News
Sunway Holdings Incorporated Berhad ("sunway") - Joint Venture Agreement Between sunway Xin Long (anhui) Hydraulic co. ltd. ( a 78% owned subsidiary of Sunway Global Limited Which In Turn Is A 60% Owned Subsidiary Of Sunway) And Dcf Trek Co. Ltd.
BackOct 11, 2007
| General Announcement Reference No SH-071011-711AB |
| Company Name | : | SUNWAY HOLDINGS INCORPORATED BERHAD |
| Stock Name | : | SUNWAY |
| Date Announced | : | 11/10/2007 |
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| Type | : | Announcement |
| Subject | : | SUNWAY HOLDINGS INCORPORATED BERHAD ("SUNWAY") - JOINT VENTURE AGREEMENT BETWEEN SUNWAY XIN LONG (ANHUI) HYDRAULIC CO. LTD. ( A 78% OWNED SUBSIDIARY OF SUNWAY GLOBAL LIMITED WHICH IN TURN IS A 60% OWNED SUBSIDIARY OF SUNWAY) AND DCF TREK CO. LTD. |
Contents :
1. INTRODUCTION
The Board wishes to inform that Sunway Xin Long (Anhui) Hydraulic Co. Ltd. ("Sunway Xin Long"), a 78% owned subsidiary of Sunway Global Limited which in turn is a 60% owned subsidiary of Sunway had on 10 October 2007, entered into a Joint Venture Agreement ("JVA") with DCF Trek Co. Ltd. ("DCF") to set up a joint venture company known as Sunway Daechang (Anhui) Manufacturing Co. Ltd. ("Sunway Daechang") to undertake the following businesses:-
(a) Manufacturing and assembly of undercarriage components of track links, track rollers, sprockets, idlers, track shoes, pin and bushing and related parts;
(b) Import, export, stocking and distribution of the product ranges of the above items; and
(c) Providing design, consultancy services, repair and maintenance of undercarriage groups [hereinafter referred to as "the Proposed Joint Venture"].
2. INFORMATION ON SUNWAY XIN LONG, DCF AND SUNWAY DAECHANG(a) Manufacturing and assembly of undercarriage components of track links, track rollers, sprockets, idlers, track shoes, pin and bushing and related parts;
(b) Import, export, stocking and distribution of the product ranges of the above items; and
(c) Providing design, consultancy services, repair and maintenance of undercarriage groups [hereinafter referred to as "the Proposed Joint Venture"].
2.1 SUNWAY XIN LONG
Sunway Xin Long is a company incorporated in China and having its legal address at Industrial Zone, Nanling Xu Town, Wuhu City, Anhui Province, China. The total investment and registered capital of Sunway Xin Long are RMB41,000,000 and RMB27,000,000 respectively. The principal activities of Sunway Xin Long are production and sale of automotive parts, high pressure hydraulic steel pipes and flexible pipes, coupling and adapter, moulded rubber products, production and sales and marketing of building materials, automative or construction machinery and equipment, used and new units, sales and marketing of metal materials, import and export trading.
2.2 DCF
DCF is a company incorporated in Korea and having its legal address at 681, Najeon-ri, Saengnim-myeon, Gimhae-si, Gyeongsangnam-do, Korea. The paid-up share capital of DCF is KRW$1.25 billion (equivalent to approximately RM4.6 million). The principal activity of DCF is metal forging.
Mr Park An Sik is the common major shareholder of DCF and Daechang Forging Co. Ltd. ("DFCL") of which he is also the Chairman. DFCL is a public company listed on the Korean Seoul Stock Exchange and reputed to be the world top 3 manufacturer specializing in the manufacture and assembly of undercarriage components of track links, track rollers, sprockets, idlers, track shoes, pin and bushing and related parts, with a distribution network of 11 distributors in the United States.
Mr Park An Sik is the common major shareholder of DCF and Daechang Forging Co. Ltd. ("DFCL") of which he is also the Chairman. DFCL is a public company listed on the Korean Seoul Stock Exchange and reputed to be the world top 3 manufacturer specializing in the manufacture and assembly of undercarriage components of track links, track rollers, sprockets, idlers, track shoes, pin and bushing and related parts, with a distribution network of 11 distributors in the United States.
2.3 SUNWAY DAECHANG
Sunway Daechang is a company to be incorporated in China and having its legal address at Industrial Zone, Nanling Xu Town, Wuhu City, Anhui Province, China. The planned investment and registered capital of Sunway Daechang are RMB15,000,000 and RMB11,000,000 respectively. The intended principal activities of Sunway Daechang include manufacturing and assembly of undercarriage components of track links, track rollers, sprockets, idlers, track shoes, pin and bushing and related parts; import, export, stocking and distribution of the product ranges of the above items; providing design, consultancy services, repair and maintenance of undercarriage groups.
3. SALIENT TERMS OF THE JVAPursuant to the JVA, the total planned investment and registered capital of Sunway Daechang are RMB15,000,000 and RMB11,000,000 respectively and the shareholding structure shall be structured as follows:-
| Name of shareholders |
Registered capital (RMB)
|
Percentage (%)
|
| Sunway Xin Long |
6,600,000
|
60
|
| DCF |
4,400,000
|
40
|
| Total: |
11,000,000
|
100
|
The registered capital of Sunway Daechang will be injected by way of 3 installments in the proportions of 30:30:40.
The business operations of the Proposed Joint Venture will commence upon issuance of the business license within 6 months from the JVA. The duration of the Proposed Joint Venture is 20 years from the issuance of business license of Sunway Daechang.
4. RATIONALE
Sunway Xin Long was established in August 2006 to produce and sell hydraulic hoses and couplings and automotive parts. The objective of the Proposed Joint Venture with DCF, which presently manufactures undercarriage components such as track links, track rollers, sprockets, idlers, track shoes, pin and bushing and related parts in its plant in Korea, is to manufacture these products in a lower cost environment in Anhui. Sunway Xin Long's plant in Anhui already uses similar manufacturing processes to produce its couplings and it can be easily and quickly adapted to manufacture these products. The Proposed Joint Venture also intends to capitalise on the synergistic advantages of Sunway Trading (Shanghai) Pte Ltd, a wholly-owned subsidiary of Sunway Global Limited to market its products through its extensive marketing network in China and overseas. The Proposed Joint venture will also benefit from the continued growth of China's economy especially in the industrial sector.
5. FEASIBILITY STUDY
A feasibility study was conducted by a team comprising staff with expertise in engineering, manufacturing, and marketing to assess the viability of the Proposed Joint Venture. The study examined the production and cost structure, supply of labour and material, marketing and distribution channels and competition. Arising from the study, Sunway's management is of the view that after taking the risks into account, the expected benefits are sufficiently attractive to proceed with the Proposed Joint Venture.
6. PROSPECTS
The national economy of China is expected to continue its aggressive growth at about 10% this year. The country's future economic development is expected to be fuelled by the rapid growth of fixed asset investment, backed by high savings rate and a major inflow of foreign direct investment. Political and social stability, improvements in labour productivity due to increased opening and reform, and technological advances, will also play an important role in the economy. The improved standard of living allowed for increased spending on healthcare, transportation, telecommunications, education, entertainment and housing. As the upgrading of the consumption structure has caused an upgrading of the industrial structure, prospects for the manufacturing and industrial components of China's economy remain strong.
Sunway Daechang's initial production capacity will be primarily for the domestic market. It intends to cover the export market when production capacity increases at a later stage.
7. RISKS FACTORSSunway Daechang's initial production capacity will be primarily for the domestic market. It intends to cover the export market when production capacity increases at a later stage.
Sunway Daechang is subject to certain risks in the manufacturing and industrial sector. These include changes in general economic conditions such as, but not limited to inflation, taxation, foreign exchange, interest rates, constraints in labour and material supply, changes in business and operating conditions such as, but not limited to government and statutory regulations, deterioration in prevailing market conditions, machinery breakdown, technological and facilities obsolescence and industrial disputes.
Sunway Daechang may face competition from other manufacturers in the same or similar businesses. Although the company seeks to become competitive by taking all necessary steps, no assurance can be given that Sunway Daechang will be able to maintain its competitive edge and gain market acceptance.
Similar to any other business enterprise, the breakout of fire, floods, social unrest or other emergencies could adversely affect the performance and business of Sunway Daechang. In an effort to mitigate such risks, proper fire and other safety procedures will be emphasised at the company's premises and facilities and its physical assets will be adequately insured.
Sunway Daechang may face competition from other manufacturers in the same or similar businesses. Although the company seeks to become competitive by taking all necessary steps, no assurance can be given that Sunway Daechang will be able to maintain its competitive edge and gain market acceptance.
Similar to any other business enterprise, the breakout of fire, floods, social unrest or other emergencies could adversely affect the performance and business of Sunway Daechang. In an effort to mitigate such risks, proper fire and other safety procedures will be emphasised at the company's premises and facilities and its physical assets will be adequately insured.
8. SOURCE OF FUNDS
Sunway Xin Long will fund its share of equity participation in Sunway Daechang through internally generated funds and borrowing. The terms of arrangement for payment are as follows:-
| Due date for capital injection in Sunway Daechang |
Sunway Xin Long
(RMB) |
DCF
(RMB) |
Total
(RMB) |
| 1st installment (within 30 days from the issuance of business license from the relevant authorities in China) |
1,980,000
|
1,320,000
|
3,300,000
|
| 2nd installment (within 90 days from the issuance of the business license from the relevant authorities in China) |
1,980,000
|
1,320,000
|
3,300,000
|
| 3rd installment (within 180 days from the issuance of the business license from the relevant authorities in China) |
2,640,000
|
1,760,000
|
4,400,000
|
| Total |
6,600,000
|
4,400,000
|
11,000,000
|
9. EFFECTS OF THE PROPOSED JOINT VENTURE 9.1 On Share Capital and Substantial Shareholders' Shareholding
The Proposed Joint Venture will not have any effect on the share capital and substantial shareholders' shareholding of Sunway as the Proposed Joint Venture does not involve any allotment or issuance of new shares by Sunway.
9.2 On Earnings Per Share and Net Assets Per Share
The Proposed Joint Venture is not expected to have any immediate material effect on the earnings per share and net assets per share of Sunway for the financial year ending 30 June 2008 but is expected to contribute positively to the future earnings of Sunway Group.
10. APPROVALS REQUIRED
The Proposed Joint Venture does not require approval from the shareholders of Sunway but it is subject to approval of the relevant authorities in China.
11. DIRECTORS' AND MAJOR SHAREHOLDERS' INTERESTS
Insofar as the Directors are aware, none of the directors or major shareholders of Sunway or persons connected with them has any interest, whether direct or indirect, in the Proposed Joint Venture.
12. STATEMENT BY THE BOARD OF DIRECTORS
The Board of Directors of Sunway is of the opinion that the Proposed Joint Venture is in the best interests of Sunway Group.
13. DOCUMENT AVAILABLE FOR INSPECTION
The JVA is available for inspection at the registered office of Sunway at Level 16, Menara Sunway, Jalan Lagoon Timur, Bandar Sunway, 46150 Petaling Jaya, Selangor Darul Ehsan during normal business hours (9.00 a.m. to 6.00 p.m.) from Monday to Friday (except public holidays) for a period of 3 months from the date of this announcement.
This announcement is dated 11 October 2007.