LEADING CHINESE functional yarn and PET chip maker C&G certainly has an intellectual and vocal group of minority shareholders.
Not counting its board members and professionals retained, 36 of these shareholders turned up at its AGM - quite a crowd considering its market cap is only S$65.5 million.
They quizzed the company’s board of directors for over 2 hours at Suntec City yesterday, pausing only reluctantly to allow voting on the proposed agenda of resolutions to be passed.
Just last Friday, C&G’s share price had jumped 50% overnight to 15 cents. The evening before, the S-chip announced its intention to diversify into China’s renewable energy sector.
The company had entered into a non-binding MOU to acquire a waste incineration power plant for an indicative price of Rmb 359 million (S$78.9 million).
Waste-to-energy is a sector that benefits from the environmental infrastructure initiative under China’s widely lauded 4-trillion yuan stimulus plan.
And the company believes this is a business capable of generating stable and recurring income, unlike the cyclical synthetic textile business.
The company had written off Rmb 9.3 million in FY08 when it decided to abandon a chemical fiber project on the industrial application of differentiated polyester short fiber.
What’s more, in sharp contrast to the Chinese textile industry which suffered a loss of over Rmb 4.8 billion in Jan and Feb alone this year (www.webtextiles.com data), prospects are bright in the environmental business.
The acquisition target is one of China’s few waste-to-energy players, said C&G’s chairman, Mr Lam Chik Tsan when queried by a shareholder on competitive strengths of the new business proposition and the sector’s barriers to entry.
Most renewable energy projects are for water (hydroelectricity), solar or wind power, and waste-to-energy is still a nascent sub-sector.
The government had ceased granting the relevant licenses to companies without track record and a project pipeline, elaborated Mr Lam.
Another area of contention by the shareholders was the relatively meager dividend payout of 17% or Rmb 2.38 per share.
At the last close stock price of 14 cents, the dividend yield amounts to 3.5% but shareholders were looking at C&G’s cash per share of Rmb 0.96 (21 cents), amounting to a huge cash balance of some half a billion yuan.
The huge cash pile was the same reason some shareholders were against a proposed resolution to authorise the issue of new C&G shares at a discount of up to 20%.
The directors had intended to pay for CUGU Environmental Protection International Ltd, a proven and profitable business, using C&G shares as its purchase consideration.
CUGU’s first waste incineration power plant is located in Jinjiang, Fujian and commenced commercial operations in 2006.
It has since invested similar plants in other parts of China under build-operate-transfer (BOT) schemes.
Given today's tough credit conditions plus the fact that power plants involve high amounts of capital expenditure, the management had felt it was wiser to retain cash for a pipeline of waste-to-energy projects.
Nevertheless, shareholders were assured that they will look into dividend payout policy once the group's revenue streams stabilize.
The matter was not helped by the fact that CUGU’s vendors are none other than Mr Lam himself and C&G’s CEO Mr Cai Junyi.
Shareholders were also irked by FY08’s Rmb 21.4 million increase in R&D expenses on synthetic fiber, but were assured by the CEO that C&G did not intend to hive off its existing business.
Rather, the direction was to have twin engines of growth from synthetic textile as well as waste-to-energy.
Just two months ago in Feb, the Chinese government had increased export tax rebates for textile and garment makers by one percentage point to 15%.
A poll with all shareholders present eventually got the resolution passed. C&G has a public float of 61%.
Related story:
23 Mar 2008 C&G Industrial: 24% discount to NTA
