A FUND is set to become a controlling shareholder of China Gaoxian – while the current controlling shareholder (and former executive chairman) Cao Xiangbin will have to sell down 510 million of his shares for a nominal $1 in total. And he is likely to be booted out of management roles in the company.
China Gaoxian, suspended from trading since March 2011 because an audit found serious financial discrepancies in its accounts, is seeking a resumption of trading of the company’s shares.
The fund that is emerging as a white knight is Dymon Asia Special Opportunities Fund, which is an Asian-focused fund investing in promising private and listed companies across Asia.
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The fund is part of the Dymon Group, which manages close to US$2.8 billion and is headquartered in Singapore.
The fund recently paid S$2.915 million to subscribe for 5.5 million new shares at S$0.53 each in Singapore-listed Mencast Holdings.
The fund’s upcoming emergence as controlling shareholder of China Gaoxian followed efforts by China Gaoxian to attract potential investors in the company and, in particular, the Huaxiang Project which will expand the business upstream.
In a filing to the Singapore Exchange this evening, China Gaoxian said it has entered into a Non-binding Term Sheet with Dymon Asia Special Opportunities Fund whereby the fund has agreed to subscribe for 270 million new shares in the company (approximately 13.2% of the pre-dilution share capital of the Company and approximately 11.7% of the enlarged share capital of the Company).
The issue price is 10 cents per share.
In consideration of Dymon’s investment, China Success Limited (an investment holding company wholly-owned by Mr Cao) shall transfer 510 m shares in China Gaoxian (approximately 25% of the pre-dilution capital of the Company and approximately 22.1% of the enlarged share capital of the Company) to Dymon for a nominal consideration of S$1.00.
The rationale for this $1 fire sale was not given in the China Gaoxian filing, but it seems to be some sort of financial penalty inflicted on Mr Cao for his massive role in the fiasco of the company.
Following the restructuring, China Success Limited’s shareholding in the company will be reduced to approximately 14.8% and Dymon will hold approximately 33.8% of the enlarged share capital of the Company.
Based on Dymon's total shareholding of 270 million + 510 million shares, these shares cost the fund 3.46 cents a share on average.
That is a good basis for guessing the market value of China Gaoxian's shares when they resume trading at a date which is yet to be finalised.
Considering that the Dymon fund would have bought at a certain discount to the perceived intrinsic value, you could guess that the market value could be anything between 5 and 10 cents a share.
Assuming that price range, the market cap of China Gaoxian would then be between S$115 million and S$230 million.
In conjunction with the issuance of new shares, the Company will also be issuing free warrants to all shareholders of the Company (including Dymon and China Success Limited) at a ratio of 1 to 2 (i.e. one free warrant for every two existing shares), with an exercise price of 10 cents per share.
According to the company, this is to enable shareholders to participate in its future growth. It looks to also be a way to appease minority shareholders who are stuck with the shares.
Read the entire 30-page China Gaoxian filing to SGX here, including the Special Auditors' executive summary of their findings which basically find a lot of fault with Cao Xiangbin's stewardship of the company's affairs.
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