Adamas Finance Asia (ADAM) has announced that it has agreed terms for the sale of its indirect 15% interest in the Tian Tong Shan Villa Project (the TTS Project), a resort development in Fujian Province, China for a total consideration of up to RMB 113.58m (approximately US$16.4m). The arrangements appear to be somewhat complicated and are summarised below. However, the chairman of Adam, John Croft, says that the global economy and the Chinese property market in particular remain sluggish and they have therefore elected to exercise their put option and to enter into a memorandum of Understanding (detailed below) in order to generate funds to invest in line with their policy. He says that the transaction marks another step in their progress towards the realisation of the company’s legacy portfolio for reinvestment in high-yield projects. The company says that the sale is at a substantial discount to book value.
In terms of the arrangements relating to the transaction, ADAM says that, through its wholly owned subsidiary, Lead Winner Limited (LWL), it holds a 30% interest in S&T Group Holdings Limited (S&T), which in turn holds a 50% interest in Changtai Jinhongbang Real Estate Development Co. Limited (CJRE) and its resort development project, the TTS Project. ADAM’ says that its effective 15% interest was valued at US$48.4m in the consolidated balance sheet at 30 June 2016.
Under the terms of an agreement between the shareholders of S&T, LWL has a put option that allows it to require that Mr. Wang Chun Fang, the majority indirect holder of CJRE, purchase shares representing 10% of S&T from LWL for a consideration of RMB 50m (approximately US$7.2m). ADAM says that LWL has exercised this put option and full payment in cash is due within 30 days.
In addition, ADAM says that LWL has entered into a memorandum of understanding with Mr. Wang Chun Fang to sell its remaining 20% holding in S&T. However, it is anticipated that the sale and purchase agreement relating to this Proposed Disposal, when executed, will be entered into with R&F Properties Co. Limited (R&F), a Guangzhou-based real estate developer listed on the Hong Kong Stock Exchange which, ADAM says, it is envisaged, will purchase the entire share capital of S&T. Under the terms of the memorandum of understanding with Mr. Wang Chun Fang, the agreed consideration for LWL’s 20% holding in S&T, which represents 10% of CJRE, is RMB 63.58m (approximately US$9.2m).
Adam says that payment of RMB 51.58m (approximately US$7.4m) of the total amount due from the Proposed Disposal is expected within 10 days of receipt of the RMB 515.8m (approximately US$74.2m) from R&F by Mr. Wang Chun Fang, which is expected to be received one month following satisfactory completion of R&F’s due diligence. The remaining sum due to LWL of RMB 12m (approximately US$1.8m) will be received in cash through phased payments of 10% of each payment received from Mr. Wang Chun Fang. Exercise of the Put Option and completion of the Proposed Disposal is expected to result in a loss on disposal of approximately US$32m, which the Directors expect will be recognised in the financial year ended 31 December 2016.
The Company says that it is selling its holding in the TTS project in line with its investing policy, which involves disposing of the legacy portfolio acquired in a reverse takeover in February 2014 in order to invest the funds realised in income-generating financing opportunities. The objective is for the financing portfolio to generate cash to enable the Company to pay regular dividends to shareholders.
Adamas Finance Asia to dispose of Tian Tong Villa Project at a substantial discount (ADAM)