Stock Code: 000553(200553) Stock Abbreviation: ADAMA A(B) Announcement No. 2020-61
ADAMA Ltd.
Announcement on the Use of the Raised Funds for the Acquisition of the
51% Equity Stake in Jiangsu Kelinong Agrochemical Co., Ltd. as well as
that in Shanghai Dibai Plant Protection Co., Ltd.
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 October 28, 2020, the 27th meeting of the 8th session of the Board of Directors and the
14th meeting of the 8th session of the Board of Supervisors of ADAMA Ltd. (hereinafter
referred to as the “Company”) approved a Proposal on the Use of the Raised Funds for the
Acquisition of the 51% Equity Stake in Jiangsu Kelinong Agrochemical Co., Ltd. as well as
that in Shanghai Dibai Plant Protection Co., Ltd.. In order to efficiently use the raised funds,
the Company plans to use the balance of the raised funds, in the amount of approximately
RMB 893,731,302.67, and which are no longer designated for previously approved projects
according to the resolutions of the Company’s Board and Shareholders meeting held on April
27, 2020 and May 20, 2020 respectively, for the payment for the acquisitions of a 51%
equity stake in Shanghai Dibai Plant Protection Co., Ltd. (“Dibai”) and a 51% equity stake in
Jiangsu Kelinong Agrochemical Co., Ltd. (“Kelinong”) from Jiangsu Huifeng Agrochemical
Co., Ltd. (“Huifeng”). It is hereby announced as follows.
I. Overview of the Raised Funds
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
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in December 2017, at the price of 14.90 RMB yuan per share and raised a total amount of
RMB 1,559,999,931.80. After deducting the underwriting fees of RMB 28, 079,998.78, the
net amount received by the Company was RMB 1, 531,919,933.02. The net amount was
received on December 27, 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 as follows.
Unit: RMB’0000
No. Designated Projects Total Investment Committed
1 Project of Huai’an Pesticide Formulation Center 24,980
2 Projects of product development and registration 93,507
3 Fixed-asset Investment of ADAMA 66,204
4 Fees for the intermediary agencies and 13,600
transaction taxes
Aggregated figure 198,291(Note)
Note: RMB 1,982.91 million is the planned raised funds. The actually received raised funds is 1,559.99
million.
2. Previous Change and Termination of Certain Designated Projects
On March 19, 2019 and April 10, 2019, the Company held the 12th Meeting of the 8th Session
of the Board of Directors and the 2018 Annual Shareholders Meeting by which a proposal on
the change of certain designated projects included in the Designated Project was approved.
The Company ceased 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.
Instead, the Company used the corresponding RMB 400.08 million of the raised funds to pay
the consideration of the 100% equity transfer of Jiangsu Anpon Electrochemical Co., Ltd.
The above-mentioned change of the raised funds completed in May 2019. For details, please
refer to the Announcement on the Change of Certain Designated Projects (Announcement
No. 2019-17) disclosed on the website www.cninfo.com.cn on March 21, 2019.
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On April 27, 2020 and May 20, 2020, the Company held the 25th Meeting of the 8th Session
of the Board of Directors and the 2019 Annual Shareholders Meeting during which a
proposal on the termination of the use of raised funds for certain designated projects was
approved. The Company ceased to use the raised funds for the following previously
designated projects, including product development and registration and fixed-asset
investment of ADAMA Agricultural Solutions Ltd.. For details, please refer to the
Announcement on the Termination of the Use of Raised Funds for Certain Designated
Projects (Announcement No. 2020-26) disclosed on the website www.cninfo.com.cn on
April 28, 2020.
3. Balance of the Raised Funds
As of September 30, 2020, the Company had used RMB 686,202,018.02 of the raised funds,
and the balance was RMB 893,731,302.67, which included RMB 48,013,387.67 of the net
interest income from deposits after deducting the bank fees.
4. Introduction on the New Designated Project
The Company intends to pay the acquisition of 51% equity stake of both Dibai and Kelinong
with the raised funds of approximately RMB 893,731,302.67 that had been originally
allocated for the product development and registration and fixed-asset investment of
ADAMA Agricultural Solutions Ltd., but the use of which have not yet been changed .
5. Approval Procedures Relate to the New Designated Project
(1) The 27th meeting of the 8th session of the Board of Directors and the 14th meeting of the
8th session of the Board of Supervisors approved a Proposal on the Use of the Raised Funds
for the Acquisition of the 51% Equity Stake in Jiangsu Kelinong Agrochemical Co., Ltd. as
well as that in Shanghai Dibai Plant Protection Co., Ltd. on October 28, 2020, on which the
independent directors also issued their independent opinions. To implement the Proposal is
subject to the review and approval of the shareholders and it will not constitute a related-
party transaction.
(2) The 18th meeting of the 8th session of the Board of Directors on November 5th, 2019
approved the Proposal and Context of the Acquisition of 50% of the Equity Interests in
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Shanghai Dibai Plant Protection Co., Ltd., the Domestic Distribution Arm of Jiangsu
Huifeng Agrochemical Co., Ltd., giving the green light to the transaction as proposed.
(3) The 27th meeting of the 8th session of the Board of Directors on October 28, 2020
approved the Proposal on the Acquisition of a 51% Equity Stake in Jiangsu Kelinong
Agrochemical Co., Ltd. and an Additional 1% in Shanghai Dibai Plant Protection Co., Ltd.,
giving the green light to the transaction as proposed. This meeting also approved the
Proposal on the Second Supplemental Agreement to the Equity Purchase Agreement
regarding the Company’s Acquisition of a 50% Equity Stake in Shanghai Dibai Plant
Protection Co., Ltd.
The above-mentioned acquisitions are not subject to the approval of the Company’s
shareholders. China National Chemical Corporation Ltd., as the supervising authority of the
state-owned assets, has approved those acquisitions and is in the process of the filing
procedure of the assets appraisal.
II. The New Designated Project
1. Overview
The Company plans to use RMB 893,731,302.67 of the raised funds (including interest
income and the actual amount is subject to the bank settlement balance on the date of
transfer ) to pay the considerations for the 51% equity acquisition of both Dibai and
Kelinong, and the shortfall in the considerations shall be paid by the Company through its
own capital and bank loans. As a wholly owned subsidiary of Huifeng, Dibai mainly sells
agrochemicals with a registered capital of RMB 10 million. Kelinong is also a wholly
owned subsidiary of Huifeng, focused on active ingredients and formulations with its
registered capital of RMB 30 million.
(1) Assets Appraisal Report
Huifeng will transfer the relevant domestic and export agrochemical sales business to Dibai,
which excludes TDZ-series products for bio stimulant usage and bio-agricultural sector
related to micro-biotic-series products. China United Assets Appraisal Group Ltd.
(abbreviated as “China Value”), which is qualified in businesses of securities and futures,
issued the Assets Appraisal Report ( File [2020] No. 2631 of China Value) for the Dibai
Transaction. According to the Report, the benchmark date was May 31st, 2020 and both the
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income and market approaches were applied for the valuation of the target assets. As the
result of the income approach was recognized, the simulated value of the consolidated net
assets of Dibai on the benchmark date was RMB 29.4435 million and the appraisal value
RMB 663 million, resulting in an increase amount of RMB 633.5565 million and an increase
rate of 2151.77%.
Huifeng will transfer the relevant pesticide active ingredients business (including the
development, production and sales of the pesticide active ingredients) and pesticide
formulations business (including the development and formulation of the pesticide
formulation) to Kelinong, excludes TDZ-series products for bio stimulant usage, bio-
agricultural sector related to micro-biotic-series products and the bifenthrin active
ingredients business.
China Value issued the Assets Appraisal Report (File [2020] No. 2630 of China Value) for
the acquisition of Kelinong. According to the Report, the benchmark date was May 31st,
2020 and both the income and market approaches were applied for the valuation of the target
assets. As the result of the income approach was recognized, the simulated value of the
consolidated net assets of Kelinong on the benchmark date was RMB 1,457.8656 million and
the appraisal value RMB 1,647 million, resulting in an increase amount of RMB189.1344
million and an increase rate of 12.97%.
(2) The Purchase Price
According to the Equity Purchase Agreement on the Company’s acquisition of 50% equity in
Dibai, signed by the Company and Huifeng on November 6, 2019 (hereinafter referred to as
“the First EPA”) and the Second Supplemental Agreement to the Equity Purchase Agreement,
signed by the Company and Huifeng on October 28, 2020 (hereinafter referred to as “the
Supplemental Agreement”), the purchase price of the 50% equity in Dibai shall be equal to
(RMB 600,000,000 －net debt of Dibai at the closing date of the 50% equity in Dibai) ×50%,
and according to the Equity Purchase Agreement on the Company’s acquisition of a 51% of
the equity stake in Kelinong and an additional 1% in Dibai, signed by the Company and
Huifeng on October 28 , 2020 (hereinafter referred to as “the Second EPA”), the purchase
price of the 1% equity in Dibai shall be equal to (RMB 600,000,000 －net debt of Dibai at
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the closing date of 1% equity in Dibai) ×1% and the above shall all be subject to the
Appraisal Report.
According to the Second EPA, the purchase price of the 51% equity in Kelinong shall be
equal to: (RMB 1,800,000,000 －net debt of the Target Business at the Closing Date －
(average net operating working capital in year 2017－net operating working capital of the
Target Business at Closing)) ×51%, and shall be subject to the Appraisal Report (together
with purchase price of the 1% equity in Dibai, the “Second EPA Purchase Price”).
(3) The Payment Arrangement of Purchase Price
According to the First EPA and the Supplemental Agreement, the Company will pay the
consideration of the 50% equity in Dibai in two installments. The first installment is RMB
30 million and shall be paid by the Company no later than five business days after the
approval by Huifeng’s shareholders meeting or the approval by the Government Entities
(whichever comes later); the second installment is RMB 270 million (assuming the net debt
of Dibai in the closing date of the 50% equity is zero) shall be paid by the Company on the
closing date of 50% equity in Dibai, in which RMB 240 million shall be paid directly to
Huifeng and RMB 30 million shall be paid to an escrow account and shall be released from
the escrow account if the conditions set forth in the First EPA are satisfied.
According to the Second EPA, the Company will pay the Second EPA Purchase Price in the
following steps: (1) On the Closing Date of the acquisition of 50% equity in Dibai, the
Company will pay RMB 20 million to Huifeng as an upfront fee (hereinafter referred to as
the “Upfront Fee”) of the Extended Transaction (i.e., the transaction in relation to the 51%
equity in Kelinong and the 1% equity in Dibai); (2) On the Closing Date, the Company shall
pay to Huifeng an amount equal to the Second EPA Purchase Price minus the Upfront Fee
and minus the holdback installment equals to RMB 100,000,000 (hereinafter referred to as
the “Holdback Installment”); (3) The Holdback Installment, after making necessary
adjustment in accordance with the Second EPA, will be paid by the Company to Huifeng on
the first business day immediately after the expiration of the holdback period which shall be
30 days after the finalization of the closing account of Extended Transaction.
For details of the arrangement of the payment and the main contents of the First EPA, the
Supplemental Agreement and the Second EPA, please refer to the Announcement on the
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Acquisition of 50% of the Equity Interests in Shanghai Dibai Plant Protection Co., Ltd.
(Announcement No.2019-54), the Announcement on Signing the Supplemental Agreement to
the Equity Purchase Agreement (Announcement No.2020-9) and the Announcement on the
Acquisition of a 51% Equity Stake in Jiangsu Kelinong Agrochemical Co.,Ltd. and an
Additional 1% in Shanghai Dibai Plant Protection Co., Ltd.(Announcement No.2020-59)
published by the Company on www.cninfo.com.cn on November 7, 2019, on February 27,
2020 and on October 29, 2020, respectively.
2. Feasibility of the Acquisition Project
As a wholly owned subsidiary of Huifeng, Dibai mainly sells agrochemical series produced
by its parent company, such as prochloraz, benzothiazolinone, glufosinate and lambda-
cyhalothrin.
Dibai has an attractive portfolio of crop protection formulations, exclusive licenses for more
than 150 products registered by Huifeng and an experienced sales team of about170
employees. According to the terms of the Transaction, Dibai will obtain the exclusive,
indefinite and royalty-free right to license Huifeng’s existing and future registrations in
China and sell all the Target Formulated Products (including those sold through Xinjiang
Huifeng as a subsidiary of itself) in the country.
Kelinong is a wholly owned subsidiary of Huifeng. According to the Second EPA, Huifeng
will inject the target asset engaged in the synthesis and formulation production into Kelinong
through the capital increase before the complete of the acquisition. Products involved in the
injection include active ingredients of prochloraz, bromoxynil octanoyl, epoxiconazole,
Dithianon, 2,4-D, 2-methyl-4-chloroisooctyl ester and trinexapac-ethyl and other products,
such as dimethomorph and bifenox, etc…
Dibai and Kelinong are highly synergistic businesses to the Company. The sustainable
cooperation in formulation products over the years between Huifeng and the Company has
also laid a solid foundation for this acquisition. Dibai and the Company are highly
complementary, given the nature of Dibai’s strong commercial influence, numerous
differentiated and patented products as well as the extensive registrations and portfolios. As
an important milestone along the continued rapid expansion in the Chinese market, the
acquisition of Dibai will strengthen the Company's commercial presence, positioning and its
portfolio in this key crop protection market. The acquisition of Kelinong will ensure the
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stable supply of raw materials and improve the Company's competitiveness in the
formulation market through the integration with upstream channels.
Aligned with the Company’s business development strategy, the acquisition is conducive to
the Company’s market expansion both at home and abroad and the enhancement of its core
competitiveness, therefore justifying itself in line with the interests of the Company and
shareholders.
3．Economic Analysis
The sales of Dibai in its pro forma audit statements for 2019 amounted to RMB 356 million
and the net profit was RMB 22.6854 million.
Unit: million yuan
Item January to May, 2020 2019 2018
Revenues 200.8507 356.2245 535.713
Gross Profit 28.575 30.2326 69.522
Net Profit 21.3031 22.6854 51.8434
The revenue of Kelinong in the pro forma audit statements for 2019 amounted to RMB 639
million and the net profit was -98.0975 million yuan.
Unit: million yuan
Item January to May, 2020 2019 2018
Revenues 281.8734 638.7316 1,177.6458
Gross Profit -34.6191 -98.5939 58.6317
Net Profit -35.411 -98.0975 60.2055
The business results of Kelinong in the pro forma audit report for the past two years mainly
reflect the impact of the production suspension of Huifeng, but orders from customers has
gradually bounced back since the resumption in this year. Once the transaction closes, the
Company will actively assist Kelinong to recover its business. It is expected that in the first
operation year after the transaction closes, Kelinong will turn losses into profits. Meanwhile,
the Company has started the preparation work for achieving synergies between domestic and
export markets of the products of Kelinong to expand the overall scale of the Company’s
business, assets, operation and resultingly enhance the profitability.
4. Risks and Counter Measures
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(1) Risks of the Market and Industry Competition
The acquisition will help the Company expand its portfolio and improve the distribution of
agrochemical products domestically and abroad. However, both Dibai and the Company are
facing fierce competition in the fragmented off-patent market and threatened by risks due to
product launches of their peers as well as other market changes. The Company will promote
the sharing of market and distribution channels according to the portfolio features of Dibai
and sustain and strengthen the integrated competitiveness and profitability of related
businesses and offerings based on the management advantages of its own in product
differentiation.
(2) Risks of Business Integration
The Company will hold 51% equity stake of both Dibai and Kelinong upon the completion
of this transaction. Some uncertainties that entail risks could push forward the integration
among the Company, Dibai and Kelinong to a success or hold it back not as expected. The
Company will manage the merged business in China with the combined efforts of both its
global management and the Chinese team, and continuously improve the operations,
corporate governance and internal control of Dibai and Kelinong to reduce the above-
mentioned risks.
(3) Risks of Finance Integration
After the completion of this transaction, the Company, Dibai and Kelinong need to align in
their financial systems, investment, financing methods, fund management, profit
management and other aspects, which could entail risks due to uncertainties. To reduce the
risks, the Company will work with Dibai and Kelinong to actively define duties and rights,
job assignment and deployment, fund management and information disclosure policies, and
oversee their investment and capital control.
(4) Risks of Assets Appraisal
Section II of this announcement elaborates the asset appraisal results of Dibai and Kelinong.
Although the appraiser has followed the principle of prudence in the assumptions on the
valuation of target assets , the result may still be riskily higher than the net book value.
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III. Opinions of the Board of Directors, the Independent Directors, the Board of
Supervisors, and the Independent Financial Advisor
1. Opinion of the Board of Directors
In accordance with required procedures, the Company engaged a qualified appraiser to
evaluate the underlying assets. The appraisal considered the value of the underlying assets
using the income approach, which better reflects the true value of the underlying assets
compared to the market approach and as such is reasonable. Accordingly, the Board
approved the use of the raised funds for the payment of the consideration for the underlying
assets.
2. Opinion of the Independent Directors
The Independent Directors are of the opinion that the Company, in accordance with required
procedures, engaged a qualified appraiser to evaluate the underlying assets. The appraisal
result is reasonable. The decision to use the raised funds for the payment for the 51% equity
stake in Dibai and Kelinong from Huifeng is prudent, and is made in light of the operational
needs of the Company. It will help to 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 use of the raised funds followed the necessary procedures,
in line with the relevant provisions of the “Guidelines for the Standard Operation of Listed
Companies 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 t he
legitimate interests of the Company and minority shareholders. Therefore, the independent
directors agreed to the use of the raised funds and agreed to submit the relevant proposal to
the Shareholders Meeting for approval.
3. Opinion of the Board of Supervisors
The Board of Supervisors is of the opinion that designating the balance of the raised funds
for the payment for the acquisitions of a 51% equity stake in Dibai and a 51% equity stake in
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Kelinong from Huifeng is based on the Company’s development needs, 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 are in accordance with the
requirements of the relevant laws and regulations as well as the 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.
4. Opinion of the Independent Financial Advisor
The use of the raised funds on the above acquisition 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 use of the raised funds on the above acquisition is subject to the approval of the
shareholders. The independent financial advisor has no objection to the use of the raised
funds on the above acquisition.
IV. Docume nts for Reference
1. Resolution of the 27th Meeting of the 8th Session of the Board of Directors of the
Company;
2. Resolution of the 14th 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.
October 29, 2020
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