to RMB4.9 million or 1.9% of our current liabilities and income tax payables amounted to
RMB6.6 million or 2.6% of our current liabilities as at 31 March 2010.
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Non-current liabilities
Non-current liabilities mainly comprised loans and borrowings, which relate to the Pre-IPO Investors’
convertible loan and amounted to approximately RMB15.0 million. Other non-current liabilities relate to
derivative financial instrument of approximately RMB34,000 and deferred tax liabilities of approximately
RMB0.3 million as at 31 March 2010. The derivative financial instrument refers to the fair value of the
derivative component of the convertible loans, where such derivative component relates to the Pre-IPO
Investors’ right to receive compensation at the annual rate of 20% per annum in the event that our
Company is granted the eligibility-to-list letter from the SGX-ST but chooses not to carry out the initial
public offering.
The principal uses of these funds are for working capital purposes such as payment of inventories and
trade payables, financing of trade receivables balances and operating expenses, as well as for our capital
expenditure and repayment of loans and advances.
Please refer to the section entitled “Capitalisation and Indebtedness” of this Prospectus for further details
of our cash and cash equivalents and level of borrowings.
Banking facilities
As at 31 March 2010, we had total banking facilities of RMB4.9 million, of which RMB4.9 million had been
utilised. Brief particulars of our banking facilities as at 31 March 2010 are as follows:-
Total Interest
Nature of amount rates
Name of facilities / available Utilised Unutilised Maturity (% per
bank purpose RMB’000 RMB’000 RMB’000 Profile annum)
Note:-
(1) The bank loan was originated in 2007 for principal loan amount of RMB27.5 million for up to 3 years tenure, and was secured
by (i) certain land use rights with carrying amount of approximately RMB11.0 million as at 31 March 2010 and certain
buildings with carrying amount of approximately RMB14.1 million as at 31 March 2010. The Group has made repayments for
the principal loan amount over the years and as at 31 March 2010, only RMB4.875 million of the original loan amount
remained outstanding. As at the Latest Practicable Date, our Group has repaid the aforesaid loan amount and such
encumbrances on our properties had been released.
To the best of our Directors’ knowledge, we are not in breach of any of the terms and conditions or
covenants associated with any credit arrangement or bank loan which could materially affect our financial
position and results of business operations or the investment by our Shareholders.
Our Directors are of the opinion that, after taking into account our internal and external sources of funds,
our Group has sufficient working capital as at the date of this Prospectus to meet our present
requirements.
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Cash Flows
We set out below a summary of our Group’s net cash flows for FY2007, FY2008, FY2009 and 1Q2010:
Net increase/(decrease) in cash and cash equivalents 24,443 (9,932) 43,985 (8,557)
Cash and cash equivalents at beginning of financial 29,914 54,357 44,425 88,410
year/period
Cash and cash equivalents at end of financial 54,357 44,425 88,410 79,853
year/period
(i) increase in advances from customers, trade and other payables, and other liabilities of
approximately RMB47.8 million, RMB3.8 million, and RMB2.5 million respectively, which were
mainly due to increases in receipts of deposit or progressive payments from our customers arising
from secured contracts and procurement of materials; and
(ii) decrease in trade and other receivables of approximately RMB9.5 million as we had reduced our
receivables balances by exercising more debt collection efforts.
(iii) increase in inventories of approximately RMB43.4 million to meet expected higher production
demand in line with our Group’s expansion plans; and
(iv) increase in prepayments of approximately RMB7.6 million mainly due to advances to suppliers in
line with the increase in direct material procurements to meet expected higher production demand
as aforementioned.
FY2008
In FY2008, we recorded net cash inflow from operating activities of approximately RMB45.9 million, which
comprised operating cash flows before changes in working capital of approximately RMB33.2 million,
adjusted for net working capital inflow of approximately RMB17.6 million, interest received of
approximately RMB0.6 million, interest payment of RMB2.4 million and income tax payment of
approximately RMB3.0 million. The net working capital outflows were the result of:
(i) increase in advances from customers of approximately RMB126.6 million mainly due to increases
in receipts of deposit or progressive payments from our customers arising from secured contracts
and procurement of materials, and increase in other liabilities of approximately RMB2.7 million; and
(ii) decrease in prepayments of approximately RMB8.6 million as we paid our suppliers for the
procurements of materials.
136
The above working capital inflows were partially offset by:
(iii) increase in inventories of approximately RMB98.0 million to meet expected higher production
demand in line with our Group’s expansion plans and order books;
(iv) increase in trade and other receivables of approximately RMB17.2 million, which were mainly due
to increase in VAT receivables as a result of inventory procurement; and
(v) decrease in trade and other payables of approximately RMB5.1 million as we paid our suppliers for
the procurements of materials.
FY2009
In FY2009, we recorded net cash inflow from operating activities of approximately RMB57.8 million, which
comprised operating cash flows before changes in working capital of approximately RMB99.8 million and
adjusted for net working capital outflow of approximately RMB35.4 million, interest received of
approximately RMB0.7 million, interest payment of approximately RMB2.1 million, and income tax
payment of approximately RMB5.2 million. The net working capital outflows were the result of:-
(i) decrease in advances from customers of approximately RMB138.5 million, which was mainly due
to recognition of revenues upon completion of the several contracts in FY2009; and
(ii) increases in trade and other receivables of approximately RMB3.1 million and prepayments of
approximately RMB4.1 million, which were generally in line with increased business activities in
FY2009.
(iii) decrease in inventory of approximately RMB103.8 million, which was mainly due to completion and
handover of several large contracts in FY2009; and
(iv) increase in trade and other payables, and other liabilities of approximately RMB3.7 million and
RMB2.8 million respectively.
1Q2010
In 1Q2010, we recorded net cash inflow from operating activities of approximately RMB6.6 million, which
comprised operating cash flows before changes in working capital of approximately RMB32.1 million and
adjusted for net working capital outflow of approximately RMB25.1 million, interest received of
approximately RMB0.2 million, interest payment of approximately RMB0.1 million, and income tax
payment of approximately RMB0.4 million. The net working capital outflows were the result of:-
(i) decrease in advances from customers of approximately RMB4.5 million, which was mainly due to
recognition of revenues upon completion of certain contracts in 1Q2010, and decrease in other
liabilities of approximately RMB5.4 million due to reduced accrued salaries and bonus after the
year end;
(ii) increase in trade and other receivables of approximately RMB16.7 million, which was mainly due to
the increase in current trade receivables as a result of longer trade receivables’ turnover days in
1Q2010 due mainly to the Chinese New Year holiday in third week of February 2010, where many
of our customers were closed for extended period. Notwithstanding that, the average trade
receivables’ turnover days were still within the range of credit terms we grant our customers;
(iii) increase in inventory and prepayments of approximately RMB2.8 million and RMB4.9 million
respectively.
137
The above working capital outflows were partially offset by:
(iv) increase in trade and other payables of approximately RMB9.1 million, mainly as a result of
increased procurement activities.
FY2008
In FY2008, we recorded a net cash outflow from investing activities of approximately RMB46.4 million.
This was mainly due to the purchase of property, plant and equipment for expansion of our production
facilities partially offset by cash inflow arising from the proceeds from disposal of equipment.
FY2009
In FY2009, we recorded a net cash outflow from investing activities of approximately RMB23.7 million.
This was mainly due to the purchase of property, plant and equipment and net cash outflow from disposal
of subsidiary.
1Q2010
In 1Q2010, we recorded a net cash outflow from investing activities of approximately RMB11.8 million.
This was mainly due to the purchase of property, plant and equipment.
FY2008
In FY2008, we recorded a net cash outflow from financing activities, which amounted to approximately
RMB9.4 million as a result of the repayment of bank borrowings of RMB9.3 million and dividend payment
of RMB1.2 million. These were partially offset by net loans from shareholders and employees amounting
to RMB0.7 million.
FY2009
In FY2009, we recorded a net cash inflow from financing activities, which amounted to approximately
RMB9.8 million. This was mainly due to proceeds from bank borrowings and convertible loan of
approximately RMB12 million and RMB15 million respectively, which were partially offset by repayment of
bank borrowings and net repayment of loan from shareholders and employees of approximately RMB9.3
million and RMB6.7 million respectively, as well as dividend payment of approximately RMB1.3 million.
1Q2010
In 1Q2010, we recorded a net cash outflow from financing activities, which amounted to approximately
RMB3.4 million as a result of the repayment of bank borrowings of RMB14.3 million and dividend
payment of RMB4.8 million. These were partially offset by increase in loans from shareholders by
RMB15.7 million.
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MATERIAL CAPITAL EXPENDITURES AND DIVESTMENTS
The material capital expenditures made by our Group for FY2007, FY2008, FY2009, 1Q2010 and for the
period from 1 April 2010 up to the Latest Practicable Date were as follows:-
Audited Unaudited
1 April 2010
to the
Latest
Practicable
RMB ‘000 FY2007 FY2008 FY2009 1Q2010 Date
The above material capital expenditures during the periods under review mainly pertained to our Group’s
expansion in production facilities and/or capacities during the same periods.
Save for the disposal of Anchun Biotech, there were no material divestments by our Group during the
periods under review and up to the Latest Practicable Date. Please refer to the section entitled
“Restructuring Exercise” of this Prospectus for more information on the disposal of Anchun Biotech.
Capital Commitments
As at the Latest Practicable Date, we have capital commitments arising from additions to properties, plant
and equipment of approximately RMB8.7 million.
Save as disclosed above and in the section entitled “Prospects, Business Strategies and Future Plans” of
this Prospectus, we do not have other material plans on capital expenditures, divestments and
commitments as at the Latest Practicable Date.
139
FOREIGN EXCHANGE EXPOSURE
Our reporting currency is in RMB. All our business operations are carried out in the PRC. During the
periods under review, all of our purchases and sales, and substantially our expenses, were denominated
in RMB. Our books and records are maintained in RMB. However, to the extent that we may enter into
transactions in currencies other than RMB in the future, our financial results may be subject to
fluctuations between such foreign currencies and RMB. Transactions in currencies other than the
functional currency during the period, if any, will be translated into the functional currency at exchange
rates in effect at the time of the transactions. Monetary assets and liabilities denominated in currencies
other than the functional currency at the balance sheet date, if any, will be translated into the functional
currency in effect at the balance sheet date. Exchange gains and losses are dealt with in the profit and
loss accounts of our Group.
We have no material foreign currency exchange gain or loss during the periods under review. Currently,
we do not have any hedging policy with respect to foreign exchange exposure and we did not use any
financial instruments for hedging purposes during the periods under review and up to the Latest
Practicable Date. We will continue to monitor our foreign exchange exposure and may employ hedging
instruments to manage our foreign exchange exposure should the need arise.
CREDIT MANAGEMENT
In general, we require our customers to make advance payment of 30% of the contract value upon
signing of the contract after assessing their creditworthiness. Thereafter, we will invoice our customers
based on the progress of the projects as provided for in the contract. Credit terms extended to our
customers are generally 90-180 days. We typically received about 95% of the contract value upon
delivery of our products and/or services to our customers.
Depending on the contract terms, our customers generally retain 5% of the contract sum which will be
released to us after the expiry of the defects liability period. The defects liability period is typically 12
months after delivery of the goods. The retention sum is based on the contract signed and determined at
the contract negotiation stage, depending on our customers’ requirement. The retention sums are only
recognised as revenue after the applicable defects liability period. Please refer to the section entitled “Our
Integrated Business Model – System Design Process” of this Prospectus for more information.
In assessing the credit terms to be extended to a customer, we take into account the nature of the
contract with such customer, creditworthiness of such customer, payment history of such customer (for an
existing customer) and the relationship that we have with such customer. For extension of credit terms
beyond 90 days, further assessment generally will be conducted by our Head of Sales and Marketing, Li
Chun Yang, together with our senior management.
Trade receivables are non-interest bearing and were generally in line with our business activities for
FY2007, FY2008, FY2009 and 1Q2010. As at the end of FY2007, FY2008, FY2009 and 1Q2010, the
aggregate trade receivables amounted to approximately RMB9.7 million, RMB3.1 million, RMB10.8 million
and RMB32.5 million respectively. As at the Latest Practicable Date, we had collected RMB10.7 million of
the trade receivables of RMB32.5 million as at 31 March 2010 and RMB21.8 million have yet to be
collected. Of this amount, RMB1.8 million were past due but not impaired as these trade debtors are
mainly state-owned enterprises, listed companies, or have on-going business relations or repayment
arrangements.
To the best of our knowledge and belief, no further allowance for impairment for these receivables are
required as such trade receivables are considered recoverable because these customers are still
operational and currently have low insolvency risk.
140
Allowance for impairment of trade receivables
In the event that a customer fails to pay us within the stipulated period, our Finance and Sales and
Marketing departments will follow up with the customer to attempt to recover the debt before seeking
legal recourse. We monitor all outstanding debts closely so that specific allowances may be made in the
event that the recovery of any debt appears doubtful. The quantum of such provision is dependent on the
duration for which the debt is overdue as well as our assessment of the likelihood that such debt may be
unrecoverable. We did not have any bad debts written off for FY2007, FY2008, FY2009 and 1Q2010.
During the periods under review, our charges relating to allowance for impairment of trade receivables
were as follows:-
The above allowance for impairment of trade receivables amounted to 1.8%, 2.0%, 0.4% and 0.3% of the
total revenue for FY2007, FY2008, FY2009 and 1Q2010 respectively. Accordingly, such allowances did
not significantly affect our Group’s financial performance during the periods under reviews.
Notes:-
(1) Trade receivables turnover = (Average trade receivables / revenue) X 365 days. Where “Average trade receivables” is defined
as the average of the opening and closing trade receivables amount of the relevant year.
(2) Trade receivables turnover = (Average trade receivables / revenue) X 90 days. Where “Average trade receivables” is defined
as the average of the opening and closing trade receivables amount of the relevant period.
Trade receivables’ turnover days decreased from 57 days in FY2007 to 19 days and 9 days in FY2008
and FY2009 respectively. The lower turnover days in FY2008 and FY2009 were mainly because of our
debt collection efforts and prompt payment from our customers. Further, we do not expect the
improvement trend of trade receivables’ turnover in days to continue but instead expect the trade
receivables’ turnover in days to be within the range of trade receivables’ turnover in days for the past
three financial years. Trade receivables’ turnover days increased to approximately 29 days in 1Q2010 due
mainly to the Chinese New Year holiday in February, where many of our customers were closed for
extended period. Notwithstanding that, the average trade receivables’ turnover days were still within the
range of credit terms we grant our customers.
Aging Analysis
The ageing schedule for trade receivables as at 31 March 2010 is as follows:-
As at 31 March 2010
RMB ’000 %
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Credit policy of our suppliers
Credit terms granted by our trade creditors may vary from supplier to supplier. In general, our credit terms
granted by our suppliers are usually 30 days. Our average trade payables’ turnover days for FY2007,
FY2008 and FY2009 are as follows:
Notes:-
(1) Trade payables turnover = (Average trade payables / cost of sales) X 365 days. Where “Average trade payables” is defined as
the average of the opening and closing amount of trade payables of the relevant year.
(2) Trade payables turnover = (Average trade payables / cost of sales) X 90 days. Where “Average trade payables” is defined as
the average of the opening and closing amount of trade payables of the relevant period.
Our trade payables’ turnover in days was relatively stable and in line with the credit terms granted by our
suppliers, save for FY2009. The relatively lower trade payables’ turnover for FY2009 was due mainly to
greater repayments to our suppliers just prior to the end of FY2009.
In the course of our procurement process, we may also make certain deposits to suppliers which are
accounted for as prepayments on our balance sheet. Such prepayments to suppliers amounted to
RMB12.6 million, RMB5.4 million, RMB7.3 million and RMB10.0 million as at end of FY2007, FY2008,
FY2009 and 1Q2010 respectively. We have not previously encountered any incidences where we suffered
material losses in relation to such prepayments to suppliers.
INVENTORY MANAGEMENT
Our inventory comprises mainly raw and other materials, work-in-progress and finished goods. Our
inventories amounted to RMB101.8 million, RMB199.9 million, RMB95.8 million and RMB98.6 million for
FY2007, FY2008, FY2009 and 1Q2010 respectively, where a significant portion of our inventories
pertained to work-in-progress and finished goods. As at the end of FY2007, FY2008, FY2009 and
1Q2010, the aggregate work-in-progress and finished goods amounted to RMB76.8 million, RMB174.5
million, RMB77.2 million and RMB77.3 million, which represented 75.4%, 87.2%, 80.6% and 78.3% of
our inventory balances respectively.
Our inventory level is optimally maintained based on secured orders placed by customers and taking into
account of our estimated future sales and production needs, price trends of direct materials and our
working capital. We conduct stock checks on a regular basis and generally maintain sufficient commonly
used steel materials (such as carbon and stainless steel) for production based on our management
estimates.
We set out the general expiry period for the CSC Business and Catalysts Business below:
There are no inventories for the CET Design Services. As most of the materials used in the CSC
Business are stainless steel or carbon steel, such inventories are unlikely to become obsolete or
experience any diminution in value. Materials used in the Catalysts Business have a general expiry period
of 2 years, while finished goods have a general expiry period of 5 years. In addition, approximately 93%
of the total inventories as at 31 March 2010 are backed by customer orders. Furthermore, our inventories
relate to our leading advanced technologies and products which are considered to be at the forefront of
our industry in the PRC. Accordingly, it is unlikely for our inventories to become obsolete or experience
any diminution in value.
142
Generally, we do not enter into long term contracts with our suppliers and we currently do not hedge or
have the intention to hedge the price or volume of our materials in the near future due to, inter alia, the
following:-
(i) Our cost mark-up approach to contract negotiation with our customers. Our contracts are
negotiated with our customers based on existing market prices of materials, possible selling prices
of our products/services and our intended gross margins. Hence, we fix the prices of required
materials at approximately the same time as the contracts we signed with our customers so as to
protect our gross margins;
(ii) As our chemical systems and components may be customised according to our customers’
specifications, the resulting materials requirements may vary from contract to contract; and
(iii) We monitor the market prices of steels through frequent contact with our suppliers so as to be
constantly appraised on potential market price fluctuations.
Notes:-
(1) Inventory turnover = (Average inventory balances / cost of sales) X 365 days. Where “Average inventory balances” is defined
as the average of the opening and closing amount of inventory of the relevant year.
(2) Inventory turnover = (Average inventory balances / cost of sales) X 90 days. Where “Average inventory balances” is defined
as the average of the opening and closing amount of inventory of the relevant period.
Our inventory turnover days increased from 470 days in FY2007 to 855 days in FY2008. The increase in
inventory turnover days in FY2008 was due mainly to the significant increase in inventories from
RMB101.8 million in FY2007 (FY2006: RMB58.5 million) to RMB199.9 million in FY2008, while cost of
sales only increased marginally from RMB62.2 million in FY2007 to RMB64.4 million in FY2008 (which
was in line with the revenue trend for the corresponding periods). The significant increase in inventories
was mainly due to the increase in work-in-progress and finished goods from RMB76.8 million in FY2007
to RMB174.5 million in FY2008, which was due mainly to materials requirements of secured contracts
due for delivery in early FY2009 and anticipation of economic upturn and improved sales demand in
FY2009. In addition, we were able to increase our actual production output from 2H2008 with the
increase in our production capacities as a result of the completion of our new production facilities in mid
2008.
Our inventory turnover days subsequently declined to 307 days and 330 days in FY2009 and 1Q2010
respectively. This was due to both the increase in the cost of sales to RMB176.0 million in FY2009 and
RMB26.5 million in 1Q2010 (which were in line with the revenue trends for the corresponding periods),
and decreases in inventory balances to RMB95.8 million and RMB98.6 million as at end of FY2009 and
1Q2010 respectively. The lower inventory values was mainly due to (i) significantly lower steel costs which
was in turn due to decrease in market prices where our average steel purchase costs declined from
RMB21,400/tonne in FY2008 to RMB10,900/tonne and RMB13,600/tonne in FY2009 and 1Q2010
respectively; and (ii) relatively lower stock levels of inventory units as compared to end of FY2009. Please
refer to the section entitled “Management’s Discussion and Analysis of Results of Operations and
Financial Position” of this Prospectus for more details on our revenue and cost of sales trends.
143
PROSPECTS, BUSINESS STRATEGIES AND FUTURE PLANS
PROSPECTS
Information under this section is extracted from the executive summary of the CNCIC Report for the
purposes of incorporation in this Prospectus and issued to our Company in September 2010. This CNCIC
Report contains certain statements that are “forward-looking” and are based on underlying assumptions
containing variables that may have changed since the date of issue. This information has not been
independently verified by us, the Manager, Underwriter and Placement Agent, or any of our and their
respective affiliates or advisors. The information may not be consistent with other information compiled
within or outside the PRC. Please see the section entitled “Cautionary Note On Forward-looking
Statements” of this Prospectus.
75,000 100.0%
60,000 80.0%
45,000 60.0%
kt/yr
30,000 40.0%
15,000 20.0%
0 0.0%
2000 2002 2004 2006 2008 2010(F) 2012(F)
Production utilisation rate ranges between 80.2% and 90.1% between 2000 and 2009. Production
utilisation rate, as measured by dividing production volume by production capacity, of between 80% and
90% is considered normal for the ammonia industry as a result of the inclusion of smaller-scale,
uneconomically-viable ammonia production facilities as well as scheduled maintenance time of the
remaining ammonia production facilities.
Production capacity and volume are expected to grow steadily from 63,000 kt/yr and 51,360 kt/yr in 2009
to 70,000 kt/yr and 63,000 kt/yr in 2012, respectively, representing a CAGR of approximately 3.6% and
7.0% in the same period. The key reasons underpinning such expected steady growth in the ammonia
industry are as follows:-
a) Persistent and stable increase in demand for fertiliser to expand crop production and in other
industry uses for ammonia
To maintain food self-sufficiency for a growing middle class, the PRC government will continue its
preferential policies to increase crop production yield, including but not limited to direct subsidies
for purchasing agricultural machinery and tools as well as promoting steady growth of the
production volume of fertiliser. Total direct subsidies from such preferential policies amounted to
RMB120.0 billion in 2009. It is expected that crop production will increase by at least 1% every year
from 2010 to 2012, increasing the total crop production from 530,800 kt/yr in 2009 to 547,000 kt/yr
in 2012. The growth in crop production is expected to contribute significantly to the growth in
demand for fertiliser and consequently, ammonia.
144
Furthermore, as the chemical fibre and plastic industry continues to develop in the PRC, industrial
uses and demand of ammonia is expected to increase from approximately 5,000 kt in 2009 to
7,000 kt in 2012 to produce chemical products such as caprolactam (an organic compound which
is the precursor to synthetic polymer), artificial silk and phenol formaldehyde resin.
Notwithstanding that comprehensive energy consumption production facilities of less than 1,500 kg
standard coal/tonnage ammonia is typically achieved with production capacities of more than 80
kt/yr, production capacities of less than 180 kt/yr are typically considered within the ammonia
industry to be inefficient and are not economically viable in the long run. Over 83.3% of the existing
ammonia producers operate production facilities with production capacities of less than 180 kt/yr. It
is expected that these ammonia producers will either upgrade and expand their existing production
capacities or undergo further consolidation to increase their competitiveness in the market.
As a result of the expected increase in demand for ammonia from agriculture and other industries uses,
the domestic demand for ammonia is expected to increase from 51,636 kt/yr in 2009 to 60,000 kt/yr in
2012, representing a CAGR of approximately 5.1% in the same period.
Source: CNCIC
145
Production utilisation rate ranges between 46.5% and 82.4% between 2005 and 2009. The low production
utilisation rate was due mainly to the switch by operators of co-production facilities to concentrate on
increasing production volume for ammonia instead of methanol in 2009. The switch by these operators
was due mainly to the higher average selling price of ammonia of RMB2,400 per tonne as compared to
RMB1,900 for methanol in 2009. Furthermore, methanol producers with methanol production facilities of
less than 200 kt/yr generally face higher average cost of production as compared to the other methanol
producers operating methanol producing facilities of more than 200 kt/yr. Accordingly, these methanol
producers generally lowers the utilisation rate of their methanol producing facilities when the average
selling price of methanol exceeds their average cost of production, contributing to the industry-wide low
production utilisation rate.
Notwithstanding that, strong growth in the methanol industry is expected to increase both production
capacity and volume of methanol from 28,400 kt/yr and 13,200 kt/yr in 2009 to 33,000 kt/yr and 23,100
kt/yr in 2012, respectively, representing an increase in production utilisation rate from 46.5% in 2009 to
70.0% in 2012 as a result of the following:-
Furthermore, using the methanol to olefin (“MTO”) process, methanol can also be converted to
ethylene and propylene, the two largest chemicals produced by the petrochemical industry. Such
breakthrough in technologies is expected to increase the demand for methanol from nil in 2007 to
4,650 in 2012. The table below sets out the forecasted growth in methanol consumption as a result
of increase in demand for other methanol-based chemicals:-
Source: CNCIC
146
As a result of the increase in demand for methanol as alternative fuel and for other uses, the domestic
demand for methanol is expected to increase from 11,050 kt/yr in 2007 to 22,300 kt/yr in 2012,
representing a CAGR of approximately 15.1%.
Furthermore, the Natural Gas Utilisation Policy, as promulgated by National Development and Reform
Commission in 2007 specifies that ammonia and methanol producers are prohibited from using natural
gas in the production of ammonia and methanol, due mainly to tight supply of natural gas and high
consumption levels for natural gas in China. As a result of the above, the use of coal as raw materials for
the production of ammonia and methanol is expected to continue to dominate the PRC ammonia and
methanol industry, and accordingly, coal-based ammonia and methanol synthesis technologies are
expected to be the dominant technologies used in the PRC.
The PRC is the largest ammonia and methanol producing country in the world, accounting for
approximately 34% and 30% of the global production volume of ammonia and methanol in 2009,
respectively. As aforementioned, coal is predominantly used as raw materials for the production of
ammonia and methanol. Accordingly, there is strong demand for coal-based ammonia and methanol
synthesis technologies, chemical systems and components as well as catalysts. Hunan Anchun operates
one of the largest R&D centres in the PRC, based on the number and qualifications of its research
personnel and their collective research capability, as well as one of the largest manufacturing facilities for
the ammonia and methanol related systems and technologies in the PRC, based on its manufacturing
and production capacity. It is widely considered to be a leading enterprise and brand name in the PRC,
providing integrated chemical systems engineering and technology solutions to the PRC petrochemical
and chemical industries, in particular, manufacturers of ammonia and methanol based products.
TREND INFORMATION
For the periods under review up to the Latest Practicable Date, our Directors have observed the following
trends:-
(i) Increasing demand for our integrated chemical systems engineering and technology solutions as a
result of general increase in demand for ammonia and methanol as well as demand for
replacement chemical systems to improve the production efficiencies of existing ammonia and
methanol plants in the PRC.
Order books
Pursuant to strong industry demand as aforementioned, we have secured strong order books as at
the Latest Practicable Date, which stood at approximately RMB256.4 million of unfulfilled secured
contracts which we expects to deliver RMB235.5 million and RMB20.9 million worth of contracts in
FY2010 and FY2011 respectively.
(ii) Steel materials was the most significant component in our materials costs, and accounted for
73.4%, 71.7%, 73.8%, 78.1% and 69.4% of our overall cost of sales in FY2007, FY2008, FY2009,
1Q2009 and 1Q2010 respectively. Our steel purchase costs are subjected to price fluctuations in
the commodity metal markets. Our average steel purchase costs for FY2007, FY2008, FY2009 and
1Q2010 were approximately RMB22,400/tonne, RMB21,400/tonne, RMB10,900/tonne, and
RMB13,600/tonne respectively, which were generally in line with the fluctuations of steel market
147
prices over the same periods. We expect the prices of steel materials to remain volatile going
forward, nevertheless, we adopt a cost mark-up approach to contract negotiation with our
customers. Given our track record, we believe that we should be able to pass on any increase in
steel materials prices to our customers. Accordingly, we do not expect our profit margin to be
significantly and adversely affected due to any steel price volatility.
(iii) Labour costs have generally been on an increasing trend due to a tightening labour market in the
PRC, particularly so for skilled labour and engineers. Our Directors believe that the trend of
increasing labour costs will generally continue going forward.
(iv) Our overall gross profit margin was 45.8%, 46.8%, 40.3%, 38.7% and 60.5% for FY2007, FY2008,
FY2009, 1Q2009 and 1Q2010 respectively. In 1Q2010, our overall gross profit margin increased to
60.5% due to general increases in all our segmental gross profit margins, in particular increase in
our CSC Business gross profit margin to 56.7% (mainly as a result of greater-than-proportionate
contribution from retention sums being recognised as revenue in the same period, which improved
our gross profit margin in 1Q2010 since there were generally no significant corresponding costs of
sales for retention sums in the same period as explained earlier. Please refer to the section entitled
“Management’s Discussion and Analysis of Results of Operations and Financial Position” of this
Prospectus for more information.). Nevertheless, we do not expect such increase in our overall
gross profit margin in 1Q2010 to continue for the rest of FY2010 as we do not expect overall
proportion of contribution from retention sums revenue to total revenue of FY2010 to be as high as
1Q2010 as aforementioned. Accordingly, we expect our overall gross profit margin for FY2010 to be
not as high as that of 1Q2010, but instead closer to the range of our overall gross profit margins for
the past three financial years.
Save as disclosed above and in the sections “Risk Factors”, “Management’s Discussion and Analysis of
Results of Operations and Financial Position” and “Prospects, Business Strategies and Future Plans” of
this Prospectus and barring any unforeseen circumstances, our Directors believe that there are no other
significant known recent trends in production, sales and inventory, and in the costs and selling prices of
our products and/or services, or other known trends, uncertainties, demands, commitments or events that
are reasonably likely to have a material effect on our net sales or revenue, profitability, liquidity, or capital
resources, or that would cause financial information disclosed in this Prospectus to be not indicative of
our future operating results or financial conditions.
To meet the anticipated increase in market demand for our products in the future, we intend to increase
our Group’s production facilities and capabilities by increasing our production area and/or acquiring plant
and equipment progressively. We estimate that our annual combined production capacity of chemical
systems and components will increase by up to 5,000 tonnes from approximately 13,125 tonnes to
approximately 18,125 tonnes, and our production capacity of catalysts will increase by up to 2,000
tonnes, resulting in our combined production capacity of catalysts increasing from 2,100 tonnes to 4,100
tonnes. We expect these expansion plans will be completed within one and a half years from the date of
our Company’s admission to the SGX-ST. In the event of any material delay in the completion of such
expansion plans, we will publicly announce the reasons for such delay and expected completion timing on
the SGXNET.
In addition, to facilitate the expansion of our production area and capacity, we intend to lease or acquire a
site in Changsha to establish our third plant. In this regard, we have identified a particular site with an
area of approximately 300 mu located within the Changsha National Hi-tech Industrial Development Zone
and have signed a letter of understanding with the Administrative Committee of Changsha National Hi-
tech Industrial Development Zone (the “Committee”) setting out our
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intention to acquire such site. The eventual acquisition of such site is subject to satisfactory due diligence,
negotiation and execution of conclusive binding land use right agreements with the relevant local land
resources authority on mutually agreeable terms. In the event that we do not proceed to acquire the said
site, we believe that there are other alternative sites available within Changsha for our consideration. To
date, we have not entered into any specific legally-binding contracts or agreements to acquire any land.
We intend to utilise S$21.5 million (or approximately RMB108.6 million) of our net proceeds from the
Invitation for the expansion of our production facilities and capabilities.
Enhance our R&D capabilities and widen our range of innovative and cost-effective solutions
We believe that one of the key reasons for our success in offering customised and cost-effective solutions
to our customers is our strong R&D capabilities. We intend to continue to place strong emphasis on R&D
so as to be able to offer a wider range of innovative and cost effective solutions to our customers. In
particular, we intend to research on ways to enhance our existing technology to further reduce the energy
consumption per unit product of ammonia and methanol. For example, we are in the process of
developing the gas making system and components and raw gas conversion system
and components , which aim to resolve the current technological
restrictions and environmental issues, such as unstable and intermittent reactions, low efficiency, waste of
energy and pollutions. As such, we intend to increase the number of engineers and expand our R&D
facilities and equipment.
In addition, as part of our R&D initiatives, we intend to continuously explore R&D opportunities to
collaborate with other institutions, including but not limited to, academic and research institutions as well
as our customers. We believe that such collaborations enable us to (i) reduce the time-to-market for our
R&D initiatives; (ii) increase the industrial applicability of our products and services; and (iii) enable us to
tap onto the technical expertise of the relevant institutions and customers, thereby boosting our
competitiveness.
We intend to utilise S$3.0 million (or approximately RMB15.1 million) of our net proceeds from the
Invitation mainly for investing in additional R&D related equipments and premises, systems and materials
so as to strengthen our R&D capabilities and widen our range of innovative and cost-effective solutions.
(i) Increase the number of sales and marketing personnel in our Group to undertake increased sales
and marketing activities;
(ii) Widen our corporate customer base by sourcing for more customers to gain entry into or enhance
our presence in the targeted markets; and
(iii) Foster closer relationships and explore cooperation opportunities with existing customers, in
particular our major customers. In this regard, we had entered into a memorandum of
understanding with China XLX group to enhance mutual cooperation in respect of new
technologies and equipment used in the production of chemical fertilisers on 30 April 2010. Such
cooperation include (i) Hunan Anchun and China XLX group notifying each other at the first
instance in respect of any new development in technologies or equipment and requirements for
new technologies and equipment, as the case may be; (ii) giving priority to each other in the
procurement or supply of such technologies and equipment respectively. Nevertheless, such
memorandum is not legally-binding and terms of any future transactions between both parties shall
be negotiated on arm’s length basis and subject to the execution of formal sale and purchase
contracts. We may also enter into similar collaborations with other customers as and when the
opportunities arise.
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Explore opportunities in strategic investments or alliances and acquisitions
In order to improve our technological capabilities and expand our business, we intend to, subject to
commercial viability, enter into strategic investments or alliances and/or acquire businesses in related
fields, where opportunities arise. To date, we have not identified any specific investments, alliances or
acquisition opportunities. Should such opportunities arise, we will seek approvals, where necessary, from
our Shareholders and the relevant authorities as required by the prevailing rules and regulations.
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DIRECTORS, KEY EXECUTIVES AND EMPLOYEES
DIRECTORS
Our Directors are entrusted with the responsibility for the overall management of our Group. The
particulars of our Directors are listed below:-
Country of
Principal Designation/Principal
Name Age Residential Address Residence occupation
Xie Ding Zhong 72 #2-304, Block 4, No.135, Yuejin Road, PRC Executive Chairman
䇶ᅮЁ Tianxin District, Changsha City, and CEO
Hunan Province, PRC
फⳕ䭓≭Ꮦᖗऎ䎗䖯䏃135
ো4ᷟ2䮼304᠓
Liang Gong Zeng 46 #1-301, Block 17, No.13, PRC Executive Director
ṕᙁ West Xinjian Road, Changsha City, and COO
Hunan Province, PRC
䭓≭Ꮦ䲼㢅ऎᮄᓎ㽓䏃13ো17
ᷟ1䮼301᠓
Xie Ming 37 7406 Trail Hollow, Missouri City, United States Non-Executive
䇶ᯢ TX 77459, USA Director/senior
analytical chemist
Andrew Bek 43 #09-04, Blk 816, Lavender Garden, Singapore Alternate Director to
Jellicoe Road, Singapore 200816 Ma Ong Kee/
investment director of
OneEquity SG Private
Limited and executive
director of Metax
Engineering
Corporation Limited
151
The business and working experience of our Directors is summarised below:-
Xie Ding Zhong graduated with a bachelor degree in chemical engineering from Hunan University in
1961. In November 1999, he was qualified as a registered senior engineer (research fellow), which is the
highest rank of engineers in the PRC. He is a committee member of various national specialist
committees in the chemical industry, such as China Nitrogen Fertiliser Industry Association and China
Petroleum and Chemical Engineering Survey and Design Association, etc. He has won numerous awards
at national, provincial and city levels in recognition of his achievement and contribution to the chemical
industry. The significant awards that Xie Ding Zhong had won include the National Scientific and
Technological Progress Award (2nd-highest honours) ᆊ⾥ᄺᡔᴃ䖯ℹѠㄝ༪ by the National Science
and Technology Committee of PRC in 1995, and the 2003 National Scientific and Technological Progress
Award (2nd-highest honours) 2003ᑈᑺᆊ⾥ᄺᡔᴃ䖯ℹѠㄝ༪ by the State Council in 2004 , which is
regarded as one of the most prestigious awards in the PRC as affirmation of achievement and
contribution to scientific and technological progress. In addition, in recognition of his contributions towards
the development of engineering technology in the PRC, he has been entitled to a special subsidy granted
by the State Council since 1991.
Liang Gong Zeng holds a bachelor degree in metal material and heat treatment from Huazhong
University of Science and Technology. He was qualified as a registered senior engineer in 2001. The
significant awards that Liang Gong Zeng has won include the 2003 National Scientific and Technological
Progress Award (2nd-highest honours) 2003ᑈᑺᆊ⾥ᄺᡔᴃ䖯ℹѠㄝ༪ by the State Council in 2004,
the Model Worker in the China Petroleum and Chemical Industry by the Ministry of Human Resources
and Social Security of the PRC and the China Petroleum and Chemical Industries Association in 2008
and the Hunan Province Technology Innovation Outstanding Individual फⳕᡔᴃ߯ᮄܜ䖯ϾҎ by the
Economic Committee of Hunan Province in 2008.
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Dai Feng Yu
Dai Feng Yu is our Executive Director. She was appointed to our Board on 9 September 2010 and is
responsible for overall R&D including provision of basic supporting technologies, initiating new R&D
projects and management of the company’s proprietary intellectual property rights. Dai Feng Yu has more
than 20 years of experience in the chemical industry. Between 1988 and 1993, she was a R&D staff in
Changsha Chromic Salts Factory responsible for catalysts quality improvement and new product
development. Between 1993 and 1998, she was head of the laboratory of Anchun Energy Saving and
was responsible for the research and development of catalysts as well as the introduction of catalysts to
the market. In 1998, when operations of Anchun Energy Saving ceased and Hunan Anchun was
established, she remained head of the laboratory of Hunan Anchun and was subsequently promoted to
deputy general manager to be in charge of the overall R&D matters and management of Hunan Anchun’s
proprietary intellectual property rights in 2002.
Dai Feng Yu holds a bachelor degree in industrial catalyst from East China University of Science and
Technology (formerly known as the East China Institute of Chemical Technology). She was qualified as a
registered senior engineer in 2001. The significant awards that Dai Feng Yu has won include the 2003
National Scientific and Technological Progress Award (2nd-highest honours) 2003ᑈᑺᆊ⾥ᄺᡔᴃ䖯
䖯ℹѠㄝ༪ by the State Council in 2004, the Excellent Engineering Consultancy Award (2nd-highest
honours) by the China Petroleum and Chemical Engineering Survey and Design Association in 2006 and
the Outstanding Individual of Hunan Province contributed to scientific and technological progress by the
Economic Committee of Hunan Province in 2008.
Xie Ming
Xie Ming is our Non-Executive Director. She was appointed to our Board on 2 November 2009. She is
currently a senior analytical chemist in the R&D department of Champion Technologies, Inc., a US
specialty chemical company offering customised solutions to oil & gas production problems. Between
1995 and 1998, she was a specialty chemical engineer in Guangzhou General Petrochemicals Factory of
China Petrochemical Corporation responsible for performance enhancement of functional aerosols.
Thereafter, she went to the United States to pursue her master degree in the University of Louisiana at
Monroe between 1999 and 2000. After graduation, she was engaged as a research associate in diabetes
research in the Health & Science Centre of Louisiana State University till 2002. Prior to joining Champion
Technologies, Inc., she worked as an analytical chemist in the research laboratory of INVISTA, an
integrated producer of polymers and fibres between 2003 and 2007.
Xie Ming holds a bachelor degree in fine chemical engineering from Jiangsu Institute of Petrochemical
and Chemical Engineering and a master degree in science from Department of Chemistry, University of
Louisiana at Monroe, USA.
Ma Ong Kee
Ma Ong Kee is our Non-Executive Director. He was appointed to our Board on 2 November 2009. Ma
Ong Kee has close to 20 years of experience in corporate and financial planning, risk management,
investment management and private equity investments. He is currently the managing director of
OneEquity SG Private Limited, a private equity and investment firm incorporated in Singapore which he
founded in 2006. Ma Ong Kee started his career as a treasury accountant in Great Western Bank,
Beverly Hills, California in 1988, where he oversaw co-merger group banking operations and involved in
the funding requirements, treasury management and risk management. Since 1989, he joined the family
business, together with other family members, and was in charge of the corporate and strategic planning
as well as planning the floatation exercise of the Ramatex group which was successfully listed on the
Main Board of the Bursa Malaysia Securities Berhad (formerly known as Kuala Lumpur Stock Exchange)
(the “Bursa”) in 1996. Between 1996 and 2006, he was the executive director of Ramatex Berhad, and
oversaw the treasury, corporate finance and business development functions of the Ramatex group of
companies. Ramatex Berhad was delisted from the Bursa in August 2007 through a privatisation exercise.
Ma Ong Kee holds a bachelor degree in Accounting from Southern Illinois University, the USA.
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Andrew Bek
Andrew Bek is the alternate Director to Ma Ong Kee and was appointed to our Board on 2 August 2010.
He is currently an investment director of OneEquity SG Private Limited responsible for assessment of
investment opportunities, risk assessment, market research and analysis and making recommendations
to the investment committee, and an executive director of Metax Engineering Corporation Limited
responsible for corporate strategies and corporate finance. Prior to joining OneEquity SG Private Limited,
Andrew Bek was an assistant manager in Ernst & Young Malaysia, where he was responsible for
supervising the audit team members and attended to compliance and regulatory requirements of
companies from 1999 to 2007. Between 1997 and 1998, he was an account manager at Vest Hong
Enterprise Sdn. Bhd., a steel manufacturing company based in Malaysia, in charge of accounts, treasury
and finance department. Between 1988 and 1997, he was an audit senior with Arthur Andersen & Co
where he gained extensive experience in review and preparation of financial forecast and projections and
actively involved in initial public offering process.
Lee Gee Aik was qualified as a Chartered Certified Accountant with The Association of Chartered
Certified Accountants, United Kingdom in 1984. He holds a master degree in Business Administration
from Henley Management College, United Kingdom. He is currently a Fellow with The Association of
Chartered Certified Accountants, United Kingdom and The Institute of Certified Public Accountants of
Singapore.
Tan Min-Li
Tan Min-Li is our Independent Director, and was appointed to our Board on 9 September 2010. She is
currently a partner at Colin Ng & Partners LLP, a firm of advocates and solicitors in Singapore, and has
over 15 years of experience in the legal profession. Tan Min-Li has considerable experience in the areas
of initial public offerings, regional investments, corporate restructuring, cross border joint ventures and
mergers and acquisitions in the region. She regularly advises on Singapore Exchange compliance and
corporate governance issues.
Tan Min-Li heads the Greater China Practice Group and Japan Focus Group and is co-head of the
Corporate Finance Practice Group at Colin Ng & Partners LLP. Her principal areas of practice are in
corporate and financial services with particular emphasis on corporate finance and mergers and
acquisitions in Singapore and the region. Prior to joining Colin Ng & Partners LLP in 2003, she was a
partner with KhattarWong, a firm of advocates and solicitors in Singapore, and had also held other
positions at other law firms since graduation. She graduated with a Bachelor of Laws (Honours) from the
National University of Singapore and a Master of Laws from University College London, University of
London, and was admitted as an Advocate and Solicitor of the Supreme Court of Singapore in 1992.
Pan De Run
Pan De Run is our Independent Director. He was appointed to our Board on 9 September 2010. He is
currently the Chairman of the Consulting Committee of China Petroleum and Chemical Industries
Federation Ё⊍࣪ᄺᎹϮ㘨ড়Ӯ (“CPCIF”) (formerly known as China Petroleum and Chemical
Industries Association (“CPCIA”)) and Chairman of China Nitrogen Fertiliser Industry Association. Pan De
Run started his career as a technician responsible for maintenance of the calcium carbide furnace and
manufacture of auxiliary components of the calcium carbide furnace in Xia Hua Yuan Calcium Carbide
Factory, Zhangjiakou City, Hebei Province in 1968. Between 1978 and 1993, he was an officer in the
Chemical Industry Department of the Ministry of Chemical Industry of PRC (the “Ministry”) where he was
responsible for the production coordination of the key national chemical enterprises and overall
management of the production and development of the PRC chemical industry. Between 1993 and 1996,
154
he was an officer in the Planning Department of the Ministry where he was responsible for the
development strategies of the national chemical industry, research and formulation of national industrial
policies and guidance and investment in national chemical projects. In September 1996, he was promoted
to be the Deputy Head of General Office of the Ministry to take charge of the daily routine in the Ministry
until the Ministry was renamed to the State Bureau of Petroleum and Chemical Industries of the PRC (the
“Bureau”) in April 1998. Thereafter, he held the same position in the Bureau till April 2001, when the
Bureau was revoked and substituted for CPCIA. From May 2001 to May 2010, he was the Deputy
Chairman cum Secretary-General of CPCIA responsible for overall management of the association.
Pan De Run is a certified senior engineer and holds a bachelor degree in aerial automatic weapon from
Ha Er Bin Military Engineering College of the Chinese People’s Liberation Army.
The list of present and past directorships of each Director over the last five years preceding the date of
this Prospectus, excluding those held in our Company, is set out below:-
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Name Present Directorships Past Directorships
Note:
(1) Companies in which Lee Gee Aik and Tan Min-Li were appointed as directors for the purpose of incorporation only and in the
course of their professional practice, or as nominee directors have not been included.
156
KEY EXECUTIVES
Our day-to-day operations are entrusted to our Executive Directors and our Key Executives. An
experienced and qualified team of Key Executives is responsible for the different functions of our Group.
The particulars of our Key Executives are set out below:-
Country of
Principal
Name Age Residential Address Residence Designation
The business and working experience of our Key Executives is set out below:-
Leow Wei Chang holds a bachelor degree in accountancy and a minor in banking and finance from
Nanyang Technological University. He also holds a Diploma in Psychology from the American Institute of
Arts and Sciences. He was awarded the Chartered Financial Analyst designation from CFA Institute in
2005. He is a non-practising member of the Institute of Certified Public Accountants of Singapore.
Li Chun Yang
Li Chun Yang is our Head of Sales and Marketing Department responsible for our Group’s sales and
marketing and maintenance of customer relationships. Li Chun Yang has had almost 40 years of
experience in the chemical industry. Between 1970 and 1972, he worked in Hunan Hengnan County
Nitrogen Fertiliser Factory. Thereafter, he pursued his bachelor degree in Hunan University and graduated
in 1975. Thereafter, he was engineer and head of workshop of Hunan Hengnan County Nitrogen Fertiliser
Factory between 1975 and 1984 and later held the same position in Hunan Hengyang City Nitrogen
Fertiliser Factory between 1984 and 1987, where he was responsible for the overall production activities.
Between 1987 and 1993, he worked in Hunan Fertiliser Industry Company, a state-owned company which
was delegated to manage the provincial fertiliser industry and he was responsible for provision of
management advice and technical support to laggard fertiliser companies in Hunan Province. In 1993, he
was the deputy general manager of Anchun Energy Saving responsible for sales and marketing,
customer services and maintenance of customer relationships. In 1998, when operations of Anchun
Energy Saving ceased and Hunan Anchun was established, he joined Hunan Anchun and has since then
focused on the sales and marketing, maintenance of customer relationships and human resources of
Hunan Anchun.
157
Li Chun Yang holds a bachelor degree in inorganic chemistry from Hunan University. He was qualified as
a registered senior engineer in 1994 and a certified chemical engineer in 2004. The significant awards
that Li Chun Yang has won include the National Scientific and Technological Progress Award (2nd-highest
honours) ᆊ⾥ᄺᡔᴃ䖯ℹѠㄝ༪ by the National Science and Technology Committee of PRC in 1995
and 2003 National Scientific and Technological Progress Award (2nd-highest honours) 2003ᑈᑺᆊ⾥
⾥ᄺᡔᴃ䖯ℹѠㄝ༪ by the State Council in 2004, the Outstanding Individual contributing to Nitrogen
Fertiliser Industry in 1998 by the Ministry of Chemical Industry of the PRC, and the Scientific and
Technological Progress Award (2nd-highest honours) by China Petroleum and Chemical Industries
Association in 2002.
Li Bin
Li Bin is our Head of System Design Department responsible for our chemical systems engineering and
technology design services. Li Bin has had over 20 years of experience in the chemical industry. Between
1982 and 1994, he was head of the product design department of Changsha Chemical Machinery
Factory responsible for product design. Thereafter, he joined Anchun Energy Saving in 1994 as an
engineer responsible for product design. He has been in charge of our system design department since
the operations of Anchun Energy Saving ceased and Hunan Anchun was established in 1998.
Lin Bin holds a diploma in chemical machinery from Chemical Industry College of Hunan Province. He
was qualified as a registered senior engineer in 2003. The significant awards that Li Bin has won include
the Excellent Engineering Design of Hunan Province (2nd-highest honours) in 2001 by the Construction
Department of Hunan Province, the Excellent Engineering Design (2nd-highest honours) by China
Petroleum and Chemical Engineering Survey and Design Association in 2003 and the 2003 National
Scientific and Technological Progress Award (2nd-highest honours) 2003ᑈᑺᆊ⾥ᄺᡔᴃ䖯ℹѠㄝ༪
by the State Council in 2004.
The list of present and past directorships of each Key Executive over the last five years preceding the
date of this Prospectus, excluding those held in our Company, is set out below:-
Save that Xie Ding Zhong, our Executive Chairman and CEO, is the father of Xie Ming, our Non-
Executive Director, there is no family relationship between any of our Directors and/or Key Executives, or
between any of our Directors, Key Executives and Substantial Shareholders.
Save for Ma Ong Kee, who is nominated by the Pre-IPO Investors onto the Board, there is no
arrangement or understanding with any of our Substantial Shareholders, customers, suppliers or any
other person, pursuant to which any of our Directors or Key Executives was selected as our Director or
Key Executive.
Our Independent Directors, namely, Lee Gee Aik, Tan Min-Li and Pan De Run, do not have any existing
business relationships or financial dealings with, nor are they directly or indirectly, engaged or concerned
or interested in any capacity in any business, trade or occupation which has any existing business
relationship or financial dealing with, our Company or our Subsidiary.
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MANAGEMENT REPORTING STRUCTURE
Our management reporting structure is as follows:-
B o a rd o f D irecto rs
E xe cu tive
C h a irm a n and C E O
X ie D in g Z h on g
SERVICE AGREEMENTS
On 12 October 2010, our Company entered into separate service agreements (the “Service Agreements”)
with each of our Executive Directors, namely, Xie Ding Zhong, Liang Gong Zeng and Dai Feng Yu. Save
for Xie Ding Zhong, the employment of Liang Gong Zeng and Dai Feng Yu shall be for an initial term of
three (3) years commencing with effect from the date of our listing on the SGX-ST, subject to automatic
renewal for another three-year term on the same terms and conditions upon the expiry thereof.
In accordance with S153 of the Act, Xie Ding Zhong’s employment shall commence with effect from the
date of our listing on the SGX-ST up to the conclusion of our Company’s next annual general meeting,
and thereafter, his continued appointment as a director of our Company shall be subject to Shareholders'
approval by way of ordinary resolution at each annual general meeting of our Company.
During the term of employment, the parties to the Service Agreements may terminate the respective
service agreement by either party giving not less than three (3) months' notice in writing to the other. We
may also terminate the Service Agreements by notice upon the occurrence of certain events such as
serious misconduct, bankruptcy or criminal conviction.
Pursuant to the terms of the respective Service Agreements, each of Xie Ding Zhong, Liang Gong Zeng
and Dai Feng Yu will receive an annual salary of RMB900,000, RMB720,000 and RMB720,000,
respectively.
Apart from the above, Xie Ding Zhong, Liang Gong Zeng and Dai Feng Yu will each be entitled to receive
an annual incentive bonus (the “Incentive Bonus”), which will be based on a share of an annual
management incentive bonus pool to be calculated based on the formula in the following table. The
apportionment of each individual’s share of the aggregate incentive bonus pool will be determined and
approved by the Remuneration Committee on annual basis.
RMB100 million < PBT < RMB150 million 3% of PBT in excess of RMB100 million
RMB150 million < PBT < RMB200 million 3.5% of PBT in excess of RMB150 million
“PBT” for the purposes of computing the Incentive Bonus means the consolidated audited profit before
tax of our Group (before the Incentive Bonus and minority interests) for any FY.
159
Had the Service Agreements been in existence for FY2009, the aggregate remuneration (including
contributions, bonus, and benefits-in-kind) paid to the Executive Directors would have been approximately
RMB2.3 million (approximately S$0.5 million) instead of approximately RMB1.1 million (approximately
S$0.23 million) and the profit after tax of our Group would have been approximately RMB73.9 million
(approximately S$15.7 million) instead of approximately RMB75.2 million (approximately S$16.0 million).
Save as disclosed above, there are no existing or proposed service contract entered or to be entered into
by our Directors with our Group. There is no existing or proposed service agreement entered into or to be
entered into by our Directors with our Group which provide for benefits upon termination of employment.
Our Group has also previously entered into various letters of employment with all our Key Executives.
Such letters typically provide for the salary and Incentive Bonus payable to our Key Executives, their
working hours, medical benefits, grounds of termination and certain restrictive covenants.
Estimated amount
FY2008 FY2009 for current FY2010(2)
Directors
Xie Ding Zhong Band A Band A Band A
Liang Gong Zeng Band A Band A Band A
Dai Feng Yu Band A Band A Band A
Xie Ming N.A N.A Band A
Ma Ong Kee N.A N.A Band A
Andrew Bek N.A N.A Band A
Lee Gee Aik N.A N.A Band A
Tan Min-Li N.A N.A Band A
Key Executives
Leow Wei Chang N.A Band A Band A
Li Chun Yang Band A Band A Band A
Li Bin Band A Band A Band A
Notes:-
(1) ‘A’ means between S$0 and S$250,000.
(2) For the purpose of this estimation, no account is made for the bonuses or profit sharing that our Executive Directors are
entitled under their respective service agreements, the details of which are set out under the section entitled “Service
Agreements” of this Prospectus.
EMPLOYEES
As at 31 March 2010, our Group has 424 permanent employees. Save for our CFO, Leow Wei Chang,
who is based in Singapore, all of our Group’s employees were based in the PRC for each of FY2007,
FY2008, FY2009 and 1Q2010.
Our employees are organised under a trade union formed to protect the legal interests of the employees.
The relationship and co-operation between our management and the trade union have always been good
and this is expected to continue in the future. There has not been any incidence of work stoppages or
labour disputes which affected our operations. We do not experience any significant seasonal fluctuations
in the number of employees.
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The number of our Group’s permanent employees for FY2007, FY2008, FY2009 and 1Q2010 are as
follows:-
The number of permanent employees is not subject to any significant seasonal fluctuations. The
increasing trend of our number of employees is in line with our business expansion during the periods
under review.
Save as required under the statutory requirements of the PRC laws and regulations, we have not set
aside or accrued any amount of money to provide for pension, retirement or similar benefits.
CORPORATE GOVERNANCE
Corporate governance refers to the processes and structure by which the business and affairs of a
company are directed and managed, in order to enhance long-term shareholder value through enhancing
corporate performance and accountability. Good corporate governance therefore embodies both
enterprise (performance) and accountability (conformance).
Recognising the importance of corporate governance and the importance of offering high standards of
accountability to our Shareholders, our Company has implemented the corporate governance model as
set out below:-
Board of Directors
Remuneration Nominating
Audit Committee
Committee Committee
Chairman Chairman Chairman
Lee Gee Aik Tan Min-Li Pan De Run
Board Of Directors
Our Articles of Association provide that our Board will consist of not less than 2 Directors.
We currently have 8 Directors on our Board, comprising 3 Executive Directors, 2 Non-executive Director
and 3 Independent Directors.
None of our Directors are appointed for any fixed terms. Each Director, save for Xie Ding Zhong(1) shall
retire from office at least once every three years. Directors who retire are eligible to stand for re-election.
Note:
(1) In accordance with S153 of the Act, Xie Ding Zhong’s appointment will only be effective until the conclusion of the next
annual general meeting of our Company as he is 72 years old. Thereafter, he may only be re-appointed as a director by an
ordinary resolution passed at an annual general meeting of our Company.
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Audit Committee
Our business and operations are presently under the management and close supervision of our
Executive Directors who are assisted by our Key Executives.
After our listing on the SGX-ST, our Executive Directors and Key Executives will manage the business
and operations of our Group. Our Audit Committee will assist our Board of Directors with regards to
discharging its responsibility to safeguard our Company’s assets, maintain adequate accounting records,
and develop and maintain effective systems of internal controls with an overall objective to ensure that
our management has created and maintained an effective control environment in our Company, and that
our management demonstrates and stimulates the necessary aspect of our Group’s internal control
structure among all parties.
Our Audit Committee comprises our Independent Directors, Lee Gee Aik, Tan Min-Li and Pan De Run.
Our Audit Committee will be chaired by Lee Gee Aik.
Our Audit Committee will meet quarterly to discuss and review the following where applicable:-
(a) to review with both the internal and external auditors the audit plan, scope of work, their evaluation
of the system of internal accounting controls, their management letter and our management’s
response, and results of our audits conducted by both of our auditors;
(b) to review the half-yearly and annual, and quarterly, if applicable, financial statements and results
announcements before submission to our Board for approval, focusing in particular, on changes in
accounting policies and practices, major risk areas, significant adjustments resulting from the audit,
the going concern statement, compliance with financial reporting standards as well as compliance
with the Listing Manual and any other statutory/regulatory requirements;
(c) to review the effectiveness and adequacies of our internal control and procedures, including
accounting and financial controls and procedures and ensure co-ordination between both of our
auditors and our management, reviewing the assistance given by our management to the auditors,
and discuss problems and concern, if any, arising from the interim and final audits, and any matters
which the auditors may wish to discuss (in the absence of our management where necessary);
(d) to review and discuss with the external auditors any suspected fraud or irregularity, or suspected
infringement of any relevant laws, rules or regulations, which has or is likely to have a material
impact on our Group’s operating results or financial position, and our management’s response;
(e) consider the appointment or re-appointment of both of the auditors and matters relating to the
resignation or dismissal of the auditors;
(f) to review significant financial reporting issues and judgments with the CFO and the external
auditors so as to ensure the integrity of the financial statements of our Company and any formal
announcements relating to our Group’s financial performance before their submission to our Board
of Directors;
(g) to review the adequacy and effectiveness of our Company’s material internal controls with the CFO
and the auditors, including financial, operational and compliance controls and risk management via
reviews carried out by the internal auditors;
(h) to review and approve transactions falling within the scope of Chapter 9 and Chapter 10 of the
Listing Manual (if any);
(k) to review and approve all hedging policies and instruments (if any) to be implemented by our
Group;
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(l) to undertake such other reviews and projects as may be requested by our Board and report to our
Board its findings from time to time on matters arising and requiring the attention of our Audit
Committee;
(m) to review and establish procedures for receipt, retention and treatment of complaints received by
our Group, inter alia, criminal offences involving our Group or its employees, questionable
accounting, auditing, business, safety or other matters that impact negatively on our Group; and
(n) generally to undertake such other functions and duties ad may be required by statue or the Listing
Manual, and by such amendments made thereto from time to time.
Upon the admission of our Company to the Official List of the SGX-ST, our Audit Committee will appoint a
suitable firm of independent Singapore Certified Practicing accountants for the purpose of internal audit
to review and assess the system of internal controls of our Group on an annual basis (the “Internal
Auditor”). Such appointment of the Internal Auditor will continue for as long as our Audit Committee
deems necessary.
In addition, our Audit Committee will review all transactions entered into between our Group and China
XLX group on a quarterly basis to ensure that all the transactions with China XLX group are carried out
on normal commercial terms and are not prejudicial to the interests of our Shareholders. Such review
procedures will continue to be in place as long as the aggregate interest of China XLX and Go Power in
the share capital of our Company exceeds 5%. Please refer to the sections entitled “Our Major
Customers” and “Potential Conflict of Interests” of the Prospectus for more information. Going forward, in
the event that China XLX is deemed as an Interested Person of the Group, all transactions with China
XLX group thereafter shall be subject to the then prevailing rules and regulations of the SGX-ST, in
particular Chapter 9 of the Listing Manual.
Apart from the above functions, our Audit Committee will also commission and review the findings of
internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal
controls, or infringement of any law, rule or regulation which has or is likely to have a material impact on
our Company’s operating results or financial position. Each member of our Audit Committee will abstain
from voting in respect of matters in which he is interested.
In addition, all future transactions with related parties shall comply with the requirements of the Listing
Manual. Our Directors shall also abstain from voting in any contract or arrangement or proposed
contract/arrangement in which he has a personal material interest.
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Remuneration Committee
Our Remuneration Committee comprises our Independent Directors, Tan Min-Li and Pan De Run, and our
Non-Executive Director, Xie Ming. Our Remuneration Committee is chaired by Tan Min-Li.
(a) to recommend to our Board a framework of remuneration for Directors and Key Executives, and to
determine specific remuneration packages for each Executive Director and the CEO (or executive
of equivalent rank), if the CEO is not an Executive Director, such recommendations to submitted for
endorsement by our entire Board and should cover all aspects of remuneration, including but not
limited to director’s fees, salaries, allowances, bonuses, options, benefits in kind;
(b) in the case of service contracts, to consider what compensation commitments the Directors’ or Key
Executives’ contracts of service, if any, would entail in the event of early termination with a view to
be fair and avoid rewarding poor performance;
(c) to perform an annual review of the remuneration of employees related to our Directors and
Substantial Shareholders (if any) to ensure that their remuneration packages are in line with our
staff remuneration guidelines and commensurate with their respective job scopes and level of
responsibilities. The Remuneration Committee will also review and approve any bonuses, pay
increases and/or promotions for these employees; and
(d) in respect of long-term incentive schemes including share schemes as may be proposed from time
to time, to consider whether directors should be eligible for benefits under such long-term incentive
schemes and/or share schemes.
Each member of the Remuneration Committee shall abstain from voting on any resolution in respect of
his remuneration package.
Nominating Committee
Our Nominating Committee comprises our Independent Directors, Pan De Run and Tan Min-Li, and our
Non-executive Director, Ma Ong Kee. Our Nominating Committee is chaired by Pan De Run.
(a) to make recommendations to the Board on all board appointments, including re-nominations,
having regard, to the director’s contribution and performance (for example, attendance,
preparedness, participation and candour) including, if applicable, as an independent director;
All directors should be required to submit themselves for re-nomination and re-election at regular
intervals and at least every three years;
(c) in respect of a director who has multiple board representations on various companies, to decide
whether or not such director is able to and has been adequately carrying out his/her duties as
director, having regard to the competing time commitments that are faced when serving on multiple
boards; and
(d) to decide how the Board’s performance may be evaluated and propose objective performance
criteria, as approved by the Board that allows comparison with its industry peers, and address how
the Board has enhanced long term shareholders’ value.
Each member of the Nominating Committee shall abstain from voting on any resolution relating to his re-
nomination as Director.
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PRINCIPAL SHAREHOLDERS
Directors
Xie Ding Zhong – – – – – – – –
Liang Gong Zeng(1) – – 45,600,000 11.40 – – 45,600,000 9.03
Dai Feng Yu(2) – – 41,200,000 10.30 – – 41,200,000 8.16
Xie Ming(3) – – 108,000,000 27.00 – – 108,000,000 21.39
Ma Ong Kee(6) – – 37,104,000 9.28 – – 32,554,000 6.45
Andrew Bek (9)
– – 16,000,000 4.00 – – 16,000,000 3.17
Pan De Run – – – – – – – –
Lee Gee Aik – – – – – – – –
Tan Min–Li – – – – – – – –
Substantial Shareholders
(other than Directors)
Giant Yield Global(1) 45,600,000 11.40 – – 45,600,000 9.03 – –
Dawn Vitality (2)
41,200,000 10.30 – – 41,200,000 8.16 – –
Ace Sense(3) 108,000,000 27.00 – – 108,000,000 21.39 – –
Oriental Eagle (4)
52,000,000 13.00 – – 52,000,000 10.30 – –
Inventive Result
Enterprises(5) 41,200,000 10.30 – – 41,200,000 8.16 – –
Sinostate Management(6) 24,000,000 6.00 – – 24,000,000 4.75 – –
Go Power(7) 16,400,000 4.10 19,600,000 4.90 3,900,000 0.77 19,600,000 3.88
Other Shareholders
Vision Top(6) 13,104,000 3.28 – – 8,554,000 1.69 – –
China XLX (8) 19,600,000 4.90 – – 19,600,000 3.88 – –
Able Gallery(9) 16,000,000 4.00 – – 16,000,000 3.17 – –
SkyVen (10)
12,960,000 3.24 – – 8,460,000 1.68 – –
Naresh Nanubhai Desai(11) 7,776,000 1.94 – – 5,076,000 1.00 – –
Wong Chao Hsiung (11)
1,080,000 0.27 – – 705,000 0.14 – –
Quek Yiang Hang(11) 1,080,000 0.27 – – 705,000 0.14 – –
Public – – – – 130,000,000 25.74 – –
Notes:-
1. Giant Yield Global is an investment holding company incorporated in the British Virgin Islands. Liang Gong Zeng, who is our
Executive Director and COO, owns 25.41%, with the remaining 74.59% held on trust by him for the 103 beneficiaries under
the Trust Agreements. Please refer to the section entitled “Trust Agreements” of this Prospectus for details.
2. Dawn Vitality is an investment holding company incorporated in the British Virgin Islands. Our Executive Director, Dai Feng Yu,
owns 25.24%, with the remaining 74.76% held on trust by her for the 143 beneficiaries under the Trust Agreements. Please
refer to the section entitled “Trust Agreements” of this Prospectus for details.
3. Ace Sense is an investment holding company incorporated in the British Virgin Islands. Our Non-Executive Director, Xie Ming,
who is the daughter of our Executive Chairman and CEO, Xie Ding Zhong, is deemed interested in the 108,000,000 Shares
by virtue of her 100% shareholding interest held in Ace Sense.
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4. Oriental Eagle is an investment holding company incorporated in the British Virgin Islands. Our Head of Sales and Marketing
Department, Li Chun Yang, owns 31.57%, with the remaining 68.43% held on trust by him for the 11 beneficiaries under the
Trust Agreements. Please refer to the section entitled “Trust Agreements” of this Prospectus for details.
5. Inventive Result Enterprises is an investment holding company incorporated in the British Virgin Islands. Our Head of System
Design Department, Li Bin, owns 24.90%, with the remaining 75.10% held on trust by him for the 140 beneficiaries under the
Trust Agreements. Please refer to the section entitled “Trust Agreements” of this Prospectus for details.
6. Sinostate Management and Vision Top are investment holding companies incorporated in the British Virgin Islands. Sinostate
Management and Vision Top are wholly owned by Ma Ong Kee, who is our Non-Executive Director.
7. Go Power is an investment company incorporated in the British Virgin Islands. It is a substantial shareholder of China XLX,
which owns approximately 28.1% of the shareholding interest in China XLX, a Singapore and Hong Kong-listed company. Yan
Yun Hua, a PRC natural person, owns 100% of the shareholding interest in Go Power, of which approximately 12.7% is held
for her own beneficial interest and approximately 87.3% is held by her on trust for 1,463 beneficiaries, comprising of PRC
natural persons or entities, being current and past employees/business associates of China XLX and their related persons.
Go Power is deemed interested in the 4.9% shareholding interest held by China XLX in our Company. Go Power and its PRC
shareholders are not related to the Directors, Key Executives and Controlling Shareholders of our Company.
8. China XLX is a company dual-listed on both SGX-ST and Hong Kong Stock Exchange, which is not related to the Directors,
Key Executives and Controlling Shareholders of our Company.
9. Able Gallery is an investment holding company incorporated in the British Virgin Islands. Able Gallery is wholly owned by
Andrew Bek, who is the alternate Director to our Non-Executive Director, Ma Ong Kee.
10. SkyVen is a company incorporated in Singapore. It is a private equity investment fund, established and managed in
Singapore. Its shareholders comprise mainly institutional investors and high net worth individuals. The investment manager is
SkyVen Asset Management Pte Ltd. The shareholders of SkyVen and SkyVen Asset Management Pte Ltd (which is owned by
Peter Tan Boon Huan and Chew Ghim Bok) are not related to any of our Directors, Key Executives or Controlling
Shareholders.
11. Naresh Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang are individual investors who are not related to the
Directors, Key Executives and Controlling Shareholders of our Company.
The Shares of all our Directors and Substantial Shareholders were acquired in connection with the
Restructuring Exercise.
Save as disclosed in the section entitled “Restructuring Exercise” of this Prospectus, there has been no
change in the percentage ownership of Shares by our Directors and Substantial Shareholders in the past
three years prior to the Latest Practicable Date. There is no known arrangement, the operation of which
may, at a subsequent date, result in a change in the control of our Company.
The Shares held by our Directors, Substantial Shareholders and other Shareholders do not carry voting
rights that are different from the Invitation Shares.
As at the Latest Practicable Date, our Company has only one class of shares, being our Shares which
are in registered form. There is no restriction on the transfer of fully paid ordinary shares in scripless form
except where required by law or the listing rules of the SGX-ST.
Save as disclosed above, our Company is not directly or indirectly owned or controlled, whether severally
or jointly by any person or government.
TRUST AGREEMENTS
(a) The Trust Agreements
Pursuant to the Trust Agreements dated 2 November 2009, Li Chun Yang owns 31.57% share
interest of Oriental Eagle and holds the remaining 68.43% share interest on trust for 11
beneficiaries; Dai Feng Yu owns 25.24% share interest of Dawn Vitality and holds the remaining
74.76% share interest on trust for 143 beneficiaries; Liang Gong Zeng owns 25.41% share interest
of Giant Yield Global and holds the remaining 74.59% share interest on trust for 103 beneficiaries;
and Li Bin owns 24.90% share interest of Inventive Result Enterprises and holds the remaining
75.10% share interest on trust for 140 beneficiaries (collectively, the “Shareholder Beneficiaries”
and individually, a “Shareholder Beneficiary”). The Trust Agreements will be valid for a period of ten
years upon the date of signing.
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(b) Rationale of the Trust Agreements
Prior to the Acquisition, the management of Hunan Anchun had allowed the employees and the
related persons of these employees to partake in the equity of Hunan Anchun. To simplify the
corporate structure of Hunan Anchun, the equity interests of Hunan Anchun were registered under
the name of Xie Ding Zhong (our Executive Chairman and CEO), Li Chun Yang (our Key
Executive), Jiang Jing Fu (an ex-employee of Hunan Anchun) and Yan Chao Jian (an ex-employee
of Hunan Anchun), who held the beneficiary interests on trust for 398 employees and their related
persons. The level of participation in terms of Hunan Anchun’s shareholding proportion of the
employees and their related persons were based on their contribution to the paid-up share capital
of Hunan Anchun. Therefore, the 398(1) employees and their related persons were also the ultimate
shareholders of Hunan Anchun (the “Hunan Anchun Trust Arrangement”).
Subsequently, to facilitate the Restructuring Exercise and continue to reflect the beneficial interests
of the 397(1) employees and their related persons in Hunan Anchun, Oriental Eagle, Dawn Vitality,
Inventive Result Enterprises and Giant Yield Global were incorporated and the Trust Agreements
were executed to simplify the corporate structure of our Shareholders and facilitate our Group to
manage the day-to-day operations and decide on strategic directions. Save that Xie Ding Zhong
who does not hold any shareholding interest in our Company, and Jiang Jing Fu and Yan Chao
Jian had ceased to be the trustees due to their retirement from our Group, no change was made to
the above-mentioned trust arrangements after the Restructuring Exercise.
Note:-
(1) Prior to the Restructuring Exercise, Xie Ding Zhong, Li Chun Yang, Jiang Jing Fu and Yan Chao Jian were the
trustees, and Dai Feng Yu, Liang Gong Zeng and Li Bin were 3 of the 398 Shareholder Beneficiaries. After the
Restructuring Exercise, Dai Feng Yu, Liang Gong Zeng and Li Bin replaced Xie Ding Zhong, Yan Chao Jian and Jiang
Jing Fu to be the trustees and Jiang Jing Fu and Yan Chao Jian became 2 of the 397 Shareholder Beneficiaries.
(iii) make his/her own divestment decision in relation to his/her beneficial interest.
The Shareholder Beneficiaries’ entitlements under the Trust Agreements are not conditional on
their continued employment with our Group. Each of the Shareholder Beneficiaries may make
his/her own divestment decision in relation to his/her interest. Subject to the right of first refusal of
other Shareholder Beneficiaries, a Shareholder Beneficiary is allowed to dispose his/her shares in
the relevant BVI company to a third party on the terms and conditions that are not more favourable
than those offered to the remaining Shareholder Beneficiaries in that relevant BVI company.
The Shareholder Beneficiaries have irrevocably authorised Li Chun Yang (in respect of Oriental
Eagle), Dai Feng Yu (in respect of Dawn Vitality), Liang Gong Zeng (in respect of Giant Yield
Global) and Li Bin (in respect of Inventive Result Enterprises) respectively as sole director of the
relevant BVI company to exercise the following rights:-
(i) voting rights and general management decisions of the relevant BVI company;
(ii) to dispose of or transfer or enter into agreement to dispose of or transfer, upon the
Shareholder Beneficiaries’ instructions, his/her beneficial interest in the relevant BVI
company; and
(iii) to give the moratorium undertakings on behalf of the Shareholder Beneficiaries in relation to
his/her beneficial interest in the relevant entity upon the listing of our Company.
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(d) Voting arrangements of the Shareholder Beneficiaries within the relevant BVI companies and
between Oriental Eagle, Dawn Vitality, Giant Yield Global and Inventive Result Enterprises
As aforementioned, the Shareholder Beneficiaries have irrevocably authorised Li Chun Yang, Dai
Feng Yu, Liang Gong Zeng and Li Bin to exercise voting rights and general management decisions
of the relevant BVI companies at their discretion and on behalf of the Shareholder Beneficiaries.
Accordingly, these Shareholder Beneficiaries cannot exercise split votes.
There is no existing voting arrangement between Li Chun Yang, Dai Feng Yu, Liang Gong Zeng and
Li Bin regarding their voting rights in our Company held through the relevant BVI companies and it
is not compulsory for any of them to vote in the same way as each other.
VENDORS
The name of the Vendors and the number of Vendor Shares which they will offer pursuant to the Invitation
are set out below:-
No. of No. of
Vendor Vendor No. of
No. of Shares as a Shares as a No. of Shares as a
Shares % of pre- % of post- Shares % of post-
held No. of Invitation Invitation held Invitation
before the Vendor share share after the share
Name Invitation Shares capital capital Invitation capital
Go Power Investments
Limited 16,400,000 12,500,000 3.13 2.48 3,900,000 0.77
Skyven Growth
Opportunities Fund Pte. Ltd. 12,960,000 4,500,000 1.13 0.89 8,460,000 1.68
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MORATORIUM
To demonstrate their commitment to our Company:-
Ace Sense, which will hold 108,000,000 Shares, representing approximately 21.4% of our Company’s
post-invitation share capital, has undertaken not to dispose of, transfer, or realise any part of its interest in
our Company for a period of 12 months from our Company’s date of admission to the Official List of the
SGX-ST. In addition, Xie Ming, being the sole director and shareholder of Ace Sense, has undertaken not
to dispose of, transfer, or realise any part of her interests in Ace Sense for a period of 12 months from
our Company’s date of admission to the Official List of the SGX-ST.
Each of Oriental Eagle, Dawn Vitality, Inventive Result Enterprises and Giant Yield Global, which will hold
52,000,000 Shares, 41,200,000 Shares, 41,200,000 Shares and 45,600,000 Shares, representing
approximately 10.3%, 8.2%, 8.2% and 9.0% of our Company’s post-invitation share capital, has
undertaken not to dispose of, transfer, or realise any part of its interest in our Company for a period of 6
months from our Company’s date of admission to the Official List of the SGX-ST.
In addition, each of Li Chun Yang, Dai Feng Yu, Li Bin, Liang Gong Zeng, (i) has undertaken not to
dispose of, transfer, or realise any part of his/her interests in Oriental Eagle, Dawn Vitality, Inventive
Result Enterprises and Giant Yield Global respectively for a period of 6 months from our Company’s date
of admission to the Official List of the SGX-ST, and (ii) has been authorised by the 397 Shareholder
Beneficiaries under the Trust Agreement to comply with such applicable moratorium requirements in
respect of our Company’s admission to the Official List of the SGX-ST.
Each of Sinostate Management, Vision Top, China XLX, Able Gallery, Go Power, SkyVen, Naresh
Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang, has undertaken not to dispose of, transfer,
or realise any part of its interest in our Company for a period of 6 months from our Company’s date of
admission to the Official List of the SGX-ST.
Ma Ong Kee has undertaken not to dispose of, transfer, or realise any part of his interest in Sinostate
Management and Vision Top for a period of 6 months from our Company’s date of admission to the
Official List of the SGX-ST.
Andrew Bek has undertaken not to dispose of, transfer, or realise any part of his interest in Able Gallery
for a period of 6 months from our Company’s date of admission to the Official List of the SGX-ST.
Yan Yun Hua has undertaken not to dispose of, transfer, or realise any part of her interest in Go Power for
a period of 6 months from our Company’s date of admission to the Official List of the SGX-ST.
SkyVen is a private equity investment fund managed by Skyven Asset Management Pte. Ltd.. Skyven
Asset Management Pte. Ltd. has undertaken not to dispose of, transfer, or realise any part of the Shares
held by SkyVen for a period of 6 months from our Company’s date of admission to the Official List of the
SGX-ST.
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INTERESTED PERSON TRANSACTIONS
In general, transactions between our Group and any of our Interested Persons (namely, our Directors
(including our CEO), Controlling Shareholders of our Company or the Associates of such Directors
(including our CEO) or Controlling Shareholders) are Interested Person Transactions.
This section sets out the Interested Person Transactions entered into by our Group for FY2007, FY2008,
FY2009, 1Q2010 and for the period commencing from 1 April 2010 to the Latest Practicable Date on the
basis of each member of our Group (namely, our Company and our Subsidiary) being an Entity At Risk
and with Interested Persons being construed accordingly.
Save as disclosed in this section and under the section entitled “Restructuring Exercise” of this
Prospectus, there has been no Interested Person Transaction in FY2007, FY2008, FY2009, 1Q2010 and
for the period commencing from 1 April 2010 to the Latest Practicable Date involving our Group which are
material in the context of this Invitation.
Details of the amounts granted by our Executive Directors in the last three financial years and up to
the Latest Practicable Date are as follows:-
Largest
amount
outstanding
up to the As at the
As at 31 As at 31 As at 31 As at 31 Latest Latest
December December December March Practicable Practicable
RMB’000 2007 2008 2009 2010 Date Date
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The loans from the then shareholders and employees of Hunan Anchun were fully settled in
October 2009. Please refer to the Audited Combined Financial Statements for details. They were
unsecured and had no fixed term of repayment. The above transactions were carried out on an
arm’s length basis. Our Group does not expect to enter into any future transaction of the above
nature.
Largest
amount
outstanding
up to the As at the
As at 31 As at 31 As at 31 As at 31 Latest Latest
December December December March Practicable Practicable
RMB’000 2007 2008 2009 2010 Date Date
The above amounts arose from advances by Vision Top and OneEquity to our Company in relation
to professional expenses incurred for our Group’s listing. The above amounts were unsecured,
interest-free and had no fixed term of repayment. These amounts have been fully settled by the
Latest Practicable Date. As no interests were paid for these amounts, the transactions were not
carried out on an arm’s length basis. Our Group does not expect to enter into any future
transaction of the above nature.
(a) the tenure will be for a year from the date of disbursement of the loans, renewable on a
yearly basis up to five years by Hunan Anchun;
(b) such loans will be interest-free and unsecured during the first year; and
(c) In the event that the loans due are extended beyond the first year, interest will be charged
based on the annual prevailing benchmark lending rates of the People’s Bank of China.
The above transactions are not carried out on an arm’s length basis for the first year as no interest
is charged. They will be carried out on an arm’s length basis in the event that the loans due are
extended and interest is charged based on the annual prevailing benchmark lending rates of the
People’s Bank of China from the second year onwards. Our Group does not expect to enter into
any future transaction of the above nature. In addition, our Group expects to repay such Past
Shareholders’ loan in the future through existing working capital and future cashflows generated
from operating activities.
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(2) Arrangement between Hunan Anchun and the Past Shareholders for dividends payable
As at 31 March 2010, dividends of RMB43.2 million remain payable to the Past Shareholders in
respect of the RMB48.0 million dividends declared by Hunan Anchun for FY2009, of which RMB4.8
million has been paid in 1Q2010. Another RMB7.0 million has been paid subsequently and
accordingly, the amount of remaining dividends payables as at the Latest Practicable Date stood at
RMB36.2 million. The aforementioned dividends relate to past profits attributable to the existing
shareholders of Hunan Anchun prior to the Restructuring Exercise. Please refer to the sections
“Capitalisation and Indebtedness” and “Dividend Policy” of this Prospectus for more information.
Based on PRC rules, there is no time limit for the payment of dividends to shareholders.
Accordingly, pursuant to an agreement between Hunan Anchun and its past shareholders dated 18
June 2010, it was agreed that (i) Hunan Anchun will withhold the remaining payments for the
RMB36.2 million dividends payables for a year from the date of such agreement and such amount
due will be interest-free and unsecured during the year; and (ii) in the event that such amount due
is extended beyond the first year, interest will be charged based on the annual prevailing
benchmark lending rates of the People’s Bank of China.
The above arrangement is not carried out on an arm’s length basis for the first year as no interest
is charged. It will be carried out on an arm’s length basis in the event that the amount of dividends
due is extended and interest is charged based on the annual prevailing benchmark lending rates of
the People’s Bank of China from the second year onwards. Our Group does not expect to enter into
any future transaction of the above nature. In addition, our Group expects to repay such dividends
payable in the future through existing working capital and future cashflows generated from
operating activities.
(a) market rates (where available) will be used as benchmarks for Interested Person Transactions;
(b) in determining the appropriate pricing, the suitability, quality and cost of the product or service, and
the experience and expertise of the supplier will be taken into consideration; and
(c) in relation to sales from our Group to Interested Persons, unless otherwise approved by the Audit
Committee, the Interested Persons will be charged at rates not lower than that charged to
independent third parties.
In the event that a member of the Audit Committee is interested in any of the Interested Person
Transactions, he will abstain from reviewing that particular transaction.
Internal auditors will be appointed to review all Interested Person Transactions on a periodic basis to
ensure full compliance with the terms of the executed agreements and rules and regulations implemented
by the SGX-ST for both on-going and future Interested Person Transactions. The report of such internal
auditors will be submitted to the Audit Committee for their review. The Audit Committee will review the
internal audit reports to ascertain that the guidelines and procedures established to monitor Interested
Person Transactions have been complied with.
The report shall detail the basis and procedures used to determine the terms of the transactions and
whether the terms are on normal commercial terms and not prejudicial to the interests of our
Shareholders. Please refer to the section entitled “Corporate Governance” of this Prospectus for more
details of our Audit Committee.
Our Audit Committee will also review all Interested Person Transactions to ensure that the then prevailing
rules and regulations of the SGX-ST (in particular Chapter 9 of the Listing Manual) are complied with. We
will also endeavour to comply with the principles of and best practices set out in the Listing Manual.
172
POTENTIAL CONFLICT OF INTERESTS
In general, a conflict of interest arises when any of our Directors, Controlling Shareholders or their
Associates is carrying on or has any interest in any other corporation carrying on the same business or
dealing in similar products as our Group. Save as disclosed in the section entitled “Interested Person
Transactions” of this Prospectus, during the past three financial years ended 31 December and up to the
Latest Practicable Date:-
(a) none of our Directors or Controlling Shareholders or their Associates has had any interest, direct or
indirect, in any material transactions to which we were or are a party;
(b) none of our Directors or Controlling Shareholders or their Associates has had any interest, direct or
indirect, in any company carrying on the same business or carrying on a similar trade as us; and
(c) none of our Directors or Controlling Shareholders or their Associates has had any interest, direct or
indirect, in any enterprise or company that is our customer or supplier of goods or services.
In addition, to address any unforeseen future potential conflict of interests, pursuant to the deeds of
undertaking dated 13 October 2010, each of our Executive Directors and Key Executives has undertaken
to our Company that:-
(a) he/she will not, and shall procure that his/her associates (whether present or future) will not, carry
on any business that is directly or indirectly in competition with the business of our Group;
(b) he/she will not, and shall procure that his associates will not, have any interest in or provide any
financial assistance to any other person to carry on any business or other activity that will directly
or indirectly compete with our Group;
(c) he/she will not either alone or jointly with or as a manager, agent for, director or executive or
employee of any person, firm or company, directly or indirectly, carry on or be engaged or
concerned or interested in any capacity in or provide any financial assistance to any other
business, trade or occupation whatsoever, except in a business, trade or occupation which does
not compete directly or indirectly with any business (“Relevant Business”) carried on or engaged in
or concerned with or interested in or proposed to be carried on or engaged in or concerned with or
interested in our Company or any company in our Group;
(d) he/she will not, either on his/her own account or for any other person directly or indirectly solicit,
interfere with or endeavour to entice away from our Company or any company of our Group any
person who to his/her knowledge is now or has been a client, customer, or executive or employee
of, or in the habit of dealing with our Company or any company in our Group; and
(e) he/she will inform our Company immediately should he/she be aware that any breach of any terms
of his/her deed of undertaking is imminent.
None of our Directors, Controlling Shareholders or their Associates is carrying on or has any interest in
any other corporation carrying on the same business or dealing in similar products as our Group.
Go Power is an investment holding company incorporated in the British Virgin Islands and ultimately
owned by unrelated PRC nationals. Yan Yun Hua, a PRC natural person, holds 12.7% beneficial interest
in Go Power, with the remaining 87.3% held in trust by Yan Yun Hua for certain beneficiaries (PRC natural
persons or entities) under a trust agreement. China XLX is a company dual-listed in Singapore and Hong
Kong. Go Power currently holds approximately 28.1% shareholding interest in China XLX.
173
Go Power and China XLX participated in the investment in our Company through the Convertible Loan
Investment. Upon the Conversion, Go Power and China XLX will hold 4.1% and 4.9% shareholding
interest in the pre-Invitation share capital of our Company, respectively. Please refer to the section entitled
“Restructuring Exercise” of this Prospectus for details. Pursuant to Section 7(4A) of the Act, as Go Power
holds not less than 20% of voting rights in China XLX, Go Power (and Yan Yun Hua) is deemed interested
in China XLX’s 4.9% shareholding interest in our Company. As such, Go Power is a Substantial
Shareholder of our Company by virtue of its 4.1% direct interest in our Company and 4.9% deemed
interest held through China XLX.
Henan XLX, one of our major customers, is the wholly-owned subsidiary of China XLX in the PRC
(collectively, the “China XLX group”). Go Power, which owns approximately 28.1% of the shareholding
interest in China XLX, is deemed interested in Henan XLX.
However, our Directors are of the view that there is no conflict of interests between China XLX group and
our Group for the reasons that (i) China XLX and Go Power are passive investors of our Group. They
have no right to appoint directors to our Board and currently do not have any representatives on our
Board or in our management team. Accordingly, they will not be involved in any Board or management
decision-making process within our Group; (ii) save for the abovementioned customer-supplier
relationship and participation of China XLX and Go Power as Pre-IPO Investors, our Group, our Directors
and management do not have any beneficial interests in China XLX/Go Power, or vice versa; and (iii) all
the transactions between XLX Group and our Group are and will be negotiated and conducted based on
arm’s length basis and normal commercial terms under the oversight of our management.
Furthermore, our Audit Committee will review all transactions entered into between our Group and China
XLX group on a quarterly basis to ensure that all the transactions with China XLX group are carried out
on normal commercial terms and are not prejudicial to the interests of our Shareholders. Such review
procedures will continue to be in place as long as the aggregate interest of China XLX and Go Power in
the share capital of our Company exceeds 5%.
Going forward, in the event that China XLX is deemed as an Interested Person of the Group, all
transactions with China XLX group thereafter shall be subjected to the then prevailing rules and
regulations of the SGX-ST, in particular Chapter 9 of the Listing Manual.
174
GENERAL AND STATUTORY INFORMATION
(a) has, at any time during the last 10 years, had an application or a petition under any
bankruptcy laws of any jurisdiction filed against him or against a partnership of which he was
a partner at the time he was a partner or at any time within 2 years from the date he ceased
to be a partner;
(b) has, at any time during the last 10 years, had an application or a petition under any law of
any jurisdiction filed against an entity (not being a partnership) of which he was a director or
an equivalent person or key executive at the time when he was a director or an equivalent
person or a key executive of that entity or at any time within 2 years from the date he ceased
to be a director or an equivalent person or a key executive of that entity, for the winding up or
dissolution of that entity or, where that entity is the trustee of a business trust, that business
trust, on the ground of insolvency;
(d) has ever been convicted of any offence, in Singapore or elsewhere, involving fraud or
dishonesty which is punishable with imprisonment, or has been the subject of any criminal
proceedings (including any pending criminal proceedings of which he is aware) for such
purpose;
(e) has ever been convicted of any offence, in Singapore or elsewhere, involving a breach of any
law or regulatory requirement that relates to the securities or futures industry in Singapore or
elsewhere, or has been the subject of any criminal proceedings (including any pending
criminal proceedings of which he is aware) for such breach;
(f) has, at any time during the last 10 years, had judgement entered against him in any civil
proceedings in Singapore or elsewhere involving a breach of any law or regulatory
requirement that relates to the securities or futures industry in Singapore or elsewhere, or a
finding of fraud, misrepresentation or dishonesty on his part, nor has he been the subject of
any civil proceedings (including any pending civil proceedings of which he is aware) involving
an allegation of fraud, misrepresentation or dishonesty on his part;
(g) has ever been convicted in Singapore or elsewhere of any offence in connection with the
formation or management of any entity or business trust;
(h) has ever been disqualified from acting as a director or equivalent person of any entity
(including the trustee of a business trust), or from taking part directly or indirectly in the
management of any entity or business trust;
(i) has ever been the subject of any order, judgement or ruling of any court, tribunal or
governmental body, permanently or temporarily enjoining him from engaging in any type of
business practice or activity;
(j) has ever, to his knowledge, been concerned with the management or conduct, in Singapore
or elsewhere, of the affairs of:-
(i) any corporation which has been investigated for a breach of any law or regulatory
requirement governing corporations in Singapore or elsewhere; or
(ii) any entity (not being a corporation) which has been investigated for a breach of any
law or regulatory requirement governing such entities in Singapore or elsewhere, or
175
(iii) any business trust which has been investigated for a breach of any law or regulatory
requirement governing business trusts in Singapore or elsewhere; or
(iv) any entity or business trust which has been investigated for a breach of any law or
regulatory requirement that relates to the securities or futures industry in Singapore or
elsewhere,
in connection with any matter occurring or arising during the period when he was so
concerned with the corporation or partnership, entity or business trust; or
(k) has ever been the subject of any current or past investigation or disciplinary proceedings, or
has been reprimanded or issued any warning, by the Authority or any other regulatory
authority, exchange, professional body or government agency, whether in Singapore or
elsewhere.
An extract of our Articles of Association relating to, inter alia, Directors’ powers to vote on contracts
in which they are interested, Directors’ remuneration, Directors’ borrowing powers, Directors’
retirement, Directors’ share qualification, rights pertaining to shares, convening of general meetings
and alteration of capital are set out in Appendix D of this Prospectus. The Articles of Association of
our Company is available for inspection at our registered office in the section entitled “Documents
for Inspection” of this Prospectus.
3. MATERIAL CONTRACTS
The following contracts, not being contracts entered into in the ordinary course of business, to
which our Company or any member of our Group is a party, for the period of two years before the
date of lodgement of this Prospectus, are or may be material:-
(a) Equity transfer agreement dated 20 November 2009 between our Company, Xie Ding Zhong
(our Executive Chairman and CEO, 50.25%), Li Chun Yang (our Key Executive, 16.4%),
Jiang Jing Fu (an ex-employee of Hunan Anchun, 16.4%) and Yan Chao Jian (an ex-
employee of Hunan Anchun, 16.95%), pursuant to which our Company acquired the entire
equity interests of Hunan Anchun for a total consideration of RMB75.0 million (the
“Acquisition”). The purchase consideration, which was fully paid in cash by May 2010, was
arrived at, after taking into consideration, inter alia, the NAV of Hunan Anchun as at 31
January 2009 as appraised by an independent valuer Hunan Rongxin Asset Valuation Co.,
Ltd. फⳕ㤷ֵ䌘ѻ䆘Ԅ᳝䰤݀ৌ on 18 November 2009. Please refer to the section
entitled “Restructuring Exercise” of this Prospectus for more information;
176
(c) Sale and purchase agreement dated 12 October 2009, supplemented by a supplemental
agreement dated 8 January 2010, pursuant to which Hunan Anchun disposed all its equity
interest in Anchun Biotech and the certain intangible assets, including 6 trademarks, 1 patent
and 2 production permits for health supplements, to Xie Ding Zhong (our Executive
Chairman and CEO), Yan Chao Jian (our ex-employee), Jiang Jing Fu (our ex-employee)
and Li Chun Yang (our Key Executive), at a consideration of RMB2,000,000. The
consideration, which was fully paid by June 2010, was determined on a “willing buyer and
willing seller” basis, and taking into account, inter alia, the valuation reports dated
7 January 2010 issued by Changsha Gongli Asset Valuation Co., Ltd. 䭓≭݀ゟ䌘ѻ䆘Ԅ
᳝䰤݀ৌ. Please refer to the section entitled “Restructuring Exercise” of this Prospectus for
more information;
(d) An agreement dated 24 June 2010 between Hunan Anchun and Anchun Biotech pursuant to
which an amount owing from Anchun Biotech to Hunan Anchun of approximately
RMB745,000 was waived by Hunan Anchun. Please refer to the section entitled
“Restructuring Exercise” of this Prospectus for more information;
(e) Loan agreements dated 22 December 2009, 5 January 2010 and 9 June 2010 between Xie
Ding Zhong, Li Chun Yang, Jiang Jing Fu, Yan Chao Jian (the “Past Shareholders”) and
Hunan Anchun, pursuant to which loans amounting to an aggregate of approximately
RMB73.4 million (as adjusted for foreign exchange translation) were extended by the Past
Shareholders to Hunan Anchun for working capital purposes. Please refer to the section
entitled “On-going Interested Person Transactions” of this Prospectus for more information;
(f) Agreement dated 18 June 2010 between the Past Shareholders and Hunan Anchun in
relation to the arrangement on payment of dividends due to the Past Shareholders, pursuant
to which dividends of RMB36.2 million payable to the Past Shareholders will be withheld by
Hunan Anchun for working capital purposes. Please refer to the section entitled “On-going
Interested Person Transactions” of this Prospectus for more information;
(g) Management and Underwriting Agreement between our Company, the Vendors, the Manager
and the Underwriter dated 13 October 2010 for the management of the Invitation and the
underwriting of the Offer Shares;
(h) Placement Agreement between our Company, the Vendors and the Placement Agent dated
13 October 2010 for the placement of the Placement Shares.
4. LITIGATION
Neither our Company nor our Subsidiary is engaged in any legal or arbitration proceedings,
including those which are pending or known to be contemplated, which may have or which have
had in the 12 months immediately preceding the date of lodgement of the Prospectus, a material
effect on our Group’s financial position or profitability.
(b) Saved as disclosed in this Prospectus, the financial condition and operations of our Group
are not likely to be affected by any of the followings:-
(i) known trends or demands, commitments, events or uncertainties that will result in or
are reasonably likely to result in our Group’s liquidity increasing or decreasing in any
material way;
177
(iii) unusual or infrequent events or transactions or any significant economic changes that
materially affect the amount of reported income from operations; and
(iv) known trends or uncertainties that have had or that we reasonably expect will have a
material favourable or unfavourable impact on revenues or operating income.
(c) save as disclosed in this Prospectus, our Directors are not aware of any event which has
occurred since 1 April 2010, which may have a material effect on the financial information
provided in the “Audited Combined Financial Statements of Anchun International Holdings
Ltd. and its Subsidiaries for the Financial Years ended 31 December 2007, 2008 and 2009”
and “Unaudited Combined Financial Statements of Anchun International Holdings Ltd. and
its Subsidiary for the Financial Period from 1 January 2010 to 31 March 2010” included as
Appendix A and Appendix B respectively of this Prospectus to the Latest Practicable Date
which may have a material effect on the financial position and results of our Group.
6. CONSENTS
(a) Ernst & Young LLP, the Reporting Accountants and Auditors, has given and has not
withdrawn its respective written consent to the issue of this Prospectus with the inclusion
herein of the Accountants’ Reports in the form and context in which they appear in this
Prospectus and references to its name in the form and context in which it appears in this
Prospectus and to act in such capacity in relation to this Prospectus.
(b) China National Chemical Information Centre (at #601, Tower B, Huaxin Building, No. 53,
Xiaoguan Street, An Ding Men Wai, Beijing, PRC) has given and has not withdrawn its
written consent to the issue of this Prospectus with the inclusion herein of its name and the
reference to its name and industry report entitled “Report on Technologies and Equipment in
China’s Fertiliser and Methanol Industries” dated 13 September 2010 in the form and context
in which they appear in this Prospectus and to act in such capacity in relation to this
Prospectus.
(c) The Manager and Underwriter has given and has not withdrawn its written consent to the
issue of this Prospectus with the inclusion herein of and reference to its name in the form
and context in which it appears in this Prospectus and to act in such capacity in relation to
this Prospectus.
(d) Hunan Rongxin Asset Valuation Co., Ltd. फⳕ㤷ֵ䌘ѻ䆘Ԅ᳝䰤݀ৌ (at #1904, Hunan
Fortune Plaza, No. 468, Middle Furong Road, Changsha City, Hunan Province, PRC) has
given and has not withdrawn its written consent to the issue of this Prospectus with the
inclusion of its name and reference to its valuation report dated 18 November 2009 set out
under the sections entitled “Restructuring Exercise” and “Material Contracts” of this
Prospectus in the form and context in which they appear in this Prospectus and to act in
such capacity in relation to this Prospectus.
(e) Changsha Gongli Asset Valuation Co., Ltd. 䭓≭݀ゟ䌘ѻ䆘Ԅ᳝䰤݀ৌ (at #827, Fuli
Building, Xin Fu Cheng, No. 31, Jiu Cai Yuan, Furong District, Changsha City, Hunan
Province, PRC) has given and has not withdrawn its written consent to the issue of this
Prospectus with the inclusion of its name and reference to its valuation reports dated 7
January 2010 set out under the sections entitled “Restructuring Exercise” and “Material
Contracts” of this Prospectus in the form and context in which they appear in this Prospectus
and to act in such capacity in relation to this Prospectus.
(f) Nexia TS Pte. Ltd. (at 5 Shenton Way, #16-00 UIC Building, Singapore 068808) has given
and has not withdrawn its written consent to the issue of this Prospectus with the inclusion of
its name and reference to its share valuation report dated 31 May 2010 set out under the
section entitled “Review of Results of Operations” of this Prospectus in the form and context
in which they appear in this Prospectus and to act in such capacity in relation to this
Prospectus.
178
(g) Haihua Yongtai Law Firm, the Legal Advisers to our Company on the PRC Law, has given
and has not withdrawn its written consent to the issue of this Prospectus with the inclusion of
its opinion in relation to PRC law set out under the sections entitled “Restructuring Exercise”
and “Trust Agreements” of this Prospectus in the form and context in which they appear in
this Prospectus and references to its name and context in which they appear in this
Prospectus and to act in such capacity in relation to this Prospectus.
(h) Jingtian & Gongcheng Attorneys at Law (at 34/F, Tower 3, China Central Place, 77 Jianguo
Road, Beijing 100025, China) has given and has not withdrawn its written consent to the
issue of this Prospectus with the inclusion of its opinion in relation to PRC law set out under
the section entitled “Restructuring Exercise” of this Prospectus in the form and context in
which they appear in this Prospectus and references to its name and context in which they
appear in this Prospectus and to act in such capacity in relation to this Prospectus.
(i) Each of the Solicitors to the Invitation and Legal Advisers to our Company on Singapore
Law, the Solicitors to the Manager, Underwriter and Placement Agent, the Share Registrar
and Share Transfer Agent, the Receiving Bank and Principal Bankers does not make, or
purport to make, any statement in this Prospectus or any statement upon which a statement
in this Prospectus is based and, to the maximum extent permitted by law, expressly disclaim
and take no responsibility for any liability to any person which is based on, or arises out of,
the statements, information or opinions in this Prospectus.
7. GENERAL
No expert is employed on a contingent basis by our Company or our Subsidiary has a material
interest, whether direct or indirect, in the shares of our Company or our Subsidiary, or has a
material economic interest, whether direct or indirect, in our Company, including an interest in the
success of the Invitation.
There has not been any public take-over, by a third party in respect of our Company’s Shares or by
our Company in respect of the shares of another corporation or units of a business trust, which has
occurred between FY2009 and the Latest Practicable Date.
179
10. DOCUMENTS FOR INSPECTION
Copies of the following documents may be inspected at our registered office during normal
business hours for a period of six months from the date of this Prospectus:-
(b) the material contracts referred to in the section entitled “Material Contracts” of this section;
(c) the Service Agreements referred to in the section entitled “Service Agreements” of this
Prospectus;
(d) the letters of consents referred to in the section entitled “Consents” of this Prospectus;
(e) the “Audited Combined Financial Statements of Anchun International Holdings Ltd. and its
Subsidiaries for the Financial Years ended 31 December 2007, 2008 and 2009” as set out in
Appendix A of this Prospectus;
(f) the “Unaudited Combined Financial Statements of Anchun International Holdings Ltd. and its
Subsidiary for the Financial Period from 1 January 2010 to 31 March 2010” as set out in
Appendix B of this Prospectus; and
(g) the CNCIC Report as referred to in the sections entitled “Industry Overview”, “Management’s
Discussion and Analysis of Results of Operations and Financial Position” and “Prospects,
Business Strategies and Future Plans – Prospects” of this Prospectus.
180
APPENDIX A – AUDITED COMBINED FINANCIAL STATEMENTS OF
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES FOR
THE FINANCIAL YEARS ENDED 31 DECEMBER 2007, 2008 AND 2009
Index Page
A-1
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
STATEMENT BY DIRECTORS
We, Xie Ding Zhong and Dai Feng Yu, being two of the directors of Anchun International Holdings
Ltd. (the “Company”), do hereby state that, in the opinion of the directors,
(i) the accompanying combined financial statements together with notes thereto are drawn up
so as to present fairly, in all material respects, the state of affairs of the Group as at 31
December 2007, 2008 and 2009 and the results of the business, changes in equity and cash
flows of the Group for the years ended on those dates, and
(ii) at the date of this statement, there are reasonable grounds to believe that the Company will
be able to pay its debts as and when they fall due.
Dai Feng Yu
Director
13 October 2010
A-2
REPORT FROM THE INDEPENDENT AUDITORS IN RELATION TO THE AUDITED COMBINED
FINANCIAL STATEMENTS OF ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS
SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2007, 2008 AND 2009
13 October 2010
Dear Sirs
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with Singapore Financial Reporting Standards. This responsibility includes devising
and maintaining a system of internal accounting controls sufficient to provide a reasonable
assurance that assets are safeguarded against loss from unauthorised use or disposition; and
transactions are properly authorised and that they are recorded as necessary to permit the
preparation of true and fair profit and loss accounts and balance sheets and to maintain
accountability of assets; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.
Auditors' responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Singapore Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.
A-3
REPORT FROM THE INDEPENDENT AUDITORS IN RELATION TO THE AUDITED COMBINED
FINANCIAL STATEMENTS OF ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS
SUBSIDIARIES FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2007, 2008 AND 2009
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by directors, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the accompanying combined financial statements of the Group present fairly, in all
material respects, the state of affairs of the Group as at 31 December 2007, 2008 and 2009 and the
results, changes in equity and cash flows of the Group for the financial years ended on those dates
in accordance with Singapore Financial Reporting Standards.
This report has been prepared solely for inclusion in the Prospectus in connection with the
proposed listing of the Company’s shares on the Singapore Exchange Securities Trading Limited.
A-4
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The accompanying accounting policies and explanatory notes form an integral part of the combined
financial statements.
A-5
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
ASSETS
Non-current assets
Property, plant and equipment 13 63,524 111,142 114,853
Intangible assets 14 104 226 143
Land use rights 15 17,362 16,997 16,632
Deferred tax assets 16 312 684 846
Investment securities 17 931 800 933
Prepayments 20 5,456 6,100 6,131
87,689 135,949 139,538
Current assets
Inventories 18 101,842 199,858 95,831
Trade and other receivables 19 29,072 43,924 47,355
Prepayments 20 15,303 6,723 10,793
Cash and cash equivalents 21 54,357 44,425 88,410
Income tax receivable 1,660 4,979 –
202,234 299,909 242,389
Non-current liabilities
Loans and borrowings 24 16,500 7,200 14,745
Derivative financial instrument 25 – – 34
The accompanying accounting policies and explanatory notes form an integral part of the combined
financial statements.
A-6
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The accompanying accounting policies and explanatory notes form an integral part of the combined
financial statements.
A-7
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Operating activities
Profit before tax 27,859 25,637 88,303
Adjustment for:
Depreciation of property, plant and
equipment 2,685 6,207 9,765
Amortisation of intangible assets 56 93 124
Amortisation of land use rights 365 365 365
Allowance for impairment of trade
receivables 2,079 2,406 1,154
Allowance (write-back) for impairment of
other receivables 302 (15) 447
Income tax grant – (4,976) –
Finance costs 1,082 2,377 2,105
Finance income (594) (557) (741)
Share-based compensation expense – 1,725 –
Loss (gain) on disposal of property,
plant and equipment 8 (31) 1
Gain on disposal of subsidiary – – (1,720)
A-8
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Investing activities
Purchase of property, plant and
equipment A (38,554) (46,479) (23,211)
Purchase of intangible assets - software (18) (215) (41)
Proceeds from disposal of property,
plant and equipment 1 282 –
Disposal of subsidiary, net of cash B – – (408)
Financing activities
Proceeds from loans and borrowings 27,500 – 12,000
Repayment of loans and borrowings (1,700) (9,300) (9,300)
Proceeds from convertible loan – – 15,000
Proceeds from issuance of shares of
subsidiary – 388 –
Dividends paid to the then existing
shareholders of Hunan Anchun (984) (1,230) (1,270)
Proceeds from issuance of shares of the
Company – – 45
Loans from shareholders 270 1,392 1,849
Repayment of loans from shareholders (726) (684) (6,706)
Loans from employees 380 700 984
Repayment of loans from employees (173) (699) (2,795)
A-9
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
B. Disposal of subsidiary
The Company disposed of Hunan Anchun Biotech Co., Ltd, a wholly owned subsidiary
during the year ended 31 December 2009.
The assets disposed of and the liabilities discharged as a result of the disposal of the
above named subsidiary are as follows:
2009
Rmb’000
Property, plant and equipment 262
Inventories 235
Trade and other receivables 110
Cash and bank balances 408
Trade and other payables (735)
The accompanying accounting policies and explanatory notes form an integral part of the combined
financial statements.
A-10
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
1. Corporate information
The Company was incorporated in Singapore on 29 October 2009 under the Companies
Act as a private exempt company limited by shares under the name of Anchun Holdings
Pte Ltd. The Company was incorporated for the purpose of acquiring the existing Hunan
Anchun Advanced Technology Co., Ltd. pursuant to the Group Restructuring Exercise. On
14 September 2010, the Company was converted to a public limited company and changed
its name in connection therewith to Anchun International Holdings Ltd.
The registered office of the Company is at 1 Robinson Road, #17-00 AIA Tower, Singapore
048542 and the principal place of business of the Group is located at No. 539, Lusong
Road, Changsha National Hi-tech Industrial Development Zone, Changsha City, Hunan
Province, PRC 410205.
The principal activity of the Company is that of investment holding. The principal activities
of the subsidiaries are disclosed in Note 12.
The Group was formed through the Restructuring Exercise which involved a series of
acquisitions and the rationalisation of the corporate and shareholding structure for the
purposes of the Invitation. Pursuant to the Restructuring Exercise, the Company became
the holding company of the Group.
On 3 November 2009, the unrelated nominee transferred his entire interest in the
Company to Ace Sense, which is wholly owned by Xie Ming, a US citizen. In
addition, 999 shares were allotted and issued to Sinostate Management (wholly-
owned by Ma Ong Kee, Non-Executive Director), Ace Sense (wholly-owned by Xie
Ming, Non-Executive Director, who is the daughter of Executive Chairman and
CEO, Xie Ding Zhong), Oriental Eagle (wholly-owned by Li Chun Yang, Key
Executive), Dawn Vitality (wholly-owned by Dai Feng Yu, Executive Director),
Inventive Result Enterprises (wholly-owned by Li Bin, Key Executive) and Giant
Yield Global (wholly-owned by Liang Gong Zeng, Executive Director) (collectively,
the “BVI Shareholders”), resulting in the shareholding interests in the Company
being 28.0% held by Sinostate Management, 27.0% held by Ace Sense, 13.0%
held by Oriental Eagle, 10.3% held by Dawn Vitality, 10.3% held by Inventive
Result Enterprises and 11.4% held by Giant Yield Global, respectively.
Pursuant to the Trust Agreements dated 2 November 2009, Li Chun Yang, Dai
Feng Yu, Li Bin and Liang Gong Zeng were appointed as trustees to each of
Oriental Eagle, Dawn Vitality, Inventive Result Enterprises and Giant Yield Global
to hold the shareholding interests in each of the abovementioned BVI companies in
trust for 397 beneficiaries who are existing and past employees of the Group as
well as the related persons of these employees.
A-11
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The Acquisition was carried out on an arm’s length basis, and the purchase
consideration was based on, inter alia, the valuation of approximately RMB78.4
million by an independent valuer Hunan Rongxin Asset Valuation Co., Ltd. on 18
November 2009, which had taken into account, inter alia, the NAV of Hunan
Anchun of approximately RMB82.4 million as at 31 January 2009. The purchase
consideration was fully paid in cash by May 2010. Following the completion of the
Acquisition, Hunan Anchun became a wholly owned subsidiary of the Company.
In respect of the applicability of Article 11 of Provision 10, Haihua Yongtai Law Firm
and Jingtian Gongcheng Attorneys at Law, have opined that, pursuant to the
confirmation letters in respect of the applicable laws and regulations to the
Acquisition issued by the Committee on 9 December 2009 and Department of
Commerce of Hunan Province (the “DCHP”) on 30 December 2009 respectively,
given that the foreign investors, being Ma Ong Kee (a Malaysian Citizen), through
Sinostate Management, and Xie Ming (a US citizen), through Ace Sense,
collectively hold 55% of shareholding interests in the Company, and that the
Company is not set up and controlled by domestic residents, the Company does
not fall within the definition of SPV in Provision 10. Accordingly, the Acquisition
does not require any approvals from the Ministry of Commerce (the “MOC”) or the
China Security and Regulatory Commission (the “CSRC”) pursuant to Provision 10,
and Article 11 of Provision 10 does not apply to the Restructuring Exercise.
On 18 December 2009, the issued and paid-up share capital of the Company was
increased to S$9,200, comprising 9,200 ordinary shares, pursuant to a cash
injection of S$8,200 by the BVI Shareholders and one new BVI company, Vision
Top Holdings Limited, which is currently controlled by Ma Ong Kee (“Vision Top”).
Accordingly, the shareholding proportion in the Company was changed to Vision
Top (6.96%), Sinostate Management (14.78%), Ace Sense (29.35%), Oriental
Eagle (14.13%), Dawn Vitality (11.2%), Inventive Result Enterprises (11.2%) and
Giant Yield Global (12.39%).
A-12
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
(e) Third share subscription in the share capital of the Company and the convertible
loan investment
(i) the BVI Shareholders, Vision Top, Able Gallery, China XLX, Go Power,
SkyVen, Naresh Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang
shall subscribe for an aggregate of 40,000 ordinary shares at S$1.0 per share
in the share capital of the Company;
(ii) Vision Top, China XLX, Go Power, SkyVen, Naresh Nanubhai Desai, Wong
Chao Hsiung and Quek Yiang Hang shall invest RMB80.0 million (the “Loan”)
in the Company through a convertible loan (the “Convertible Loan
Investment”); and
(iii) the Convertible Loan shall be used for the Acquisition as described in
paragraph (c) above, and the balance shall be retained by the Group for
working capital purposes. In addition, the amount paid to the vendors of
Hunan Anchun shall be immediately transferred to Hunan Anchun as a loan.
Conversion
On 2 August 2010, the Company issued the conversion notices (as prescribed
under the Convertible Loan Investment) to Vision Top, China XLX, Go Power,
SkyVen, Naresh Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang,
pursuant to which the Loan was converted into an aggregate of 800 shares in the
capital of the Company, which were allotted and issued to Vision Top (146 shares),
China XLX (218 shares), Go Power (182 shares), SkyVen (144 shares), Naresh
Nanubhai Desai (86 shares), Wong Chao Hsiung (12 shares) and Quek Yiang
Hang (12 shares), respectively (the “Conversion”).
Following the Conversion, the resulting shareholding structure of the Company was
Ace Sense (27.00%), Sinostate Management (6.00%), Vision Top (3.28%), Able
Gallery (4.00%), Oriental Eagle (13.00%), Dawn Vitality (10.3%), Inventive Result
Enterprises (10.3%), Giant Yield Global (11.4%), China XLX (4.90%), Go Power
(4.10%), SkyVen (3.24%), Naresh Nanubhai Desai (1.94%), Wong Chao Hsiung
(0.27%) and Quek Yiang Hang (0.27%).
(1)
Figures do not add to 100% due to rounding.
A-13
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
(e) Third share subscription in the share capital of the Company and the convertible
loan investment (cont’d)
In addition, Go Power currently holds 28.06% interest in China XLX, which also
participated in the Convertible Loan Investment with a direct investment interest of
4.9%. Pursuant to Section 7(4A) of the Act, as Go Power holds not less than 20%
of voting rights in China XLX, Go Power (and Yan Yun Hua) is deemed interested
in China XLX’s 4.9% shareholding interest in the Company. However China XLX is
a company dual-listed in Singapore and Hong Kong with its own self-governing
board of directors and management, and neither Go Power nor Yan Yun Hua holds
a majority interest in China XLX. Accordingly, neither Go Power nor Yan Yun Hua
is considered to have control over China XLX‘s interest in the Company.
Haihua Yongtai Law Firm has advised that since Go Power (and Yan Yun Hua) are
not related to the Company or the existing shareholders of the Company, Article 11
of Provision 10 is not applicable with respect to the interests held and controlled by
Go Power (and Yan Yun Hua) in the share capital of the Company, and the
Company is not deemed to be the SPV as defined in the Articles 39 and 40 of
Provision 10.
Accordingly, following the Restructuring Exercise as described above, save for the
entry of Ace Sense in place of Xie Ding Zhong, and the participation of the Pre-IPO
Investors, the ultimate shareholders of the Company remained substantively the
same as those of Hunan Anchun prior to the Acquisition.
A-14
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
(f) Disposal of Hunan Anchun Biotech Co., Ltd. (“Anchun Biotech”) (cont’d)
The combined financial statements of the Group have been prepared in accordance with
Singapore Financial Reporting Standards (“FRS”).
The financial statements have been prepared on a historical cost basis except as disclosed
in the accounting policies below.
The combined financial statements are presented in Renminbi (“Rmb”). All values are
rounded to the nearest thousand (Rmb’000) except when otherwise indicated.
A-15
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The accounting policies have been consistently applied by the Group during the financial
years ended 31 December 2007, 2008 and 2009, except for the changes in accounting
policies discussed below.
(a) Standards and interpretations mandatory for annual financial periods beginning on or
after 1 January 2007 are as follows:
Adoption of these standards and interpretations did not have any effect on the financial
performance or position of the Group. They did however give rise to additional
disclosures, including, in some cases, revisions to accounting policies.
FRS 107 introduces new disclosures to improve the information about financial
instruments. It requires the disclosure of qualitative and quantitative information about
exposure to risks arising from financial instruments, including specified minimum
disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis
to market risk.
The amendment to FRS 1 requires the Group to make new disclosures to enable
users of the financial statements to evaluate the Group’s objectives, policies and
processes for managing capital.
(b) Standards and interpretations mandatory for annual financial periods beginning on or
after 1 January 2008 are as follows:
• INT FRS 111 FRS 102 – Group and Treasury Share Transactions
• INT FRS 112 Service Concession Arrangements
• INT FRS 114 FRS 19 – The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
Adoption of these standards and interpretations did not have any effect on the
financial performance or position of the Group.
A-16
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
(c) Standards and interpretations mandatory for annual financial periods beginning on or
after 1 January 2009 are as follows:
Adoption of these standards and interpretations did not have any effect on the financial
performance or position of the Group. They did however give rise to additional
disclosures, including, in some cases, revisions to accounting policies.
The revised FRS 1 separates owner and non-owner changes in equity. The statement
of changes in equity includes only details of transactions with owners, with all non-
owner changes in equity presented in the statement of other comprehensive income.
In addition, the Standard introduces the statement of comprehensive income which
presents income and expense recognised in the period. This statement may be
presented in one single statement, or two linked statements. The Group has elected to
present this statement as one single statement. The Group has early adopted the
revised FRS 1 on 1 January 2007.
A-17
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
FRS 23 has been revised to require capitalisation of borrowing costs that are directly
attributable to the acquisition, construction or production of a qualifying asset. The Group’s
previous policy was to expense borrowing costs as they were incurred. The Group has
amended its accounting policy based on the revised FRS 23. In accordance with the
transitional provisions of the Standard, the Group has adopted this as a prospective
change. The amendments to FRS 23 do not have any impact on the financial statements
as during the financial years ended 31 December 2007, 2008 and 2009, no borrowing costs
have been capitalised on property, plant and equipment.
The amendments to FRS 107 require additional disclosure about fair value measurement
and liquidity risk. Fair value measurements are to be disclosed by source of inputs using a
three level hierarchy for each class of financial instrument. In addition, reconciliation
between the beginning and ending balance for Level 3 fair value measurements is now
required, as well as significant transfers between Level 1 and Level 2 fair value
measurements. The amendments also clarify the requirements for liquidity risk disclosures.
The fair value measurement disclosures and liquidity risk disclosures are presented in Note
31 and Note 32 to the financial statements respectively. The Group has early adopted the
revised FRS 1 on 1 January 2007.
FRS 108 requires disclosure of information about the Group’s operating segments and
replaces the requirement to determine primary and secondary reporting segments of the
Group. Disclosures about each of the segments are shown in Note 29.
The Group has early adopted Amendments to FRS 108, Operating Segments which is to
be effective for the accounting periods beginning on or after 1 January 2010. Amendments
to FRS 108 requires disclosure of a measure of total assets for each reportable segment
only if such an amount is regularly provided to the entity’s chief operating decision maker.
x FRS 1 Presentation of Financial Statements: Assets and liabilities classified as held for
trading in accordance with FRS 39 Financial Instruments: Recognition and
Measurement are not automatically classified as current in the balance sheet. The
Group amended its accounting policy accordingly and analysed whether management’s
expectation of the period or realisation of financial assets and liabilities differs from the
classification of the instrument. This did not result in any re-classification of financial
instruments between current and non-current in the balance sheet.
A-18
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
x FRS 16 Property, Plant and Equipment: Replaces the term “net selling price” with “fair
value less costs to sell”. The Group amended its accounting policy accordingly, which
did not result in any change in the financial position.
x FRS 23 Borrowing Costs: The definition of borrowing costs is revised to consolidate the
two types of items that are considered components of “borrowing costs’ into one – the
interest expense calculated using the effective interest rate method calculated in
accordance with FRS 39. The Group has amended its accounting policy accordingly
which did not result in any change in its financial position.
The Group has not adopted the following FRS and INT FRS that have been issued but not
yet effective:
Effective for annual
periods beginning
Description on or after
A-19
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Except for the revised FRS 103 and the amendments to FRS 27, the directors expect
that the adoption of the other standards and interpretations above will have no material
impact on the financial statements in the period of initial application. The nature of the
impending changes in accounting policy on adoption of the revised FRS 103 and the
amendments to FRS 27 are described below.
The revised standards are effective for annual periods beginning on or after 1 July
2009. The revised FRS 103 introduces a number of changes in the accounting for
business combinations occurring after 1 July 2009. These changes will impact the
amount of goodwill recognised, the reported results in the period that an acquisition
occurs, and future reported results. The Amendments to FRS 27 require that a change
in the ownership interest of a subsidiary (without loss of control) is accounted for as an
equity transaction. Therefore, such transactions will no longer give rise to goodwill, nor
will they give rise to a gain or loss. Furthermore, the amended standard changes the
accounting for losses incurred by the subsidiary as well as the loss of control of a
subsidiary. Other consequential amendments were made to FRS 7 Statement of Cash
Flows, FRS 12 Income Taxes, FRS 21 The Effects of Changes in Foreign Exchange
Rates, FRS 28 Investments in Associates and FRS 31 Interests in Joint Ventures. The
changes from revised FRS 103 and Amendments to FRS 27 will affect future
acquisitions or loss of control and transactions with minority interests. The standards
may be early applied. However, the Group does not intend to early adopt.
A-20
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The combined financial statements comprise the financial statements of the Company and
its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries
used in the preparation of the combined financial statements are prepared for the same
reporting date as the Company. Consistent accounting policies are applied for like
transactions and events in similar circumstances.
All intra-group balances, transactions, income and expenses and profits and losses
resulting from intra-group transactions that are recognised in assets are eliminated in full.
The combined financial statements of the Group have been prepared in accordance with
the pooling of interest method as the Group is a continuation of the existing subsidiary’s
business. The assets and liabilities of the Company and its subsidiary are reflected at their
carrying amounts reported in the combined financial statements. Any difference between
the consideration and the share capital of the subsidiary acquired is reflected within equity
as merger reserve. The statement of comprehensive income reflects the results of the
Company and its subsidiary for the entire periods under review.
Consolidation of the subsidiary in the PRC is based on the subsidiary’s financial statements
prepared in accordance with FRS. Profits reflected in the financial statements prepared in
accordance with FRS may differ from those reflected in the PRC statutory financial
statements of the subsidiary, prepared for PRC reporting purposes. In accordance with the
relevant laws and regulations, profits available for distribution by the PRC subsidiary is
based on the amounts stated in the PRC statutory financial statements.
The Group’s principal operations are conducted in the PRC. The management has
determined the currency of the primary economic environment in which the Group
operates, i.e. functional currency, to be Renminbi (“Rmb”). Sales prices and major
costs of providing goods and services including major operating expenses are primarily
influenced by fluctuations in Rmb. The functional currency of the Company is Renminbi
(“Rmb”).
A-21
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
All items of property, plant and equipment are initially recorded at cost. The cost of an item
of property, plant and equipment is recognised as an asset if, and only if, it is probable that
future economic benefits associated with the item will flow to the Group and the cost of the
item can be measured reliably.
Subsequent to recognition, property, plant and equipment are stated at cost less
accumulated depreciation and any accumulated impairment losses. When significant parts
of property, plant and equipment are required to be placed in intervals, the Group
recognises such parts as individual assets with specific useful lives and depreciation,
respectively. Likewise, when a major inspection is performed, its cost is recognised in the
carrying amount of the plant and equipment as a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred.
Depreciation of an asset begins when it is available for use and is computed on a straight-
line basis over the estimated useful life of the assets as follows:
Years
Buildings 20
Plant and machinery 3 - 10
Office equipment and furniture 5
Motor vehicles 5
Assets under construction relates to buildings and plant and machinery which are
depreciated only when they become available for use.
The carrying values of property, plant and equipment are reviewed for impairment when
events or changes in circumstances indicate that the carrying values may not be
recoverable.
The residual value, useful life and depreciation method are reviewed at each financial year-
end, and adjusted prospectively, if appropriate.
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset is included in profit or loss in the year the asset is derecognised.
A-22
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Intangible assets acquired separately are measured initially at cost. The cost of intangible
assets acquired in a business combination is their fair values as at the date of acquisition.
Following initial recognition, intangible assets are measured at cost less any accumulated
amortisation and any accumulated impairment losses.
Intangible assets with finite useful lives are amortised on a straight-line basis over their
estimated useful lives and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortisation period and the amortisation method are
reviewed at least at each financial year-end. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset is
accounted for by changing the amortisation period or method, as appropriate, and are
treated as changes in accounting estimates. The amortisation expense on intangible assets
with finite lives is recognised in profit or loss in the expense category consistent with the
function of the intangible asset.
Intangible assets with indefinite useful lives or not yet available for use are tested for
impairment annually, or more frequently if events and circumstances indicate that the
carrying value may be impaired either individually or at the cash-generating unit level. Such
intangible assets are not amortised. The useful life of an intangible asset with an indefinite
useful life is reviewed annually to determine whether the useful life assessment continues
to be supportable. If not, the change in useful life from indefinite to finite is made on a
prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the
difference between the net disposal proceeds and the carrying amount of the asset and are
recognised in profit or loss when the asset is derecognised.
Computer software
Computer software is measured at cost less accumulated amortisation and any impairment
loss. It is amortised on a straight-line basis over its estimated useful life of 3 years.
Land use rights are initially measured at cost. Following initial recognition, land use rights
are measured at cost less accumulated amortisation and accumulated impairment losses.
The land use rights are amortised over the lease term of 50 years.
A-23
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The Group assesses at each reporting date whether there is an indication that an asset
may be impaired. If any such indication exists, or when annual impairment assessment for
an asset is required, the Group makes an estimate of the asset’s recoverable amount.
Impairment losses are recognised in profit or loss except for assets that are previously
revalued where the revaluation was taken to other comprehensive income. In this case the
impairment is also recognised in other comprehensive income up to the amount of any
previous revaluation.
An assessment is made at each reporting date as to whether there is any indication that
previously recognised impairment losses may no longer exist or may have decreased. A
previously recognised impairment loss is reversed only if there has been a change in the
estimates used to determine the asset’s recoverable amount since the last impairment loss
was recognised. If that is the case, the carrying amount of the asset is increased to its
recoverable amount. That increase cannot exceed the carrying amount that would have
been determined, net of depreciation, had no impairment loss been recognised previously.
Such reversal is recognised in profit and loss unless the asset is measured at revalued
amount, in which case the reversal is treated as a revaluation increase.
2.10 Subsidiaries
A subsidiary is an entity over which the Group has the power to govern the financial and
operating policies so as to obtain benefits from its activities.
A-24
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
(i) controls is controlled by, or is under common control with, the entity (this includes
parents, subsidiaries and fellow subsidiaries);
(ii) has an interest in the entity that gives it significant influence over the entity; or
(b) the party is an associate (as defined in FRS 28 Investments in Associates) of the
entity;
(c) the party is a joint venture in which the entity is a venturer (see FRS 31 Interests in
Joint Ventures);
(d) the party is a member of the key management personnel of the entity or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d);
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by,
or for which significant voting power in such entity resides with, directly or indirectly,
any individual referred to in (d) or (e); or
(g) the party is a post-employment benefit plan for the benefit of employees of the entity,
or of any entity that is a related party of the entity.
Financial assets are recognised on the balance sheet when, and only when, the Group
becomes a party to the contractual provisions of the financial instrument.
When financial assets are recognised initially, they are measured at fair value, plus, in the
case of financial assets not at fair value through profit or loss, directly attributable
transaction costs.
A financial asset is derecognised where the contractual right to receive cash flows from the
asset has expired. On derecognition of a financial asset in its entirety, the difference
between the carrying amount and the sum of the consideration received and any
cumulative gain or loss that has been recognised directly in other comprehensive income is
recognised in profit or loss.
All regular way purchases and sales of financial assets are recognised or derecognised on
the trade date i.e. the date that the Group commits to purchase or sell the asset. Regular
way purchases or sales are purchases or sales of financial assets that require delivery of
assets within the period generally established by regulation or convention in the
marketplace concerned.
A-25
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Financial assets with fixed or determinable payments that are not quoted in an active
market are classified as loans and receivables. Subsequent to initial recognition, loans and
receivables are measured at amortised cost using the effective interest method. Gains and
losses are recognised in profit or loss when the loans and receivables are derecognised or
impaired, and through the amortisation process.
Available-for-sale financial assets are financial assets that are not classified in any of the
other categories. After initial recognition, available-for-sale financial assets are measured at
fair value. Any gains or losses from changes in fair value of the financial asset are
recognised in other comprehensive income, except that impairment losses, foreign
exchange gains and losses on monetary instruments and interest calculated using the
effective method are recognised in profit or loss. The cumulative gain or loss previously
recognised in other comprehensive income is reclassified from equity to profit or loss as a
reclassification adjustment when the financial asset is derecognised.
Investments in equity instruments whose fair value cannot be reliably measured are
measured at cost less impairment loss.
The Group assesses at each balance sheet date whether there is any objective evidence
that a financial asset or group of financial assets is impaired.
When the asset becomes uncollectible, the carrying amount of impaired financial
assets is reduced directly or if an amount was charged to the allowance account,
the amounts charged to the allowance account are written off against the carrying
value of the financial asset.
A-26
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
If in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is reversed to the extent
that the carrying amount of the asset does not exceed its amortised cost at the
reversal date. The amount of reversal is recognised in profit or loss.
Cash and cash equivalents comprise cash and bank balances and bank deposits. Cash
equivalents are short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
2.15 Inventories
Inventories are valued at the lower of cost and net realisable value. Costs incurred in
bringing each product to its present location and condition are accounted for as follows:
A-27
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
When necessary, allowance is provided for damaged, obsolete and slow-moving items to
adjust for the carrying amount of inventories to the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs necessary to make the sale.
2.16 Provisions
Provisions are recognised when the Group has a present obligation as a result of a past
event, it is probable that an outflow of economic resources will be required to settle the
obligation and the amount of the obligation can be estimated reliably.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best
estimate. If it is no longer probable that an outflow of economic resources will be required
to settle the obligation, the provision is reversed. If the effect of the time value of money is
material, provisions are discounted using a current pre tax rate that reflects, where
appropriate, the risks specific to the liability. When discounting is used, the increase in the
provision due to the passage of time is recognised as a finance cost.
Financial liabilities within the scope of FRS 39 are recognised on the balance sheet when,
and only when, the Group becomes a party to the contractual provisions of the financial
instrument.
Financial liabilities are recognised initially at fair value, plus, in the case of financial
liabilities other than derivatives, directly attributable transaction costs.
Subsequent to initial recognition, derivatives are measured at fair value. Other financial
liabilities (except for financial guarantees) are measured at amortised cost using the
effective interest method.
For financial liabilities other than derivatives, gains and losses are recognised in profit or
loss when the liabilities are derecognised, and through the amortisation process. Any gains
or losses arising from changes in fair value of derivatives are recognised in the income
statement. Net gains or losses on derivatives include exchange differences.
A financial liability is derecognised when the obligation under the liability is extinguished.
When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified,
such an exchange or modification is treated as a derecognition of the original liability and
the recognition of a new liability, and the difference in the respective carrying amounts is
recognised in profit or loss.
A-28
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly
attributable to the acquisition, construction or production of that asset. Capitalisation of
borrowing costs commences when the activities to prepare the asset for its intended use or
sale are in progress and the expenditures and borrowing costs are incurred. Borrowing
costs are capitalised until the assets are substantially completed for their intended use or
sale.
When convertible loans are issued, the liability component and the equity component are
separately presented on the balance sheet. On initial recognition, the embedded derivative
component of the convertible loan is measured at its fair value and presented as part of
derivative financial instruments. The loan component is recognised at its fair value
determined using a market interest rate for equivalent non-convertible bonds. The carrying
amount of the equity instrument represented by the option to convert the instrument into
ordinary shares is determined by deducting the fair value of the financial liability (including
the embedded derivative) from the fair value of the compound financial instrument as a
whole.
The derivative is subsequently measured at fair value through profit or loss and the loan is
subsequently measured at amortised cost using the effective interest method. The equity
component is not remeasured subsequently.
Grant income is received from the local PRC government at a discretionary amount as
determined by the government. It is recognised at its fair value where there is reasonable
assurance that the grant will be received and all attaching conditions will be complied with.
When the grant relates to an expense item, it is recognised in profit or loss over the period
necessary to match it on a systematic basis to the costs that it is intended to compensate.
When the grant relates to an asset, the fair value is recognised as deferred grant income
on the balance sheet and is amortised to profit or loss over the expected useful life of the
relevant asset by equal annual instalments.
A-29
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The Group participates in the national pension schemes as defined by the laws of the
countries in which it has operations.
The subsidiaries in the PRC are required to provide certain staff pension benefits to
their employees under existing PRC regulations. Pension contributions are provided at
rates stipulated by PRC regulations and are contributed to a pension fund managed by
government agencies, which are responsible for administering these amounts for the
subsidiaries’ employees.
Pension contributions are recognised as an expense in the period in which the related
services are performed.
The grant date is the date of distribution of the shares to the 88 new shareholders. A
valuation exercise was carried out to estimate what the price of those shares would
have been on the measurement date in an arm’s length transaction between
knowledgeable, willing parties. The valuation technique shall be consistent with
generally accepted valuation methodologies for pricing financial instruments, and shall
incorporate all factors and assumptions that knowledgeable, willing market participants
would consider in setting the price. There is no vesting period as the shares are issued
on grant date. The amount of employee expense to be recognised in profit or loss is
computed using the grant date fair value and the number of shares vested, with a
corresponding increase in equity.
2.23 Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow
to the Group and the revenue can be reliably measured. Revenue is measured at the fair
value of consideration received or receivable.
Revenue from sale of goods is recognised upon the transfer of significant risk and
rewards of ownership of the goods to the customers. Revenue is not recognised to
the extent where there are significant uncertainties regarding recovery of the
consideration due, associated costs or the possible return of goods. Retention
sum, representing 5% of the total contract amount, which will be payable upon the
maturity of defects liability period of 12 months, is recognised as revenue at the
end of the retention period.
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ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Current tax assets and liabilities for the current and prior periods are measured at
the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted by the balance sheet date.
Current taxes are recognised in profit or loss except to the extent that the tax
relates to items recognised outside profit or loss, in which case it is recognised in
other comprehensive income or directly in equity.
Deferred income tax is provided using the liability method on temporary differences
at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all temporary differences, except:
– where the deferred income tax liability arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither accounting
profit nor taxable profit or loss; and
A-31
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Deferred income tax assets are recognised for all deductible temporary differences,
carry forward of unused tax credits and unused tax losses, to the extent that it is
probable that taxable profit will be available against which the deductible temporary
differences, and the carry forward of unused tax credits and unused tax losses can
be utilised except:
– where the deferred income tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the
transaction, affects neither accounting profit nor taxable profit or loss; and
The carrying amount of deferred tax asset is reviewed at each balance sheet date
and reduced to the extent that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are reassessed at each balance sheet date and
are recognised to the extent that it has become probable that future taxable profit
will allow the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected
to apply to the year when the asset is realised or the liability is settled, based on
tax rates and tax laws that have been enacted or substantively enacted at the
balance sheet date.
Deferred income tax relating to items recognised outside profit and loss is
recognised outside profit and loss. Deferred tax items are recognised in correlation
to the underlying transaction either in other comprehensive income or directly in
equity and deferred tax arising from a business combination is adjusted against
goodwill on acquisition.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current income tax
liabilities and the deferred income taxes relate to the same taxable entity and the
same taxation authority.
A-32
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The Group’s sales of goods in the PRC are subjected to VAT at the applicable tax
rate of 17% for PRC domestic sales.
Revenues, expenses and assets are recognised net of the amount of VAT except:
ƒ Receivables and payables that are stated with the amount of VAT included.
The net amount of VAT recoverable from, or payable to, the taxation authority is
included as part of trade and other receivables or trade and other payables on the
balance sheet.
Proceeds from issuance of ordinary shares are recognised as share capital in equity.
Incremental costs directly attributable to the issuance of ordinary shares are deducted
against share capital.
For management purposes, the Group is organised into operating segments based on their
products and services which are independently managed by the respective segment
managers responsible for the performance of the respective segments under their charge.
The segment managers report directly to the management of the Company who regularly
review the segment results in order to allocate resources to the segments and to assess
the segment performance. Additional disclosures on each of these segments are shown in
Note 29, including the factors used to identify the reportable segments and the
measurement basis of segment information.
2.27 Contingencies
A contingent liability or asset is a possible obligation or asset that arises from past events
and whose existence will be confirmed only by the occurrence or non-occurrence of
uncertain future event(s) not wholly within the control of the Group.
Contingent liabilities and assets are not recognised on the balance sheet of the Group.
A-33
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
In the process of applying the Group’s accounting policies, management has made the
following judgements, apart from those involving estimations, which has the most
significant effect on the amounts recognised in the financial statements:
Where the fair values of financial instruments recorded on the balance sheet cannot be
derived from active markets, they are determined using a variety of valuation
techniques that include the use of valuation models. The inputs to these models are
derived from observable market data where possible, but where observable market
data are not available, judgement is required to establish fair values. The judgements
include considerations of liquidity and model inputs regarding the future financial
performance of the investee, its risk profile, and economic assumptions regarding the
industry and geographical jurisdiction in which the investee operates. The valuation of
financial instruments is described in more detail in Note 31.
The key assumptions concerning the future and other key sources of estimation uncertainty
at the balance sheet date, that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year are discussed
below.
The cost of plant and machinery is depreciated on a straight-line basis over the
estimated useful life of the assets. Management estimates the useful life of the plant
and machinery to be 3 to 10 years. This is a common life expectancy applied in the
manufacturing industry. The carrying amount of the Group’s plant and machinery as at
31 December 2007, 2008 and 2009 was Rmb 22,618,000, 42,177,000 and Rmb
45,573,000 respectively.
Changes in the expected level of usage and technological developments could impact
the economic useful life of the plant and machinery, therefore future depreciation
charges could be revised. A 5% difference in the expected useful lives of the plant and
machinery from management’s estimates would not result in any significant variance in
profit for the respective years.
A-34
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The Group assesses at each balance sheet date whether there is any objective
evidence that a financial asset is impaired. To determine whether there is objective
evidence of impairment, the Group considers factors such as the probability of
insolvency or significant financial difficulties of the debtor and default or significant
delay in payments.
When there is objective evidence of impairment, the amount and timing of future cash
flows are estimated based on historical loss experience for assets with similar credit
risk characteristics. The carrying amount of the Group’s loans and receivables at
balance sheet date is disclosed in Note 19 to the financial statements.
The Group assesses whether there are any indicators of impairment for all non-
financial assets at each reporting date. Goodwill is tested for impairment annually and
at other times when such indicators exist. Other non-financial assets are tested for
impairment when there are indicators that the carrying amounts may not be
recoverable.
When value in use calculations are undertaken, management must estimate the
expected future cash flows from the asset or cash-generating unit and choose a
suitable discount rate in order to calculate the present value of those cash flows.
A-35
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
4. Revenue
A-36
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The following items have been included in arriving at profit before tax:
A-37
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
9. Finance costs
The major components of income tax expense for the financial years ended 31 December
2007, 2008 and 2009 are:
A-38
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
A reconciliation between tax expense and the product of profit before tax multiplied by the
applicable tax rate for the financial years ended 31 December 2007, 2008 and 2009 is as
follows:
The Company is incorporated in Singapore and is subjected to a tax rate of 17% for
FY2009. It has no taxable income in FY2009.
According to the Enterprise Income Tax Law of the PRC, promulgated by the State Council
and the Administrative Measure for Determination of High and New Technology
Enterprises, issued by the Ministry of Science and Technology, Finance and State
Administration of Tax and effective on 1 January 2008, High and New Technology
Enterprises that require key state support are subject to the applicable enterprise income
tax rate of 15%.
According to regulations on the Tax Policy for the National New and High Technology
Industries Parks, promulgated by the State Administration of Taxation and effective on 6
March 1991, Article 4, the ratified High and New Technology Enterprises in the New and
High Technology Industries Parks approved by the State Council can be levied at a
reduced rate of 15% income tax from the date of their ratification.
Given that Hunan Anchun has received the certificate of High and New Technology
Enterprise since 2007, it enjoys the preferential income tax rate of 15% from 1 January
2007 to 31 December 2012.
Anchun Biotech has no taxable income during the financial years ended 31 December
2008 and 2009.
Basic and diluted earnings per share is calculated by dividing the Group’s net profit
attributable to ordinary equity holders for the financial year by the pre-Invitation share
capital of 400,000,000 ordinary shares which were assumed to be in issue throughout the
entire financial years presented.
A-39
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
(1)
Audited by Hunan Zhengyang Certified Public Accountants Co., Ltd for PRC statutory
reporting purpose.
(2)
Audited by Hunan Zhengyang Certified Public Accountants Co., Ltd for PRC statutory
reporting purpose.
On 12 October 2009, Hunan Anchun transferred all shares of Anchun Biotech to four
shareholders namely, Xie Ding Zhong, Li Chun Yang, Yan Chao Jian and Jiang Jing Fu for
a total consideration of Rmb 2,000,000. The net gain on disposal amounting to
Rmb1,720,000 has been taken to other income in 2009.
A-40
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Accumulated
depreciation
At the beginning of
the year (2,475) (3,368) (41) (519) – (6,403)
Depreciation charge
for the year (1,020) (1,363) (82) (220) – (2,685)
Disposals – 114 – – – 114
Net carrying
amount
At the end of the
year 16,485 22,618 571 803 23,047 63,524
A-41
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Office
equipment
Plant and and Motor Construction
Buildings machinery furniture vehicles -in- progress Total
Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000
31 December 2008
Cost
At the beginning of
the year 19,980 27,235 694 1,542 23,047 72,498
Additions – 23,171 1,225 1,033 28,647 54,076
Disposals – (707) – – – (707)
Reclassification 51,384 – – – (51,384) –
Accumulated
depreciation
At the beginning of
the year (3,495) (4,617) (123) (739) – (8,974)
Depreciation charge
for the year (2,333) (3,361) (152) (361) – (6,207)
Disposals – 456 – – – 456
Net carrying
amount
At the end of the
year 65,536 42,177 1,644 1,475 310 111,142
A-42
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Office
equipment
Plant and and Motor Construction-
Buildings machinery furniture vehicles in- progress Total
Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000
31 December 2009
Cost
At the beginning of
the year 71,364 49,699 1,919 2,575 310 125,867
Disposal of
subsidiary – (305) (5) – – (310)
Additions 33 6,122 186 243 7,155 13,739
Disposals – (170) – – – (170)
Reclassification 126 3,135 – – (3,261) –
Accumulated
depreciation
At the beginning of
the year (5,828) (7,522) (275) (1,100) – (14,725)
Disposal of
subsidiary – 47 1 – – 48
Depreciation charge
for the year (3,391) (5,602) (376) (396) – (9,765)
Disposals – 169 – – – 169
Net carrying
amount
At the end of the
year 62,304 45,573 1,450 1,322 4,204 114,853
Certain buildings with a total net book value of Rmb 16,150,000, Rmb 15,220,000 and Rmb
14,289,000 as at 31 December 2007, 2008 and 2009 respectively have been mortgaged to
China Construction Bank to secure banking facilities (Note 24).
A-43
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Cost
At 1 January 193 211 426
Additions 18 215 41
Accumulated amortisation
At 1 January (51) (107) (200)
Amortisation charge for the year (56) (93) (124)
Intangible assets pertain to computer software purchased from vendors. The amortisation
of intangible asset is included in the “Administrative expenses” line item in the statement of
comprehensive income.
Cost
At 1 January 18,271 18,271 18,271
Additions – – –
Accumulated amortisation
At 1 January (544) (909) (1,274)
Amortisation charge for the year (365) (365) (365)
Amount to be amortised:
- Not later than one year 365 365 365
- Later than one year but not later
than five years 1,461 1,461 1,461
- Later than five years 15,536 15,171 14,806
The Group has land use rights over three plots of state-owned land in the People’s
Republic of China (PRC) where the Group’s PRC manufacturing and storage facilities
reside. As at 31 December 2007, 2008 and 2009, the remaining amortisation periods for
land use rights are 46 years, 45 years and 44 years respectively.
A-44
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Land use rights with net carrying amounts of Rmb 11,564,000, Rmb 11,323,000 and Rmb
11,082,000 as at 31 December 2007, 2008 and 2009 respectively have been mortgaged to
China Construction Bank to secure banking facilities (Note 24).
The movement in the deferred tax assets during the financial years is as follows:
Rmb’000
At 1 January 2007 –
Credit to profit or loss 312
The accumulated profits of Hunan Anchun as at 31 December 2008 were fully distributed to
the PRC shareholders of Hunan Anchun in FY2009 prior to the completion of the
acquisition of Hunan Anchun by the Company. Accordingly, no deferred tax liabilities is
required to be provided on the accumulated profits of Hunan Anchun as at 31 December
2008.
Deferred tax liabilities of approximately Rmb 2,410,000 have not been recognised for taxes
that would be payable on the distribution of the undistributed earnings of Hunan Anchun for
the financial year ended 31 December 2009 as the Group has determined that the
undistributed earnings of Hunan Anchun will not be distributed in the foreseeable future.
A-45
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
18. Inventories
During the financial years ended 31 December 2007, 2008 and 2009, there has been no
inventory written off or allowance for inventory obsolescence.
A-46
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Trade receivables are non-interest bearing and are normally settled on 90 to 180 days’
terms. They are recognised at their original invoiced amounts which represent their fair
values on initial recognition.
Trade receivables
As at 31 December 2009, the Group has trade receivables amounting to Rmb 2,533,000
(2008: Rmb 1,499,000 and 2007: Rmb 2,057,000) that were past due but not impaired.
These trade receivables are unsecured and the analysis of their aging at the balance sheet
date is as follows:
A-47
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The Group’s trade receivables that are impaired at the balance sheet date and the
movement of the allowance accounts used to record the impairment are as follows:
– – –
Movement in the allowance account during the financial years are as follows:
Trade receivables that are individually determined to be impaired at the balance sheet date
relate to debtors that are in significant financial difficulties and have defaulted on payments.
These receivables are not secured by any collateral or credit enhancements.
Bills receivables
Bills receivables are interest-free and have maturity periods of approximately 90 days.
Amount due from shareholders relates to the sale consideration of Anchun Biotech which
has not been received as at 31 December 2009.
Amount due from pre-IPO investors relates to payment to the existing shareholders of
Hunan Anchun on behalf of pre-IPO investors which was funded from the proceeds of the
convertible loan (Note 24). This is for partial purchase consideration payable by the pre-
IPO investors to the then existing shareholders of Hunan Anchun for their shareholdings in
the Group. The amount is interest-free, and repayable on demand.
Amount due from director-related company relates to operating expenses paid on behalf of
Anchun Biotech by Hunan Anchun.
A-48
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
20. Prepayments
Current
Prepayments to trade suppliers 12,569 5,361 7,317
Prepaid operating expenses 3,070 1,683 3,787
Prepaid listing expenses – – 457
Less: Allowance for impairment (336) (321) (768)
Movement in the allowance account during the financial years are as follows:
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term
deposits are made for a period of three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short term deposit rates.
A-49
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Trade payables
Trade payables are non-interest bearing and are normally settled on 30 to 60 days’ term.
Loans from employees/shareholders in FY2007 and FY2008 bear interest rates ranging
from 6% to 8% per annum and are repayable on demand.
Loans from shareholders in FY2009 relates to loan from Vision Top Holdings Ltd, a
shareholder of the Company, for working capital purposes. These loans are interest free
and repayable on demand.
Other payables
Other payables are non-interest bearing and have an average term of six months.
A-50
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Current:
China Construction Bank1 – – 12,000
China Construction Bank2 9,300 9,300 7,200
Non-current:
China Construction Bank2 16,500 7,200 –
Convertible loan3 – – 14,745
1
The short-term bank loan bears interest at CHIBOR + 10% per annum and is
secured by land use rights with carrying amount of approximately Rmb 11,082,000
as at 31 December 2009 (Note 15) and certain buildings with carrying amount of
approximately Rmb 14,289,000 as at 31 December 2009 (Note 13). The maturity
date of the short term bank loan is within twelve months from the financial year end.
2
These long-term loans bear interest at CHIBOR and is secured by certain land use
rights with carrying amount of approximately Rmb 11,564,000, Rmb 11,323,000 and
Rmb 11,082,000 as at 31 December 2007, 2008 and 2009 respectively (Note 15)
and certain buildings with carrying amount of approximately Rmb 16,150,000, Rmb
15,220,000 and Rmb 14,289,000 as at 31 December 2007, 2008 and 2009
respectively (Note 13). These loans are repayable every quarter and will mature in
2010.
3
In connection with the Restructuring Exercise, a Pre-IPO Investor, Vision Top
Holdings Limited (“the Investor”), Existing Shareholders of the Company and the
Company entered into a convertible loan agreement dated 22 December 2009
pursuant to which the investor agreed to advance an aggregate sum of RMB
80,000,000 to the Company. The Loan is intended for use by the Company for the
purposes to fund the Restructuring and for working capital purposes.
A-51
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The terms of the convertible loan shall commence from the drawdown date and
expire on 30 June 2011 (the “Final Maturity” or “IPO Target Date”) or upon
conversion of the Loan Facility.
Compensation costs shall be payable by the Company to the Investor in the following
manner:
(a) In the event that the Company is not successfully listed in Singapore (for
reasons other than the Company’s decision not to apply for an IPO) before
Final Maturity, compensation costs (net of any withholdings, taxes or any
other applicable deductions) at the annual rate of 5.0% per annum;
(b) In event that the Company is granted an Eligibility-To-List letter (the “ETL”)
from SGX for an IPO through a public listing on the SGX-ST but chooses not
to carry out the IPO before the IPO Target Date, or upon the occurrence of a
material breach by any of the Warrantors of any of the terms, conditions,
covenants, warranties, representations or undertakings (including the
occurrence of any Event of Default) under this Agreement, compensation
costs (net of any withholdings, taxes or any other applicable deductions) at
the annual rate of 20.0% per annum on the full principal amount of RMB80
million; and
(c) All compensation costs shall be cumulative and calculated on the basis of
the actual days elapsed and a 365-day year, commencing from the relevant
funding date in respect of each portion of the principal amount disbursed
above up to the repayment date.
Rmb 5,000,000 of the loan shall be automatically converted into Eight Hundred (800)
fully paid new ordinary shares (“New Shares”) of the Company, to be allotted and
issued to the Investor, within five (5) Business Days from the issuance of the written
notice (the “Automatic Conversion Notice”) by the Company to the Investor informing
the Company’s receipt of the Eligibility-to-List (“ETL”) from SGX-ST (the “Automatic
Conversion”). In the event that the ETL has not been received by the IPO Target
Date, the Investor shall have the option (but not the obligation) to nevertheless covert
the Principal Amount into the New Shares and the Company shall allot and issue the
New Shares to the Investor and/or its nominees.
The remaining Rmb 75,000,000 will be used to pay the existing shareholders of
Hunan Anchun as puchase consideration for the IPO investors’ shareholding in the
Group.
A-52
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
As of 31 December 2009, Rmb 15,000,000 of the convertible loan has been drawn
down. No amounts of the convertible loan have been converted to shares or repaid to
the Investor.
The carrying amount of the liability component of the convertible loan at the balance
sheet date is arrived at as follows:
2007 2008 2009
Rmb’000 Rmb’000 Rmb’000
Face value of convertible loan – – 15,000
Fair value of derivative financial
instrument at date of drawdown
(Note 25) – – (34)
Equity component (Note 27) – – (221)
Derivative component of the convertible loan relates to the investors’ right to receive
compensation at the annual rate of 20% per annum in the event that the Company is
granted the Eligibility-to-List from SGX but chooses not to carry out the IPO.
The fair value of the derivative financial instrument as at 31 December 2009 approximates
the value at initial recognition, hence no fair value adjustment is made.
A-53
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
1
On 31 December 2008, the existing shareholders of Hunan Anchun made an
additional capital contribution of Rmb 388,000 and on the same day, dividends
amounting to Rmb 19,312,000 declared to the then existing shareholders of Hunan
Anchun was reinvested into Hunan Anchun.
2
The ordinary shares of the Company have no par value. All issued ordinary shares
are fully paid. The holders of ordinary shares are entitled to receive dividends as
and when declared by the Company. All ordinary shares carry one vote per share
without restrictions.
3
Pursuant to the completion of the Acquisition as disclosed in Note 1.2(c) in 2009,
the share capital of Hunan Anchun is adjusted to merger reserve based on the
“pooling of interest method”.
A-54
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Fair value adjustment reserve represents the cumulative fair value changes, net of tax,
of available-for-sale financial assets until they are disposed of or impaired.
In accordance with the Foreign Enterprise Law applicable to entities in the People’s
Republic of China (PRC), the Company’s PRC subsidiaries are required to make
appropriation to a Statutory Reserve Fund (SRF). At least 10% of the statutory after tax
profits as determined in accordance with the applicable PRC accounting standards and
regulations must be allocated to the SRF until the cumulative total of the SRF reaches
50% of the subsidiary’s registered capital. Subject to approval from the relevant PRC
authorities, the SRF may be used to offset any accumulated losses or increase the
registered capital of the subsidiary. The SRF is not available for dividend distribution to
share holders.
(i) the investors’ right to receive additional shares from existing shareholders in the
event that the Company fails to meet certain pre-determined profit targets for
the financial years ended 31 December 2009 and 31 December 2010; and
(ii) the conversion feature of the convertible loan, which is the residual value after
deducting the fair value of the liability component, embedded derivative
component and the equity component as mentioned in (i) above from the face
value of the convertible loan at inception.
A-55
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The fair value of the 620,000 shares was assessed by an independent valuer by using
the Market Approach to arrive at the fair value of the shares. The Market Approach
includes using Guideline Public Companies Multiples such as price-earnings ratio to
capitalise an estimated future maintainable income. Based on the valuer’s analysis, the
fair value of the 620,000 shares granted was determined to be Rmb 1,725,000.
Accordingly, the aggregate fair value of the shares granted to the 88 new shareholders,
amounting to Rmb 1,725,000 has been recognised in profit or loss for the financial year
ended 31 December 2008.
The following table lists the inputs to the model used for valuation of the shares granted
on 31 December 2008:
28. Dividends
1
Dividends amounting to Rmb 19,312,000 declared to the then existing shareholders of
Hunan Anchun on 31 December 2008 was reinvested into Hunan Anchun on the same
day (Note 26).
A-56
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
For management purposes, the Group is organised into business units based on their
products and services, and has three reportable operating segments as follows:
(iv) Others
This relates to sale of health products by Anchun Biotech which was disposed of in
2009 (Note 12).
Except as indicated above, no operating segments have been aggregated to form the
above reportable operating segments.
Management monitors the operating results of its business units separately for the purpose
of making decisions about resource allocation and performance assessment. Segment
performance is evaluated based on gross profit or loss.
Segment assets and liabilities are not disclosed as they are not regularly provided to the
chief operating decision maker.
Transfer prices between operating segments are on an arm’s length basis in a manner
similar to transactions with third parties.
A-57
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
31 December 2007
Revenue
External
customers 14,001 13,722 87,057 – 114,780
Total
revenue 14,001 13,722 87,057 – 114,780
Results:
Segment
gross profit 8,196 12,040 32,295 – 52,531
Depreciation
of property,
plant and
equipment (2,685)
Amortization
of
intangible
assets (56)
Amortization
of land use
rights (365)
Allowance
for
impairment
of trade
receivables (2,079)
Allowance
for
impairment
of other
receivables (302)
Finance
costs (1,082)
Finance
income 594
Unallocated
expenses,
net (18,697)
Profit before
tax 27,859
A-58
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
31 December 2008
Revenue
External
customers 20,820 7,616 92,543 30 121,009
Total
revenue 20,820 7,616 92,543 30 121,009
Results:
Segment
gross profit 11,036 7,090 38,489 (24) 56,591
Depreciation
of property,
plant and
equipment (6,207)
Amortisation
of
intangible
assets (93)
Amortisation
of land use
rights (365)
Allowance
for
impairment
of trade
receivables (2,406)
Write-back
for
impairment
of other
receivables 15
Finance
costs (2,377)
Finance
income 557
Unallocated
expenses,
net (20,078)
Profit before
tax 25,637
A-59
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
31 December 2009
Revenue
External
customers 19,382 15,883 259,566 10 294,841
Total
revenue 19,382 15,883 259,566 10 294,841
Results:
Segment
gross profit 8,139 13,669 97,016 (22) 118,802
Depreciation
of property,
plant and
equipment (9,765)
Amortisation
of
intangible
assets (124)
Amortisation
of land use
rights (365)
Allowance
for
impairment
of trade
receivables (1,154)
Allowance
for
impairment
of other
receivables (447)
Finance
costs (2,105)
Finance
income 741
Unallocated
expenses,
net (17,280)
Profit before
tax 88,303
A-60
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Geographical information
No geographical information is provided as the principal assets employed by the Group are
located in the PRC and the Group’s revenue and profits are derived primarily from
customers in the PRC.
During the financial year ended 31 December 2009, revenue from the Group’s customers
who accounted for more than 10% of the Group’s sales amounted to Rmb 85,291,000
(2008: Rmb Nil and 2007: Rmb 35,616,000).
30. Commitments
Capital expenditure contracted for as at balance sheet dates but not recognised in the
financial statements is as follows:
The fair value of a financial instrument is the amount at which the instrument could be
exchanged or settled between knowledgeable and willing parties in an arm’s length
transaction, other than in a forced liquidation or sale.
(a) Fair value of financial instruments that are carried at fair value
The Group classifies fair value measurement using a fair value hierarchy that reflects
the significance of the inputs used in making the measurements. The fair value
hierarchy has the following levels:
x Level 2 – Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly (i.e., as prices) or indirectly (i.e.,
derived from prices); and
x Level 3 – Inputs for the assets or liability that are not based on observable market
data (unobservable inputs)
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ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
(a) Fair value of financial instruments that are carried at fair value (cont’d)
The following table shows an analysis of financial instruments carried at fair value by
level of fair value hierarchy:
Quoted equity instruments (Note 17): Fair value is determined directly by reference to
their published market bid prices as the balance sheet date.
Derivative financial instrument (Note 25): Fair value is determined using a valuation
technique based on probability of the Company being granted ETL from SGX but
chooses not to carry out the IPO that is not supportable by observable market data.
(b) Fair value of financial instruments by classes that are not carried at fair value and
whose carrying amounts are a reasonable approximation of fair value
Trade and other receivables (Note 19), cash and cash equivalents (Note 21), trade and
other payables (Note 22) and loans and borrowings (Note 24)
The carrying amounts of these financial assets and liabilities are a reasonable
approximation of fair values, either due to their short term nature or that they are
floating rate instruments that are repriced to market interest rates on or near the
balance sheet date.
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ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The Group is exposed to financial risks arising from its operations and the use of financial
instruments. The key financial risks include interest rate risk, liquidity risk and credit risk.
The management reviews and agrees policies and procedures for the management of
these risks. It is, and has been throughout the years under review, the Group’s policy that
no trading in derivative financial instruments shall be undertaken.
The following sections provide details regarding the Group’s exposure to the above-
mentioned risks and the objectives, policies, and processes for the management of these
risks.
Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial
instruments will fluctuate because of changes in market interest rates. The Group’s
exposure to interest rate risk arises primarily from its floating rate cash at bank balances
and loans and borrowings. The Group obtains additional financing through funding from
shareholders. The Group’s policy is to obtain the most favourable interest rates available.
At the balance sheet date, if RMB interest rates had been 100 basis points lower/higher
with all other variables held constant, the Group’s net of tax would have been Rmb 243,000
(2008: Rmb 237,000 and 2009: Rmb 588,000) lower/higher, arising mainly as a result of
lower/higher interest income on floating rate cash at bank balances. The assumed
movement in basis points for interest rate sensitivity analysis is based on the currently
observable market environment, showing a significantly higher volatility than prior years.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial
obligations due to shortage of funds. The Group’s exposure to liquidity risk arises primarily
from mismatches of the maturities of financial assets and liabilities. The Group’s objective is
to maintain a balance between continuity of funding and flexibility through the use of stand-
by credit facilities.
The Group's objective is to maintain a balance between continuity of funding and flexibility
through the use of bank loans. Approximately 36%, 56% and 57% of the Group’s loans and
borrowings will mature in less than one year based on the carrying amounts reflected in the
financial statements as at 31 December 2007, 2008 and 2009 respectively.
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ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The table below summarises the maturity profile of the Group's financial assets and
liabilities at 31 December 2007, 2008 and 2009 based on contractual undiscounted
repayment obligations.
Financial liabilities
Trade and other payables (27,064) – (27,064)
Advances from customers (171,899) (171,899)
Other liabilities (3,496) – (3,496)
Loans and borrowings (10,784) (17,408) (28,192)
Financial liabilities
Trade and other payables (35,763) – (35,763)
Advances from customers (298,520) (298,520)
Other liabilities (6,223) – (6,223)
Loans and borrowings (10,208) (7,330) (17,538)
A-64
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Financial liabilities
Trade and other payables (69,300) – (69,300)
Advances from customers (160,030) (160,030)
Other liabilities (9,061) – (9,061)
Loans and borrowings (19,371) (16,125) (35,496)
Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a
counterparty default on its obligations. The Group’s exposure to credit risk arises primarily
from trade and other receivables. For other financial assets (including cash and cash
equivalents), the Group minimises credit risk by dealing exclusively with high credit rating
counterparties.
The Group’s objective is to seek continual revenue growth while minimising losses incurred
due to increased credit risk exposure. The Group trades only with recognised and
creditworthy third parties. It is the Group’s policy that all customers who wish to trade on
credit terms are subject to credit verification procedures. In addition, receivable balances
are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is
not significant.
At the balance sheet date, the Group’s maximum exposure to credit risk is represented by
the carrying amount of each class of financial assets recognised on the balance sheets.
The Group operates solely in the chemical equipment manufacturing industry sector.
As at 31 December 2009, 25.8% (2008: 5.7%; 2007: 11.1 %) of trade receivables relate to
five major customers of the Group.
A-65
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
Trade and other receivables that are neither past due nor impaired are creditworthy debtors
with good payment record with the Group. Cash and cash equivalents that are neither past
due nor impaired are placed with or entered into with reputable financial institutions or
companies with high credit ratings and no history of default.
Information regarding financial assets that are either past due or impaired is disclosed in
Note 19 (Trade and other receivables).
The Group’s operations are primarily conducted in the PRC in Rmb. Currently, the PRC
government imposes control over foreign currencies, Rmb, the official currency in the PRC,
is not freely convertible. Enterprises operating in the PRC can enter into exchange
transactions through the People’s Bank of China or other authorised financial institutions.
As at balance sheet date, sensitivity analysis for foreign currency risk is not applicable as
the Group maintains minimal balances in foreign currency and thus has minimal exposure
to foreign currency risk.
The primary objective of the Group’s capital management is to ensure that it maintains a
strong credit rating and healthy capital ratios in order to support its business and maximise
shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may adjust the
dividend payment to shareholders, return capital to shareholders or issue new shares. No
changes were made in the objectives, policies or processes during the years ended 31
December 2007, 2008 and 2009.
As disclosed in Note 27, the Company’s PRC subsidiaries are required by the relevant laws
and regulations of the PRC to contribute to and maintain a non-distributable statutory
reserve fund whose utilisation is subject to approval by the relevant PRC authorities. This
externally imposed capital requirement has been complied with by the subsidiaries for the
financial years ended 31 December 2007, 2008 and 2009.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital
plus net debt. The Group includes within net debt, trade and other payables, advances
from customers, other liabilities and loans and borrowings, less cash and cash equivalents.
Capital consists of equity attributable to equity holders of the Company less the above
mentioned reserve fund.
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ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
The convertible loan granted by the Pre-IPO Investor to the Company shall be converted to
new shares of the Company in specified circumstances as set out in Note 24. Had the
convertible loan been converted to ordinary shares of the Company as at 31 December
2009, the net assets of the Group as at 31 December 2009 would have increased by
Rmb4,779,000.
(i) On 3 May 2010, the Company increased its share capital from Rmb 45,000 to
Rmb240,086 by the allotment of 40,000 ordinary shares in the Company for a cash
consideration of S$40,000. These new shares rank pari passu in all respects with
the existing issued shares of the Company.
(ii) On 2 August 2010, the Company issued the conversion notices (as prescribed
under the Convertible Loan Investment) to Vision Top, China XLX, Go Power,
SkyVen, Naresh Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang,
pursuant to which the Loan was converted into an aggregate of 800 shares in the
capital of the Company. These new shares rank pari passu in all respects with the
existing issued shares of the Company.
A-67
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARIES
(iii) Pursuant to the written shareholders’ resolutions dated 9 September 2010 and 12
October 2010, in lieu of extraordinary general meetings, the shareholders
approved, inter-alia, the following:
(a) the sub-division of each ordinary share in the existing issued share capital
of the Company into 8,000 ordinary shares;
(b) Conversion of the Company into a public limited company and the change
of the name to “Anchun International Holdings Ltd.”;
(d) the issue of 105,000,000 New Shares pursuant to the Invitation which when
fully paid, allotted and issued, will rank pari passu in all respects with the
existing issued Shares (the "Issue of New Shares"); and
(e) that the Directors be authorised to: (i) allot and issue Shares in the
Company (other than the New Shares); and (ii) issue convertible securities
and any Shares in the Company pursuant to the conversion of such
convertible securities (whether by way of rights, bonus or otherwise) at any
time and from time to time thereafter upon such terms and conditions,
whether for cash or otherwise, and for such purposes and to such persons
as the Directors may think fit for the benefit of the Company, provided that
the aggregate number of Shares and convertible securities to be issued
pursuant to such authority shall not exceed 50% of the post-Invitation
issued shares of the Company (excluding treasury shares) and provided
that the aggregate number of Shares to be issued other than on a pro-rata
basis to the then existing shareholders of the Company shall not exceed
20% of the post-Invitation issued share capital of the Company, and, unless
revoked or varied by the Company in general meeting, such authority shall
take effect from the date of listing of the Shares on the SGX-ST and shall
continue to be in force until the conclusion of the next annual general
meeting or the date by which the next annual general meeting is required
by law or by the Articles to be held, whichever is earlier.
For the purposes of this resolution, and pursuant to Rules 806(3) and 806(4)
of the Listing Manual, “post-Invitation issued share capital” shall mean the
enlarge issued and paid-up share capital of the Company after the
completion of the Invitation after adjusting for: (i) new Shares arising from
the conversion or exercise of an convertible securities; (ii) new Shares
arising from the exercise of share options or the vesting of share awards
outstanding or subsisting at the time such authority is given, provided the
options or awards were granted in compliance with the Listing Manual; and
(iii) any subsequent consolidation or sub-division of Shares.
The combined financial statements for the years ended 31 December 2007, 2008 and 2009
were authorised for issue in accordance with a resolution of the directors on 13 October
2010.
A-68
APPENDIX B – UNAUDITED COMBINED FINANCIAL STATEMENTS OF
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARY FOR
THE FINANCIAL PERIOD FROM 1 JANUARY 2010 TO 31 MARCH 2010
Index Page
B-1
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARY
STATEMENT BY DIRECTORS
We, Xie Ding Zhong and Dai Feng Yu, being two of the directors of Anchun International Holdings
Ltd. (the “Company”), do hereby state that, in the opinion of the directors,
(i) the accompanying unaudited combined financial statements together with notes thereto are
drawn up so as to present fairly, in all material respects, the state of affairs of the Group as
at 31 March 2010 and the results of the business, changes in equity and cash flows of the
Group for the period ended on that date, and
(ii) at the date of this statement, there are reasonable grounds to believe that the Company will
be able to pay its debts as and when they fall due.
Dai Feng Yu
Director
13 October 2010
B-2
REPORT FROM THE INDEPENDENT AUDITORS IN RELATION TO THE UNAUDITED
COMBINED FINANCIAL STATEMENTS OF ANCHUN INTERNATIONAL HOLDINGS LTD. AND
ITS SUBSIDIARY FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2010 TO 31 MARCH 2010
13 October 2010
Dear Sirs
Management is responsible for the preparation and fair presentation of these interim financial
statements in accordance with Singapore Financial Reporting Standards FRS 34 Interim Financial
Reporting (“FRS 34”).
Auditors' responsibility
Our responsibility is to express a conclusion on these interim financial statements based on our
review.
Scope of Review
We conducted our review in accordance with Singapore Standard on Review Engagements 2410,
“Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A
review of interim financial information consists of making inquiries, primarily of persons responsible
for financial and accounting matters, and applying analytical and other review procedures. A review
is substantially less in scope than an audit conducted in accordance with Singapore Standards on
Auditing and consequently does not enable us to obtain assurance that we would become aware of
all significant matters that might be identified in an audit. Accordingly, we do not express an audit
opinion.
B-3
REPORT FROM THE INDEPENDENT AUDITORS IN RELATION TO THE UNAUDITED
COMBINED FINANCIAL STATEMENTS OF ANCHUN INTERNATIONAL HOLDINGS LTD. AND
ITS SUBSIDIARY FOR THE FINANCIAL PERIOD FROM 1 JANUARY 2010 TO 31 MARCH 2010
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying interim unaudited combined financial statements of the Group do not present fairly,
in all material respects, the financial position of the Group as at 31 March 2010 and of its results,
changes in equity and cash flows for the three-month period then ended in accordance with FRS
34.
This report has been prepared solely for inclusion in the Prospectus in connection with the
proposed listing of the Company’s shares on the Singapore Exchange Securities Trading Limited.
B-4
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The accompanying accounting policies and explanatory notes form an integral part of the combined
financial statements.
B-5
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Non-current liabilities
Loans and borrowings 24 14,967 14,745
Derivative financial instrument 25 34 34
Deferred tax liabilities 16 257 –
The accompanying accounting policies and explanatory notes form an integral part of the combined
financial statements.
B-6
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Unaudited
Period ended 31 March 2009
Balance at 1 January 2009 32,000 16,215 30,637 78,852
Total comprehensive income for the
period – – 29,656 29,656
Unaudited
Period ended 31 March 2010
Balance at 1 January 2010 45 58,310 48,057 106,412
Total comprehensive income for the
period – – 25,063 25,063
Transfer of retained earnings to share
capital of Hunan Anchun 43,000 – (43,000) –
Adjustment pursuant to Restructuring
Exercise (43,000) 43,000 – –
Balance at 31 March 2010 45 101,310 30,120 131,475
The accompanying accounting policies and explanatory notes form an integral part of the combined
financial statements.
B-7
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Operating activities
Profit before tax 29,166 34,904
Adjustment for:
Depreciation of property, plant and equipment 2,521 2,335
Amortisation of intangible assets 25 34
Amortisation of land use rights 91 91
Allowance for impairment of trade receivables 170 –
Finance costs 346 230
Finance income (222) (18)
B-8
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Investing activities
Purchase of property, plant and equipment A (11,682) (15,079)
Purchase of intangible assets - software (89) (13)
Proceeds from disposal of property, plant and
equipment – 1,200
Financing activities
Proceeds from loans and borrowings – 12,000
Repayment of loans and borrowings (14,325) (2,325)
Dividends paid to the then existing shareholders of
Hunan Anchun (4,800) (1,269)
Loans from shareholders 15,688 –
Repayment of loans from employees – (1,810)
B-9
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The accompanying accounting policies and explanatory notes form an integral part of the combined
financial statements.
B-10
ANCHUN INTERNATIONAL HOLDINGS LTD. AND ITS SUBSIDIARY
1. Corporate information
The Company was incorporated in Singapore on 29 October 2009 under the Companies
Act as a private exempt company limited by shares under the name of Anchun Holdings
Pte Ltd. The Company was incorporated for the purpose of acquiring the existing Hunan
Anchun Advanced Technology Co., Ltd. pursuant to the Group Restructuring Exercise. On
14 September 2010, the Company was converted to a public limited company and changed
its name in connection therewith to Anchun International Holdings Ltd..
The registered office of the Company is at 1 Robinson Road, #17-00 AIA Tower, Singapore
048542 and the principal place of business of the Group is located at No. 539, Lusong
Road, Changsha National Hi-tech Industrial Development Zone, Changsha City, Hunan
Province, PRC 410205.
The principal activity of the Company is that of investment holding. The principal activities
of the subsidiaries are disclosed in Note 12.
The Group was formed through the Restructuring Exercise which involved a series of
acquisitions and the rationalisation of the corporate and shareholding structure for the
purposes of the Invitation. Pursuant to the Restructuring Exercise, the Company became
the holding company of the Group.
On 3 November 2009, the unrelated nominee transferred his entire interest in the
Company to Ace Sense, which is wholly owned by Xie Ming, a US citizen. In
addition, 999 shares were allotted and issued to Sinostate Management (wholly-
owned by Ma Ong Kee, Non-Executive Director), Ace Sense (wholly-owned by Xie
Ming, Non-Executive Director, who is the daughter of Executive Chairman and
CEO, Xie Ding Zhong), Oriental Eagle (wholly-owned by Li Chun Yang, Key
Executive), Dawn Vitality (wholly-owned by Dai Feng Yu, Executive Director),
Inventive Result Enterprises (wholly-owned by Li Bin, Key Executive) and Giant
Yield Global (wholly-owned by Liang Gong Zeng, Executive Director) (collectively,
the “BVI Shareholders”), resulting in the shareholding interests in the Company
being 28.0% held by Sinostate Management, 27.0% held by Ace Sense, 13.0%
held by Oriental Eagle, 10.3% held by Dawn Vitality, 10.3% held by Inventive
Result Enterprises and 11.4% held by Giant Yield Global, respectively.
Pursuant to the Trust Agreements dated 2 November 2009, Li Chun Yang, Dai
Feng Yu, Li Bin and Liang Gong Zeng were appointed as trustees to each of
Oriental Eagle, Dawn Vitality, Inventive Result Enterprises and Giant Yield Global
to hold the shareholding interests in each of the abovementioned BVI companies in
trust for 397 beneficiaries who are existing and past employees of the Group as
well as the related persons of these employees.
B-11
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The Acquisition was carried out on an arm’s length basis, and the purchase
consideration was based on, inter alia, the valuation of approximately RMB78.4
million by an independent valuer Hunan Rongxin Asset Valuation Co., Ltd. on 18
November 2009, which had taken into account, inter alia, the NAV of Hunan
Anchun of approximately RMB82.4 million as at 31 January 2009. The purchase
consideration was fully paid in cash by May 2010. Following the completion of the
Acquisition, Hunan Anchun became a wholly owned subsidiary of the Company.
In respect of the applicability of Article 11 of Provision 10, Haihua Yongtai Law Firm
and Jingtian Gongcheng Attorneys at Law, have opined that, pursuant to the
confirmation letters in respect of the applicable laws and regulations to the
Acquisition issued by the Committee on 9 December 2009 and Department of
Commerce of Hunan Province (the “DCHP”) on 30 December 2009 respectively,
given that the foreign investors, being Ma Ong Kee (a Malaysian Citizen), through
Sinostate Management, and Xie Ming (a US citizen), through Ace Sense,
collectively hold 55% of shareholding interests in the Company, and that the
Company is not set up and controlled by domestic residents, the Company does
not fall within the definition of SPV in Provision 10. Accordingly, the Acquisition
does not require any approvals from the Ministry of Commerce (the “MOC”) or the
China Security and Regulatory Commission (the “CSRC”) pursuant to Provision 10,
and Article 11 of Provision 10 does not apply to the Restructuring Exercise.
On 18 December 2009, the issued and paid-up share capital of the Company was
increased to S$9,200, comprising 9,200 ordinary shares, pursuant to a cash
injection of S$8,200 by the BVI Shareholders and one new BVI company, Vision
Top Holdings Limited, which is currently controlled by Ma Ong Kee (“Vision Top”).
Accordingly, the shareholding proportion in the Company was changed to Vision
Top (6.96%), Sinostate Management (14.78%), Ace Sense (29.35%), Oriental
Eagle (14.13%), Dawn Vitality (11.2%), Inventive Result Enterprises (11.2%) and
Giant Yield Global (12.39%).
B-12
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
(e) Third share subscription in the share capital of the Company and the convertible
loan investment
(i) the BVI Shareholders, Vision Top, Able Gallery, China XLX, Go Power,
SkyVen, Naresh Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang
shall subscribe for an aggregate of 40,000 ordinary shares at S$1.0 per share
in the share capital of the Company;
(ii) Vision Top, China XLX, Go Power, SkyVen, Naresh Nanubhai Desai, Wong
Chao Hsiung and Quek Yiang Hang shall invest RMB80.0 million (the “Loan”)
in the Company through a convertible loan (the “Convertible Loan
Investment”); and
(iii) the Convertible Loan shall be used for the Acquisition as described in
paragraph (c) above, and the balance shall be retained by the Group for
working capital purposes. In addition, the amount paid to the vendors of
Hunan Anchun shall be immediately transferred to Hunan Anchun as a loan.
Conversion
On 2 August 2010, the Company issued the conversion notices (as prescribed
under the Convertible Loan Investment) to Vision Top, China XLX, Go Power,
SkyVen, Naresh Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang,
pursuant to which the Loan was converted into an aggregate of 800 shares in the
capital of the Company, which were allotted and issued to Vision Top (146 shares),
China XLX (218 shares), Go Power (182 shares), SkyVen (144 shares), Naresh
Nanubhai Desai (86 shares), Wong Chao Hsiung (12 shares) and Quek Yiang
Hang (12 shares), respectively (the “Conversion”).
Following the Conversion, the resulting shareholding structure of the Company was
Ace Sense (27.00%), Sinostate Management (6.00%), Vision Top (3.28%), Able
Gallery (4.00%), Oriental Eagle (13.00%), Dawn Vitality (10.3%), Inventive Result
Enterprises (10.3%), Giant Yield Global (11.4%), China XLX (4.90%), Go Power
(4.10%), SkyVen (3.24%), Naresh Nanubhai Desai (1.94%), Wong Chao Hsiung
(0.27%) and Quek Yiang Hang (0.27%).
(1)
Figures do not add to 100% due to rounding.
B-13
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
(e) Third share subscription in the share capital of the Company and the convertible
loan investment (cont’d)
In addition, Go Power currently holds 28.06% interest in China XLX, which also
participated in the Convertible Loan Investment with a direct investment interest of
4.9%. Pursuant to Section 7(4A) of the Act, as Go Power holds not less than 20%
of voting rights in China XLX, Go Power (and Yan Yun Hua) is deemed interested
in China XLX’s 4.9% shareholding interest in the Company. However China XLX is
a company dual-listed in Singapore and Hong Kong with its own self-governing
board of directors and management, and neither Go Power nor Yan Yun Hua holds
a majority interest in China XLX. Accordingly, neither Go Power nor Yan Yun Hua
is considered to have control over China XLX‘s interest in the Company.
Haihua Yongtai Law Firm has advised that since Go Power (and Yan Yun Hua) are
not related to the Company or the existing shareholders of the Company, Article 11
of Provision 10 is not applicable with respect to the interests held and controlled by
Go Power (and Yan Yun Hua) in the share capital of the Company, and the
Company is not deemed to be the SPV as defined in the Articles 39 and 40 of
Provision 10.
Accordingly, following the Restructuring Exercise as described above, save for the
entry of Ace Sense in place of Xie Ding Zhong, and the participation of the Pre-IPO
Investors, the ultimate shareholders of the Company remained substantively the
same as those of Hunan Anchun prior to the Acquisition.
B-14
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
(f) Disposal of Hunan Anchun Biotech Co., Ltd. (“Anchun Biotech”) (cont’d)
The combined financial statements of the Group have been prepared in accordance with
Singapore Financial Reporting Standards (“FRS”).
The financial statements have been prepared on a historical cost basis except as disclosed
in the accounting policies below.
The combined financial statements are presented in Renminbi (“Rmb”). All values are
rounded to the nearest thousand (Rmb’000) except when otherwise indicated.
B-15
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The accounting policies have been consistently applied by the Group and are consistent
with those used in the previous financial year, except for the changes in accounting policies
discussed below.
Standards and interpretations mandatory for annual financial periods beginning on or after
1 January 2010 are as follows:
Adoption of the standards and interpretations above did not have any effect on the
financial performance or position of the Group.
B-16
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The Group has not adopted the following FRS and INT FRS that have been issued but not
yet effective:
The directors expect that the adoption of the above pronouncements will have no material
impact to the financial statements in the period of initial application.
The combined financial statements comprise the financial statements of the Company and
its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries
used in the preparation of the combined financial statements are prepared for the same
reporting date as the Company. Consistent accounting policies are applied for like
transactions and events in similar circumstances.
All intra-group balances, transactions, income and expenses and profits and losses
resulting from intra-group transactions that are recognised in assets are eliminated in full.
The combined financial statements of the Group have been prepared in accordance with
the pooling of interest method as the Group is a continuation of the existing subsidiary’s
business. The assets and liabilities of the Company and its subsidiary are reflected at their
carrying amounts reported in the combined financial statements. Any difference between
the consideration and the share capital of the subsidiary acquired is reflected within equity
as merger reserve. The statement of comprehensive income reflects the results of the
Company and its subsidiary for the entire periods under review.
Consolidation of the subsidiary in the PRC is based on the subsidiary’s financial statements
prepared in accordance with FRS. Profits reflected in the financial statements prepared in
accordance with FRS may differ from those reflected in the PRC statutory financial
statements of the subsidiary, prepared for PRC reporting purposes. In accordance with the
relevant laws and regulations, profits available for distribution by the PRC subsidiary is
based on the amounts stated in the PRC statutory financial statements.
B-17
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The Group’s principal operations are conducted in the PRC. The management has
determined the currency of the primary economic environment in which the Group
operates, i.e. functional currency, to be Renminbi (“Rmb”). Sales prices and major
costs of providing goods and services including major operating expenses are primarily
influenced by fluctuations in Rmb. The functional currency of the Company is Renminbi
(“Rmb”).
All items of property, plant and equipment are initially recorded at cost. The cost of an item
of property, plant and equipment is recognised as an asset if, and only if, it is probable that
future economic benefits associated with the item will flow to the Group and the cost of the
item can be measured reliably.
Subsequent to recognition, property, plant and equipment are stated at cost less
accumulated depreciation and any accumulated impairment losses. When significant parts
of property, plant and equipment are required to be placed in intervals, the Group
recognises such parts as individual assets with specific useful lives and depreciation,
respectively. Likewise, when a major inspection is performed, its cost is recognised in the
carrying amount of the plant and equipment as a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs are recognised in the profit or loss as
incurred.
Depreciation of an asset begins when it is available for use and is computed on a straight-
line basis to write off the cost of property, plant and equipment over the estimated useful
life of the assets as follows:
Years
Buildings 20
Plant and machinery 3 - 10
Office equipment and furniture 5
Motor vehicles 5
Assets under construction relates to buildings and plant and machinery which are
depreciated only when they become available for use.
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ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The carrying values of property, plant and equipment are reviewed for impairment when
events or changes in circumstances indicate that the carrying values may not be
recoverable.
The residual value, useful life and depreciation method are reviewed at each financial year-
end, and adjusted prospectively, if appropriate.
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset is included in profit or loss in the year the asset is derecognised.
Intangible assets acquired separately are measured initially at cost. The cost of intangible
assets acquired in a business combination is their fair values as at the date of acquisition.
Following initial recognition, intangible assets are measured at cost less any accumulated
amortisation and any accumulated impairment losses.
Intangible assets with finite useful lives are amortised on a straight-line basis over their
estimated useful lives and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortisation period and the amortisation method are
reviewed at least at each financial year-end. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset is
accounted for by changing the amortisation period or method, as appropriate, and are
treated as changes in accounting estimates. The amortisation expense on intangible assets
with finite lives is recognised in profit or loss in the expense category consistent with the
function of the intangible asset.
Intangible assets with indefinite useful lives or not yet available for use are tested for
impairment annually, or more frequently if events and circumstances indicate that the
carrying value may be impaired either individually or at the cash-generating unit level. Such
intangible assets are not amortised. The useful life of an intangible asset with an indefinite
useful life is reviewed annually to determine whether the useful life assessment continues
to be supportable. If not, the change in useful life from indefinite to finite is made on a
prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the
difference between the net disposal proceeds and the carrying amount of the asset and are
recognised in profit or loss when the asset is derecognised.
Computer software
Computer software is measured at cost less accumulated amortisation and any impairment
loss. It is amortised on a straight-line basis over its estimated useful life of 3 years.
Land use rights are initially measured at cost. Following initial recognition, land use rights
are measured at cost less accumulated amortisation and accumulated impairment losses.
The land use rights are amortised over the lease term of 50 years.
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ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The Group assesses at each reporting date whether there is an indication that an asset
may be impaired. If any such indication exists, or when annual impairment assessment for
an asset is required, the Group makes an estimate of the asset’s recoverable amount.
Impairment losses are recognised in profit or loss except for assets that are previously
revalued where the revaluation was taken to other comprehensive income. In this case the
impairment is also recognised in other comprehensive income up to the amount of any
previous revaluation.
An assessment is made at each reporting date as to whether there is any indication that
previously recognised impairment losses may no longer exist or may have decreased. A
previously recognised impairment loss is reversed only if there has been a change in the
estimates used to determine the asset’s recoverable amount since the last impairment loss
was recognised. If that is the case, the carrying amount of the asset is increased to its
recoverable amount. That increase cannot exceed the carrying amount that would have
been determined, net of depreciation, had no impairment loss been recognised previously.
Such reversal is recognised in profit and loss unless the asset is measured at revalued
amount, in which case the reversal is treated as a revaluation increase.
2.10 Subsidiaries
A subsidiary is an entity over which the Group has the power to govern the financial and
operating policies so as to obtain benefits from its activities.
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ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
(i) controls is controlled by, or is under common control with, the entity (this includes
parents, subsidiaries and fellow subsidiaries);
(ii) has an interest in the entity that gives it significant influence over the entity; or
(b) the party is an associate (as defined in FRS 28 Investments in Associates) of the
entity;
(c) the party is a joint venture in which the entity is a venturer (see FRS 31 Interests in
Joint Ventures);
(d) the party is a member of the key management personnel of the entity or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d);
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by,
or for which significant voting power in such entity resides with, directly or indirectly,
any individual referred to in (d) or (e); or
(g) the party is a post-employment benefit plan for the benefit of employees of the entity,
or of any entity that is a related party of the entity.
Financial assets are recognised on the balance sheet when, and only when, the Group
becomes a party to the contractual provisions of the financial instrument.
When financial assets are recognised initially, they are measured at fair value, plus, in the
case of financial assets not at fair value through profit or loss, directly attributable
transaction costs.
A financial asset is derecognised where the contractual right to receive cash flows from the
asset has expired. On derecognition of a financial asset in its entirety, the difference
between the carrying amount and the sum of the consideration received and any
cumulative gain or loss that has been recognised directly in other comprehensive income is
recognised in profit or loss.
All regular way purchases and sales of financial assets are recognised or derecognised on
the trade date i.e. the date that the Group commits to purchase or sell the asset. Regular
way purchases or sales are purchases or sales of financial assets that require delivery of
assets within the period generally established by regulation or convention in the
marketplace concerned.
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ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Financial assets with fixed or determinable payments that are not quoted in an active
market are classified as loans and receivables. Subsequent to initial recognition, loans and
receivables are measured at amortised cost using the effective interest method. Gains and
losses are recognised in profit or loss when the loans and receivables are derecognised or
impaired, and through the amortisation process.
Available-for-sale financial assets are financial assets that are not classified in any of the
other categories. After initial recognition, available-for-sale financial assets are measured at
fair value. Any gains or losses from changes in fair value of the financial asset are
recognised in other comprehensive income, except that impairment losses, foreign
exchange gains and losses on monetary instruments and interest calculated using the
effective method are recognised in profit or loss. The cumulative gain or loss previously
recognised in other comprehensive income is reclassified from equity to profit or loss as a
reclassification adjustment when the financial asset is derecognised.
Investments in equity instruments whose fair value cannot be reliably measured are
measured at cost less impairment loss.
The Group assesses at each balance sheet date whether there is any objective evidence
that a financial asset or group of financial assets is impaired.
When the asset becomes uncollectible, the carrying amount of impaired financial
assets is reduced directly or if an amount was charged to the allowance account,
the amounts charged to the allowance account are written off against the carrying
value of the financial asset.
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ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
If in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is reversed to the extent
that the carrying amount of the asset does not exceed its amortised cost at the
reversal date. The amount of reversal is recognised in profit or loss.
Cash and cash equivalents comprise cash and bank balances and bank deposits. Cash
equivalents are short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
2.15 Inventories
Inventories are valued at the lower of cost and net realisable value. Costs incurred in
bringing each product to its present location and condition are accounted for as follows:
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ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
When necessary, allowance is provided for damaged, obsolete and slow-moving items to
adjust for the carrying amount of inventories to the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs necessary to make the sale.
2.16 Provisions
Provisions are recognised when the Group has a present obligation as a result of a past
event, it is probable that an outflow of economic resources will be required to settle the
obligation and the amount of the obligation can be estimated reliably.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best
estimate. If it is no longer probable that an outflow of economic resources will be required
to settle the obligation, the provision is reversed. If the effect of the time value of money is
material, provisions are discounted using a current pre tax rate that reflects, where
appropriate, the risks specific to the liability. When discounting is used, the increase in the
provision due to the passage of time is recognised as a finance cost.
Financial liabilities within the scope of FRS 39 are recognised on the balance sheet when,
and only when, the Group becomes a party to the contractual provisions of the financial
instrument.
Financial liabilities are recognised initially at fair value, plus, in the case of financial
liabilities other than derivatives, directly attributable transaction costs.
Subsequent to initial recognition, derivatives are measured at fair value. Other financial
liabilities (except for financial guarantees) are measured at amortised cost using the
effective interest method.
For financial liabilities other than derivatives, gains and losses are recognised in profit or
loss when the liabilities are derecognised, and through the amortisation process. Any gains
or losses arising from changes in fair value of derivatives are recognised in the income
statement. Net gains or losses on derivatives include exchange differences.
A financial liability is derecognised when the obligation under the liability is extinguished.
When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified,
such an exchange or modification is treated as a derecognition of the original liability and
the recognition of a new liability, and the difference in the respective carrying amounts is
recognised in profit or loss.
B-24
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly
attributable to the acquisition, construction or production of that asset. Capitalisation of
borrowing costs commences when the activities to prepare the asset for its intended use or
sale are in progress and the expenditures and borrowing costs are incurred. Borrowing
costs are capitalised until the assets are substantially completed for their intended use or
sale.
When convertible loans are issued, the liability component and the equity component are
separately presented on the balance sheet. On initial recognition, the embedded derivative
component of the convertible loan is measured at its fair value and presented as part of
derivative financial instruments. The loan component is recognised at its fair value
determined using a market interest rate for equivalent non-convertible bonds. The carrying
amount of the equity instrument represented by the option to convert the instrument into
ordinary shares is determined by deducting the fair value of the financial liability (including
the embedded derivative) from the fair value of the compound financial instrument as a
whole.
The derivative is subsequently measured at fair value through profit or loss and the loan is
subsequently measured at amortised cost using the effective interest method. The equity
component is not remeasured subsequently.
Grant income is received from the local PRC government at a discretionary amount as
determined by the government. It is recognised at its fair value where there is reasonable
assurance that the grant will be received and all attaching conditions will be complied with.
When the grant relates to an expense item, it is recognised in profit or loss over the period
necessary to match it on a systematic basis to the costs that it is intended to compensate.
When the grant relates to an asset, the fair value is recognised as deferred grant income
on the balance sheet and is amortised to profit or loss over the expected useful life of the
relevant asset by equal annual instalments.
B-25
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The Group participates in the national pension schemes as defined by the laws of the
countries in which it has operations.
The subsidiaries in the PRC are required to provide certain staff pension benefits to
their employees under existing PRC regulations. Pension contributions are provided at
rates stipulated by PRC regulations and are contributed to a pension fund managed by
government agencies, which are responsible for administering these amounts for the
subsidiaries’ employees.
Pension contributions are recognised as an expense in the period in which the related
services are performed.
The grant date is the date of distribution of the shares to the 88 new shareholders. A
valuation exercise was carried out to estimate what the price of those shares would
have been on the measurement date in an arm’s length transaction between
knowledgeable, willing parties. The valuation technique shall be consistent with
generally accepted valuation methodologies for pricing financial instruments, and shall
incorporate all factors and assumptions that knowledgeable, willing market participants
would consider in setting the price. There is no vesting period as the shares are issued
on grant date. The amount of employee expense to be recognised in profit or loss is
computed using the grant date fair value and the number of shares vested, with a
corresponding increase in equity.
2.23 Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow
to the Group and the revenue can be reliably measured. Revenue is measured at the fair
value of consideration received or receivable.
Revenue from sale of goods is recognised upon the transfer of significant risk and
rewards of ownership of the goods to the customers. Revenue is not recognised to
the extent where there are significant uncertainties regarding recovery of the
consideration due, associated costs or the possible return of goods. Retention
sum, representing 5% of the total contract amount, which will be payable upon the
maturity of defects liability period of 12 months, is recognised as revenue at the
end of the retention period.
B-26
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Current tax assets and liabilities for the current and prior periods are measured at
the amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted by the balance sheet date.
Current taxes are recognised in profit or loss except to the extent that the tax
relates to items recognised outside profit or loss, in which case it is recognised in
other comprehensive income or directly in equity.
Deferred income tax is provided using the liability method on temporary differences
at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all temporary differences, except:
– where the deferred income tax liability arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither accounting
profit nor taxable profit or loss; and
B-27
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Deferred income tax assets are recognised for all deductible temporary differences,
carry forward of unused tax credits and unused tax losses, to the extent that it is
probable that taxable profit will be available against which the deductible temporary
differences, and the carry forward of unused tax credits and unused tax losses can
be utilised except:
– where the deferred income tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the
transaction, affects neither accounting profit nor taxable profit or loss; and
The carrying amount of deferred tax asset is reviewed at each balance sheet date
and reduced to the extent that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are reassessed at each balance sheet date and
are recognised to the extent that it has become probable that future taxable profit
will allow the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected
to apply to the year when the asset is realised or the liability is settled, based on
tax rates and tax laws that have been enacted or substantively enacted at the
balance sheet date.
Deferred income tax relating to items recognised outside profit and loss is
recognised outside profit and loss. Deferred tax items are recognised in correlation
to the underlying transaction either in other comprehensive income or directly in
equity and deferred tax arising from a business combination is adjusted against
goodwill on acquisition.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally
enforceable right exists to set off current tax assets against current income tax
liabilities and the deferred income taxes relate to the same taxable entity and the
same taxation authority.
B-28
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The Group’s sales of goods in the PRC are subjected to VAT at the applicable tax
rate of 17% for PRC domestic sales.
Revenues, expenses and assets are recognised net of the amount of VAT except:
▪ Receivables and payables that are stated with the amount of VAT included.
The net amount of VAT recoverable from, or payable to, the taxation authority is
included as part of trade and other receivables or trade and other payables on the
balance sheet.
Proceeds from issuance of ordinary shares are recognised as share capital in equity.
Incremental costs directly attributable to the issuance of ordinary shares are deducted
against share capital.
For management purposes, the Group is organised into operating segments based on their
products and services which are independently managed by the respective segment
managers responsible for the performance of the respective segments under their charge.
The segment managers report directly to the management of the Company who regularly
review the segment results in order to allocate resources to the segments and to assess
the segment performance. Additional disclosures on each of these segments are shown in
Note 28, including the factors used to identify the reportable segments and the
measurement basis of segment information.
2.27 Contingencies
A contingent liability or asset is a possible obligation or asset that arises from past events
and whose existence will be confirmed only by the occurrence or non-occurrence of
uncertain future event(s) not wholly within the control of the Group.
Contingent liabilities and assets are not recognised on the balance sheet of the Group.
B-29
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
In the process of applying the Group’s accounting policies, management has made the
following judgements, apart from those involving estimations, which has the most
significant effect on the amounts recognised in the financial statements:
Where the fair values of financial instruments recorded on the balance sheet
cannot be derived from active markets, they are determined using a variety of
valuation techniques that include the use of valuation models. The inputs to these
models are derived from observable market data where possible, but where
observable market data are not available, judgement is required to establish fair
values. The judgements include considerations of liquidity and model inputs
regarding the future financial performance of the investee, its risk profile, and
economic assumptions regarding the industry and geographical jurisdiction in
which the investee operates. The valuation of financial instruments is described in
more detail in Note 30.
The key assumptions concerning the future and other key sources of estimation uncertainty
at the balance sheet date, that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year are discussed
below.
The cost of plant and machinery is depreciated on a straight-line basis over the
estimated useful life of the assets. Management estimates the useful life of the
plant and machinery to be 3 to 10 years. This is a common life expectancy applied
in the manufacturing industry. The carrying amount of the Group’s plant and
machinery as at 31 March 2010 was Rmb 45,499,000 (31 December 2009: Rmb
45,573,000).
B-30
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The Group assesses at each balance sheet date whether there is any objective
evidence that a financial asset is impaired. To determine whether there is objective
evidence of impairment, the Group considers factors such as the probability of
insolvency or significant financial difficulties of the debtor and default or significant
delay in payments.
When there is objective evidence of impairment, the amount and timing of future
cash flows are estimated based on historical loss experience for assets with similar
credit risk characteristics. The carrying amount of the Group’s loans and
receivables at balance sheet date is disclosed in Note 19 to the financial
statements.
The Group assesses whether there are any indicators of impairment for all non-
financial assets at each reporting date. Goodwill is tested for impairment annually
and at other times when such indicators exist. Other non-financial assets are tested
for impairment when there are indicators that the carrying amounts may not be
recoverable.
When value in use calculations are undertaken, management must estimate the
expected future cash flows from the asset or cash-generating unit and choose a
suitable discount rate in order to calculate the present value of those cash flows.
4. Revenue
67,295 104,445
B-31
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
325 21
The following items have been included in arriving at profit before tax:
B-32
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
271 116
4,396 6,850
9. Financial costs
346 230
B-33
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The major components of income tax expense for the three-month period ended 31 March
2010 are:
A reconciliation between tax expense and the product of profit before tax multiplied by the
applicable tax rate for the three-month period ended 31 March 2010 is as follows:
The Company is incorporated in Singapore and is subjected to a tax rate of 17% for the
financial period ended 31 March 2010. It has no taxable income for the financial period.
B-34
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
According to the Enterprise Income Tax Law of the PRC, promulgated by the State Council
and the Administrative Measure for Determination of High and New Technology
Enterprises, issued by the Ministry of Science and Technology, Finance and State
Administration of Tax and effective on 1 January 2008, High and New Technology
Enterprises that require key state support are subject to the applicable enterprise income
tax rate of 15%.
According to regulations on the Tax Policy for the National New and High Technology
Industries Parks, promulgated by the State Administration of Taxation and effective on 6
March 1991, Article 4, the ratified High and New Technology Enterprises in the New and
High Technology Industries Parks approved by the State Council can be levied at a
reduced rate of 15% income tax from the date of their ratification.
Given that Hunan Anchun has received the certificate of High and New Technology
Enterprise since 2007, it enjoys the preferential income tax rate of 15% from 1 January
2007 to 31 December 2012.
Anchun Biotech has no taxable income during the financial period ended 31 March 2009.
Basic and diluted earnings per share is calculated by dividing the Group’s net profit
attributable to ordinary equity holders for the financial period by the pre-Invitation share
capital of 400,000,000 ordinary shares which were assumed to be in issue throughout the
entire financial periods presented.
B-35
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The Company has the following subsidiary as at 31 March 2010 and 31 December 2009:
31 March 31 December
2010 2009
% %
Held by the Company:
(1)
Audited by Hunan Zhengyang Certified Public Accountants Co., Ltd for PRC statutory
reporting purpose.
B-36
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Office
equipment
Plant and and Motor Construction
Buildings machinery furniture vehicles -in- progress Total
Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000
31 March 2010
Cost
At the beginning of
the period 71,523 58,481 2,100 2,818 4,204 139,126
Additions – 1,135 136 313 3,303 4,887
Accumulated
depreciation
At the beginning of
the period (9,219) (12,908) (650) (1,496) – (24,273)
Depreciation charge
for the period (849) (1,209) (131) (332) – (2,521)
Net carrying
amount
At the end of the
period 61,455 45,499 1,455 1,303 7,507 117,219
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ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Office
equipment
Plant and and Motor Construction-
Buildings machinery furniture vehicles in- progress Total
Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000
31 December 2009
Cost
At the beginning of
the year 71,364 49,699 1,919 2,575 310 125,867
Disposal of
subsidiary – (305) (5) – – (310)
Additions 33 6,122 186 243 7,155 13,739
Disposals – (170) – – – (170)
Reclassification 126 3,135 – – (3,261) –
Accumulated
depreciation
At the beginning of
the year (5,828) (7,522) (275) (1,100) – (14,725)
Disposal of
subsidiary – 47 1 – – 48
Depreciation charge
for the year (3,391) (5,602) (376) (396) – (9,765)
Disposals – 169 – – – 169
Net carrying
amount
At the end of the
year 62,304 45,573 1,450 1,322 4,204 114,853
As at 31 March 2010, certain buildings with a total net book value of Rmb 14,056,000 (31
December 2009: Rmb 14,289,000) have been mortgaged to China Construction Bank to
secure banking facilities (Note 24).
B-38
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Rmb’000
Cost
At 1 January 2008 426
Additions 41
Accumulated amortisation
At 1 January 2008 (200)
Amortisation charge for the year (124)
Intangible assets pertain to computer software purchased from vendors. The amortisation
of intangible asset is included in the “Administrative expenses” line item in the statement of
comprehensive income.
B-39
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Rmb’000
Cost
At 1 January 2008 18,271
Additions –
Accumulated amortisation
At 1 January 2008 (1,274)
Amortisation charge for the year (365)
31 March 31 December
2010 2009
Amount to be amortised:
- Not later than one year 365 365
- Later than one year but not later than five years 1,461 1,461
- Later than five years 14,715 14,806
The Group has land use rights over three plots of state-owned land in the People’s
Republic of China (PRC) where the Group’s PRC manufacturing and storage facilities
reside. As at 31 March 2010 and 31 December 2009, the remaining amortisation periods
for land use rights are 43.75 years and 44 years respectively.
As at 31 March 2010, certain land use rights with net carrying amounts of Rmb 11,022,000,
(31 December 2009: Rmb 11,082,000) have been mortgaged to China Construction Bank
to secure banking facilities (Note 24).
B-40
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
Rmb’000
1
On 22 February 2008, the State Administration of Taxation of China issued a circular
Caishui [2008] No.001, which imposes withholding tax on distribution of dividends from
post 1 January 2008 profits to foreign investors. Accordingly, no deferred tax liabilities
arise from undistributed profits of the Company’s PRC subsidiaries accumulated up till 31
December 2007. Provision for deferred tax liabilities however, would be required on
profits accumulated from 1 January 2008 onwards.
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
Non-current:
Available-for-sale financial assets
- Equity instruments (quoted) 933 933
B-41
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
18. Inventories
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
Balance sheet:
Raw materials, at cost 21,291 18,591
Work-in-progress, at cost 47,119 28,056
Finished goods, at cost 30,191 49,184
During the financial period ended 31 March 2010 and financial year ended 31 December
2009, there has been no inventory written off or allowance for inventory obsolescence.
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
63,886 47,355
Add:
Cash and cash equivalents (Note 21) 79,853 88,410
Trade receivables
Trade receivables are non-interest bearing and are normally settled on 90 to 180 days’
terms. They are recognised at their original invoiced amounts which represent their fair
values on initial recognition.
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ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
As at 31 March 2010, the Group has trade receivables amounting to Rmb 6,634,000 (31
December 2009: Rmb 2,533,000) that were past due but not impaired. These trade
receivables are unsecured and the analysis of their aging at the balance sheet date is as
follows:
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
6,634 2,533
The Group’s trade receivables that are impaired at the balance sheet date and the
movement of the allowance accounts used to record the impairment are as follows:
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
– –
Trade receivables that are individually determined to be impaired at the balance sheet date
relate to debtors that are in significant financial difficulties and have defaulted on payments.
These receivables are not secured by any collateral or credit enhancements.
Bills receivables
Bills receivables are interest-free and have maturity periods of approximately 90 days.
B-43
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Amount due from shareholders relates to the sale consideration of Anchun Biotech which
has not been received as at 31 March 2010.
Amount due from pre-IPO investors relates to payment to the then existing shareholders of
Hunan Anchun on behalf of pre-IPO investors which was funded from the proceeds of the
convertible loan (Note 24). This is for partial purchase consideration payable by the pre-
IPO investors to the then existing shareholders of Hunan Anchun for their shareholdings in
the Group. The amount is interest-free, and repayable on demand.
Amount due from director-related company relates to operating expenses paid on behalf of
Anchun Biotech by Hunan Anchun.
20. Prepayments
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
Non-current
Prepayments relating to acquisition of
property, plant and equipment 11,123 6,131
Current
Prepayments to trade suppliers 10,041 7,317
Prepaid operating expenses 5,035 3,787
Prepaid listing expenses 1,868 457
Less: Allowance for impairment (768) (768)
16,176 10,793
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
B-44
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Cash and cash equivalents comprises cash at banks which earns interest at floating rates
based on daily bank deposit rates.
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
87,980 69,300
Add:
Other liabilities (Note 23) 3,679 9,061
Loans and borrowings (Note 24) 19,842 33,945
Advances from customers 155,558 160,030
Trade payables
Trade payables are non-interest bearing and are normally settled on 30 to 60 days’ term.
Loans from shareholders amounting to Rmb 2,011,000 (31 December 2009: Rmb 798,000)
relate to loan from Vision Top Holdings Limited, a shareholder of the Company for working
capital purposes. These loans are interest free and repayable on demand.
B-45
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Other payables
Other payables are non-interest bearing and have an average term of six months.
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
3,679 9,061
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
Current:
China Construction Bank1 – 12,000
China Construction Bank2 4,875 7,200
4,875 19,200
Non-current:
Convertible loan3 14,967 14,745
14,967 14,745
1
The short-term bank loan bears interest at CHIBOR + 10% per annum and is
secured by land use rights with carrying amount of approximately Rmb 11,082,000
as at 31 December 2009 (Note 15) and certain buildings with carrying amount of
approximately Rmb 14,289,000 as at 31 December 2009 (Note 13). It had been fully
repaid as at 31 March 2010.
2
This term loan bears interest at CHIBOR and is secured by certain land use rights
with carrying amount of approximately Rmb 11,022,000 and Rmb 11,082,000 as at
31 March 2010 and 31 December 2009 respectively (Note 15) and certain buildings
with carrying amount of approximately Rmb 14,056,000 and Rmb 14,289,000 as at
31 March 2010 and 31 December 2009 respectively (Note 13). This loan is repayable
every quarter and will mature in August 2010.
B-46
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The terms of the convertible loan shall commence from the drawdown date and
expire on 30 June 2011 (the “Final Maturity” or “IPO Target Date”) or upon
conversion of the Loan Facility.
Compensation costs shall be payable by the Company to the Investor in the following
manner:
(a) In the event that the Company is not successfully listed in Singapore (for reasons
other than the Company’s decision not to apply for an IPO) before Final Maturity,
compensation costs (net of any withholdings, taxes or any other applicable
deductions) at the annual rate of 5.0% per annum;
(b) In event that the Company is granted an Eligibility-To-List letter (the “ETL”) from
SGX for an IPO through a public listing on the SGX-ST but chooses not to carry
out the IPO before the IPO Target Date, or upon the occurrence of a material
breach by any of the Warrantors of any of the terms, conditions, covenants,
warranties, representations or undertakings (including the occurrence of any
Event of Default) under this Agreement, compensation costs (net of any
withholdings, taxes or any other applicable deductions) at the annual rate of 20%
per annum on the full principal amount of RMB 80,000,000; and
(c) All compensation costs shall be cumulative and calculated on the basis of the
actual days elapsed and a 365-day year, commencing from the relevant funding
date in respect of each portion of the principal amount disbursed above up to the
repayment date.
Rmb 5,000,000 of the loan shall be automatically converted into Eight Hundred (800)
fully paid new ordinary shares (“New Shares”) of the Company, to be allotted and
issued to the Investor, within five (5) Business Days from the issuance of the written
notice (the “Automatic Conversion Notice”) by the Company to the Investor informing
the Company’s receipt of the Eligibility-to-List (“ETL”) from SGX-ST (the “Automatic
Conversion”). In the event that the ETL has not been received by the IPO Target
Date, the Investor shall have the option (but not the obligation) to nevertheless covert
the Principal Amount into the New Shares and the Company shall allot and issue the
New Shares to the Investor and/or its nominees.
The remaining Rmb 75,000,000 will be used to pay the existing shareholders of
Hunan Anchun as puchase consideration for the IPO investors’ shareholding in the
Group.
As of 31 March 2010, Rmb 15,000,000 of the convertible loan has been drawn down.
No amounts of the convertible loan have been converted to shares or repaid to the
Investors.
B-47
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The carrying amount of the liability component of the convertible loan at the balance
sheet date is arrived at as follows:
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
Derivative component of the convertible loan relates to the investors’ right to receive
compensation at the annual rate of 20% per annum in the event that the Company is
granted the Eligibility-to-List from SGX but chooses not to carry out the IPO.
The fair value of the derivative financial instrument as at 31 March 2010 and 31 December
2009 approximates the value at initial recognition, hence no fair value adjustment is made.
B-48
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
1
During the three-months ended 31 March 2010, Hunan Anchun increased its share
capital by capitalising retained earnings amounting to Rmb 43,000,000.
2
The ordinary shares of the Company have no par value. All issued ordinary shares
are fully paid. The holders of ordinary shares are entitled to receive dividends as
and when declared by the Company. All ordinary shares carry one vote per share
without restrictions.
3
Pursuant to the completion of the Acquisition as disclosed in Note 1.2(c) in 2009,
the share capital of Hunan Anchun is adjusted to merger reserve based on the
“pooling of interest method”.
B-49
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
101,310 58,310
Fair value adjustment reserve represents the cumulative fair value changes, net of
tax, of available-for-sale financial assets until they are disposed of or impaired.
In accordance with the Foreign Enterprise Law applicable to entities in the People’s
Republic of China (PRC), the Company’s PRC subsidiary is required to make
appropriation to a Statutory Reserve Fund (SRF). At least 10% of the statutory
after tax profits as determined in accordance with the applicable PRC accounting
standards and regulations must be allocated to the SRF until the cumulative total of
the SRF reaches 50% of the subsidiary’s registered capital. Subject to approval
from the relevant PRC authorities, the SRF may be used to offset any accumulated
losses or increase the registered capital of the subsidiary. The SRF is not available
for dividend distribution to shareholders.
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
(i) the investors’ right to receive additional shares from existing shareholders in
the event that the Company fails to meet certain pre-determined profit targets
for the financial years ended 31 December 2009 and 31 December 2010; and
(ii) the conversion feature of the convertible loan, which is the residual value after
deducting the fair value of the liability component, embedded derivative
component and the equity component as mentioned in (i) above from the face
value of the convertible loan at inception.
B-50
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The fair value of the 620,000 shares was assessed by an independent valuer by
using the Market Approach to arrive at the fair value of the shares. The Market
Approach includes using Guideline Public Companies Multiples such as price-
earnings ratio to capitalise an estimated future maintainable income. Based on the
valuer’s analysis, the fair value of the 620,000 shares granted was determined to be
Rmb 1,725,000. Accordingly, the aggregate fair value of the shares granted to the 88
new shareholders, amounting to Rmb 1,725,000 has been recognised in profit or
loss for the financial year ended 31 December 2008.
The following table lists the inputs to the model used for valuation of the shares
granted on 31 December 2008:
B-51
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
For management purposes, the Group is organised into business units based on their
products and services, and has three reportable operating segments as follows:
Except as indicated above, no operating segments have been aggregated to form the
above reportable operating segments.
Management monitors the operating results of its business units separately for the purpose
of making decisions about resource allocation and performance assessment. Segment
performance is evaluated based on operating profit or loss.
Segment assets and liabilities are not disclosed as they are not regularly provided to the
chief operating decision maker.
Transfer prices between operating segments are on an arm’s length basis in a manner
similar to transactions with third parties.
B-52
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Unaudited
Revenue
External customers 3,870 8,148 55,277 67,295
Results:
Segment gross profit 2,200 7,213 31,333 40,746
Depreciation of property,
plant and equipment (2,521)
Amortisation of intangible
assets (25)
Amortisation of land use
rights (91)
Allowance for impairment of
trade receivables (170)
Finance costs (346)
Finance income 222
Unallocated expenses, net (8,649)
Profit before tax 29,166
Revenue
External customers 6,663 1,480 96,302 104,445
Results:
Segment gross profit 2,467 1,253 36,690 40,410
Depreciation of property,
plant and equipment (2,335)
Amortisation of intangible
assets (34)
Amortisation of land use
rights (91)
Finance costs (230)
Finance income 18
Unallocated expenses, net (2,834)
Profit before tax 34,904
B-53
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Geographical information
No geographical information is provided as the principal assets employed by the Group are
located in the PRC and the Group’s revenue and profits are derived primarily from
customers in the PRC.
29. Commitments
Capital expenditure contracted for as at balance sheet dates but not recognised in the
financial statements is as follows:
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
11,668 11,504
The fair value of a financial instrument is the amount at which the instrument could be
exchanged or settled between knowledgeable and willing parties in an arm’s length
transaction, other than in a forced liquidation or sale.
(a) Fair value of financial instruments that are carried at fair value
The Group classifies fair value measurement using a fair value hierarchy that
reflects the significance of the inputs used in making the measurements. The fair
value hierarchy has the following levels:
- Level 2 – Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and
- Level 3 – Inputs for the assets or liability that are not based on observable
market data (unobservable inputs)
B-54
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
(a) Fair value of financial instruments that are carried at fair value (cont’d)
The following table shows an analysis of financial instruments carried at fair value
by level of fair value hierarchy:
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
Quoted prices in active markets
for identical investments
(Level 1)
Financial assets:
Available-for-sale financial assets
(Note 17)
- Investment securities 933 933
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
Significant unobservable inputs
(Level 3)
Financial liabilities:
Derivative financial instrument (Note
25) 34 34
Quoted equity instruments (Note 17): Fair value is determined directly by reference
to their published market bid prices as the balance sheet date.
Derivative financial instrument (Note 25): Fair value is determined using a valuation
technique based on probability of the Company being granted ETL from SGX but
chooses not to carry out the IPO that is not supportable by observable market data.
(b) Fair value of financial instruments by classes that are not carried at fair value and
whose carrying amounts are a reasonable approximation of fair value
Trade and other receivables (Note 19), cash and cash equivalents (Note 21), trade
and other payables (Note 22) and loans and borrowings (Note 24)
The carrying amounts of these financial assets and liabilities are a reasonable
approximation of fair values, either due to their short term nature or that they are
floating rate instruments that are repriced to market interest rates on or near the
balance sheet date.
B-55
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The Group is exposed to financial risks arising from its operations and the use of financial
instruments. The key financial risks include interest rate risk, liquidity risk and credit risk.
The management reviews and agrees policies and procedures for the management of
these risks. It is, and has been throughout the years under review, the Group’s policy that
no trading in derivative financial instruments shall be undertaken.
The following sections provide details regarding the Group’s exposure to the above-
mentioned risks and the objectives, policies, and processes for the management of these
risks.
Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial
instruments will fluctuate because of changes in market interest rates. The Group’s
exposure to interest rate risk arises primarily from its floating rate cash at bank balances
and loans and borrowings. The Group obtains additional financing through funding from
shareholders. The Group’s policy is to obtain the most favourable interest rates available.
At the balance sheet date, if RMB interest rates had been 100 basis points lower/higher
with all other variables held constant, the Group’s net of tax would have been Rmb 168,000
(31 December 2009: Rmb 588,000) lower/higher, arising mainly as a result of lower/higher
interest income on floating rate cash at bank balances. The assumed movement in basis
points for interest rate sensitivity analysis is based on the currently observable market
environment, showing a significantly higher volatility than prior years.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial
obligations due to shortage of funds. The Group’s exposure to liquidity risk arises primarily
from mismatches of the maturities of financial assets and liabilities. The Group’s objective is
to maintain a balance between continuity of funding and flexibility through the use of stand-
by credit facilities.
The Group's objective is to maintain a balance between continuity of funding and flexibility
through the use of bank loans. Approximately 25% of the Group’s loans and borrowings will
mature in less than one year based on the carrying amounts reflected in the financial
statements as at 31 March 2010 (31 December 2009: 57%).
B-56
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The table below summarises the maturity profile of the Group's financial assets and
liabilities at 31 March 2010 and 31 December 2009 based on contractual undiscounted
repayment obligations.
Financial liabilities
Trade and other payables (87,980) – (87,980)
Advances from customers (155,558) (155,558)
Other liabilities (3,679) – (3,679)
Loans and borrowings (4,931) (16,125) (21,056)
Financial liabilities
Trade and other payables (69,300) – (69,300)
Advances from customers (160,030) (160,030)
Other liabilities (9,061) – (9,061)
Loans and borrowings (19,371) (16,125) (35,496)
B-57
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
Credit risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a
counterparty default on its obligations. The Group’s exposure to credit risk arises primarily
from trade and other receivables. For other financial assets (including cash and cash
equivalents), the Group minimises credit risk by dealing exclusively with high credit rating
counterparties.
The Group’s objective is to seek continual revenue growth while minimising losses incurred
due to increased credit risk exposure. The Group trades only with recognised and
creditworthy third parties. It is the Group’s policy that all customers who wish to trade on
credit terms are subject to credit verification procedures. In addition, receivable balances
are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is
not significant.
At the balance sheet date, the Group’s maximum exposure to credit risk is represented by
the carrying amount of each class of financial assets recognised on the balance sheets.
The Group operates solely in the chemical equipment manufacturing industry sector.
As at 31 March 2010, 37.5% (31 December 2009: 25.8%) of trade receivables relate to five
major customers of the Group.
Trade and other receivables that are neither past due nor impaired are creditworthy debtors
with good payment record with the Group. Cash and cash equivalents that are neither past
due nor impaired are placed with or entered into with reputable financial institutions or
companies with high credit ratings and no history of default.
Information regarding financial assets that are either past due or impaired is disclosed in
Note 19.
The Group’s operations are primarily conducted in the PRC in Rmb. Currently, the PRC
government imposes control over foreign currencies, Rmb, the official currency in the PRC,
is not freely convertible. Enterprises operating in the PRC can enter into exchange
transactions through the People’s Bank of China or other authorised financial institutions.
As at balance sheet date, sensitivity analysis for foreign currency risk is not applicable as
the Group maintains minimal balances in foreign currency and thus has minimal exposure
to foreign currency risk.
B-58
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
The primary objective of the Group’s capital management is to ensure that it maintains a
strong credit rating and healthy capital ratios in order to support its business and maximise
shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may adjust the
dividend payment to shareholders, return capital to shareholders or issue new shares. No
changes were made in the objectives, policies or processes during the period ended 31
March 2010.
As disclosed in Note 27, the Company’s PRC subsidiary is required by the relevant laws
and regulations of the PRC to contribute to and maintain a non-distributable statutory
reserve fund whose utilisation is subject to approval by the relevant PRC authorities.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital
plus net debt. The Group includes within net debt, trade and other payables, advances
from customers, other liabilities and loans and borrowings, less cash and cash equivalents.
Capital consists of equity attributable to equity holders of the Company less the above
mentioned reserve fund.
Unaudited Audited
as at as at
31 March 31 December
2010 2009
Rmb’000 Rmb’000
The convertible loan granted by the Pre-IPO Investor to the Company shall be converted to
new shares of the Company in specified circumstances as set out in Note 24. Had the
convertible loan been converted to ordinary shares of the Company as at 31 March 2010,
the net assets of the Group as at 31 March 2010 would have increased by Rmb 5,001,000.
B-59
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
(i) On 3 May 2010, the Company increased its share capital from Rmb 45,000 to
Rmb240,086 by the allotment of 40,000 ordinary shares in the Company for a cash
consideration of S$40,000. These new shares rank pari passu in all respects with
the existing issued shares of the Company.
(ii) On 2 August 2010, the Company issued the conversion notices (as prescribed
under the Convertible Loan Investment) to Vision Top, China XLX, Go Power,
SkyVen, Naresh Nanubhai Desai, Wong Chao Hsiung and Quek Yiang Hang,
pursuant to which the Loan was converted into an aggregate of 800 shares in the
capital of the Company. These new shares rank pari passu in all respects with the
existing issued shares of the Company.
(iii) Pursuant to the written shareholders’ resolutions dated 9 September 2010 and 12
October 2010, in lieu of extraordinary general meetings, the shareholders
approved, inter-alia, the following:
(a) the sub-division of each ordinary share in the existing issued share capital
of the Company into 8,000 ordinary shares;
(b) Conversion of the Company into a public limited company and the change
of the name to “Anchun International Holdings Ltd.”;
(d) the issue of 105,000,000 New Shares pursuant to the Invitation which when
fully paid, allotted and issued, will rank pari passu in all respects with the
existing issued Shares (the "Issue of New Shares"); and
(e) that the Directors be authorised to: (i) allot and issue Shares in the
Company (other than the New Shares); and (ii) issue convertible securities
and any Shares in the Company pursuant to the conversion of such
convertible securities (whether by way of rights, bonus or otherwise) at any
time and from time to time thereafter upon such terms and conditions,
whether for cash or otherwise, and for such purposes and to such persons
as the Directors may think fit for the benefit of the Company, provided that
the aggregate number of Shares and convertible securities to be issued
pursuant to such authority shall not exceed 50% of the post-Invitation
issued shares of the Company (excluding treasury shares) and provided
that the aggregate number of Shares to be issued other than on a pro-rata
basis to the then existing shareholders of the Company shall not exceed
20% of the post-Invitation issued share capital of the Company, and, unless
revoked or varied by the Company in general meeting, such authority shall
take effect from the date of listing of the Shares on the SGX-ST and shall
continue to be in force until the conclusion of the next annual general
meeting or the date by which the next annual general meeting is required
by law or by the Articles to be held, whichever is earlier.
B-60
ANCHUN INTERNATONAL HOLDINGS LTD. AND ITS SUBSIDIARY
For the purposes of this resolution, and pursuant to Rules 806(3) and 806(4)
of the Listing Manual, “post-Invitation issued share capital” shall mean the
enlarge issued and paid-up share capital of the Company after the
completion of the Invitation after adjusting for: (i) new Shares arising from
the conversion or exercise of an convertible securities; (ii) new Shares
arising from the exercise of share options or the vesting of share awards
outstanding or subsisting at the time such authority is given, provided the
options or awards were granted in compliance with the Listing Manual; and
(iii) any subsequent consolidation or sub-division of Shares.
35. Comparatives
Prior period comparative figures which relates to the financial period from 1 January 2009
to 31 March 2009 are prepared by the Management. These financial information are
presented for comparative purposes only and have not been reviewed or audited.
The combined financial statements for the period ended 31 March 2010 were authorised
for issue in accordance with a resolution of the directors on 13 October 2010.
B-61
APPENDIX C – TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION
AND ACCEPTANCE
You are invited to apply for the subscription for and/or purchase the Invitation Shares at the Invitation
Price for each Offer Share and each Placement Share subject to the following terms and conditions:
2. Your application for Offer Shares may be made by way of printed Offer Shares Application Forms
or by way of Electronic Applications through ATMs of the Participating Banks (“ATM Electronic
Applications”) or through Internet Banking (“IB”) websites of the relevant Participating Banks
(“Internet Electronic Applications” which, together with ATM Electronic Applications, shall be
referred to as “Electronic Applications”). Your application for the Placement Shares may only be
made by way of Placement Shares Application Forms. YOU MAY NOT USE CPF FUNDS TO
APPLY FOR THE INVITATION SHARES.
3. You (not being an approved nominee company) are allowed to submit only one application
in your own name for the Offer Shares or the Placement Shares. If you submit an
application for Offer Shares by way of an Offer Shares Application Form, you MAY NOT
submit another application for Offer Shares by way of an Electronic Application and vice
versa. Such separate applications shall be deemed to be multiple applications and will be
liable to be rejected at our discretion, in consultation with the Manager, Underwriter and
Placement Agent.
If you submit an application for Offer Shares by way of Internet Electronic Application, you MAY
NOT submit another application for Offer Shares by way of ATM Electronic Application and vice
versa. Such separate applications shall be deemed to be multiple applications and will be liable to
be rejected at our discretion, in consultation with the Manager, Underwriter and Placement Agent.
If you have submitted an application for Offer Shares in your own name, you should not submit any
other application for Offer Shares, whether by way of an Offer Shares Application Form or by way
of an Electronic Application, for any other person. Such separate applications shall be deemed to
be multiple applications and will be liable to be rejected at our discretion, in consultation with the
Manager, Underwriter and Placement Agent.
If you have made an application for Placement Shares, you should not make any application
for Offer Shares either by way of an Offer Shares Application Form or by way of an
Electronic Application and vice versa. Such separate applications shall be deemed to be
multiple applications and will be liable to be rejected at our discretion, in consultation with
the Manager, Underwriter and Placement Agent.
Conversely, if you have made an application for Offer Shares either by way of an Electronic
Application or by way of an Offer Shares Application Form, you may not make any
application for Placement Shares. Such separate applications shall be deemed to be
multiple applications and will be liable to be rejected at our discretion, in consultation with
the Manager, Underwriter and Placement Agent.
Joint applications shall be rejected. Multiple applications for Invitation Shares will be liable
to be rejected at our discretion, in consultation with the Manager, Underwriter and
Placement Agent. If you submit or procure submissions of multiple share applications for
Offer Shares, Placement Shares or both Offer Shares and Placement Shares, you may be
deemed to have committed an offence under the Penal Code, Chapter 224 of Singapore and
the Securities and Futures Act, Chapter 289 of Singapore, and your applications may be
referred to the relevant authorities for investigation. Multiple applications or those
appearing to be or suspected of being multiple applications will be liable to be rejected at
our discretion, in consultation with the Manager, Underwriter and Placement Agent.
C-1
4. We will not accept applications from any person under the age of 18 years, undischarged
bankrupts, sole-proprietorships, partnerships, chops or non-corporate bodies, joint Securities
Account holders of CDP and from applicants whose addresses (furnished in their Application
Forms or, in the case of Electronic Applications, contained in the records of the relevant
Participating Banks) bear post office box numbers. No person acting or purporting to act on behalf
of a deceased person is allowed to apply under the Securities Account with CDP in the deceased
name at the time of application.
5. We will not recognise the existence of a trust. Any application by a trustee or trustees must be
made in his/their own name(s) and without qualification or, where the application is made by way of
an Application Form, in the name(s) of an approved nominee company or approved nominee
companies after complying with paragraph 6 below.
7. IF YOU ARE NOT A NOMINEE COMPANY, YOU MUST MAINTAIN A SECURITIES ACCOUNT
WITH CDP IN YOUR OWN NAME AT THE TIME OF YOUR APPLICATION. If you do not have an
existing Securities Account with CDP in your own name at the time of your application, your
application will be rejected (if you apply by way of an Application Form), or you will not be able to
complete your Electronic Application (if you apply by way of an Electronic Application). If you have
an existing Securities Account but fail to provide your Securities Account number or provide an
incorrect Securities Account number in Section B of the Application Form or in your Electronic
Application, as the case may be, your application is liable to be rejected. Subject to paragraph 8
below, your application shall be rejected if your particulars, such as name, NRIC/passport number,
nationality and permanent residence status provided in your Application Form or in the records of
the relevant Participating Bank at the time of your Electronic Application, as the case may be, differ
from those particulars in your Securities Account as maintained with CDP. If you possess more
than one individual direct Securities Account with CDP, your application shall be rejected.
8. If your address as stated in the Application Form or, in the case of an Electronic
Application, in the records of the relevant Participating Bank, as the case may be, is
different from the address registered with CDP, you must inform CDP of your updated
address promptly, failing which the notification letter on successful allotment will be sent to
your address last registered with CDP.
9. We reserve the right to reject any application which does not conform strictly to the
instructions set out in the Application Form and in this Prospectus or which does not
comply with the instructions for an Electronic Application or with the terms and conditions
of this Prospectus or, in the case of an application by way of an Application Form, which is
illegible, incomplete, incorrectly completed or which is accompanied by an improperly
drawn remittance or an improper form of remittance. We further reserve the right to treat as
valid any applications not completed or submitted or effected in all respects in accordance
with the instructions set out in the Application Form or the instructions for an Electronic
Application or the terms and conditions of this Prospectus and also to present for payment
or other processes all remittances at any time after receipt and to have full access to all
information relating to, or deriving from, such remittances or the processing thereof.
10. We reserve the right to reject or to accept, in whole or in part, or to scale down or to ballot any
application, without assigning any reason therefore, and we will not entertain any enquiry and/or
correspondence on our decision. This right applies to applications made by way of Application
Forms and by way of Electronic Applications. In deciding the basis of allotment, we will give due
consideration to the desirability of allotting or allocating the Invitation Shares to a reasonable
number of applicants with a view to establishing an adequate market for our Shares.
C-2
11. Share certificates will be registered in the name of CDP and will be forwarded only to CDP. It is
expected that CDP will send to you, at your own risk, within 15 Market Days after the close of the
Application List, a statement of account stating that your Securities Account has been credited with
the number of Invitation Shares allotted and/or allocated to you. This will be the only
acknowledgement of application monies received and is not an acknowledgement by us. You
irrevocably authorise CDP to complete and sign on your behalf as transferee or renouncee any
instrument of transfer and/or other documents required for the issue or transfer of the Invitation
Shares allotted and/or allocated to you. This authorisation applies to applications made by way of
Application Forms and by way of Electronic Applications.
12. In the event of an under-subscription for Offer Shares as at the close of the Application List, we will
make available that number of Offer Shares not subscribed for or purchased to satisfy applications
for Placement Shares to the extent that there is an over-subscription for Placement Shares as at
the close of the Application List.
In the event of an under-subscription for Placement Shares as at the close of the Application List,
we will make available that number of Placement Shares not subscribed for or purchased to satisfy
applications for Offer Shares to the extent that there is an over-subscription for Offer Shares as at
the close of the Application List.
In the event of an over-subscription for Offer Shares as at the close of the Application List and/or
Placement Shares are fully subscribed or over-subscribed as at the close of the Application List,
the successful applications for Offer Shares will be determined by ballot or otherwise as
determined by our Directors and in consultation with the Manager, and approved by the SGX-ST.
In all of the above instances, the basis of allotment of the Invitation Shares as may be decided
upon by our Company and the Vendors in ensuring a reasonable spread of shareholders of our
Company, shall be made public, as soon as is practicable, via an announcement through the SGX-
ST and through a paid advertisement in a local newspaper.
13. You irrevocably authorise CDP to disclose the outcome of your application, including the number of
Invitation Shares allotted and/or allocated to you pursuant to your application, to our Company, the
Manager, the Underwriter and Placement Agent and any other parties so authorised by CDP, our
Company, the Vendors, the Manager, the Underwriter and Placement Agent.
14. Any reference to the “you” in this section shall include an individual, a corporation, an approved
nominee and trustee applying for the Offer Shares by way of an Application Form or by way of an
Electronic Application and/or an individual, a corporation, an approval nominee and trustee
applying for the Placement Shares through the Placement Agent by way of a Placement Shares
Application Form.
15. By completing and delivering an Application Form or by making and completing an Electronic
Application by (in the case of an ATM Electronic Application) pressing the “Enter” or “OK” or
“Confirm” or “Yes” key on the ATM (as the case may be) or by (in the case of an Internet Electronic
Application) clicking “Submit” or “Continue” or “Yes” or “Confirm” on the IB website screen (as the
case may be) in accordance with the provisions of this Prospectus, you:-
(a) irrevocably offer to subscribe for and/or purchase the number of Invitation Shares specified
in your application (or such smaller number for which the application is accepted) at the
Invitation Price and agree that you will accept such Invitation Shares as may be allotted
and/or allocated to you, in each case on the terms of this Prospectus and on the terms of
the conditions set out in, this Prospectus and the Memorandum of Association and Articles
of Association of our Company;
(b) agree that in the event of any inconsistency between the terms and conditions for application
set out in this Prospectus, or the IB websites or ATMs of the Participating Banks, the terms
and conditions set out in this Prospectus shall prevail;
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(c) agree that the aggregate Invitation Price for the Invitation Shares applied for is due and
payable to our Company and the Vendors forthwith;
(d) warrant the truth and accuracy of the information contained, and representations and
declarations made, provided in your application, and acknowledge and agree that such
information, representations and declarations will be relied on by our Company and the
Vendors in determining whether to accept your application and/or whether to allot or sell any
Invitation Shares to you; and
(e) agree and warrant that if the laws of any jurisdictions outside Singapore are applicable to
your application, you have complied with all such laws and none of our Company, the
Vendors, the Manager, the Underwriter and Placement Agent will infringe any such laws as a
result of the acceptance of your application.
16. Our acceptance of applications will be conditional upon, inter alia, we being satisfied that:-
(a) permission has been granted by the SGX-ST to deal in and for quotation for all our existing
Shares (including the Vendor Shares) and the New Shares;
(b) no Stop Order which directs that no further Shares to which this Prospectus be allotted
and/or allocated has been issued by the Authority under the Securities and Futures Act; and
(c) the Management and the Underwriting and Placement Agreement referred to in the section
entitled “Management, Underwriting and Placement Arrangements” of this Prospectus have
become unconditional and have not been terminated or cancelled prior to such date as our
Company may determine.
17. In the event that a Stop Order in respect of the New Shares is served by the Authority or other
competent authority and applications to subscribe for the New Shares have been made prior to the
Stop Order, then
(a) in the case where the New Shares have not been issued, all applications shall be deemed to
have been withdrawn and cancelled and our Company shall, within 14 days of the date of
the stop order, pay to you all monies on account of your application for the New Shares
(without interest or any share of revenue or other benefit arising therefrom and at your own
risk); or
(b) in the case where the New Shares have already been issued, the issue of the New Shares
shall be deemed to be void and our Company shall, within 14 days from the date of stop
order, pay to you all monies paid on account of your application for the New Shares (without
interest or any share of revenue or other benefit arising therefrom and at your own risk).
This shall not apply where only an interim stop order has been served.
18. In the event that an interim stop order in respect of the New Shares is served by the Authority or
other competent authority, no New Shares shall be issued to you during the time when the interim
stop order is force. The Authority shall not serve a stop order in respect of the New Shares if the
New Shares have been issued, listed for quotation on a securities exchange and trading in the New
Shares has commenced.
20. We will not allot and/or allocate Shares on the basis of this Prospectus later than six months after
the date of registration of this Prospectus.
21. Additional terms and conditions for applications using printed Application Forms are set out on
pages C5 to C7 of this Prospectus.
22. Additional terms and conditions for Electronic Applications are set out on pages C8 to C15 of this
Prospectus.
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ADDITIONAL TERMS AND CONDITIONS FOR APPLICATIONS USING PRINTED APPLICATION
FORMS
You shall make an application by way of Application Forms made on and subject to the terms and
conditions of this Prospectus including but not limited to the terms and conditions appearing below as
well as those set out under the section on “TERMS, CONDITIONS AND PROCEDURES FOR
APPLICATION AND ACCEPTANCE” on pages C1 to C15 of this Prospectus, as well as the
Memorandum of Association and Articles of Association of our Company.
1. Your application must be made using the WHITE Application Forms for Offer Shares and the BLUE
Application Forms for Placement Shares accompanying and forming part of this Prospectus. We
draw your attention to the detailed instructions contained in the respective Application Forms and
this Prospectus for the completion of the Application Forms which must be carefully followed. We
reserve the right to reject applications which do not conform strictly to the instructions set
out in the Application Forms and this Prospectus or to the terms and conditions of this
Prospectus or which are illegible, incomplete, incorrectly completed or which are
accompanied by improperly drawn remittances or improper form of remittances.
2. Your Application Forms must be completed in English. Please type or write clearly in ink using
BLOCK LETTERS.
3. All spaces in the Application Forms except those under the heading “FOR OFFICIAL USE ONLY”
must be completed and the words “NOT APPLICABLE” or “N.A.” should be written in any space
that is not applicable.
4. Individuals, corporations, approved nominee companies and trustees must give their names in full.
You must make your application, in the case of individuals, in your full names appearing in your
identity cards (if applicants have such identification documents) or in your passports and, in the
case of corporations, in your full names as registered with a competent authority. If you are a non-
individual completing the Application Form under the hand of an official, you must state the name
and capacity in which that official signs. If you are a corporation completing the Application Form,
you are required to affix your Common Seal (if any) in accordance with your Memorandum and
Articles of Association or equivalent constitutive documents. If you are a corporate applicant and
your application is successful, a copy of your Memorandum and Articles of Association or
equivalent constitutive documents must be lodged with our Share Registrar and Share Transfer
Office. We reserve the right to require you to produce documentary proof of identification for
verification purposes.
5. (a) You must complete page 1 and Sections A and B of the Application Forms.
(b) You are required to delete either paragraph 7(a) or 7(b) on page 1 of the Application Forms.
Where paragraph 7(a) is deleted, you must also complete Section C of the Application
Forms with particulars of the beneficial owner(s).
(c) If you fail to make the required declaration in paragraph 7(a) or 7(b), as the case may be, on
page 1 of the Application Forms, your application is liable to be rejected.
6. You (whether you are an individual and corporate applicant, whether incorporated or
unincorporated and wherever incorporated or constituted), will be required to declare whether you
are a citizen or permanent resident of Singapore or a corporation in which citizens or permanent
residents of Singapore or any body corporate constituted under any statute of Singapore have an
interest in the aggregate of more than 50% of the issued share capital of or interests in such
corporations. If you are an approved nominee company, you are required to declare whether the
beneficial owner of the Invitation Shares is a citizen or permanent resident of Singapore or a
corporation, whether incorporated or unincorporated and wherever incorporated or constituted, in
which citizens or permanent residents of Singapore or any body corporate whether incorporated or
unincorporated and wherever incorporated or constituted under any statute of Singapore have an
interest in the aggregate of more than 50 per cent. of the issued share capital of or interests in
such corporation.
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7. Each application must be accompanied by a remittance in Singapore currency for the full amount
payable, in respect of the number of Offer Shares applied for, in the form of a BANKER’S DRAFT
and CASHIER’S ORDER drawn on a bank in Singapore, made out in favour of “ ANCHUN SHARE
ISSUE ACCOUNT” crossed “A/C PAYEE ONLY”, and with the name and address of the applicant
written clearly on the reverse side. Applications not accompanied by any payment or accompanied
by ANY OTHER FORM OF PAYMENT WILL NOT BE ACCEPTED. Remittances bearing the “Not
Transferable” or “Non Transferable” crossings will be rejected. No acknowledgement of receipt will
be issued by us or the Manager for applications and application monies received.
Monies paid in respect of unsuccessful applications are expected to be returned (without interest or
any share of revenue or other benefit arising therefrom) to you by ordinary post within 24 hours of
the balloting after the close of the Application List at your own risk. Where your application is
rejected or accepted in part only, the full amount or the balance of the application monies, as the
case may be, will be refunded (without interest or any share of revenue or other benefit arising
therefrom) to you by ordinary post at your own risk within 14 Market Days after the close of the
Application List. In the event that the Invitation is cancelled by us following the termination of the
Management and Underwriting Agreement and/or the Placement Agreement, the application
monies received will be refunded or paid back to you (as the case may be) (without interest or any
share of revenue or other benefit arising therefrom) by ordinary post at your own risk within five
days of the termination of the Invitation.
8. Capitalised terms used in the Application Forms and defined in this Prospectus shall bear the
meanings assigned to them in this Prospectus.
(a) in consideration of us having distributed the Application Form to you and agreeing to close
the Application List at 12.00 noon on 21 October 2010 or such other time or date as our
Directors and the Vendors may, in consultation with the Manager, decide and by completing
and delivering the Application Form, you agree that:-
(ii) your remittance will be honoured on first presentation and that any monies returnable
may be held pending clearance of your payment without interest or any share of
revenue or other benefit arising therefrom;
(b) all applications, acceptances and contracts resulting therefrom under the Invitation shall be
governed by and construed in accordance with the laws of Singapore and that you
irrevocably submit to the non-exclusive jurisdiction of the Singapore courts;
(c) in respect of the New Shares for which your application has been received and not rejected,
acceptance of your application shall be constituted by written notification and not otherwise,
notwithstanding any remittance being presented for payment by or on our behalf; you will not
be entitled to exercise any remedy of rescission for misrepresentation at any time after
acceptance of your application;
(d) in making your application, reliance is placed solely on the information contained in this
Prospectus and none of our Company, the Vendors, the Manager, the Underwriter for the
Offer, the Placement Agent or any other person involved in the Invitation shall have any
liability for any information not so contained;
(e) you consent to the disclosure of your name, NRIC/passport number, address, nationality,
permanent resident status, CDP Securities Account number and share application amount to
our Share Registrar, SGX-ST, CDP, Securities Clearing & Computer Science (Pte) Ltd
(“SCCS”), our Company, the Vendors, the Manager, the Underwriter and Placement Agent;
and
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(f) you irrevocably agree and undertake to subscribe for the number of New Shares applied for
as stated in the Application Form or any smaller number of such New Shares that may be
allocated to you in respect of your application. In the event that our Company decides to
allocate or allot any smaller number of New Shares or not to allocate or allot any New
Shares to you, you agree to accept such decision as final.
2. You must:
(a) enclose the WHITE Offer Shares Application Form, duly completed and signed, together with
your remittance in the WHITE envelope “A” provided;
(d) write, in the special box provided on the larger WHITE envelope “B” addressed to
Boardroom Corporate & Advisory Services Pte. Ltd. 50 Raffles Place #32-01 Singapore
Land Tower Singapore 048623, the number of Offer Shares you have applied for; and insert
WHITE envelope “A” into WHITE envelope “B”, seal WHITE envelope “B” and thereafter
DESPATCH BY ORDINARY POST OR DELIVER BY HAND at your own risk to Boardroom
Corporate & Advisory Services Pte. Ltd. 50 Raffles Place #32-01 Singapore Land Tower
Singapore 048623, to arrive by 12.00 noon on 21 October 2010 or such other time as we
may, in consultation with the Manager, decide. Local Urgent Mail or Registered Post
must NOT be used. No acknowledgement of receipt will be issued for any application or
remittance received.
2. The completed BLUE Placement Shares Application Form and your remittance with your name
and address written clearly on the reverse side, must be enclosed and sealed in an envelope to be
provided by you. The sealed envelope must be DESPATCHED BY ORDINARY POST OR
DELIVERED BY HAND at your own risk to Boardroom Corporate & Advisory Services Pte. Ltd.
50 Raffles Place #32-01 Singapore Land Tower Singapore 048623, to arrive by 12.00 noon on 21
October 2010 or such other time as we may, in consultation with the Manager, decide. Local
Urgent Mail or Registered Post must NOT be used. No acknowledgement of receipt will be
issued for any application or remittance received.
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ADDITIONAL TERMS AND CONDITIONS FOR ELECTRONIC APPLICATIONS
The procedures for Electronic Applications at ATMs are set out on the ATM screens (in the case on ATM
Electronic Applications) and the IB website screens (in the case of Internet Electronic Applications) of the
relevant Participating Banks. Currently, DBS Bank and the UOB Group are the only Participating Banks
through which Internet Electronic Applications can be made. For illustration purposes, the procedures for
Electronic Applications through ATMs of DBS Bank and the IB website of DBS Bank are set out
respectively in the “Steps for an Electronic Application for Offer Shares through of DBS Bank ATMs
(including POSB)” and the “Steps for an Internet Electronic Application through the IB website of DBS
Bank” (the “Steps”) appearing on pages C12 to C15 of this Prospectus.
The Steps set out the actions that you must take at an ATM or IB website of DBS Bank to complete an
Electronic Application. Please read carefully the terms of this Prospectus, the Steps and the terms and
conditions for Electronic Applications set out below before making an Electronic Application. Any
reference to “you” in the additional terms and conditions for Electronic Applications and the Steps shall
refer to you making an application for Offer Shares through an ATM or the IB website of a relevant
Participating Bank.
You must have an existing bank account with and be an ATM cardholder of one of the Participating Banks
before you can make an Electronic Application at the ATMs. An ATM card issued by one Participating
Bank cannot be used to apply for Offer Shares at an ATM belonging to other Participating Banks. For an
Internet Electronic Application, you must have an existing bank account with and an IB User Identification
(“User ID”) and a Personal Identification Number/Password given by a relevant Participating Bank. The
Steps set out the actions that you must take at ATMs of DBS Bank or the IB website of DBS Bank to
complete an Electronic Application. The actions that you must take at ATMs or the IB websites of other
Participating Banks are set out on the ATM screens or the IB website screens of the relevant Participating
Banks. Upon the completion of your Electronic Application transaction, you will receive an ATM
transaction slip (“Transaction Record”), confirming the details of your Electronic Application. Upon
completion of your Internet Electronic Application, there will be an on-screen confirmation (“Confirmation
Screen”) of the application which you can print out for your record. The Transaction Record or your
printed record of the Confirmation Screen is for your retention and should not be submitted with any
Application Form.
You must ensure that you enter your own Securities Account number when using the ATM card issued to
you in your own name. If you operate a joint bank account with any of the Participating Banks, you must
ensure that you enter your own Securities Account number when using the ATM card issued to you in
your own name. Using your own Securities Account number with an ATM card which is not issued to you
in your own name will render your Electronic Application liable to be rejected.
For an Internet Electronic Application, you must have a bank account with and a User Identification ID
(“User ID”) and a Personal Identification Number (“PIN”) given by the relevant Participating Banks. Upon
completion of your Internet Electronic Application through the IB website of DBS Bank, there will be an
on-screen confirmation (“Confirmation Screen”) of the application which can be printed out by you for
your record. This printed record of the Confirmation Screen is for your retention and should not be
submitted with any printed Application Form.
(a) you are currently in Singapore at the time of making such application;
(b) your mailing address for IB with the relevant Participating Bank is in Singapore;
(c) you are not a US person(1) (as such term is defined in Regulation S under the United States
Securities Act of 1933, as amended from time to time);
and you will be asked to declare accordingly. Otherwise, your application is liable to be rejected.
Note:-
(1) For details, please refer to definition of “US person” on the IB websites.
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You shall make an Electronic Application on the terms and subject to the conditions of this Prospectus
including but not limited to the terms and conditions appearing below and those set out under the section
on “TERMS, CONDITIONS AND PROCEDURES FOR APPLICATION AND ACCEPTANCE” on pages
C1 to C15 of this Prospectus as well as the Memorandum of Association and Articles of Association of
our Company.
1. In connection with your Electronic Application for Offer Shares, you are required to confirm
statements to the following effect in the course of activating the ATM for your Electronic
Application:-
(a) that you have received a copy of this Prospectus and has read, understood and
agreed to all the terms and conditions of application for Offer Shares and this
Prospectus prior to effecting the Electronic Application and agree to be bound by the
same;
(b) that you consent to the disclosure of your name, NRIC/passport number, address,
nationality, permanent resident status, CDP Securities Account number, and share
application amount (the “Relevant Particulars”) from your account with that
Participating Bank to the Share Registrar, CDP, SCCS, the Company, the Vendors, the
Manager, the Underwriter and Placement Agent (the “Relevant Parties”); and
(c) that this is your only application and it is made in your own name and at your own
risk.
Your application will not be successfully completed and cannot be recorded as a completed
transaction in the ATM unless you press the “Enter” or “OK” or “Confirm” or “Yes” key. By doing so,
you shall be treated as signifying your confirmation of each of the above three statements. In
respect of statement 1(b) above, your confirmation, by pressing the “Enter” or “OK” or “Confirm” or
“Yes” key, shall signify and shall be treated as your written permission, given in accordance with the
relevant laws of Singapore including Section 47(4) of the Banking Act (Chapter 19) of Singapore to
the disclosure by that Participating Bank of the Relevant Particulars to the Relevant Parties.
2. BY MAKING AN ELECTRONIC APPLICATION, YOU CONFIRM THAT YOU ARE NOT APPLYING
FOR OFFER SHARES AS NOMINEE OF ANY OTHER PERSON AND THAT ANY ELECTRONIC
APPLICATION THAT YOU MAKE IS THE ONLY APPLICATION MADE BY YOU AS BENEFICIAL
OWNER.
YOU SHOULD MAKE ONLY ONE ELECTRONIC APPLICATION FOR OFFER SHARES AND
SHOULD NOT MAKE ANY OTHER APPLICATION FOR OFFER SHARES, WHETHER AT THE
ATM OR THE IB WEBSITES OF ANY PARTICIPATING BANK OR ON THE APPLICATION
FORMS. IF YOU HAVE MADE AN APPLICATION FOR OFFER SHARES ON AN APPLICATION
FORM, YOU SHALL NOT MAKE AN ELECTRONIC APPLICATION FOR OFFER SHARES AND
VICE VERSA.
3. You must have sufficient funds in your bank account with your Participating Bank at the time you
make your Electronic Application, failing which your Electronic Application will not be completed.
Any Electronic Application which does not conform strictly to the instructions set out on
the screens of the ATM or IB website through which your Electronic Application is being
made shall be rejected.
4. You irrevocably agree and undertake to subscribe for and to accept the number of Offer Shares
applied for as stated on the Transaction Record or any lesser number of Offer Shares that may be
allotted or allocated to you in respect of your Electronic Application. In the event that we decide to
allot or allocate any lesser number of such Offer Shares or not to allot any Offer Shares to you, you
agree to accept such decision as final. If your Electronic Application is successful, your
confirmation (by your action of pressing the “Enter” or “OK” or “Confirm” or “Yes” key on the ATM or
clicking “Confirm” or “OK” on the IB website screen) of the number of Offer Shares applied for shall
signify and shall be treated as your acceptance of the number of Offer Shares that may be allotted
or allocated to you and your agreement to be bound by the Memorandum of Association and
Articles of Association of our Company.
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5. We will not keep any applications in reserve. Where your Electronic Application is
unsuccessful, the full amount of the application monies will be refunded in Singapore dollars
(without interest or any share of revenue or other benefit arising therefrom) to you by being
automatically credited to your account with your Participating Bank within 24 hours balloting.
Trading on a “WHEN ISSUED” basis, if applicable, is expected to commence after such
refund has been made.
Where your Electronic Application is rejected or accepted in part only, the full amount or the
balance of the application monies, as the case may be, will be refunded in Singapore dollars
(without interest or any share of revenue or other benefit arising therefrom) to you by being
automatically credited to your account with your Participating Bank within 14 Market Days after the
close of the Application List.
Responsibility for timely refund of application monies arising from unsuccessful or partially
successful Electronic Applications lies solely with the respective Participating Banks. Therefore,
you are strongly advised to consult your Participating Bank as to the status of your Electronic
Application and/or the refund of any monies to you from unsuccessful or partially successful
Electronic Application, to determine the exact number of Offer Shares allotted to you before trading
the Offer Shares on the SGX-ST. Neither the SGX-ST, the CDP, the SCCS, the Participating
Banks, our Company, the Vendors, the Manager, the Underwriter nor Placement Agent assume any
responsibility for any loss that may be incurred as a result of you having to cover any net sell
positions or from buy-in procedures activated by the SGX-ST.
If your Internet Electronic Application made through the IB websites of DBS Bank or UOB Group is
unsuccessful, no notification will be sent by such Participating Bank.
If you make Electronic Applications through the ATMs of the following banks, you may check the
results of your Electronic Applications as follows:-
Service expected
Bank Telephone Available at Operating hours from
UOB 1800 222 2121 ATM (Other ATM / Phone Evening of the
Group Transactions – “IPO Banking – balloting day
Enquiry”)(1) 24 hours a day
DBS 1800 339 6666 Internet Banking 24 hours a day Evening of the
Bank (for POSB account http://www.dbs.com(2) balloting day
holders)
OCBC 1800 363 3333 ATM/Internet Banking/ 24 hours a day Evening of the
Bank Phone Banking(3) balloting day
Notes:-
(1) If you have made your Electronic Offer Shares Application through the ATMs or IB website of the UOB Group, you
may check the results of your application through UOB Personal Internet Banking, ATMs of the UOB Group or UOB
Phone Banking services.
(2) If you have made your Internet Offer Shares Application through the IB websites of the UOB Group or DBS Bank, you
may also check the results of your application through the same channels in the table above in relation to ATM
Electronic Offer Shares Application made at ATMs of the UOB Group or DBS Bank.
(3) If you have made your Electronic Offer Shares Application through the ATMs of OCBC Bank, you may check the
results of your application through the same channels listed in the table above.
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6. Electronic Applications shall close at 12.00 noon on 21 October 2010 or such other time as
we may, in consultation with the Manager, decide. All Internet Electronic Applications must
be received by 12.00 noon on 21 October 2010. Subject to paragraph 8 below, an Internet
Electronic Application is deemed to be received when it enters the designated information system
of the relevant Participating Bank.
(a) register the Offer Shares allotted to you in the name of CDP for deposit into your Securities
Account;
(c) return or refund (without interest or any share of revenue earned or other benefit arising
therefrom) the application monies, should your Electronic Application be rejected, by
automatically crediting your bank account with your Participating Bank with the relevant
amount within 24 hours after balloting; and
(d) return or refund (without interest or any share of revenue or other benefit arising therefrom)
the full amount or balance of the application monies, should your Electronic Application be
accepted in part only, by automatically crediting your bank account with your Participating
Bank with the relevant amount within 14 Market Days after the close of the Application List.
8. You irrevocably agree and acknowledge that your Electronic Application is subject to risks of
electrical, electronic, technical and computer-related faults and breakdowns, fires, acts of God and
other events beyond the control of the Participating Banks and if, in any such event, we, the
Manager and/or the relevant Participating Bank do not receive your Electronic Application, or data
relating to your Electronic Application is lost, corrupted or not otherwise accessible, whether wholly
or partially for whatever reason, you shall be deemed not to have made an Electronic Application
and you shall have no claim whatsoever against us, the Manager and/or the relevant Participating
Bank for Offer Shares applied for or for any compensation, loss or damage.
9. We do not recognise the existence of a trust. Any Electronic Application by a trustee must be
made in your own name and without qualification. We will reject any application by any person
acting as nominee.
10. All your particulars in the records of your Participating Bank at the time you make your Electronic
Application shall be deemed to be true and correct and your Participating Bank and the Relevant
Parties shall be entitled to rely on the accuracy thereof. If there has been any change in your
particulars after making your Electronic Application, you shall promptly notify your Participating
Bank.
11. You should ensure that your personal particulars as recorded by both CDP and the relevant
Participating Bank are correct and identical, otherwise, your Electronic Application is liable
to be rejected. You should promptly inform CDP of any change in address, failing which the
notification letter on successful allotment will be sent to your address last registered with CDP.
12. By making and completing an Electronic Application, you are deemed to have agreed that:-
(a) in consideration of us making available the Electronic Application facility, through the
Participating Banks acting as our agents, at the ATMs and the IB websites (if any):-
(ii) your Electronic Application, our acceptance and the contract resulting therefrom under
the Invitation shall be governed by and construed in accordance with the laws of
Singapore and you irrevocably submit to the non-exclusive jurisdiction of the
Singapore courts;
C-11
(b) none of our Company, the Manager or the Participating Banks shall be liable for any delays,
failures or inaccuracies in the recording, storage or in the transmission or delivery of data
relating to your Electronic Application to us or CDP due to breakdowns or failure of
transmission, delivery or communication facilities or any risks referred to in paragraph 9
above or to any cause beyond their respective controls;
(c) in respect of Offer Shares for which your Electronic Application has been successfully
completed and not rejected, acceptance of your Electronic Application shall be constituted by
written notification by or on our behalf and not otherwise, notwithstanding any payment
received by or on our behalf;
(d) you will not be entitled to exercise any remedy of rescission for misrepresentation at any
time after acceptance of your application; and
(e) reliance is placed solely on information contained in this Prospectus and that none of our
Company, the Vendors, the Manager, the Underwriter and Placement Agent nor any other
person involved in the Invitation shall have any liability for any information not so contained.
The instructions for Electronic Applications will appear on the ATM screens and the IB website
screens. For illustration purposes, the steps for making an Electronic Application through an ATM
belonging to DBS Bank or through the IB website of DBS Bank are shown below. Instructions for
Electronic Applications on the ATM screens and the IB websites screens (if any) of the
Participating Banks, other than DBS Bank, may differ from those represented below.
Steps for an Electronic Application for Offer Shares through DBS Bank ATMs (including POSB
ATMs)
Instructions for ATM Electronic Applications will appear on the ATM screens of the Participating Banks.
For illustration purposes, the steps for making an ATM Electronic Application through a DBS Bank ATM
(including POSB ATM) are shown below. Certain words appearing on the screen are in abbreviated form
(“A/c”, “amt”, “appln”, “&”, “I/C”, “SGX” and “No.” refer to “Account”, “amount”, “application”, “and”, “NRIC”,
“SGX-ST” and “Number” respectively. Instructions for ATM Electronic Applications on the ATM screens of
Participating Banks (other than DBS Bank (including POSB ATMs)), may differ slightly from those
represented below.
7 : Read and understand the following statements which will appear on the screen:-
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(IN THE CASE OF SECURITIES OFFERING THAT IS SUBJECT TO A
PROSPECTUS/OFFER INFORMATION STATEMENT/DOCUMENT REGISTERED
WITH THE MONETARY AUTHORITY OF SINGAPORE) ANYONE WISHING TO
ACQUIRE THESE SECURITIES (OR UNITS OF SECURITIES) SHOULD READ
THE PROSPECTUS/DOCUMENT OR PROFILE STATEMENT (AS
SUPPLEMENTED OR REPLACED, IF APPLICABLE) BEFORE SUBMITTING HIS
APPLICATION WHICH WILL NEED TO BE MADE IN THE MANNER SET OUT IN
THE PROSPECTUS/DOCUMENT OR PROFILE STATEMENT (AS
SUPPLEMENTED OR REPLACED, IF APPLICABLE). A COPY OF THE
REPLACEMENT OR SUPPLEMENTARY PROSPECTUS/DOCUMENT OR
PROFILE STATEMENT AND IF APPLICABLE, A COPY OF THE REPLACEMENT
OR SUPPLEMENTARY PROSPECTUS HAS BEEN LODGED WITH AND
REGISTERED BY THE MONETARY AUTHORITY OF SINGAPORE WHO
ASSUMES NO RESPONSIBILITY FOR ITS OR THEIR CONTENTS.
PRESS THE “ENTER” KEY TO CONFIRM THAT YOU HAVE READ AND
UNDERSTOOD.
FOR FIXED AND MAX PRICE SECURITY APPLICATION, THIS IS YOUR ONLY
APPLICATION AND IT IS MADE IN YOUR OWN NAME AND AT YOUR OWN
RISK.
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10 : Select your nationality.
11 : Select your payment method (i.e. by cash, CPF Funds, or a combination of cash and CPF
Funds).
13 : Enter the number of securities you wish to apply for using cash.
14 : Enter the number of securities you wish to apply for using CPF Funds (if applicable).
15 : Enter or confirm (if your CDP Securities Account number has already been stored in DBS
Bank’s records) your own 12-digit CDP Securities Account number. (Note: This step will
be omitted automatically if your Securities Account number has already been stored in
DBS Bank’s records).
16 : Check the details of your share application, your NRIC or Passport Number and CDP
Securities Account Number and number of securities on the screen and press the
“ENTER” key to confirm application.
17 : Remove the Transaction Record for your reference and retention only.
Steps for an Internet Electronic Application through the IB Website of DBS Bank
For illustrative purposes, the steps for making an Internet Electronic Application through the DBS Bank IB
website is shown below. Certain words appearing on the screen are in abbreviated form (“A/c”, “amt”,
“&”, “I/C”, “SGX” and “No.” refer to “Account”, “amount”, “and”, “NRIC”, “SGX-ST” and “Number”
respectively).
5 : Click “Yes” to proceed and to warrant, inter alia, that you are currently in Singapore, you
have observed and complied with all applicable laws and regulations and that your
mailing address for DBS Internet Banking is in Singapore and that you are not a US
person (as such term is defined in Regulation S under the US Securities Act of 1993, as
amended).
(a) You have read, understood and agreed to all terms of application and the
Prospectus/Document or Profile Statement and if applicable, the Supplementary or
Replacement Prospectus/Document or Profile Statement;
(b) You consent to disclose your name, IC or passport number, address, nationality,
CDP Securities Account number, CPF Investment account number (if applicable)
and securities application amount from your DBS/POSB Account(s) to registrars of
securities, SGX, SCCS, CDP, CPF Board and issuer/ vendor(s);
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(c) You are not a US person (as such term defined in Regulation S under the US
Securities Act of 1933, as amended);
(d) You understand that the securities mentioned herein have not been and will not be
registered under the United States Securities Act of 1993 as amended (the “US
Securities Act”) or the securities laws of any state of the United States and may not
be offered or sold in the United States or to, or for the account or benefit of any
“US person” (as defined in the Regulation S under the US Securities Act) except
pursuant to an exemption from or in a transaction subject to, the registration
requirements of the US Securities Act and applicable state securities laws. These
will be no public offer of the securities mentioned herein in the United States. Any
failure to comply with this restriction may constitute a violation of the United States
securities laws;
(e) This application is made in your name and at your own risk; and
(f) For FIXED/MAX price share application, this is your only application. For TENDER
price securities application, this is your only application at the selected tender price
Step 10 : Check details of your share application, your I/C/passport No. and click “OK” to confirm
your application.
Step 11 : Print Confirmation Screen (optional) for your reference & retention only.
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APPENDIX D – SELECTED EXTRACTS OF OUR ARTICLES OF ASSOCIATION
The discussion below provides information about certain provisions of our Memorandum and Articles of
Association and the laws of Singapore. This description is only a summary and is qualified by reference to
Singapore law and our Articles.
The instruments that constitute and define our Company are the Memorandum and Articles of
Association of our Company.
Memorandum of Association
The registration number with which our Company was incorporated is (Registration No.200920277C).
Our Memorandum of Association states that the liability of our Shareholders is limited to the amount, if
any, for the time being unpaid on the shares respectively held by them.
Articles of Association
The provisions in the Articles of Association of our Company relating to:-
(a) a Director’s power to vote on a proposal, arrangement or contract in which the Director is
Interested
Article 100
A Director shall not vote in respect of any contract or arrangement or any other proposal
whatsoever in which he has any interest, directly or indirectly. A Director shall not be counted in the
quorum at a meeting in relation to any resolution on which he is debarred from voting.
(b) the Director’s power to vote on remuneration (including pension or other benefits) for himself or for
any other director, and whether the quorum at an meeting of the board of Directors to vote on
Directors’ remuneration may include the director whose remuneration is the subject of the vote
Article 77
The ordinary remuneration of the Directors, which shall from time to time be determined by an
Ordinary Resolution of the Company, shall not be increased except pursuant to an Ordinary
Resolution passed at a General Meeting where notice of the proposed increase shall have been
given in the notice convening the General Meeting and shall (unless such resolution otherwise
provides) be divisible among the Directors as they may agree, or failing agreement, equally, except
that any Director who shall hold office for part only of the period in respect of which such
remuneration is payable shall be entitled only to rank in such division for a proportion of
remuneration related to the period during which he has held office. The ordinary remuneration of an
executive Director may not include a commission on or a percentage of turnover and the ordinary
remuneration of a non-executive Director shall be a fixed sum, and not by a commission on or a
percentage of profits or turnover.
Article 78
Any Director who holds any executive office, or who serves on any committee of the Directors, or
who otherwise performs services which in the opinion of the Directors are outside the scope of the
ordinary duties of a Director, may be paid such extra remuneration by way of salary, commission or
otherwise as the Directors may determine, other than by a commission on or percentage of
commission or turnover, Provided that such extra remuneration (in case of an executive Director)
shall not by way of commission on or a percentage of turnover and (in the case of a non-executive
Director) shall be by a fixed sum, and not by a commission on or a percentage of profits or
turnover.
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Article 79
The Directors may repay to any Director all such reasonable expenses as he may incur in
attending and returning from meetings of the Directors or of any committee of the Directors or
General Meetings or otherwise in or about the business of the Company.
Article 80
The Directors shall have power to pay and agree to pay pensions or other retirement,
superannuation, death or disability benefits to (or to any person in respect of) any Director for the
time being holding any executive office and for the purpose of providing any such pensions or other
benefits to contribute to any scheme or fund or to pay premiums.
(c) borrowing powers exercisable by the Directors and how such borrowing powers can be varied
Article 108
Subject as hereinafter provided and to the provisions of the Statutes, the Directors may exercise all
the powers of the Company to borrow money, to mortgage or charge its undertaking, property and
uncalled capital and to issue debentures and other securities, whether outright or as collateral
security for any debt, liability or obligation of the Company or of any third party.
Article 89
At each Annual General Meeting, one-third of the Directors for the time being (or, if their number is
not a multiple of three, the number nearest to but not less than one-third) shall retire from office by
rotation, Provided that no Director holding office as Managing Director shall be subject to
retirement by rotation or be taken into account in determining the number of Directors to retire. For
the avoidance of doubt, each Director (other than a Director holding office as Managing Director)
shall retire at least once every three years.
Article 90
The Directors to retire by rotation shall include (so far as necessary to obtain the number required)
any Director who is due to retire at the meeting by reason of age or who wishes to retire and not to
offer himself for re-election. Any further Directors so to retire shall be those of the other Directors
subject to retirement by rotation who have been longest in office since their last re-election or
appointment and so that as between persons who became or were last re-elected Directors on the
same day, those to retire shall (unless they otherwise agree among themselves) be determined by
ballot. A retiring Director shall be eligible for re-election.
Article 91
The Company at a General Meeting at which a Director retires under any provision of these
Articles may by Ordinary Resolution fill the office being vacated by electing thereto the retiring
Director or some other person eligible for appointment. In default, the retiring Director shall be
deemed to have been re-elected except in any of the following cases:-
(a) where at such meeting it is expressly resolved not to fill such office or a resolution for the re-
election of such Director is put to the meeting and lost; or
(b) where such Director has given notice in writing to the Company that he is unwilling to be re-
elected; or
(c) where the default is due to the moving of a resolution in contravention of the next following
Article; or
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(d) where such Director has attained any retiring age applicable to him as Director.
The retirement shall not have effect until the conclusion of the meeting except where a resolution is
passed to elect some other person in the place of the retiring Director or a resolution for his re-
election is put to the meeting and lost and accordingly a retiring Director who is re-elected or
deemed to have been re-elected will continue in office without a break.
Article 76
A Director shall not be required to hold any shares of the Company by way of qualification. A
Director who is not a member of the Company shall nevertheless be entitled to receive notice of
and to attend and speak at General Meetings.
Article 3
(A) Subject to the Act and these Articles, no shares may be issued by the Directors without the
prior approval of the Company in General Meeting pursuant to Section 161 of the Act, but
subject thereto and the terms of such approval, and to Article 5, and to any special rights
attached to any shares for the time being issued, the Directors may allot and issue shares or
grant options over or otherwise dispose of the same to such persons on such terms and
conditions and for such consideration and at such time and whether or not subject to the
payment of any part of the amount thereof in cash or otherwise as the Directors may think
fit, and any shares may, subject to compliance with Sections 70 and 75 of the Act, be issued
with such preferential, deferred, qualified or special rights, privileges, conditions or
restrictions, whether as regards dividend, return of capital, participation in surplus assets
and profits, voting, conversion or otherwise, as the Directors may think fit, and preference
shares may be issued which are or at the option of the Company are liable to be redeemed,
the terms and manner of redemption being determined by the Directors in accordance with
the Act, Provided Always that no options shall be granted over unissued shares except in
accordance with the Act and the Designated Stock Exchange’s listing rules.
(B) The Directors may, at any time after the allotment of any share but before any person has
been entered in the Register of Members as the holder, recognize a renunciation thereof by
the allottee in favour of some other person and may accord to any allottee of a share a right
to effect such renunciation upon and subject to such terms and conditions as the Directors
may think fit to impose.
(C) Except so far as otherwise provided by the conditions of issue or by these Articles, all new
shares shall be issued subject to the provisions of the Statutes and of these Articles with
reference to allotment, payment of calls, lien, transfer, transmission, forfeiture or otherwise.
Article 8
(A) Preference shares may be issued subject to such limitation thereof as may be prescribed by
the Designated Stock Exchange. Preference shareholders shall have the same rights as
ordinary shareholders as regards receiving of notices, reports and balance-sheets and
attending General Meetings of the Company, and preference shareholders shall also have
the right to vote at any General Meeting convened for the purpose of reducing capital or
winding-up or sanctioning a sale of the undertaking of the Company or where the proposal
to be submitted to the General Meeting directly affects their rights and privileges or when the
Dividend on the preference shares is more than six months in arrear.
(B) The Company has power to issue further preference capital ranking equally with, or in
priority to, preference shares already issued.
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Article 9
(A) Whenever the share capital of the Company is divided into different classes of shares, the
variation or abrogation of the special rights attached to any class may, subject to the
provisions of the Act, be made either with the consent in writing of the holders of three-
quarters of the total number of issued shares of the class or with the sanction of a Special
Resolution passed at a separate General Meeting of the holders of the shares of the class
(but not otherwise) and may be so made either whilst the Company is a going concern or
during or in contemplation of a winding-up. To every such separate General Meeting all the
provisions of these Articles relating to General Meetings of the Company and to the
proceedings thereat shall mutatis mutandis apply, except that the necessary quorum shall be
two or more persons holding at least one-third of the total number of the issued shares of
the class present in person or by proxy or attorney and that any holder of shares of the class
present in person or by proxy or attorney may demand a poll and that every such holder
shall on a poll have one vote for every share of the class held by him where the class is a
class of equity shares within the meaning of Section 64(1) of the Companies Act or at least
one vote for every share of the class where the class is a class of preference shares within
the meaning of Section 180(2) of the Act, Provided Always that where the necessary
majority for such a Special Resolution is not obtained at such General Meeting, the consent
in writing, if obtained from the holders of three-quarters of the total number of the issued
shares of the class concerned within two months of such General Meeting, shall be as valid
and effectual as a Special Resolution carried at such General Meeting.
(B) The provisions in Article 9(A) shall mutatis mutandis apply to any repayment of preference
capital (other than redeemable preference capital) and any variation or abrogation of the
rights attached to preference shares or any class thereof.
(C) The special rights attached to any class of shares having preferential rights shall not unless
otherwise expressly provided by the terms of issue thereof be deemed to be varied by the
creation or issue of further shares ranking as regards participation in the profits or assets of
the Company in some or all respects pari passu therewith but in no respect in priority
thereto.
Article 14
Every person whose name is entered as a Member in the Register of Members shall be entitled,
within ten market days (or such period as the Directors may determine having regard to any
limitation thereof as may be prescribed by the Designated Stock Exchange from time to time) after
the closing date of any application for shares or (as the case may be) the date of lodgement of a
registrable transfer, to one certificate for all his shares of any one class or to several certificates in
reasonable denominations each for a part of the shares so allotted or transferred.
Article 34
(A) There shall be no restriction on the transfer of fully paid up shares (except where required by
law or by the rules, bye-laws or listing rules of the Designated Stock Exchange) but the
Directors may in their discretion decline to register any transfer of shares upon which the
Company has a lien, and in the case of shares not fully paid up, may refuse to register a
transfer to a transferee of whom they do not approve, Provided Always that in the event of
the Directors refusing to register a transfer of shares, the Company shall within ten market
days (or such period as the Directors may determine having regard to any limitation thereof
as may be prescribed by the Designated Stock Exchange from time to time) after the date
on which the application for a transfer of shares was made, serve a notice in writing to the
applicant stating the facts which are considered to justify the refusal as required by the
Statutes.
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(B) The Directors may decline to register any instrument of transfer unless:-
(a) such fee not exceeding S$2.00 (or such other fee as the Directors may determine
having regard to any limitation thereof as may be prescribed by the Designated Stock
Exchange from time to time) as the Directors may from time to time require is paid to
the Company in respect thereof;
(b) the amount of proper duty (if any) with which each instrument of transfer is chargeable
under any law for the time being in force relating to stamps is paid;
(c) the instrument of transfer is deposited at the Office or at such other place (if any) as
the Directors may appoint accompanied by a certificate of payment of stamp duty (if
stamp duty is payable on such instrument of transfer in accordance with any law for
the time being in force relating to stamp duty,), the certificates of the shares to which it
relates, and such other evidence as the Directors may reasonably require to show the
right of the transferor to make the transfer and, if the instrument of transfer is executed
by some other person on his behalf, the authority of the person so to do; and
Article 41
A reference to a member shall be a reference to a registered holder of shares in the Company, or
where such registered holder is CDP, the Depositors on behalf of whom CDP holds the shares,
Provided that:-
(a) a Depositor shall only be entitled to attend any General Meeting and to speak and vote
thereat if his name appears on the Depository Register maintained by CDP forty eight (48)
hours before the General Meeting as a Depositor on whose behalf CDP holds shares in the
Company, the Company being entitled to deem each such Depositor, or each proxy of a
Depositor who is to represent the entire balance standing to the Securities Account of the
Depositor, to represent such number of shares as is actually credited to the Securities
Account of the Depositor as at such time, according to the records of CDP as supplied by
CDP to the Company, and where a Depositor has apportioned the balance standing to his
Securities Account between two proxies, to apportion the said number of shares between
the two proxies in the same proportion as previously specified by the Depositor in appointing
the proxies; and accordingly no instrument appointing a proxy of a Depositor shall be
rendered invalid merely by reason of any discrepancy between the proportion of Depositor’s
shareholding specified in the instrument of proxy, or where the balance standing to a
Depositor’s Securities Account has been apportioned between two proxies the aggregate of
the proportions of the Depositor’s shareholding they are specified to represent, and the true
balance standing to the Securities Account of a Depositor as at the time of the General
Meeting, if the instrument is dealt with in such manner as is provided above;
(b) the payment by the Company to CDP of any dividend payable to a Depositor shall to the
extent of the payment discharge the Company from any further liability in respect of the
payment;
(c) the delivery by the Company to CDP of provisional allotments or share certificates in respect
of the aggregate entitlements of Depositors to new shares offered by way of rights issue or
other preferential offering or bonus issue shall to the extent of the delivery discharge the
Company from any further liability to each such Depositor in respect of his individual
entitlement; and
(d) the provisions in these Articles relating to the transfers, transmissions or certification of
shares shall not apply to the transfer of book-entry securities (as defined in the Statutes).
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Article 42
Except as required by the Statutes or law, no person shall be recognised by the Company as
holding any share upon any trust, and the Company shall not be bound by or compelled in any way
to recognize (even when having notice thereof) any equitable, contingent, future or partial interest
in any share, or any interest in any fractional part of a share, or (except only as by these Articles or
by the Statutes or law otherwise provided) any other right in respect of any share, except an
absolute right to the entirety thereof in the registered holder and nothing in these Articles contained
relating to CDP or to Depositors or in any depository agreement made by the Company with any
common depository for shares shall in any circumstances be deemed to limit, restrict or qualify the
above.
Article 63
In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person
or by proxy, shall be accepted to the exclusion of the votes of the other joint holders and for this
purpose seniority shall be determined by the order in which the names stand in the Register of
Members or, as the case may be, the order in which the names appear in the Depository Register
in respect of the joint holding.
Article 64
Where in Singapore or elsewhere a receiver or other person (by whatever name called) has been
appointed by any court claiming jurisdiction in that behalf to exercise powers with respect to the
property or affairs of any member on the ground (however formulated) of mental disorder, the
Directors may in their absolute discretion, upon or subject to production of such evidence of the
appointment as the Directors may require, permit such receiver or other person on behalf of such
member, to vote in person or by proxy at any General Meeting, or to exercise any other right
conferred by membership in relation to meetings of the Company.
Article 65
No member shall be entitled in respect of shares held by him to vote at a General Meeting either
personally or by proxy or to exercise any other right conferred by membership in relation to
meetings of the Company if any call or other sum payable by him to the Company in respect of
such shares remains unpaid.
Article 10
The Company may by Ordinary Resolution:-
(B) sub-divide its shares, or any of them, provided always that in such subdivision the proportion
between the amount paid and the amount (if any) unpaid on each reduced share shall be
same as it was in the case of the share from which the reduced share is derived;
(C) convert or exchange any class of shares into or for any other class of shares; and/or
(D) cancel the number of shares which at the date of the passing of the resolution in that behalf
have not been taken or agreed to be taken by any person or which have been forfeited and
diminish the amount of its share capital by the number of the shares so cancelled.
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Article 11
(A) The Company may reduce its share capital or any other undistributable reserve in any
manner permitted, and with, and subject to, any incident authorized, and consent or
confirmation required, by law.
(B) The Company may purchase or otherwise acquire its issued shares subject to and in
accordance with the provisions of the Statutes and any applicable rules of the Designated
Stock Exchange hereafter, the “Relevant Laws”), on such terms and subject to such
conditions as the Company may in General Meeting prescribe in accordance with the
Relevant Laws. Any shares purchased or acquired by the Company as aforesaid shall,
unless held in treasury in accordance with the Act, be deemed to be cancelled immediately
on purchase or acquisition by the Company. On the cancellation of any share as aforesaid,
the rights and privileges attached to that share shall expire. In any other instance, the
Company may hold or deal with any such share which is so purchased or acquired by it in
such manner as may be permitted by, and in accordance with the Relevant Laws. Without
prejudice to the generality of the foregoing, upon cancellation of any share purchased or
otherwise acquired by the Company pursuant to these Articles and the Statutes, the number
of issued shares of the Company shall be diminished by the number of shares so cancelled,
and, where any such cancelled share was purchased or acquired out of the capital of the
Company, the amount of share capital of the Company shall be reduced accordingly.
(h) any change in the respective rights of the various classes of shares including the action necessary
to change the rights
Article 9
(A) Whenever the share capital of the Company is divided into different classes of shares, the
variation or abrogation of the special rights attached to any class may, subject to the
provisions of the Act, be made either with the consent in writing of the holders of three-
quarters of the total number of the issued shares of the class or with the sanction of a
Special Resolution passed at a separate General Meeting of the holders of the shares of the
class (but not otherwise) and may be so made either whilst the Company is a going concern
or during or in contemplation of a winding-up. To every such separate General Meeting all
the provisions of these Articles relating to General Meetings of the Company and to the
proceedings thereat shall mutatis mutandis apply, except that the necessary quorum shall be
two or more persons holding at least one-third of the total number of the issued shares of
the class present in person or by proxy or attorney and that any holder of shares of the class
present in person or by proxy or attorney may demand a poll and that every such holder
shall on a poll have one vote for every share of the class held by him where the class is a
class of equity shares within the meaning of Section 64(1) of the Act or at least one vote for
every share of the class where the class is a class of preference shares within the meaning
of Section 180(2) of the Act, Provided Always that where the necessary majority for such a
Special Resolution is not obtained at such General Meeting, the consent in writing, if
obtained from the holders of three-quarters of the total number of the issued shares of the
class concerned within two months of such General Meeting, shall be as valid and effectual
as a Special Resolution carried at such General Meeting.
(B) The provisions in Article 9(A) shall mutatis mutandis apply to any repayment of preference
capital (other than redeemable preference capital) and any variation or abrogation of the
rights attached to preference shares or any class thereof.
(C) The special rights attached to any class of shares having preferential rights shall not unless
otherwise expressly provided by the terms of issue thereof be deemed to be varied by the
creation or issue of further shares ranking as regards participation in the profits or assets of
the Company in some or all respects pari passu therewith but in no respect in priority
thereto.
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(i) dividends and distribution
Article 123
The Company may by Ordinary Resolution declare dividends but no such dividend shall exceed the
amount recommended by the Directors.
Article 124
If and so far as in the opinion of the Directors, the profits of the Company justify such payments,
the Directors may declare and pay the fixed dividends on any class of shares carrying a fixed
dividend expressed to be payable on fixed dates on the half-yearly or other dates prescribed for the
payment thereof and may also from time to time declare and pay interim dividends on shares of
any class of such amounts and on such dates and in respect of such periods as they think fit.
Article 125
Subject to any rights or restrictions attached to any shares or class of shares and except as
otherwise permitted under the Act:-
(A) all Dividends in respect of shares must be paid in proportion to the number of shares held by
a Member, but where shares are partly paid, all Dividends must be apportioned and paid
proportionately to the amounts paid or credited as paid on the partly paid shares; and
(B) all Dividends must be apportioned and paid proportionately to the amounts so paid or
credited as paid during any portion or portions of the period in respect of which the Dividend
is paid.
For the purposes of this Article, an amount paid or credited as paid on a share in advance of a call
is to be ignored.
Article 126
(A) No Dividend shall be paid otherwise than out of profits available for distribution under the
provisions of the Statutes. The payment by the Directors of any unclaimed dividends or other
moneys payable on or in respect of a share into a separate account shall not constitute the
Company a trustee in respect thereof. All Dividends remaining unclaimed after one year from
having been first payable may be invested or otherwise made use of by the Directors for the
benefit of the Company, and any Dividend or any such moneys unclaimed after six (6) years
from having been first payable shall be forfeited and shall revert to the Company provided
always that the Directors may at any time thereafter at their absolute discretion annul any
such forfeiture and pay the Dividend so forfeited to the person entitled thereto prior to the
forfeiture. If CDP returns any such Dividend or moneys to the Company, the relevant
Depositor shall not have any right or claim in respect of such Dividend or moneys against
the Company if a period of six years has elapsed from the date of the declaration of such
Dividend or the date on which such other moneys are first payable.
(B) A payment by the Company to CDP of any Dividend or other moneys payable to a Depositor
shall, to the extent of the payment made, discharge the Company from any liability to the
Depositor in respect of that payment.
Article 127
No dividend or other monies payable on or in respect of a share shall bear interest as against the
Company.
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Article 128
(A) The Directors may retain any dividend or other monies payable on or in respect of a share
on which the Company has a lien and may apply the same in or towards satisfaction of the
debts, liabilities or engagements in respect of which the lien exists.
(B) The Directors may retain the dividends payable upon shares in respect of which any person
is under the provisions as to the transmission of shares herein before contained entitled to
become a member, or which any person is under those provisions entitled to transfer, until
such person shall become a member in respect of such shares or shall transfer the same.
Article 129
The waiver in whole or in part of any dividend on any share by any document (whether or not
under seal) shall be effective only if such document is signed by the member (or the person
entitled to the share in consequence of the death or bankruptcy of the holder) and delivered to the
Company and if or to the extent that the same is accepted as such or acted upon by the Company.
Article 130
The Company may upon the recommendation of the Directors by Ordinary Resolution direct
payment of a dividend in whole or in part by the distribution of specific assets (and in particular of
paid-up shares or debentures of any other company) and the Directors shall give effect to such
resolution. Where any difficulty arises with regard to such distribution, the Directors may settle the
same as they think expedient and in particular, may issue fractional certificates, may fix the value
for distribution of such specific assets or any part thereof, may determine that cash payments shall
be made to any member upon the footing of the value so fixed in order to adjust the rights of all
parties and may vest any such specific assets in trustees as may seem expedient to the Directors.
Article 131
Any dividend or other monies payable in cash on or in respect of a share may be paid by cheque
or warrant sent through the post to the registered address appearing in the Register of Members or
(as the case may be) the Depository Register of the member or person entitled thereto (or, if two or
more persons are registered in the Register of Members or (as the case may be) entered in the
Depository Register as joint holders of the share or are entitled thereto in consequence of the
death or bankruptcy of the holder, to any one of such persons) or to such person and such address
as such member or person or persons may by writing direct.
Every such cheque or warrant shall be made payable to the order of the person to whom it is sent
or to such person as the holder or joint holders or person or persons entitled to the share in
consequence of the death or bankruptcy of the holder may direct and payment of the cheque or
warrant by the banker upon whom it is drawn shall be a good discharge to the Company. Every
such cheque or warrant shall be sent at the risk of the person entitled to the money represented
thereby.
Article 132
If two or more persons are registered in the Register of Members or (as the case may be) the
Depository Register as joint holders of any share, or are entitled jointly to a share in consequence
of the death or bankruptcy of the holder, any one of them may give effectual receipts for any
dividend or other monies payable or property distributable on or in respect of the share.
Article 133
Any resolution declaring a dividend on shares of any class, whether a resolution of the Company in
General Meeting or a resolution of the Directors, may specify that the same shall be payable to the
persons registered as the holders of such shares in the Register of Members or (as the case may
be) the Depository Register at the close of business on a particular date and thereupon the
dividend shall be payable to them in accordance with their respective holdings so registered, but
without prejudice to the rights inter se in respect of such dividend of transferors and transferees of
any such shares.
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(j) any limitation on the right to own Shares, including limitations on the right of non-resident or foreign
Shareholders to hold or exercise voting rights on their Shares
Article 5
(A) Subject to any direction to the contrary that may be given by the Company in General
Meeting or except as permitted by the rules of the Designated Stock Exchange, all new
shares shall before issue be offered to such persons who as at the date (as determined by
the Directors) of the offer are entitled to receive notices from the Company of General
Meetings in proportion, as far as the circumstances admit, to the number of the existing
shares to which they are entitled. The offer shall be made by notice specifying the number
of shares offered, and limiting a time within which the offer, if not accepted, will be deemed
to be declined, and, after the expiration of that time, or on the receipt of an intimation from
the person to whom the offer is made that he declines to accept the shares offered, the
Directors may dispose of those shares in such manner as they think most beneficial to the
Company. The Directors may likewise so dispose of any new shares which (by reason of the
ratio which the new shares bear to shares held by persons entitled to an offer of new shares)
cannot, in the opinion of the Directors, be conveniently offered under this Article 5(A).
(B) Notwithstanding Article 5(A) above, the Company may by Ordinary Resolution in General
Meeting give to the Directors a general authority, either unconditionally or subject to such
conditions as may be specified in the Ordinary Resolution, to:–
(a) (i) issue shares in the capital of the Company (“shares”) whether by way of rights,
bonus or otherwise; and/or
(b) (notwithstanding the authority conferred by the Ordinary Resolution may have ceased
to be in force) issue shares in pursuance of any Instrument made or granted by the
Directors while the Ordinary Resolution was in force,
Provided that:–
(2) in exercising the authority conferred by the Ordinary Resolution, the Company
shall comply with the provisions of the listing rules of the Designated Stock
Exchange for the time being in force (unless such compliance is waived by the
Designated Stock Exchange) and these Articles; and
(3) (unless revoked or varied by the Company in General Meeting) the authority
conferred by the Ordinary Resolution shall not continue in force beyond the
conclusion of the Annual General Meeting of the Company next following the
passing of the Ordinary Resolution, or the date by which such Annual General
Meeting of the Company is required by law to be held, or the expiration of such
other period as may be prescribed by the Act (whichever is the earliest).
(C) The Company may, notwithstanding Articles 5(A) and 5(B) above, authorize the Directors not
to offer new shares to Members to whom by reason of foreign securities laws, such offers
may not be made without registration of the shares or a prospectus or other document, but
to sell the entitlements to the new shares on behalf of such Members on such terms and
conditions as the Company may direct.
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Article 34
(A) There shall be no restriction on the transfer of fully paid up shares (except where required by
law or by the rules, bye-laws or listing rules of the Designated Stock Exchange) but the
Directors may in their discretion decline to register any transfer of shares upon which the
Company has a lien, and in the case of shares not fully paid up, may refuse to register a
transfer to a transferee of whom they do not approve, Provided Always that in the event of
the Directors refusing to register a transfer of shares, the Company shall within ten market
days (or such period as the Directors may determine having regard to any limitation thereof
as may be prescribed by the Designated Stock Exchange from time to time) after the date
on which the application for a transfer of shares was made, serve a notice in writing to the
applicant stating the facts which are considered to justify the refusal as required by the
Statutes.
(B) The Directors may decline to register any instrument of transfer unless:-
(a) such fee not exceeding S$2.00 (or such other fee as the Directors may determine
having regard to any limitation thereof as may be prescribed by the Designated Stock
Exchange from time to time) as the Directors may from time to time require is paid to
the Company in respect thereof;
(b) the amount of proper duty (if any) with which each instrument of transfer is chargeable
under any law for the time being in force relating to stamps is paid;
(c) the instrument of transfer is deposited at the Office or at such other place (if any) as
the Directors may appoint accompanied by a certificate of payment of stamp duty (if
stamp duty is payable on such instrument of transfer in accordance with any law for
the time being in force relating to stamp duty,), the certificates of the shares to which it
relates, and such other evidence as the Directors may reasonably require to show the
right of the transferor to make the transfer and, if the instrument of transfer is executed
by some other person on his behalf, the authority of the person so to do; and
Article 42
Except as required by the Statutes or law, no person shall be recognised by the Company as
holding any share upon any trust, and the Company shall not be bound by or compelled in any way
to recognise (even when having notice thereof) any equitable, contingent, future or partial interest
in any share, or any interest in any fractional part of a share, or (except only as by these Articles or
by the Statutes or law otherwise provided) any other right in respect of any share, except an
absolute right to the entirety thereof in the registered holder and nothing in these Articles contained
relating to CDP or to Depositors or in any depository agreement made by the Company with any
common depository for shares shall in any circumstances be deemed to limit, restrict or qualify the
above.
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APPENDIX E – DESCRIPTION OF RELEVANT PRC LAWS AND REGULATIONS
The National People’s Congress of the PRC (“NPC”) and the Standing Committee of the NPC are
empowered by the PRC Constitution to exercise the legislative power of the state. The NPC has the
power to amend the PRC Constitution and to enact and amend primary laws governing the state organs,
civil and criminal matters. The Standing Committee of the NPC is empowered to interpret, enact and
amend laws other than those required to be enacted by the NPC.
The State Council of the PRC is the highest organ of state administration and has the power to enact
administrative rules and regulations. Ministries and commissions under the State Council of the PRC are
also vested with the power to issue orders, directives and regulations within the jurisdiction of their
respective departments. Administrative rules, regulations, directives and orders promulgated by the State
Council and its ministries and commissions must not be in conflict with the PRC Constitution or the
national laws and, in the event that any conflict arises, the Standing Committee of the NPC has the power
to annul such administrative rules, regulations, directives and orders.
At the regional level, the people’s congresses of provinces, municipalities and autonomous regions and
their standing committees may enact local rules and regulations and the people’s governments may
promulgate administrative rules and directives applicable to their own administrative areas. These local
laws and regulations may not be in conflict with the PRC Constitution, any national laws or any
administrative rules and regulations promulgated by the State Council.
Rules, regulations or directives may be enacted or issued at the provincial or municipal level or by the
State Council of the PRC or its ministries and commissions in the first instance for experimental
purposes. After sufficient experience has been gained, the State Council may submit legislative
proposals to be considered by the NPC or the Standing Committee of the NPC for enactment at the
national level.
The power to interpret laws is vested by the PRC Constitution in the Standing Committee of the NPC.
According to the Decision of the Standing Committee of the NPC Regarding the Strengthening of
Interpretation of Laws passed on 10th June, 1981, the Supreme People’s Court has the power to give
general interpretation on application of laws in judicial proceedings apart from its power to issue specific
interpretation in specific cases. The State Council and its ministries and commissions are also vested
with the power to give interpretation of the rules and regulations which they promulgated. At the regional
level, the power to give interpretation of regional laws is vested in the regional legislative and
administrative organs which promulgate such laws. All such interpretations carry legal effect.
1. Judicial system
The People’s Courts are the judicial organs of the PRC. Under the PRC Constitution and the Law
of Organisation of the People’s Courts of the People’s Republic of China, the People’s Courts
comprise the Supreme People’s Court, the local people’s courts, military courts and other special
people’s courts. The local people’s courts are divided into three levels, namely, the basic people’s
courts, intermediate people’s courts and higher people’s courts. The basic people’s courts are
divided into civil, criminal, administrative and economic divisions. The intermediate people’s courts
have divisions similar to those of the basic people’s courts and, where the circumstances so
warrant, may have other special divisions (such as intellectual property divisions). The judicial
functions of people’s courts at lower levels are subject to supervision of people’s courts at higher
levels. The people’s procuratorates also have the right to exercise legal supervision over the
proceedings of people’s courts of the same and lower levels. The Supreme People’s Court is the
highest judicial organ of the PRC. It supervises the administration of justice by the people’s courts
of all levels.
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The people’s courts adopt a two-tier final appeal system. A party may before the taking effect of a
judgment or order appeal against the judgment or order of the first instance of a local people’s
court to the people’s court at the next higher level. Judgments or orders of the second instance of
the same level and at the next higher level are final and binding. Judgments or orders of the first
instance of the Supreme People’s Court are also final and binding. If, however, the Supreme
People’s Court or a people’s court at a higher level finds an error in a final and binding judgment
which has taken effect in any people’s court at a lower level, or the presiding judge of a people’s
court finds an error in a final and binding judgment which has taken effect in the court over which
he presides, a retrial of the case may be conducted according to the judicial supervision
procedures.
The PRC civil procedures are governed by the Civil Procedure Law of the People’s Republic of
China (the “Civil Procedure Law”) adopted on 9 April 1991 and amended as of 28 October 2007.
The Civil Procedure Law contains regulations on the institution of a civil action, the jurisdiction of
the people’s courts, the procedures in conducting a civil action, trial procedures and procedures for
the enforcement of a civil judgment or order. All parties to a civil action conducted within the
territory of the PRC must comply with the Civil Procedure Law. A civil case is generally heard by a
court located in the defendant’s place of domicile. The jurisdiction may also be selected by express
agreement by the parties to a contract provided that the selection is not contrary to some special
requirements of jurisdictions, and the jurisdiction of the people’s court selected has some actual
connection with the dispute, that is to say, the plaintiff or the defendant is located or domiciled, or
the contract was executed or implemented in the jurisdiction selected, or the subject-matter of the
proceedings is located in the jurisdiction selected. A foreign national or foreign enterprise is
accorded the same litigation rights and obligations as a citizen or legal person of the PRC. If any
party to a civil action refuses to comply with a judgment or order made by a people’s court or an
award made by an arbitration body in the PRC, the aggrieved party may apply to the people’s court
to enforce the judgment, order or award. The time limits on the right to apply for such enforcement
is two years.
A party seeking to enforce a judgment or order of a people’s court against a party who or whose
property is not within the PRC may apply to a foreign court with jurisdiction over the case for
recognition and enforcement of such judgment or order. A foreign judgment or ruling may also be
recognised and enforced according to PRC enforcement procedures by the people’s courts in
accordance with the principle of reciprocity or if there exists an international or bilateral treaty with
or acceded to by the foreign country that provides for such recognition and enforcement, unless the
people’s court considers that the recognition or enforcement of the judgment or ruling will violate
fundamental legal principles of the PRC or its sovereignty, security or social or public interest.
Under the Arbitration Law, an arbitral award is final and binding on the parties and if a party fails to
comply with an award, the other party to the award may apply to the people’s court for
enforcement. A people’s court may refuse to enforce an arbitral award made by an arbitration
committee if there were mistakes, an absence of material evidence or irregularities over the
arbitration proceedings, or the jurisdiction or constitution of the arbitration committee.
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A party seeking to enforce an arbitral award of a foreign affairs arbitration body of the PRC against
a party who or whose property is not within the PRC may apply to a foreign court with jurisdiction
over the case for enforcement. Similarly, an arbitral award made by a foreign arbitration body may
be recognised and enforced by the PRC courts in accordance with the principles of reciprocity or
any international treaty concluded or acceded to by the PRC.
3. Taxation
(a) Enterprise Income tax
On 1 January 2008, the Foreign-funded Enterprise and Foreign Enterprise Income Tax Law
of the PRC was abolished, and the
Enterprise Income Tax Law of the PRC , promulgated on
16 March 2007, became effective (the “New Income Tax Law”). Pursuant to the New Income
Tax Law, the income tax rate for both domestic enterprises and foreign enterprises is 25%.
Notice of the State Council on the Implementation of the Transitional Preferential Policies in
respect of Enterprise Income Tax
came into effect on 26 December 2007. Enterprises that previously enjoyed the preferential
policies of low tax rates shall be gradually subject to the statutory tax rate within five years
after the implementation of the New Income Tax Law. Accordingly, the enterprises that
enjoyed enterprise income tax rate of 15% shall be subject to the rate of 18% in 2008, 20%
in 2009, 22% in 2010, 24% in 2011 and 25% in 2012. The enterprises that previously
enjoyed the tax rate of 24% shall be subject to the tax rate of 25% as of 2008. As of 1
January 2008, the enterprises that previously enjoyed “two-year exemption and three-year
half payment”, “five-year exemption and five-year half payment” of enterprise income tax and
other preferential treatments in the form of periodic tax deductions and exemptions may, after
the implementation of the New Income Tax Law, can continue to enjoy the relevant
preferential treatments under the preferential measures and the time period prescribed in the
former tax law, administrative regulations and relevant documents until the expiration of the
said time period. However, if such enterprise has not enjoyed the preferential treatments yet
due to its failure to make profits, its preferential time period shall be calculated from 2008.
The expression “enterprises enjoying the preferential policies” as mentioned above refers to
the enterprises established and registered in the industrial and commercial administrative
department and in other registration administrative departments prior to 16 March 2007.
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Value added tax payable in the PRC is charged on an aggregated basis at a rate of 13% or
17% (depending on the type of goods involved) on the full price collected for the goods sold
or, in the case of taxable services provided, at a rate of 17% on the charges for the taxable
services provided but excluding, in respect of both goods and services, any amount paid in
respect of value added tax included in the price or charges, and less any deductible value
added tax already paid by the taxpayer on purchases of goods and service in the same
financial year.
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(b) Nature
A wholly foreign-owned enterprise is a limited liability company under the Foreign
Enterprises Law. It is a legal person which may independently assume civil obligations,
enjoy civil rights and has the right to own, use and dispose of property. It is required to have
a registered capital contributed by the foreign investor(s). The liability of the foreign
investor(s) is limited to the amount of registered capital contributed. A foreign investor may
make its contributions by instalments and the registered capital must be contributed within
the period as approved by the MOC (or its delegated authorities) in accordance with relevant
regulations.
A company or enterprise which causes environmental pollution and discharges other polluting
materials which endanger the public should implement environmental protection methods and
procedures into their business operations. This may be achieved by setting up a system of
accountability within the company’s business structure for environmental protection; adopting
effective procedures to prevent environmental hazards such as waste gases, water and residues,
dust powder, radioactive materials and noise arising from production, construction and other
activities from polluting and endangering the environment. The environmental protection system
and procedures should be implemented simultaneously with the commencement of and during the
operation of construction, production and other activities undertaken by the company. Any company
or enterprise which discharges environmental pollutants should report and register such discharge
with relevant bureaus of environmental protection and pay any fines imposed for the discharge. A
fee may also be imposed on the company for the cost of any work required to restore the
environment to its original state. Companies which have caused severe pollution to the
environment are required to restore the environment or remedy the effects of the pollution within a
prescribed time limit.
If a company fails to report and/or register the environmental pollution caused by it, it will receive a
warning or be penalised. Companies which fail to restore the environment or remedy the effects of
the pollution within the prescribed time will be penalised or have their business licenses terminated.
Companies or enterprises which have polluted and endangered the environment must bear the
responsibility for remedying the danger and effects of the pollution, as well as to compensate any
losses or damages suffered as a result of such environmental pollution.
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6 Foreign Exchange Controls
Major reforms have been introduced to the foreign exchange control system of the PRC since
1993.
On 28 December 1993, the People’s Bank of China (“PBOC”), with the authorization of the State
Council, issued the Notice on Further Reform of the Foreign Exchange Control System, which
came into effect on 1 January 1994. Other new regulations and implementation measures include
the Regulations on the Foreign Exchange Settlement, Sale and Payments which were promulgated
on 20 June 1996 and took effect on 1 July 1996 and contain detailed provisions regulating the
settlement, sale and payment of foreign exchange by enterprises, individuals, foreign organizations
and visitors in the PRC, and the Regulation on Foreign Exchange Control of the PRC which took
effect on 1 April 1996 and was amended on 14 January 1997 and 5 August 2008, which contains
detailed provisions in relation to foreign exchange control.
The foreign exchange earnings of all PRC enterprises, other than those foreign investment
enterprises (“FIE”), which are allowed to retain part of their regular foreign exchange earnings or
specifically exempted under the relevant regulations, shall be sold to designated banks. Foreign
exchange earnings obtained from borrowings from foreign institutions or issues of shares or bonds
denominated in foreign currency do not need to be sold to designated banks, but must be kept in
foreign exchange bank accounts of designated banks unless specifically approved.
At present, control on the purchase of foreign exchange is loosen. Enterprises in the PRC which
require foreign exchange for their ordinary trading and non-trading activities, import activities and
repayment of foreign debts may purchase foreign exchange from designated banks if the
application is supported by the relevant documents. Furthermore, FIEs may distribute profit to their
foreign investors with funds in their foreign exchange bank accounts kept with designated banks.
Should such foreign exchange be insufficient, enterprises may purchase foreign exchange from
designated banks upon the presentation of the resolutions of the directors in respect of the profit
distribution plan.
On 21 October 2005, SAFE promulgated the Circular of the State Administration of Foreign
Exchange Concerning Relevant Issues on Financing and Repatriation of Investments by Domestic
Residents through Foreign Special Purpose Vehicles (the “Notice 75”)
and on 29 May 2007, SAFE promulgated
the Notice on the Issuance of the Manipulation Rules of the Circular of the State Administration of
Foreign Exchange Concerning Relevant Issues on Financing and Repatriation of Investments by
Domestic Residents through Foreign Special Purpose Vehicles and Return Investment (the “Notice
106”).
. Under the Notice 75 and the Notice 106, PRC citizens or residents
must register with SAFE or its branch in connection with their establishment or control of a special
purpose vehicle (the “SPV”) established for the purpose of overseas equity financing involving a
repatriation investment whereby the SPV acquires or controls onshore assets or equity interests
held by the PRC citizens or residents. In addition, such PRC citizens or residents must update their
SAFE registrations when the offshore SPV undergoes material events relating to increases or
decreases in investment amount, transfers or exchanges of shares, mergers or divisions, long-term
equity or debt investments, external guarantees, or other material events that do not involve
repatriation investments.
The Notice 75 and the Notice 106 also require PRC residents in the overseas invested companies
to register, modify or record with the local foreign exchange authority within 30 days from the date
of any increase/decrease of capital, share transfer, mergers/demergers, change in long-term equity
or debts investments and outward guarantees in the SPV. Moreover, profits, dividends and foreign
exchange relating to capital changes received by PRC residents from the SPV shall be repatriated
to the PRC within 180 days of receiving such amounts. For SPVs which were incorporated or
restructured prior to the issue of the new rules, the Notice 75 requires the domestic residents to
complete the supplemental registration before 31 March 2006.
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7. Labour Protection Regulations
The companies in the PRC are subject to various labour and safety laws and regulations in the
PRC, including the PRC Labour Law , the PRC Labour Contract Law
, the Implementation Regulation for the PRC Labour Contract Law
, the Regulation of Insurance for Labour Injury
, the Unemployment Insurance Law , the Provisional Insurance
Measures for Maternity of Employees , the Interim Regulation on
the Collection and Payment of Social Insurance Premiums and the
Regulations for the Housing Provident Fund Contributions . Under these
PRC laws and regulations, enterprises are required to provide their employees with welfare
schemes including pension premium, work-related injury insurance, medical insurance,
unemployment insurance, maternity insurance and training in relation to occupational safety, etc.
The principal regulations governing the employment contract is the PRC Employment Contracts
Law , which was promulgated by the Standing Committee of the
NPC on 29 June 2007 and came into effect on 1 January 2008. Pursuant to the Employment
Contracts Law, employers shall establish employment relationship with employees on the date of
their employment. To establish the employment relationship, a written employment contract shall be
entered into between the parties, failing which the employers shall be held liable. Furthermore, the
probation period and liquidated damages shall be restricted by the law to safeguard employees’
rights and interests.
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APPENDIX F – DESCRIPTION OF SINGAPORE COMPANY LAW
RELATING TO SHARES
The following statements are brief summaries of the rights and privileges of Shareholders conferred by
the laws of Singapore and the Articles of Association (the “Articles”) of the Company.
These statements summarise the material provisions of the Articles but are qualified in entirety by
reference to the Articles.
ORDINARY SHARES
All of the ordinary shares of the Company are in registered form. The Company may, subject to the
provisions of the Companies Act (Chapter 50) of Singapore (“Companies Act”) and the rules of the
Singapore Exchange Securities Trading Limited (“SGX-ST”), purchase its own ordinary shares. However,
it may not, except in circumstances permitted by the Companies Act, grant any financial assistance for
the acquisition or proposed acquisition of its own ordinary shares.
SHAREHOLDERS
Only persons who are registered in the register of shareholders of the Company and, in cases in which
the person so registered is The Central Depository (Pte) Limited (“CDP”), the persons named as the
Depositors in the Depository Register maintained by CDP for the ordinary shares, are recognised as
shareholders of the Company. The Company will not, except as required by law, recognise any equitable,
contingent, future or partial interest in any ordinary share or other rights for any ordinary share other than
the absolute right thereto of the registered holder of that ordinary share or of the person whose name is
entered in the Depository Register for that ordinary share. The Company may close the register of
shareholders for any time or times if it provides the Singapore Registry of Companies and Businesses at
least 14 days’ notice and the SGX-ST at least ten clear market days’ notice. However, the register may
not be closed for more than 30 days in aggregate in any calendar year. The Company typically closes the
register to determine shareholders’ entitlement to receive dividends and other distributions.
F-1
GENERAL MEETINGS OF SHAREHOLDERS
The Company is required to hold an annual general meeting every year. The Board may convene an
Extraordinary General Meeting whenever it thinks fit and must do so if shareholders representing not less
than 10% of the total voting rights of all shareholders request in writing that such a meeting be held. In
addition, two or more shareholders holding not less than 10% of the issued share capital of the Company
may call a meeting. Unless otherwise required by law or by the Articles, voting at general meetings is by
ordinary resolution, requiring an affirmative vote of a simple majority of the votes cast at that meeting. An
ordinary resolution suffices, for example, for the appointment of directors. A special resolution, requiring
the affirmative vote of at least 75% of the votes cast at the meeting, is necessary for certain matters
under Singapore law, including voluntary winding up, amendments to the Memorandum of Association
and the Articles, a change of the corporate name and a reduction in the share capital, share premium
account or capital redemption reserve fund. The Company must give at least 21 days’ notice in writing for
every general meeting convened for the purpose of passing a special resolution. Ordinary resolutions
generally require at least 14 days’ notice in writing. The notice must be given to every shareholder who
has supplied the Company with an address in Singapore for the giving of notices and must set forth the
place, the day and the hour of the meeting and, in the case of special business, the general nature of that
business.
VOTING RIGHTS
A shareholder is entitled to attend, speak and vote at any general meeting, in person or by proxy. Proxies
need not be a shareholder. A person who holds ordinary shares through the SGX-ST book-entry
settlement system will only be entitled to vote at a general meeting as a shareholder if his name appears
on the Depository Register maintained by CDP 48 hours before the general meeting.
Except as otherwise provided in the Articles, two or more shareholders must be present in person or by
proxy to constitute a quorum at any general meeting. Under the Articles, on a show of hands, every
shareholder present in person and by proxy shall have one vote (provided that in the case of a
shareholder who is represented by two proxies, only one of the two proxies as determined by that
shareholder or, failing such determination, by the Chairman of the meeting in his sole discretion shall be
entitled to vote on a show of hands), and on a poll, every shareholder present in person or by proxy shall
have one vote for each ordinary share which he holds or represents. A poll may be demanded in certain
circumstances, including by the chairman of the meeting or by any shareholder present in person or by
proxy and representing not less than 10% of the total voting rights of all shareholders having the right to
attend and vote at the meeting or by any two shareholders present in person or by proxy and entitled to
vote. In the case of a tie vote, whether on a show of hands or a poll, the chairman of the meeting shall be
entitled to a casting vote.
DIVIDENDS
The Company may, by ordinary resolution of its shareholders, declare dividends at a general meeting, but
it may not pay dividends in excess of the amount recommended by the Board of Directors. The Company
must pay all dividends out of its profits; however, the Company may capitalise its share premium account
and apply it to pay dividends, if such dividends are satisfied by the issue of shares to shareholders of the
Company. See “Bonus and Rights Issue”. The Board of Directors may also declare an interim dividend
without the approval of its shareholders. All dividends are paid pro rata among the shareholders in
proportion to the amount paid up on each shareholder’s ordinary shares, unless the rights attaching to an
issue of any ordinary share provides otherwise. Unless otherwise directed, dividends are paid by cheque
or warrant sent through the post to each shareholder at his registered address. Notwithstanding the
foregoing, the payment by the Company to CDP of any dividend payable to a shareholder whose name is
entered in the Depository Register shall, to the extent of payment made to CDP, discharge the Company
from any liability to that shareholder in respect of that payment.
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BONUS AND RIGHTS ISSUE
Our Board of Directors may, with approval of our shareholders at a general meeting, capitalise any
reserves or profits (including profits or monies carried and standing to any reserve or to the share
premium account) and distribute the same as bonus Shares credited as paid-up to our Shareholders in
proportion to their shareholdings. Our Board of Directors may also issue rights to take up additional
Shares to Shareholders in proportion to their shareholdings. Such rights are subject to any conditions
attached to such issue and the regulations of any stock exchange on which we are listed.
TAKEOVERS
The Securities and Futures Act (Chapter 289) of Singapore and the Singapore Code on Takeovers and
Mergers regulate the acquisition of ordinary shares of public companies and contain certain provisions
that may delay, deter or prevent a future takeover or change in control of the Company. Any person
acquiring an interest, either on his own or together with parties acting in concert with him, in 30% or more
of the voting shares in the Company must extend a takeover offer for the remaining voting shares in
accordance with the provisions of the Singapore Code on Takeovers and Mergers. “Parties acting in
concert’’ include a company and its related and associated companies, a company and its directors
(including their relatives), a company and its pension funds, a person and any investment company, unit
trust or other fund whose investment such person manages on a discretionary basis, and a financial
advisor and its client in respect of shares held by the financial advisor and shares in the client held by
funds managed by the financial advisor on a discretionary basis. An offer for consideration other than
cash must be accompanied by a cash alternative at not less than the highest price paid by the offeror or
parties acting in concert with the offeror within the preceding six months. A mandatory takeover offer is
also required to be made if a person holding, either on his own or together with parties acting in concert
with him, between 30% and 50% of the voting rights acquires additional voting shares representing more
than 1% of the voting shares in any six month period.
INDEMNITY
As permitted by Singapore law, the Articles provide that, subject to the Companies Act, the Board of
Directors and officers shall be entitled to be indemnified by the Company against any liability incurred in
defending any proceedings, whether civil or criminal, which relate to anything done or omitted to have
been done as an officer, director or employee and in which judgment is given in their favour or in which
they are acquitted or in connection with any application under any statute for relief from liability in respect
thereof in which relief is granted by the court. The Company may not indemnify directors and officers
against any liability which by law would otherwise attach to them in respect of any negligence, default,
breach of duty or breach of trust of which they may be guilty in relation to the Company.
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MINORITY RIGHTS
The rights of minority shareholders of Singapore-incorporated companies are protected under Section
216 of the Companies Act, which gives the Singapore courts a general power to make any order, upon
application by any shareholder of the Company, as they think fit to remedy any of the following situations:-
(a) the affairs of the Company are being conducted or the powers of the Board of Directors are being
exercised in a manner oppressive to, or in disregard of the interests of, one or more of the
shareholders; or
(b) the Company takes an action, or threatens to take an action, or the shareholders pass a resolution,
or propose to pass a resolution, which unfairly discriminates against, or is otherwise prejudicial to,
one or more of the shareholders, including the applicant.
Singapore courts have wide discretion as to the reliefs they may grant and those reliefs are in no way
limited to those listed in the Companies Act itself. Without prejudice to the foregoing, Singapore courts
may:-
(a) direct or prohibit any act or cancel or vary any transaction or resolution;
(b) regulate the conduct of the affairs of the Company in the future;
(c) authorise civil proceedings to be brought in the name of, or on behalf of, the Company by a person
or persons and on such terms as the court may direct;
(d) provide for the purchase of a minority shareholder’s shares by the other shareholders or by the
Company and, in the case of a purchase of shares by the Company, a corresponding reduction of
its share capital;
EXCHANGE CONTROLS
There are no Singapore governmental laws, decrees, regulations or other legislation that may affect the
following:-
(a) the import or export of capital, including the availability of cash and cash equivalents for use by our
Group; and
(b) the remittance of dividends, interest or other payments to non-resident holders of our Company’s
securities.
F-4
APPENDIX G – DESCRIPTION OF SINGAPORE LAW RELATING TO TAXATION
The following is a discussion of certain tax matters arising under the current tax laws in Singapore and is
not intended to be and does not constitute legal or tax advice. While this discussion is considered to be a
correct interpretation of existing laws in force as at the date of this Prospectus, no assurance can be
given that courts or fiscal authorities responsible for the administration of such laws will agree with this
interpretation or that changes in such laws will not occur. The discussion is limited to a general
description of certain tax consequences in Singapore with respect to ownership of our Shares by
Singapore investors, and does not purport to be a comprehensive nor exhaustive description of all of the
tax considerations that may be relevant to a decision to purchase our Shares. Prospective investors
should consult their tax advisors regarding Singapore tax and other tax consequences of owning and
disposing our Shares. It is emphasised that neither our Company, our Directors nor any other persons
involved in the Invitation accepts responsibility for any tax effects or liabilities resulting from the
subscription for, purchase, holding or disposal of our Shares.
For a Singapore tax resident individual, the tax rate will vary according to the individual’s circumstances
but is subject to a maximum rate of 20%.
Non-resident individuals, subject to certain exceptions, are generally subject to income tax on income
accrued in or derived from Singapore at the prevailing rate of 20%.
An individual will be regarded as being resident in Singapore in a year of assessment if, in the preceding
year, he was physically present in Singapore or exercised employment in Singapore (other than as a
director of a company) for 183 days or more, or if he resides in Singapore.
Non-resident corporate taxpayers are subject to income tax on income accrued in or derived from
Singapore and on foreign income received or deemed to be received in Singapore, subject to certain
exceptions.
A corporate taxpayer is regarded as resident for Singapore tax purposes if the management and control
of its business is exercised in Singapore.
The prevailing corporate tax rate in Singapore is 17%. Corporate tax exemption will apply to the first
S$300,000 of a company’s chargeable income as follows:-
G-1
In addition, certain companies will, subject to certain conditions, be eligible for full tax exemption on their
normal chargeable income of up to S$100,000 a year and partial tax exemption of 50% of up to the next
$200,000 of normal chargeable income for each of the company’s first three years of assessment falling
in or after year of assessment 2008. The conditions which a new company must satisfy in order to claim
this exemption for a year of assessment include (a) it must be incorporated in Singapore; (b) it must be
tax resident in Singapore for that year of assessment; and (c) it must have no more than 20 shareholders
all of whom are individuals or at least one of whom is an individual holding at least 10% of the total
number of issued ordinary shares of the company throughout the basis period for that year of
assessment. The remaining chargeable income (after the tax exemption) will be taxed at the applicable
corporate tax rate.
With effect from 1 January 2003, Singapore has adopted the “One-Tier” Corporate Tax System (“One-
Tier System”). Under this One-Tier System, the tax collected from corporate profits is the final tax and
the Company can pay tax exempt (one-tier) dividends which are tax exempt in the hands of its
shareholders, regardless of the tax residency status or the legal form of the shareholders.
The Company is in the One-Tier System. Hence, dividends paid by the Company will be exempt from tax
in the hands of its Shareholders.
When a dividend is to be satisfied wholly or in part in the form of an allotment of ordinary shares credited
as fully paid, the dividend declared will be treated as income to its shareholders. However, as the
Company is under the One-Tier System, such a dividend will be exempt from Singapore tax. Similarly,
when shareholders are given the right to elect to receive an allotment of ordinary shares credited as fully
paid in lieu of cash, the dividend declared will be treated as exempt (one-tier) dividend income and will
not be subject to Singapore tax.
Any profits from the disposal of the Shares are not taxable in Singapore unless the seller is regarded as
having derived gains of an income nature in Singapore, in which case, the disposal profits would be
taxable as trading income.
G-2
Adoption of FRS 39 treatment for Singapore income tax purposes
On 30 December 2005, the IRAS issued a circular entitled “Income Tax Implications arising from the
adoption of FRS 39 Financial Instruments: Recognition and Measurement” (“FRS 39 Circular”).
Legislative amendments to give effect to the FRS 39 Circular have been enacted via the Income Tax
(Amendment) Act 2006, with such amendments having been deemed to come into operation on 1
January 2005.
Prospective investors should consult their own accounting and tax advisers regarding FRS 39 and the
related Singapore income tax consequences of their acquisition, holding or conversion of the Shares.
Stamp Duty
There is no stamp duty payable on the subscription, allotment or holding of the Shares.
Stamp duty is payable on the instrument of transfer of the Shares at the rate of S$0.20 for every S$100
or any part thereof, computed on the amount or value of consideration. The amount or value of
consideration is the actual consideration or market value of the Shares, whichever is higher.
The purchaser is liable for stamp duty, unless there is an agreement to the contrary. No stamp duty is
payable if no instrument of transfer is executed or the instrument of transfer is executed outside
Singapore. However, stamp duty would be payable if the instrument of transfer which is executed outside
Singapore is received in Singapore.
Stamp duty is, however, not applicable in respect of electronic transfers of the Shares through the Central
Depository system.
Where the Shares are sold by a GST registered investor to a person belonging outside Singapore, the
sale is a taxable supply subject to GST at zero-rate. Any GST incurred by a GST registered investor in
the making of this supply in the course of furtherance of a business may, subject to the provisions of the
Goods and Services Tax Act, be offset against the investor’s GST liability and, in the event of an excess
input tax credit, be recovered from the Comptroller of GST of Singapore.
Services such as brokerage, handling and clearing services rendered by a GST registered person to an
investor belonging in Singapore in connection with the investor’s purchase, sale or holding of the Shares
will be subject to GST at the prevailing rate, that is, 7%. Similar services rendered to an investor
belonging outside Singapore are subject to GST at zero-rate, provided that the investor belongs in a
country outside Singapore when the services are performed and the services provided do not directly
benefit any Singapore persons.
G-3
Leading and established management team with proven track record of delivering
sustainable growth and profitability
Xie Ding Zhong, Executive Chairman & Chief Executive Officer, has
accumulated more than 40 years of experience in the chemical industry.
Partnering with our extensive and notable Historical Net Profit (RMB ‘million), Margin (%) and
Integrated business model anchored on strong R&D capabilities and registered customer network across China in creating cash from operating activities
patents for our key technologies. long-term value for our shareholders
• Integrated business model provides operational efficiency MAJOR CUSTOMERS
• Project-driven and advance payment business model reduces inventory and credit risks China XLX group Listed on SGX-ST and HKSE*
• Margin-protected through inter-weaving operational efficiency and proprietary and patented technologies
Sinofert group Listed on HKSE*, part of Sinochem group, which is
listed on the SSE*
Shanxi Tianze group Large petrochemical & chemical group based in
Shanxi
PROSPECTS Jincheng Anthracite
Mining group
Large petrochemical & chemical group based in
Shanxi
Yunnan Yunwei group Listed on SSE*
Steady growth in production volume and capacity of ammonia and methanol in
China Haohua group Large petrochemical & chemical group based
the PRC is expected to continue in Hebei & part of the China National Chemical
Corporation group
• The PRC needs to feed 21% of the world’s population with only 9% of global arable area. Use of fertiliser is crucial in Guizhou Kailin group Chemical fertiliser & chemical group in Guizhou
ensuring the PRC’s food security.
• Persistent and stable increase in demand for fertiliser to expand crop production and in other industry uses for *HKSE: Hong Kong Stock Exchange
ammonia. *SSE: Shanghai Stock Exchange
• Methanol is an important feedstock to the petrochemical and chemical industries. The PRC’s demand for energy Premium customer base of over 320 customers across the PRC. Please
security necessitate the development of alternative fuel. refer to the sector entitled “Our Major Customers” for detailed listing of
• Increasing use of dimethyl ether as alternative fuel for cooking and heating and methanol to olefin process to produce our major customers.
ethylene and propylene, the top 2 petrochemical feedstock.
FUTURE PLANS
Existing producers required to increase capital expenditure to upgrade production
Expand our production facilities and capabilities
facilities
Increase the annual combined production capacity for chemical systems and components as well as catalysts up to 18,125 tonnes
• 83.3% and 85.2% of the PRC’s ammonia and methanol producers operate in inefficient plants producing less than and 4,100 tonnes respectively
180kt/yr and 200 kt/yr respectively.
Enhance our R&D capabilities and widen our range of innovative and cost-effective solutions
Continue to research on ways to enhance our existing technology to further reduce the energy consumption per unit product of
Coal-based ammonia and methanol synthesis technologies continue to be predominantly ammonia and methanol
used in the PRC market
Expand our sales and marketing capabilities and initiatives
• Limited natural gas and oil resources in the PRC. Cost advantages persist for coal-based synthesis technologies.
Explore opportunities in strategic investments or alliances and acquisitions
PROSPECTUS DATED 13 OCTOBER 2010
(REGISTERED BY THE MONETARY AUTHORITY OF SINGAPORE ON 13 OCTOBER 2010)
COMPANY OVERVIEW
Leading integrated chemical systems engineering and technology solutions
provider to the PRC petrochemical and chemical industries, in particular,
manufacturers of ammonia and methanol based products
Based on our core principles of production efficiency, energy saving and environmental protection, our range of integrated
chemical systems engineering and technology solutions can be broadly categorised into 3 segments:
(i) Chemical systems engineering and technology design services (CET Design Services)
Our chemical systems and components are generally used by our customers to produce ammonia and methanol, which are
subsequently used as crucial feedstock in our customers’ production systems to produce other downstream products such as
urea, compound fertiliser, methanol fuel, formaldehyde, dimethyl ether and explosives.
Preparation
System Design of raw gas
Chemical industries Petrochemical
Chemical fertilisers industry
including urea and Methanol fuel and
Gas purification compound fertilisers other related products
Ammonia / Methanol
output
Ammonia / Methanol
After-sales Ammonia / methanol Ammonia-based Methanol-based
IMPORTANT NOTE of this Prospectus. Registration of this Prospectus with the used as feedstock in products products
Authority does not imply that the Securities and Futures Act other sub-processes
This document is important. If you are in any doubt as to of Singapore, or any other legal or regulatory requirements,
the action you should take, you should consult your legal, have been complied with. The Authority has not, in any way,
financial, tax, or other professional adviser. considered the merits of the Shares (including the Vendor We intend to create long-term value for our customers through our core principles of achieving production efficiency, energy
Shares) and the New Shares, as the case may be, being saving and environmental protection.
We have made an application to the Singapore Exchange offered for investment.
Securities Trading Limited (the “SGX-ST”) for permission
to deal in and for quotation of all the ordinary shares (the Investing in the Shares involves risks which are described in
“Shares”) in the capital of Anchun International Holdings Ltd. the section entitled “Risk Factors” of this Prospectus.
(the “Company”) already issued (including the Vendor Shares
as defined herein) and the new Shares (the “New Shares”) No Share shall be allotted or allocated on the basis of this
which are the subject of this Invitation (as defined herein). Prospectus later than six (6) months after the date of registration
Such permission will be granted when our Company has been of this Prospectus by the Authority.
admitted to the Official List of the SGX-ST.
ANCHUN INTERNATIONAL HOLDINGS LTD. Acceptance of applications of the Invitation Shares (as
defined herein) will be conditional upon the SGX-ST granting
Invitation in respect of 130,000,000 Invitation
permission to deal in and for quotation of all of the existing Shares of S$0.28 each comprising 105,000,000
Principal place of business:
issued Shares (including the Vendor Shares) and the New New Shares and 25,000,000 Vendor Shares as
Shares. Monies paid in respect of any application accepted follows:-
No
No.539,
No.53
o.539,
39, Lusong
Luso
L Road will, in the event such permission is not granted, be returned
Changsha
Cha
Changs
angsha
gshaa National
Natio
National
nal Hi-tech
Hi-te Indus
IIndustrial Development
ment Zone to you at your own risk without interest or any share of (a) 2,000,000 Offer Shares at S$0.28 for each
revenue or other benefit arising therefrom, and you will Offer Share by way of public offer; and
Changsha City, Hunan Province, PRC 410205
Tel:
Te
el: (8
(86)
86) 731-8514
7 8687
not have any claim against our Company, the Vendors, the
Manager, or the Underwriter and Placement Agent. Quotation (b) 128,000,000 Placement Shares at S$0.28 for
COMPETITIVE STRENGTHS
of and dealing in the Shares will be in Singapore dollars.
Fax: (86) 731-8514 8687 each Placement Share by way of placement;
The SGX-ST assumes no responsibility for the correctness of
Leading enterprise and brand name in the PRC chemical systems engineering
any of the statements made, reports contained or opinions payable in full on application. and technology solutions industry with numerous accolades
expressed in this Prospectus. Admission to the Official List of
the SGX-ST is not to be taken as an indication of the merits • 2009 Forbes China Up & Comers award by Forbes China magazine
of the Invitation, our Company, our Subsidiary, the existing Manager, Underwriter and Placement Agent
issued Shares (including the Vendor Shares) and the New • Advanced New Technology Enterprise in 2008
Shares.
• China Petrochemical & Chemical Industries Outstanding Private Enterprise in 2005
A copy of this Prospectus has been lodged with and registered
by the Monetary Authority of Singapore (the “Authority”). KIM ENG CORPORATE FINANCE PTE. LTD. • China Chemical Industry Technology Innovation Model Enterprise in 2004
The Authority assumes no responsibility for the contents