Stock Code: 000553(200553) Stock Abbreviation: ADAMA A(B) Announcement No. 2019-17
ADAMA Ltd.
Announcement on the Change of Certain Designated Projects
The Company and all members of its Board of Directors confirm that all the information
disclosed herein is true, accurate, and complete with no false or misleading statement or
material omission.
On March 19, 2019, the 12th meeting of the 8th session of the Board of Directors, and the
8th meeting of the 8th session of the Board of Supervisors of ADAMA Ltd. (the “Company”)
approved a proposal on the change of certain designated projects included in the Project of
Share Issuance for Assets Purchase and Supporting Finance (“Designated Project”). It is
hereby announced as follows.
I. Overview of the Change of Certain Designated Projects
1. General Information About the Raised Funds
After receiving the approval of China Securities Regulatory Commission for the issuance
of shares to China National Agrochemical Co., Ltd. to acquire assets and raise supporting
funds (CSRC Permits [2017] No.1096), the Company issued 104,697,982 ordinary A shares
in December 2017, at the issue price of RMB14.90 per share, raising a total amount of
RMB1,559,999,931.80. After deducting the underwriting fees of RMB28, 079,998.78, the
net amount received by the Company was RMB1, 531,919,933.02. The net amount was
received on 27 December 2017 and was verified by Deloitte Touche Tohmatsu Certified
Public Accountant LLP, who issued a capital verification report (De Shi Bao (Yan) Zi (17)
No.00540).
According to the Report of the Company on Share Issuance for Assets Purchase and
Supporting Funds & Connected Transactions published by the Company on July 5, 2017, the
Company planned to issue no more than 118,784,644 shares and raise no more than RMB
1,982.91 million in funds. The Company planned to use the raised funds on construction
projects related to the main business of ADAMA Agricultural Solutions Ltd. (hereinafter
referred to as “Solutions”), R&D projects and registrations, and fees for the intermediary
agencies and transaction taxes.
2. Introduction on the Designated Project to be Changed
After careful analysis, the Company intends not to use the raised funds on the project of
the construction of Huai’an pesticide formulation center and the project of fixed-assets
investment-product A 600t/a. The details are as follows.
(1) Construction of Huai’an Pesticide Formulation Center
The committed investment is RMB 249.8 million and accounts for 12.6% of the total
amount of the planned raised funds. As of the date of this announcement, the Company has
not used any of the raised funds on this project. The remaining amount of the raised funds for
the aforesaid project is therefore RMB 249.8 million.
(2) Fixed-Assets Investment-Product A 600t/a
The committed investment is RMB 150.28 million and accounts for 7.58% of the total
amount of the planned raised funds. As of the date of this announcement, the Company has
not used any of the raised funds on this project. The remaining amount of the raised funds for
the aforesaid project is therefore RMB 150.28 million.
The total amount of the raised funds relating to the changed designated projects is RMB
400.08 million and together accounts for 20.18% of the total amount of the funds raised. The
Company intends to use the above amount to pay towards the consideration of the equity
transfer of Jiangsu Anpon Electrochemical Co., Ltd. (hereinafter referred to as “Anpon”).
3. Approval Procedures Relate to the Change of the Designated Projects
(1) The 12th meeting of the 8th session of the Board of Directors and the 8th meeting of
the 8th session of the Board of Supervisors approved the change of the designated projects on
March 19, 2019. The independent directors issued the independent opinions on that matter.
The change of the designated projects is subject to the approval of the shareholders meeting,
and since it relates to the payment of the consideration for the acquisition of a related party’s
equity, it constitutes a related-party transaction.
(2) The 12th meeting of the 8th session of the Board of Directors and the 8th meeting of
the 8th session of the Board of Supervisors approved the Proposal on the Acquisition of 100%
of the Equity Interests in Jiangsu Anpon Electrochemical Co., Ltd., in a Related-Party
Transaction. The Company intends to acquire 100% of the equity interests of Anpon. The
acquisition is not subject to the approval of the Company’s shareholders. China National
Chemical Corporation Ltd., as the supervising authority of the state-owned assets, its
working meeting of the general manager has approved this Transaction. It has also completed
the filling procedure of the assets appraisal.
II. Reason for the Change of the Designated Project
1. Situations of the Planned and Actual Investment on the Former Designated Project
(1) Situation of the Planned Investment
1.1 Project of the Construction of Huai’an Pesticide Formulation Center
The project was planned to be implemented by Adama Pesticide (Jiangsu) Co., Ltd, an
indirectly wholly-owned subsidiary of the Company. It planned to invest RMB 332.3 million
to set up a project of pesticide formulations with the annual production capacity of 45
thousand tons (to potentially be expanded to 60 thousand tons) in Yanhua New Material
Industrial Zone of Huai’an Jiangsu Province. There are two major categories of its products:
herbicide and fungicide/bactericide. The planned capital expenditure of this project was
RMB 249.8 million, and accordingly the Company planned to use RMB 249.8 million of the
raised funds on this project. The detailed composition of the investments is as follows:
Items Investment sum Raised funds planned to be
(’0000) used (’0000)
1 Investment on construction 31,145 24,980
1.1 Of which: the expense on 12,148 7,280
equipment purchasing
1.2 The expense on installation 3,948 12,600
engineering
1.3 The expense on construction 8,763
engineering
1.4 The other expenses on 6,286 5,100
construction
2 The interest during the 673 -
construction period
3 The base circulating fund 1,412 -
Total 33,230 24,980
The local government’s approval and environmental impact review relates to the project of
the construction of Huai’an pesticide formulation center has been completed. The details are
as follows.
Authority Approval Environmental Impact
Review
Project of the construction Approval of the Project of Approval on the
of Huai’an pesticide Pesticide Formulations of Environment Impact Report
60kt/a of Adama Pesticide of the Project of Pesticide
formulation center (Jiangsu) Co., Ltd. Formulations of 60kt/a of
Adama Pesticide (Jiangsu)
(H.Y.G.T.Z.Fu No.[2014] 1)
Co., Ltd.
(H.H.B.Fu No. [2014] 25)
The project was originally planned to be fully operational and ready for use in 2019. After
being completed and put into operation, the future annual average revenue (excluding tax) is
expected to be RMB 439.05 million, average annual profit is expected to be RMB 32.57
million, average annual net profit is expected to be RMB 24.43 million, annual average
earnings before tax and interest (EBIT) is expected to be RMB 37.1million and annual
average EBITDA is expected to be RMB 56.16 million. Total rate of return on investment is
expected to be 11.17%, payback period after tax of the project is expected to be 7.61 years
(including construction period), and the loan repayment period is expected to be 6.87 years
(including construction period).
1.2 Fixed-Assets Investment-Product A 600t/a
The project was planned to be implemented by ADAMA Makhteshim Ltd., an indirectly
wholly-owned subsidiary of the Company. It planned to invest US$ 26.5 million (RMB
150.28 million) to expand the production capacity of Product A to 600 tons in the area where
ADAMA Makhteshim Ltd. is located. The detailed composition of the investment is as
follows:
US$ ’0000
2017 2018 2019
Fixed-Assets Investment-Product A 600t/a - 1,000 1,650
The project was originally planned to be completed in 2019. After being completed and
put into operation, the future annual average revenue (excluding tax) is expected to be
US$64.28 million, average annual profit (EBIT) is expected to be US$24.16 million, average
annual net profit is expected to be RMB24.43 million, annual average earnings before tax
and interest (EBIT) is expected to be US$25.36 million. IRR is expected to be 30%, and
payback period after tax of the project is expected to be 6.8 years (including construction
period).
(2) Situation of the Actual Investments
As of the date of this announcement, the raised funds have not been used on the project of
the construction of Huai’an pesticide formulation center, and the Company has been
investing in projects with its own funds, currently with an accumulated investment amount of
323.36 million, accounting for 97% of the investment amount. The project is expected to be
fully operational in 2019.
Regarding the Project of the Fixed-Assets Investment-Product A 600t/a, since Product A is
an innovative product, the market needs a certain amount of time for the wide acceptance of
innovative products, and given the extreme weather in the European market, when the
Company has implemented the Product A 300 t/a capacity expansion project, it has not yet
decided to implement the 600 t/a capacity expansion project immediately, which will result
in a delay in the investment of this project. As of the disclosure date of this announcement,
the cumulative investment amount of this project is zero.
2. Reasons for the Change of the Designated Projects
1. Project of the Construction of Huai’an Pesticide Formulation Center
Since Adama Pesticide (Jiangsu) Co., Ltd., a subsidiary company of the third-tier
subsidiary of Solutions, is the entity to implement the construction project of Huai’an
Pesticide Formulation Center, the Company needs to increase the capital of Solutions first,
and then increase the capital of the subsidiaries by Solutions. The time and process required
for the relevant approval process, such as funds entry and exist, is complicated. In order to
avoid delays of the project, the Company invested its own capital into the project, and the
project is expected to be fully operational and ready for use in 2019.
2. Fixed-Assets Investment-Product A 600t/a
The project also needs to be carried out through the Company's capital increase for its
subsidiaries, involving the relevant approval process for funds exit, which takes a long time.
Product A is an innovative product. The market needs to accept innovative products for a
certain period. Additionally, due to the extreme weather in the European market, the project
has been delayed. Therefore, the Company intends to replace this original designated project.
III. Situations of the New Designated Projects
1. Overview
Jiangsu Anpon Electrochemical Co., Ltd. is a wholly-owned subsidiary of China National
Agrochemical Co., Ltd., the controlling shareholder of the Company. Its main business is the
production and sales of pesticides and fine chemicals. Its registered capital is RMB 251.38
million, and its net asset value on December 31, 2018 is RMB 447.6474 million.
Based on the assets appraisal report (Zhong Fa Ping Bao Zi [2018] No.115) (“Appraisal
Report”) issued by DeveChina International Appraisals (“DeveChina”) (who is qualified to
conduct business in relation to securities and futures) for this Transaction (the benchmark
date of which is December 31, 2017), the appraisal valuation is aligned with the appraisal
result of asset-based approach. The book value of Anpon’s net assets is RMB 384,645,000
and the appraisal value of Anpon’s net assets is RMB 820,036,300.
The benchmark date of the above-mentioned Appraisal Report is December 31, 2017,
which has already expired. For the interests of the Company and all its shareholders, the
Company engaged DeveChina to appraise the value of all Anpon equity interests owned by
Anpon’s shareholders, and DeveChina issued an assets appraisal report (Zhong Fa Ping Bao
Zi [2019] No.013) (“Updated Appraisal Report”) (the benchmark date of which is December
31, 2018).
The benchmark date of the Updated Appraisal Report is December 31, 2018, adopting
both the asset-based and income approaches in the valuation. The appraisal valuation is
aligned with the appraisal result of the asset-based approach. Based on the Updated
Appraisal Report, as of December 31, 2018, Anpon’s book value of total asset is RMB
1,362,914,500, the book value of total debt is RMB 915,267,100, the book value of net
assets is RMB 447,647,400; the appraised value of total assets is RMB 1,775,914,600, the
appraised value of total debt is RMB 895,976,500, the appraised value of net assets is RMB
879,938,100. Compared with the book value, the appraisal value of net assets increased by
RMB 432,290,700, an increase of 96.57%.
Based on the appraisal valuation (the benchmark date of which is December 31, 2018), the
appraisal valuation of Anpon does not have any adverse effect on the interests of the
Company and its shareholders. Therefore, the purchase price of this Transaction which was
determined to be aligned with the appraisal valuation (the benchmark date of which is
December 31, 2017) will not harm the interests of the Company and its shareholders,
especially the minority shareholders. The purchase price of this Transaction is determined as
RMB 820,000,000.
The Company will pay the above consideration in two installments. The first installment is
RMB 415,000,000 and shall be paid by the Company on April 15 or any other date agreed by
the Company and CNAC. The second one is RMB 405,000,000 and shall be paid by the
Company when the relevant conditions set out in the Share Purchase Agreement are met.
The Company intends to use RMB 400.08 million of the raised funds to pay part of the first
installment.
For details of the arrangement of the payment and the main contents of the Share Purchase
Agreement, please refer to the Announcement on the Acquisition of 100% of the Equity
Interests in Jiangsu Anpon Electrochemical Co., Ltd., in a Related-Party Transaction
published by the Company on www.cninfo.com.cn on March 21, 2019.
2. Feasibility of the Anpon Acquisition Project
Anpon is located in Huai'an City, Jiangsu Province, and its business covers chlor-alkali,
chemical intermediates, pesticides and other fields. The main products are chlor-alkali
products: caustic soda, liquid chlorine, hydrochloric acid; chemical intermediates: o-
toluidine, epichlorohydrin, hexachlorocyclopentadiene, isocyanate series, flame retardant
series, etc.; pesticide products: insecticides (Pyridoxine, buprofezin, endosulfan, etc.);
herbicides (glyphosate, ethersulfuron, etc.); growth regulators (ethene, etc.). Anpon’s sales in
2018 were RMB 1.507 billion, and its net profit was RMB 48.01million.
Anpon’s series of insecticides, herbicides and growth regulators account for about 34% of
annual sales in 2018; chlorine products and chemical intermediates account for 66% of 2018
annual sales. Anpon's business is complementary to the Company's main business.
(1) Serves to Eliminate Horizontal Competition
The acquisition of Anpon serves to eliminate horizontal competition between the
Company and its controlling shareholder. This is the performance of the commitments made
by the controlling shareholder of the Company in the Major Assets Restructuring Report in
2017. The controlling shareholder committed: “The company’s subsidiaries Jiangsu Anpon
Electrochemical Co., Ltd., Jiangsu Huaihe Chemical Co., Ltd., Jiangsu Maidao
Agrochemical Co., Ltd., Anhui Petrochemical Group Co., Ltd. and Jiamusi Heilong Pesticide
Co., Ltd. and its subsidiaries are the same or similar to those of the main business of the
Company. In view of the domestic competition in the same industry, the company promises
that in the next four years, in accordance with the requirements of securities laws and
regulations and industry policies, appropriate methods shall be adopted to gradually solve the
horizontal competition."
In 2017 and 2018, the amount of related-party transaction on the purchase of raw materials
between the Company and Anpon is RMB 136 million and RMB 242 million. After the
completion of the acquisition, such transactions between the Company and Anpon will no
longer be related-party transactions which serves to solve the horizontal competition and
protect the interests of the Company and public investors.
(2) High Synergy in the Main Business
Anpon's main business has a high degree of synergy with the Company's main business.
Significant synergies are generated by selling Anpon's AgChem products through Adama's
China domestic distribution channels as well as Adama's broad global network. In addition,
the Company has almost completed the Huai'an Pesticide Formulation Center project which
is expected to be fully operational in 2019. The Formulation Center and Anpon are in the
same city Huai'an, which will form a supply chain synergy, realize the integration of
upstream and downstream business of the Company from raw materials to products, and
further promote the realization of the Company’s core strategy which regards China as a
significant global business supply base.
The acquisition is in line with the Company's business development strategy, which is
conducive to the Company's further development of the domestic market, and further
enhances its core competitiveness. The acquisition is also in line with the interests of the
Company and shareholders.
3. Risks and Counter Measures
1、Risks of the Market and Industry Competition
Anpon's main business is the production and sales of active ingredients and chemical
intermediates, and the Company has a full range of high quality and efficient herbicides,
pesticides and fungicides. The implementation of the acquisition will help the Company
expand its product range and improve the distribution of agrochemical products domestically
and abroad. However, in the fragmented off-patent agrochemical product market, Anpon and
the Company are also facing fierce competition and risks relating to competitors' product
launches and market environment changes. The Company will promote the sharing of market
and customer channels between the Company and Anpon according to the advantages of
Anpon's products, the products differentiation, and the Company's management so as to
improve and protect the overall competitive advantage and profitability of related businesses
and products.
2. Risks of Registration Policy
Since the testing, production and sales of agrochemical products are subject to strict
supervision, including the requirement to obtain and hold the production licenses required
for various products and the registration certificates required for the sale, and considering the
environmental protection authority has tended to adopt more stringent surveillance in recent
years, therefore the applicable regulatory requirements and regulatory environment may
change from time to time which may result in the risks that affect the production and sales of
the products. The Company has built a comprehensive product registration team around the
world, continuously assessing the regulatory compliance of the countries in which the
products are sold, and continually modifying the applicable registration content to avoid the
product sales without complying with regulatory requirements. The company will continue
to strive to meet environmental regulatory requirements by building, operating and
transforming its production and environmental protection facilities.
3. Risks of Financial Integration
After the completion of this transaction, the Company and Anpon need to align in the
aspects of financial systems, investment, financing methods, fund management, profit
management, which will entail risks. For reducing these risks, the Company will work with
Anpon to actively define the financial authority, financial positions and functions, fund
management policy and information disclosure policy, and provide the role of the Chairman
of the Board, general manager and financial controller, as well as the scope of the core issues
of the Anpon.
4. Risks of Finance Integration
After the completion of this transaction, the Company and Anpon need to align in the
aspects of financial system, investment, financing methods, fund management, profit
management, which will entail uncertain risks. For reducing the risks, the company will
work with Anpon to actively define the financial authority, financial positions and functions,
fund management policy and information disclosure policy, and provide the role of the
chairman of the board, general manager and financial controller, as well as the scope of the
core issues of the Anpon.
5. Risks of Assets Appraisal
Section III of this announcement elaborates the appraisal situation of Anpon assets.
Although the appraiser’s assumptions on the valuation of assets followed the principle of
prudence, there is still a risk that the assets valuation may be higher than the net assets value
of the book.
IV．Economic Analysis
Anpon is a comprehensive chemical enterprise mainly based on chlor-alkali chemical
industry and supplemented by pesticides and refined products. It has its own salt-halogen
mine and has strong resource advantages. The Company's representative agrochemical
products include ethephon and chlorpyrifos. The production scale of ethephon is currently
among the best in the world. The consolidated financial status of Anpon in the past three
years is shown in the following table:
Unit: RMB ‘0000
Items 2016 2017 2018
Revenue 136,441.19 164,345.59 150,747.17
Total Profit 3,170.10 4,299.46 6,665.08
Net Profit 2,543.36 3,802.96 4,801.45
Anpon’s total profit and net profit have increased in the past three years. In 2018, the total
profit growth rate was 55%, and the net profit growth rate reached 26%. Therefore, the
transaction will increase the overall size of the Company. After the completion of the
transaction, the Company's asset size and scale will be improved, and the Company's overall
profitability will be enhanced as well.
IV. Opinions of the Independent Directors, the Board of Supervisors, and the
Independent Financial Advisor
1. Opinion of the Independent Directors
The Independent Directors are of the opinion that the change of the designated projects is
the result of a prudent decision made in light of the operational needs of the company, taking
into account the actual use of the original fundraising project. Terminating using the raised
funds on the relevant projects will help improve the efficiency of the use of raised funds,
optimize the financial structure, and promote the overall efficiency of the company. It is in
line with the Company's development strategy and can create greater benefits for the
Company and shareholders. The change fulfilled the necessary procedures, in line with the
relevant provisions of the “Guidelines for the Standard Operation of Listed Companies on
the Main Board of Shenzhen Stock Exchange”, and did not violate the relevant provisions of
the China Securities Regulatory Commission, the Shenzhen Stock Exchange and the
Company’s Policy on the Use of the Raised Funds. When the Board of Directors considered
this matter, the deliberation procedure was legal and effective, and there was no situation that
harmed the legitimate interests of the Company and minority shareholders. Therefore, the
independent directors agreed to the change of the designated projects, and agreed to submit
the relevant proposal to the Shareholders Meeting for approval.
2. Opinion of the Board of Supervisors
The Board of Supervisors is of the opinion that the change of the designated projects is
based on the Company's development needs and the actual situation of the designated
projects, which is conducive to improving the efficiency of the use of raised funds,
promoting the long-term development of the Company, and in line with the interests of all
shareholders of the Company. The contents of the proposal and the decision-making
procedures for the change are in accordance with the requirements of the relevant laws and
regulations and regulatory documents of the China Securities Regulatory Commission and
the Shenzhen Stock Exchange, and there is no damage to the legitimate interests of the
Company and minority shareholders.
3. Opinion of the Independent Financial Advisor
The change of the designated projects fulfilled the necessary decision-making procedures
and related information disclosure obligations of the Company. The Board of Directors, the
Board of Supervisors, and the independent directors all issued clear consents. The change of
the designated projects is subject to the approval of the shareholders meeting. The
independent financial advisor has no objection to the change of the designated projects.
V. Documents for Reference
1. Resolution of the 12th Meeting of the 8th Session of the Board of Directors of the Company;
2. Resolution of the 8th Meeting of the 8th Session of the Board of Supervisors of the
Company;
3. Opinion of the Independent Directors;
4. Verification Report issued by Guotai Junan Securities Co., Ltd.
Board of Directors of ADAMA Ltd.
March 21, 2019
