SINGAPORE (June 8): AF Global’s indirect wholly-owned subsidiary LC Logistics has disposed its entire 55% stake in Xuzhou Yinjian LumChang Real Estate Development Co (XZYJLC) for a consideration of RMB292.8 million (S$57.6 million) on Friday (June 5).
The purchasers, Beijing Jinyinjian Taxi Co and Beijing Yinjian Automobile Repair Co, are affiliates of Beihai Yinjian Investment (China) Co (the JV Partner). They will be buying a 25% and 30% stake into XZYJLC respectively.
Under the terms of the agreement, the transfer of the disposal interest will be made to the purchasers within 10 business days once the purchasers have “successfully procured” the sum for the consideration; confirmed the amount of taxes payable; and prepared all documents in relation to the cross-border payment of funds.
XZYJLC was established in Jan 28, 2010, as a joint venture between LC Logistics and Beihai Yinjian Investment (China) Co. The company is engaged in an integrated mixed development comprising high-rise residences, retail, offices, and a hotel, in China.
Upon completion of the disposal, Beijing Jinyinjian Taxi Co, Beijing Yinjian Automobile Repair Co, and Beihai Yinjian Investment (China) Co will own 100% of the equity interest in XZYJLC.
AF Global says the consideration was determined based on the net asset value of XZYJLC according its audited consolidated financial statements for FY2018 ended December, and the potential profit arising from the sale as well as the lease of the office and retail components of the integrated mixed development which may be attributable to XZYJLC.
AF Global also took into consideration the various costs relating to the ongoing disputes, the potential costs and risks to the group if LC Logistics does not exit XZYJLC; and the resources, time and effort needed in finding a third party buyer to acquire LC Logistics’ equity interest (disposal interest).
In addition, LC Logistics and Beijing Jinyinjian Taxi Co and Beijing Yinjian Automobile Repair Co, entered into a mediation agreement in relation to the disputes and litigation under court proceedings between AF Global and Beihai Yinjian Investment (China) Co. regarding XZYJLC.
According to the terms of the media agreement, disputes and litigation between both companies will be withdrawn, including an outstanding litigation in relation to the dissolution of XZYJLC, which will be resolved once LC Logistics receives payment of funds for the disposal interest.
On Aug 6, 2018, AF Global has received legal summons from its “Chinese shareholder of the JV” alleging damage purportedly caused by AF Global. AF Global informed the hotel management company, which the local partner had proposed for the hotel under construction, that the board of directors of the JV had not approved of the JV to enter into the Letter of Intent for Hotel Management Agreement (LOI) with the hotel management company.
AF Global subsequently made counterclaim actions after it found certain payments made by the JV to local contractors which bypassed the usual payment procedures. The Chinese shareholder has also proceeded to sign the LOI, and to appoint a senior management post within the JV, which are in breach of the JV agreement.
Following the irrevocable breakdown of the working relationship between the Group and the JV Partner in respect of XZYJLC, the proposed disposal “represents a timely opportunity for the Group to monetise its investment,” says AF Global in a statement on Monday.
AF Global added that it will evaluate opportunities to deploy the net proceeds in order to maximise returns to the shareholders including considering the paying of dividends to its shareholders.
AF Global shares closed flat at 11.5 cents on Friday.
