Published July 14, 2009

Got something on your mind? Tell C&G

Company launches survey to see how shareholders view new acquisition

By LYNETTE KHOO

(SINGAPORE) Call it management by feedback. In a novel way to understand how shareholders see its move into a new business, C&G Industrial Holdings launched a shareholder survey through the SGX website yesterday.

Financial PR, which issued the survey on behalf of the firm, said it wasn't to garner votes but to give shareholders an avenue to voice their concerns to the management.

The Chinese textile firm had in May entered into a definitive agreement to acquire all the shares of CUGU Environmental Protection International Ltd (CUGU EPIL) for 360.4 million yuan (S$77.3 million) by way of issuing new shares at 21 cents apiece. This issue price was subsequently adjusted to 24 cents in June in anticipation of new contract wins by CUGU EPIL.

This acquisition marks a shift to the waste-to-energy industry, after the group battled a 88.6 per cent slide in net profit in its core textile business to five million yuan in the first quarter ended March 31, 2009, on the back of declining sales and depressed margins.

The target company is incorporated in the British Virgin Islands and is involved in investing, constructing, operating and maintaining waste incineration power plants in China through build-operate-transfer (BOT) schemes.

But there will be major dilution following the issue of new shares. C&G may issue more shares for any additional payment to the vendor for further successful tenders of BOT projects by the CUGU Group before July 15.

This cut-off date was extended to Aug 15, after the vendor informed C&G that it will only obtain the award of some of the new BOT projects after July 15.

CUGU EPIL has one completed BOT project with an initial daily treatment capacity of 600 tonnes of municipal solid waste (MSW) per day and it is undergoing an expansion to a daily capacity of 1,800 tonnes of MSW. The company has two other BOT projects at different stages of development and a heads of agreement for a new BOT project in China.

'The switch from textile to WTE is quite a drastic change,' said Kathy Zhang, managing director of Financial PR. 'We've had a few rounds of communication with shareholders already but we thought it is good to know where most shareholders stand.'

The group conducted a roadshow in May to meet shareholders, and this survey would allow shareholders who did not turn up at the roadshow to express their views.

'We realise that now is probably a good time to come up with a systematic approach to give all shareholders a chance to feedback to the management on exactly what is the acceptance and understanding of this waste-to-energy business,' Ms Zhang said.

Questions posed in the survey hinge on shareholders' views on the prospects of the WTE business versus that of the current textile business and whether they think the acquisition will be beneficial to them.

The survey also asks shareholders to pick their top three concerns from a list of suggestions - including 'lack of synergies with existing textile business', 'more funding is required for future expansion in the WTE business', and 'ability to pay dividend in FY09 and FY10'.

According to Ms Zhang, C&G is also interested to hold a site visit for interested investors.

A circular on the acquisition, together with the valuation report by Jones Lang LaSalle, will be despatched to shareholders ahead of an extraordinary general meeting to be held some time in September.