MAINBOARD-LISTED Hu An Cable Holdings said in a bourse filing on Tuesday (Nov 9) that it is considering how to raise funds for its liquidation.

 

In response to queries by the Singapore Exchange (SGX) on why the board has not found a liquidator for the past 3 months since August, Hu An Cable said it had obtained fee proposals from a law firm and liquidator in relation to the winding up and delisting of the company.

 

" However, the company is currently constrained as it does not have sufficient funds for the payment of the professional fees and the other costs of the liquidation," it said. " This difficulty is compounded by the impending delisting of the company."

 

Hu An Cable added the board will endeavour to appoint the liquidation professionals by Dec 31. " This takes into account the fund-raising efforts that the board will have to undertake prior to the appointment of these professionals," it said.

 

Trading of shares in Hu An Cable had been suspended since December 2018.

PITY small investors left holding the bag when public-listed companies die. Apart from suffering financial losses, they sometimes spend years holding out for unlikely turnarounds and rescues.

 

Earlier this month, a group of small investors canvassed regulators and the media to support the continued listing of Hu An Cable Holdings, a mainboard-listed company that suspended trading of its shares in December 2018, and that only managed to hold its FY2015 annual general meeting one month ago, on June 30.

 

In a letter dated May 5, 2021, Singapore Exchange Regulation (SGX RegCo) told Hu An that it was in breach of a number of listing rules, and laid out several conditions for the company to remain listed. Among these conditions was that Hu An enter into a definitive agreement for the acquisition of a business that satisfies the requirements for a new listing by June 30, 2021.

 

On July 1, Hu An asked SGX RegCo for a 10-day extension of time to meet this particular condition. And, as it happened, Hu An announced a deal on July 10 that is likely to meet the condition.

 

Unfortunately, SGX RegCo denied the request for more time.

 

Hu An said on July 14 that it has submitted an appeal to SGX RegCo.

 

From the announcements Hu An has made recently, it is understandable why the company' s long-suffering shareholders want it to remain listed. With a new board led by executive chairman Gao Hong, things finally seem to be moving forward.

 

For instance, on May 13, 2020, the company said it would buy 51 per cent of Da Hang Trading for S$1.7 million, which it will satisfy by issuing 188.9 million new shares priced at 0.9 Singapore cent each. Singapore-based Da Hang trades in wood furniture, building materials, steel products, machinery and equipment, and consumer goods such as liquor.

 

The long-stop date for the deal has since been pushed to Dec 31. Hu An has nearly 1,011.6 million shares in issue.

 

More recently, on June 22, Hu An said it had entered into a placement agreement with New Energy Industry Sweden (NEWe), which will see it issue nearly 424.9 million new shares at 0.9 cent per share to raise a total of S$3.8 million.

 

NEWe is a green energy investment company. It is 83 per cent-owned by Fang Huasheng, who is currently on the board of Hu An.

 

China deal

 

Yet, the details and structure of the specific deal that Hu An hopes will keep it from being delisted might give some investors pause.

 

On July 10, Hu An announced plans to acquire a company called Singapore Orient Power Holding (SOPH). The vendor is a Canadian national named Yu Suiying, who was introduced to Hu An by Mr Fang.

 

SOPH was incorporated only in May 2019, and is involved in the renewable energy business. For its FY to March 31, 2021, SOPH reported a net profit of S$4.3 million. As at March 31, it had net assets of S$4.3 million.

 

Hu An stated in its July 10 announcement that SOPH intends to enter into " management and operation agreements" with a Chinese company called Guangdong Guangte Electric Co (GGEC) that will allow SOPH to exercise control over its business operations and enjoy substantially all the economic rights arising from its businesses.

 

GGEC produces power transmission and control equipment. It has two national patents for invention of core technology, and utility model patents for new technology in 12 original products in areas such as environment conservation and energy saving.

 

For the FY to Dec 31, 2020, GGEC reported revenue of 268.8 million yuan (S$56.4 million) and net profit of 707,370 yuan. As at Jan 1, 2021 it had an order book of 179.8 million yuan, which was to have been fulfilled in six months.

 

Why would GGEC hand over control of its businesses to SOPH? Hu An' s announcement does not explain this.

 

The announcement does, however, state that 72 per cent of GGEC is owned by an individual named Yu Jijiang, who is a relative of the vendor of SOPH. The name Yu Jijiang also appears on NEWe' s list of shareholders, holding a 5 per cent stake.

 

Hu An plans to acquire SOPH in two stages. It will first pay S$8 million in cash for new shares in SOPH, which will give it a 51 per cent stake in the enlarged company.

 

Then, for a period of 12 months, it will have the option to acquire the remaining 49 per cent of SOPH from the vendor for S$49 million. This will be satisfied by the issue of new Hu An shares at the five-day volume-weighted average market price at the time.

 

This second stage of the transaction is conditional upon SOPH reporting at least S$10 million in net profit for the FY to March 31, 2022. The sale consideration will be lowered if SOPH fails to meet this minimum profit target.

 

Just another S-chip

 

So, should SGX RegCo grant Hu An a further reprieve? What would the transactions Hu An has belatedly organised achieve for its shareholders?

 

On the face of it, the size of the transactions suggest they will have a significant impact on the market value of Hu An' s shares.

 

The stock last traded at 0.9 cent, which puts the company' s market capitalisation at just S$8.7 million. As at end-2015, Hu An had net liabilities of 5.3 million yuan or 0.52 fen per share.

 

The big question is what will happen after the initial bounce in Hu An' s shares.

 

This column does not have sufficient information to judge the likely long-term performance of the companies Hu An is proposing to acquire. But it is probably fair to say that Hu An is simply morphing into just another S-chip, for which there is no longer any appetite in the local market.

 

Tempting as it may be to give Hu An' s hapless shareholders what they want, it is worth considering if less desperate investors would be as keen on the deals Hu An has proposed.

 

If Chinese companies like GGEC want to list in Singapore, they should do so via an initial public offering rather than be allowed in through the back door.

 

Hu An Cable Holdings, which has been told by SGX to delist, will be filing an appeal, citing a definitive agreement to acquire a majority stake in a new business.

 

Hu An Cable had on July 1 asked for an extension till July 10 to satisfy listing requirements. It was rejected by SGX. 

 

On July 9, the company entered an agreement to acquire a Singapore incorporated entity, Singapore Orient Power Holding, whose key asset is its 90% stake in a Vietnam-incorporated company New Orient Renewable Energy Company. The agreement was announced on July 10.

 

For the year between April 2020 and March 2021, the target company generated earnings of $4.3 million on revenue of $5.9 million.

The $57 million acquisition is to be paid in a combination of $8 million in cash and $49 million in new Hu An shares at a price and number to be finalized.

 

According to Hu An, the target entity has nine employees now and is providing management services to the energy industry.

 

The remaining 10% is held by one Tran Viet Phuong, and its legal representative, an individual by the name of Li Jun.

 

The Vietnam target, as part of the deal with Hu An, will manage and operate a Chinese entity, Guangdong Guangte Electric Co and &ldquo exercise control over the business operations and enjoy substantially all the economic rights arising&rdquo .

According to Hu An, Guangdong Guangte Electric Co, based in China&rsquo s Guangdong province, is in the R& D and production and sale of power transmission and control equipment.

 

For the year ended Dec 2020, Guangdong Guangte Electric Co reported earnings of RMB707,370 on revenue of RMB268.8 million. As at Dec 31 2020, its order book was RMB179.8 million to be fulfilled over the next six months.

Hu An shares have been suspended since Dec 2018. The company believes that this acquisition of a new business in the energy industry is a &ldquo viable&rdquo one to acquire.

 

The company also holds the &ldquo preliminary view&rdquo that this acquisition will let it keep its listing status on the Singapore Exchange.