SGM Presentation on Proposed Disposal of M&S - 15 April 2021 - Singapore ...
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Disclaimer This presentation contains highlights and does not purport to contain all of the information that may be required to evaluate any potential transaction mentioned in this presentation, including the Proposed Disposal and the Proposed Amendments to Convertible Bond Purchase Agreements. This presentation is not to be construed as investment or financial advice and is prepared for informational purposes only, without regard to the objectives, financial situation nor needs of any specific person. This presentation and the information contained herein does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire securities of Sunpower Group Ltd. (“Sunpower” or the “Company” and together with the subsidiaries, the “Group” ) in any jurisdiction or an inducement to enter into investment activity, nor may it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. This presentation may include forward-looking statements and financial information provided with respect to the anticipated future performance of the deal and involve assumptions risks and uncertainties based on the Company’s view of future events. Accordingly, there can be no assurance that such projections and forward-looking statements can be realized. The actual results may vary from the anticipated results and such variations may be material. No representations or warranties are made as to the accuracy or reasonableness of such assumptions of the forward-looking statements and financial information based thereon. The Company does not make any representations and provide no warranties concerning the accuracy of the forward looking statements and undertakes no obligation to update forward- looking statements and financial information to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. The past performance of the Company and the Group is not necessarily indicative of the future performance of the Company or the Group. Neither this presentation nor any of its content may be distributed, reproduced, or used for any purpose without the prior written consent of Sunpower. By accessing to this presentation, you agree not to remove or revise this document, or any materials provided in connection herewith. You agree further not to photograph or publish these materials, in whole or in part, in any form or pass on these materials to any other person for any purpose. This presentation is qualified in its entirety by, and should be read in conjunction with, the full text of the Circular to Shareholders dated 31 March 2021 (the “Circular”). In the event of any inconsistency or conflict between the Circular and the information contained in this presentation, the Circular shall prevail. All capitalised terms not defined in this presentation shall have the meaning ascribed to them in the Circular. For the purposes of the Proposed Special Dividend, the total number of Shares of the Company are computed based on 1,152,523,142 Fully Diluted Total Shares. All S$ per Share dividend are presented based on Bloomberg exchange rate of RM4.8483 : S$1 as at 24 March 2021, the Latest Practicable Date, for illustrative purposes only. 2
01 02 SUNPOWER Proposed at a Glance Disposal of M&S Business 03 04 Proposed IFA Opinion Amendments to Convertible & Future IPTs Bond Purchase Agreements 05 Resolutions AGENDA 3
Sunpower at a Glance Green Investment Business Manufacturing & Services Business (“GI Business” or “GI”) (“M&S Business” or “M&S”) • GI is an asset-based business where the Group invests in and operates • Manufacturing and provision of high-end customised environmental centralised steam and electricity facilities that generate long-term, protection products and solutions, such as recurring and high quality income and cashflows Highly efficient heat exchangers and pressure vessels • GI comprises (a) Supply of industrial steam to a range of diverse Heat pipes and heat pipe exchangers industries, such as chemical, printing & dyeing, paper making, F&B, building materials, pharmaceuticals, paint, wood processing, chemical Pipeline energy saving products fertilisers etc; (b) Supply of pollution-free civil heating to a large base Environmental protection products of households; and (c) Sale of electricity to the State Grid Solutions for flare and flare gas recovery systems, zero liquid • Long-term concessions of typically 30 years discharge systems for high-salinity wastewater, petrochemical engineering and thermal power engineering GI and M&S are distinct and independent business segments which do not compete with each other • The GI Business has growth potential in the PRC anti-smog sector, due to (a) mandated closure of “high-emission” pollutive boilers and structural shift to “ultra-low emission” centralised facilities, (b) strict zoning policies that mandate the location and/or relocation of new factories into industrial parks with such centralised infrastructure, and (c) the organic expansion of customers and industrial parks served by the GI projects. • The M&S Business is a manufacturing and services-based business that is order book-driven. • Each business segment has its own customer base and suppliers, manpower and facilities, and is operated by its own management team. Office premises and staff for the M&S Business and the GI Business are segregated. 4
01 02 SUNPOWER Proposed at a Glance Disposal of M&S Business 03 04 Proposed IFA Opinion Amendments to Convertible & Future IPTs Bond Purchase Agreements 05 Resolutions AGENDA 5
Proposed Disposal of M&S Business Sunpower International entered into a sale & purchase agreement on 31 December 2020 to dispose the entire M&S Business to Nanjing Sunpower Holdings Co., Ltd. (“Purchaser”) by way of a disposal of the entire issued and paid-up share capital of Sunpower Technology (Jiangsu) Co., Ltd., a wholly-owned subsidiary of the Company (“Proposed Disposal”). This Proposed Disposal is an all-cash transaction for the 100% disposal of the M&S Business to the Purchaser with an aggregate consideration of RMB2.29 billion, payable in 2 tranches of 70% and 30% (Tranche 1 Consideration and Tranche 2 Consideration respectively). constitutes a Major Transaction under Chapter 10 of the SGX-ST Listing Manual. constitutes an Interested Person Transaction under Chapter 9 of the SGX-ST Listing Manual. In connection with the Proposed Disposal, the Company intends to declare a total Proposed Special Dividend of RMB1.1627 per Share (to Shareholders and Bondholders) on fully-diluted basis (S$0.2398 per Share based on illustrative exchange rate of RM4.8483 : S$1), payable in two tranches RMB0.6794 per Share (58.4%) as Tranche 1 Special Dividend; and RMB0.4833 per Share (41.6%) as Tranche 2 Special Dividend; subject to the fulfilment of certain Special Dividend Conditions, including the receipt by the Company of the Tranche 1 Consideration and the Tranche 2 Consideration respectively. 6
Purchaser • The shareholders of the Purchaser are as follows: Purchaser investors/shareholders Consortium of PRC funds and independent minority investors, with lead investors being • Guangdong China Science and Tech-innovation Capital Management Co., Ltd. (“CSTC”) (广 东中科科创创业投资管理有限责任公司) 64.05% • CICC Alpha (Beijing) Investment Fund Management Co., Ltd (“CICC”) (中金甲子(北京)投资 基金管理有限公司) 35.95% Mr Guo (14.9%), Mr Ma (14.9%) and 140 employees of M&S Group (6.15%) • CSTC, established in 2009, is engaged in private equity investment and venture capital investment management businesses with more than RMB15 billion in private equity funds under management • CICC Alpha, established in 2014, is a subsidiary of China International Capital Corporation Limited ("CICC") and is one of CICC's direct investment platforms. CICC is one of China's leading investment banking firms that engages in investment banking, securities, investment management, and other financial services primarily with institutional clients, established since 1995. 7
Use of Net Proceeds Net Proceeds (RMB’million) 2,021 - To declare the Proposed Special Dividend to Shareholders and make the Bondholders’ 1,340 Special Dividend payment to Bondholders (66.3%) - To undertake existing GI Projects and for general working capital purposes (27.3%) 551 - To repay existing payables due from GI Group to M&S Group (6.4%) 130 8
Rationale for the Proposed Disposal Partially Unlock Value with Proposed Special Dividend Proposed Special RMB Dividend per Share (Based on SGD Dividend per Share (for Payable after Dividend1 Fully Diluted Total Shares) illustration only) Total RMB1.1627 S$0.2398 - Tranche 1 - RMB0.6794 - S$0.1401 Receipt of Tranche 1 Consideration - Tranche 2 - RMB0.4833 - S$0.0997 Receipt of Tranche 2 Consideration Proposed Disposal at an Attractive Consideration Consideration represents a significant proportion of the Group’s market capitalization (1) 50.0% (2) of the Company’s VWAP of S$0.8066 on 30 Dec 2020, being the Last Trading Day Consideration is at premium to Independent Valuation and NTA Premium over the Independent Valuation of RMB1.726 billion - RMB1.890 billion by Independent Valuer EY Corporate 21.2% - 32.7% Advisors Pte. Ltd. as at 30 Sep 2020 94.5% the unaudited pro forma NTA of the M&S Group of RMB1.177 billion as at 31 Dec 2020 Consideration is 9.5x price-earnings ratio of M&S Group’s net profits attributable to Shareholders for FY2020 (1) The Company's market capitalisation is determined by multiplying 1,152,523,142 Fully Diluted Total Shares (excluding treasury Shares) by the weighted average price of S$0.8066 per Share on the Last Trading Day. (2) Based on the Consideration of S$464,719,849 (based on the exchange rate of SGD1.00:RMB4.9277 as at 30 December 2020) and the market capitalisation of the Company of approximately S$929,625,166 as at the Last Trading Day. 9
Rationale for the Proposed Disposal Enable strategic focus on GI Business. Build solid business and financial profile • M&S Business is a manufacturing and services-based, one-off order book-driven business, providing customized services and products for customers. Hence, the M&S Business is "volatile" in nature with limited visibility to future earnings and dependent on the capital expenditure plans of its customers or downstream industries such as petrochemical, chemical and solar industries • Building a solid business and financial profile for the Group and strategically focusing on the GI Business after the Proposed Disposal. The GI Business is attractive in the following manner: it generates sizeable income and cash flow; it generates long-term recurring income and cash flows, with diverse and captive industrial customers through typically exclusive long-term concessions of approximately 30 years; and it has high barriers to entry for new entrants. • Increased business opportunities in the PRC anti-smog sector, due to: PRC government having placed increasing focus on environmental policies and the regulatory shift to environmental- friendly centralized facilities and practices; Strict zoning policies that mandate the location and/or relocation of new factories into industrial parks with such centralised infrastructure; and Organic expansion of customers and industrial parks served by the GI Projects, which the Board believes that the GI Group is well positioned to capitalise on. 10
GI Business will be Group's Remaining Core Business Upon the Completion of the Proposed Disposal • Strong business fundamentals Enormous business opportunities in China’s anti-smog sector Exclusive supplier, captive customer base with operating concessions of typically 30 years Long-term, high quality, and recurring cashflow and income Strong and proven track record of both organic and inorganic growth Double digit year-on-year increase in revenue and EBITDA • Robust Pipeline with attractive GI Projects • Existing and Experienced GI management team with proven track record • Mr Guo Hongxin and Mr Ma Ming remain committed to the Group Mr Ma Ming to remain Executive Director and will continue to Notes: spearhead and run the GI Business (1) Existing plant still in operation and will remain operational until the commissioning of the new plant. Part of Xintai Zhengda’s new plant is in operation. Mr. Guo Hongxin will continue to provide support and assistance (2) Phase 1 of Shantou Project is in operation. to the Group in his re-designated capacity 11
Existing and Experienced Management Team with Proven Track Record GI will continue to be spearheaded by Mr Ma Ming, and supported by a team of 4 key management members. The GI Business management team has a proven track record in managing the GI Business, as demonstrated by the rapid expansion and strong growth of GI Business since the Group’s strategic expansion into the GI Business in 2015. Mr Sha Jianhua Mr Tang Hao Deputy General General Manager Manager Mr Shi Shaolin Financial Director Mr Zheng Xiaodong Deputy General Deputy General Manager Manager 12
Sunpower has Unique Competitive Edge and Proven Track Record Throughout GI Business Cycle New Project Identification & Securement Proven track record, experienced business teams Discipline and robust system in place for the selection and evaluation of projects Robust pipeline with attractive projects being evaluated Project Investment GI permits/ concessions are highly sought-after assets with high entry barriers for New Project Project new entrants Identification Investment Successfully established resilient and adaptable GI business model & Securement Strong strategic investor support by renowned private equity firms, DCP and CDH Multiple potential sources of funds to fund GI growth strategy Project Construction, Reform and Upgrade Project Innovative technologies for environmental protection, energy-saving & long- Construction, Project distance steam distribution Reform and Operation Know-how to reform and upgrade acquired plants to improve operation efficiency Experienced in project planning, management and construction Upgrade Project Operation Seasoned management and operational teams Proven track record in operating GI projects with excellent results achieved Adoption of Circular Economy Model to reduce operating costs and help industrial parks achieve ultra-low emissions 13
Attractiveness of the GI Business Generates Sizeable Income and Cash Flow • Successfully procured and built a sizeable portfolio of high-quality GI Projects • Strong historical revenue and EBITDA growth for the GI Business. • Robust financial performance for FY2020 despite economy shrouded by the global pandemic Historical Revenue (In RMB’ million) Historical EBITDA (In RMB’ million) 1,335.2 +15.6% 1,155.3 488.7 +56.8% 432.9 +12.9% +384.4% 736.8 276.3 +56.7% +303.4% FY2018 FY2019 FY2020 FY2018 FY2019 FY2020 Generates Long-Term Recurring Income and Cash Flows, with Diverse and Captive Industrial Customers • Exclusive, long tenure concessions that typically last for approximately 30 years • Diverse and captive end users in the industrial parks that spread across several provinces in the PRC • Barring unforeseen circumstances, expect GI Projects to continue generating cash flows over the typical concession period of approximately 30 years 14
Attractiveness of the GI Business (Cont’d) Highly Sought-After Assets with High Entry Barriers • A resilient business model with enormous growth opportunities in China's anti-smog sector • Increasing focus by PRC government on environmental policies and the anti-smog sector, targeting to eliminate and decentralise high- emission pollutive boilers and focus on centralised steam and electricity solutions in industrial parks. The permits and concessions for centralised steam and electricity plants in industrial parks are highly sought after and with high barriers to entry for new entrants Experienced and dedicated management team in place to provide high quality leadership Multiple potential sources of funds to fund its growth strategy, including future expected cash flows from existing GI Projects and external sources of funding e.g. bank loans, medium-term note programmes, etc. Two-pronged growth strategy with emphasis on quality of development that amplifies its strengths: • Solidifying its market position as an environmentally clean centralised provider of industrial steam, heating and electricity via: a) The continuous ramp-up of utilisation of its existing GI portfolio, supported by further expansion of the coverage areas and customer base of the projects but with less intense capital expenditure b) Proceeding with the planned construction of the expansion phases of certain existing projects c) The continuous cultivation of the earnings quality and asset returns of existing projects • Tapping into its proven ability to identify and invest in additional promising GI projects that meet the investment hurdles 15
01 02 Proposed SUNPOWER Disposal of at a Glance M&S Business 03 Proposed 04 Amendments to IFA Opinion Convertible Bond Purchase & Future IPTs Agreements 05 Resolutions AGENDA 16
Rationale for Proposed Amendments to Convertible Bond Purchase Agreements Under the Existing Terms of the Convertible Bond Purchase Agreements, prior written consent of the Majority Bondholders is required for the following, which includes the Proposed Disposal and the Special Dividend any disposal of any material assets or businesses except as contemplated in the current business plan change in business scope or expansion into non-core business areas any voluntary corporate action which would require Company to obtain shareholder approval change in the size or composition of the board of directors or the compensation of Mr Guo and Mr Ma, or appointment, removal or settlement of the terms of their appointment Proposed Disposal would require prior Majority Bondholders’ consent as . It constitutes a disposal of a material business of the Company, which changes its business scope, and further constitutes a Major Transaction under Chapter 10 and constitutes an Interested Person Transaction under Chapter 9 of the SGX-ST Listing Manual, and is subject to Shareholders’ approval The roles of Mr. Guo and Mr. Ma on the Company's Board and the compensation are expected to change in connection with the Proposed Disposal Bondholders have agreed to provide their consent which would be conditional upon (a) certain amendments to the Existing Terms by way of the Amendment Agreement and the Company not being in breach of the Amendment Agreement; and (b) the SPA not having expired or terminated or becoming invalid (whichever is earliest). 17
Salient Amendments to Convertible Bond Purchase Agreements Amended FY2022 Performance Target (PT) of RMB325 million (solely for the GI Business) Previous Performance Target (“PT”) for FY2021 of RMB460 million was intended for both the GI Business and the M&S Business. Amended PT intended to measure the management operating performance of the GI Business alone. . After considering the target performance of the GI Projects, of which, 11 existing projects will be all operational in FY2022, which will better represent the profitability of the GI and the historical operating and financial performance of the GI projects that are already operational. More appropriate year to measure management operating performance as the Company will have its 11 existing GI Projects operational in FY2022 as opposed to only eight (8) operational projects and two (2) partially operational projects in FY2021. Revised floor of performance adjustment of RMB108 million Corresponding adjustments has been made to the floor to the performance shortfall adjustment mechanisms from RMB154 million to RMB108 million, such that the floor remains at one-third of the adjusted performance target of RMB325 million, consistent with the proportion of the adjustment floor to the PT under the Existing Terms. Corresponding amended maturity date of 3 March 2023 and adjustment period up to 31 December 2022 (extended by one financial year) 18
Salient Amendments to Convertible Bond Purchase Agreements Reduced dilution to 31.08% with Issued Bonds of US$130 million instead of fully available Convertible Bonds of an amount of US$180 million As GI projects are EBITDA-positive, and 11 GI Projects are expected to be fully operational in FY2022, the Company is in a position to potentially tap multiple potential sources of funds to fund its growth strategy, e.g. bank loans, medium-term notes program and divestment of certain assets to recycle capital. . For the avoidance of doubt, the Proposed Amendments, if approved by Shareholders, are not intended to vitiate Shareholders‘ previous approval of the issue of the US$50 million Tranche 2 CBs , which remain unissued as at the LPD. The Company shall be authorised to issue such Tranche 2 CBs in accordance with the Tranche 2 CB Agreements as amended by the Proposed Amendments, in the event the Proposed Amendments are approved by the Shareholders at the SGM. Excess Return Sharing will be up to US$5 million and US$15 million and will only be Shared with Management (excluding Mr. Guo and Mr. Ma) and no longer Shared with Shareholders The Bondholders seek to motivate and give clear recognition to the management of GI Business. Through the deliverables achieved by management, Shareholders will stand to benefit from the value created by management. The thresholds for the Excess Return Sharing were arrived at after the Bondholders considered their own returns as balanced against the sufficiency of the Excess Return Sharing threshold in order to motivate and to give clear recognition to the contribution of the Company's management. The above list of amendments are not exhaustive, and certain amendments are highlighted for ease of understanding. Please refer to Appendix E of the Circular for a complete list of amendments. 19
01 02 Proposed SUNPOWER Disposal of at a Glance M&S Business 03 Proposed 04 Amendments to IFA Opinion Convertible Bond Purchase & Future IPTs Agreements 05 Resolutions AGENDA 20
IFA (W Capital): Proposed Disposal and Transaction IPTs are on normal commercial terms & are not prejudicial to the interests of the Company and Minority Shareholders Key Considerations on how Proposed Disposal is on normal commercial terms and not prejudicial Significant premium to Independent Valuation Independent Valuation of M&S Group as at 30 September 2020 of between RMB1,726 million to RMB1,890 million. Consideration of RMB2,290 million represents a significant premium of between 21.2% to 32.7% above the fair market . value of M&S Group as at 30 September 2020 as assessed by the Independent Valuer. Premium to NAV & NTA Unaudited proforma NAV and NTA of the M&S Group as at 31 December 2020 of approximately RMB1,260 million and RMB1,177 million respectively. Consideration is at a premium of 81.7% and 94.5% to the unaudited proforma NAV and NTA of the M&S Group as at 31 December 2020. Considered (i) the rationale for the Proposed Disposal, (ii) the historical financial performance of the M&S Business, (iii) the financial effects of the Proposed Disposal, (iv) assessment of the terms relating to the Trademark Assignments and M&S Corporate Guarantees, and (v) other relevant considerations Valuation statistics (P/E, P/NTA and EV/EBITDA) are within/above range and are close to/above mean and median valuation multiples of Comparable Companies listed in Singapore and outside of Singapore Note: This slide is to be read in conjunction with the circular to shareholders dated 31 March 2021 21
IFA (W Capital) : IPT Procedures are sufficient to ensure IPTs will be carried out on normal commercial terms & will not be prejudicial to the interests of the Company & Minority Shareholders Guidelines and Review Procedures under the Proposed IPT Mandate Frequency of review Type of IPTs Frequency of review of Mandated between M&S of interested party Procedures Contract size Reviewed by Approved by Transactions by Group and GI transactions by Independent Group Internal Audit Committee . EPC for GI Via tender process, with Above RMB100 GM of Jiangsu Independent At least quarterly Annually facilities to be a minimum of 3 million Sunpower Clean Committee, The Independent Internal audit annual provided by quotations (of which at Energy Co., Ltd., a comprised of the Committee (inclusive work scope to M&S Group to least 2 are unrelated). GI Group company Audit Committee of Audit Committee) include review of GI Group (which has 3 IDs as shall review all interested person If unable to obtain AND at LPD) and a fourth Mandated transactions with third-party quotation, ID, who must each Transactions at least regard to the relevant benchmark against 2 CFO of GI Group not have any interest, quarterly. The approvals to be recent contracts entered direct or indirect, in Independent obtained and the into between Mandated the transaction. Committee shall, reviewed procedures Interested Persons and when it deems fit, to be adhered to. The their unrelated third require appointment internal auditors will party customers for the of an independent report their findings same or substantially professional firm to to the Independent similar products and/or provide additional Committee. services review. …cont’d next page 22 Note: This slide is to be read in conjunction with the circular to shareholders dated 31 March 2021
Cont’d Guidelines and Review Procedures under the Proposed IPT Mandate (Cont’d) Frequency of review Type of IPTs Frequency of review of Mandated between M&S of interested party Procedures Contract size Reviewed by Approved by Transactions by Group and GI transactions by Independent Group Internal Audit Committee .Utility Facilities Each contract subject to Individual contract Deputy GM of CFO of GI Group …cont’d EPC Contracts to Framework Agreement < RMB10 million Jiangsu Sunpower be provided by which specifies (1) Clean Energy Co., AND Note: M&S Group to construction work Ltd., a GI Group A register will be GI Group standards, (2) basis of company GM of Jiangsu maintained to record computation of Sunpower Clean the list of interested construction costs, and (3) Energy Co., Ltd., a persons and their pricing which shall be GI Group company associates (which is within range of the Individual contract GM of Jiangsu Independent to be updated benchmark analysis report. ≥ RMB10 million Sunpower Clean Committee immediately if there Energy Co., Ltd., a are any changes) to Benchmark analysis report GI Group company enable identification will be issued by of interested independent professional AND persons, as well as firm, and forms part of all interested person review and approval of CFO of GI Group transactions Utility Facilities EPC Contracts. 23 Note: This slide is to be read in conjunction with the circular to shareholders dated 31 March 2021
Cont’d Guidelines and Review Procedures under the Proposed IPT Mandate (Cont’d) Frequency of review Type of IPTs Frequency of review of Mandated between M&S of interested party Procedures Contract size Reviewed by Approved by Transactions by Group and GI transactions by Independent Group Internal Audit Committee Lease of office . The rent payable shall be Regardless of Head of Internal Independent buildings from at an annual rent being no contract value Control of GI Group Committee M&S Group by higher than the then GI Group prevailing market rental as AND supported by an independent report issued CFO of GI Group by an independent firm not more than two (2) months prior to the lease and/or the renewal of the lease 24 Note: This slide is to be read in conjunction with the circular to shareholders dated 31 March 2021
01 02 Proposed SUNPOWER Disposal of at a Glance M&S Business 03 Proposed 04 Amendments to IFA Opinion Convertible Bond Purchase & Future IPTs Agreements 05 Resolutions AGENDA 25
Ordinary Resolutions No. Ordinary Resolutions The Proposed Disposal of the Entire Manufacturing and Services (M&S) Business of the Company as an Interested 1 Person Transaction and a Major Transaction and the Transaction IPTs as Interested Person Transactions . 2 The Proposed Special Dividend 3 The Proposed Amendments to the Convertible Bond Purchase Agreements 4 The Proposed Adoption of the Shareholders' General Mandate for Interested Person Transactions Inter-conditionality of the Resolutions Shareholders should note that Ordinary Resolution 1 relating to the Proposed Disposal and the Transaction IPTs, Ordinary Resolution 2 relating to the Proposed Special Dividend, Ordinary Resolution 3 relating to the Proposed Amendments to the Convertible Bond Purchase Agreements and Ordinary Resolution 4 relating to the adoption of the Proposed IPT Mandate are inter-conditional upon one another. Accordingly, in the event that any of Ordinary Resolution 1, Ordinary Resolution 2, Ordinary Resolution 3 or Ordinary Resolution 4 is not approved, the other resolutions will not be proceeded with. 26
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