Under a conditional binding heads of agreement (HOA) signed between Guotai and SBU today, SBU will acquire 100 million shares in CAP. To satisfy the purchase consideration, SBU will issue to Guotai 417.36 million shares at 5 Australian cent apiece totalling RM60 million, which will see Guotai taking a controlling 62.5% stake in SBU.
As at April 25, 2014, Guotai owned 30.63% of CAP shares.
SBU is an exploration company with tungsten and gold projects in Australia, New Zealand and Papua New Guinea.
CAP said the HOA is conditional upon satisfaction or waiver of certain conditions precedent by July 31 this year including mutual due diligence and completion of a capital raising by SBU to raise a minimum of A$1 million.
SBU also needs to hold a shareholder meeting to approve the transaction and all related matters.
Upon completion of the acquisition, one of the current SBU directors will be appointed to the board of CAP, while two persons nominated by CAP will be appointed to the board of SBU.
CAP managing director Li Guo Qing told theedgemarkets.com that the HOA will enable the group to sell its automobile parts to the Australian market via SBU.
“We will also bring tungsten, a high-end mineral, into the Chinese market, which can be processed into high-performance mechanical parts for the automotive industry. This will contribute to better earnings for the group,” Li said.
However, he said it is too early to estimate the contribution of the Australian market to CAP’s earnings.
In a statement today, SBU managing director Noel Ong said its investment in CAP is at a "significant 15.5% discount to its net tangible assets.
“We see this proposal as a strategic move to gain a presence in China through (China-based) CAP with the potential to open doors to major players in the tungsten industry and potential end-used/off-takers to participate in its Kirwan Tungsten project in New Zealand,” Ong said.
CAP (fundamental:1.95; valuation:1.8) shares rose 0.5 sen or 1.41% to close at 36 sen today, giving it a market capitalisation of RM216 million.