Discloseable Transaction - Disposal of a Vessel
10 December 2018
The Vendor entered into the Agreement with the Purchaser on 10 December 2018 for the disposal of the Vessel at a consideration of US$6,900,000 (approximately HK$53,820,000).
The Vessel will be delivered by the Vendor to the Purchaser between 27 December 2018 and 31 January 2019.
Information on the Group and the Vendor
The principal activity of the Company is investment holding and the principal activities of its subsidiaries are
international ship chartering and ship owning.
The Vendor is a ship owning company and a wholly-owned subsidiary of Jinhui Shipping, which is in turn an approximately 55.69% owned subsidiary of the Company as a t date of this announcement.
The Purchaser is a company incorporated in Marshall Islands and is intended to be the registered owner of the Vessel following her purchase.
The principal activity of the Purchaser is ship owning and is owned by Bao Fortune Shipping (HK) Group Co., Limited, a company incorporated in Hong Kong. The principal activities of
Bao Fortune Shipping (HK) Group Co., Limited are ship owning, chartering and other shipping related business.
To the best of the Boardís knowledge, information and belief having made all reasonable enquiry, the Purchaser, its shareholders, ultimate beneficial owners and its
respective associates are third parties independent of the Company and its connected persons.
Under the Agreement, the Vendor agrees to dispose of the Vessel for a consideration of US$6,900,000 (approximately HK$53,820,000) payable by the Purchaser as follows:
an initial deposit of US$1,380,000 (approximately HK$10,764,000) will be payable by the Purchaser within three banking days after the date that
(i) the signing of the Agreement; (ii) the signing of escrow agreement in respect of the initial deposit to be lodged with the escrow agent; and (iii) the confirmation
from the escrow agent confirming the account is ready to receive the initial deposit; and (2) the balance of US$5,520,000 (approximately HK$43,056,000)
will be payable by the Purchaser on the delivery of the Vessel which will take place between 27 December 2018 and 31 January 2019.
The consideration of the Vessel of US$6,900,000 (approximately HK$53,820,000) was determined by reference
to market intelligence the Company has gathered from shipbrokers and its own analysis of recently concluded
sale and purchase transactions of vessels of comparable size and year of built in the market, and on the basis of
armís length negotiations with the Purchaser.
We observe and monitor the sale and purchase market of second hand vessels, including recent market
transactions of similar vessels between willing sellers and willing buyers in that prevailing time presuming the
vessel free from all registered encumbrances, maritime liens and all debts, free of charter or any contract of
employment, for cash payment on normal sale terms at that particular of time. However, as each vessel is never
identical, buyers will take into account, the individual specification, maintenance quality and conditions of each
individual vessel to come up with an offer.
Management has based on the experience, market knowledge to consider the acceptance of the biddersí offers.
The Vessel is a Supramax of deadweight 51,104 metric tons, built in year 2002 and registered in Hong Kong. The Vendor is a special purpose company for holding solely the Vessel.
The Vessel has been owned by the Group since year 2007, and its unaudited net book value as at 30 September 2018 was approximately HK$50,884,000.
The net profit both before and after taxation and extraordinary items attributable to the Vendor for the financial year ended 31 December 2017 was approximately
HK$1,755,000 while net loss both before and after taxation and extraordinary items attributable to the Vendor for the financial year ended 31 December 2016 was
Possible financial effects of the Disposal
Based on the unaudited net book value of the Vessel as at 30 September 2018 as described above,
the Group would realize a book gain of approximately HK$1.7 million on disposal of the Vessel.
The book gain for the Vessel was calculated after estimated expenses of approximately HK$1.2 million,
which mainly includes commission and legal fees. However, the actual book gain which the Group would realize upon completion of
the Disposal will depend on the actual net book value of the Vessel as at date of delivery in accordance with the Groupís impairment and
depreciation policy for its vessels as shown in the Companyís annual report and the actual costs of disposal being incurred of the Vessel as at date of delivery.
Use of proceeds
The Group intends to keep all net sale proceeds received as general working capital of the Group.
Guarantee by Bao Fortune Shipping (HK) Group Co., Limited
Bao Fortune Shipping (HK) Group Co., Limited will guarantee the due and faithful performance of obligations of the Purchaser under the Agreement in favour of the Vendor.
Reasons for the Disposal
The Directors continuously review the prevailing ma rket conditions of the shipping industry and monitor and
adjust the Group's fleet profile as appropriate. The Directors believe that the Disposal will enable the Group to enhance its working capital position and
further strengthen its liquidity, and optimize the fleet
profile through this ongoing management of asset portfolio.
Despite the recent improvement in shipping market, we continue to see uncertainty and market volatility
remaining as an operational risk to the Group. In order to further reduce operational risk and liquidity risk, we believe it is prudent for the Group to
readjust the fleet size according to the age profile and it is also important to remain financially nimble in todayís ever-changing market environment.
The Disposal would result in a book gain and generate positive cash inflow to boost its working capital and liquidity.
We will continuously monitor the market as well as our operations going forward and look out for opportunities to maintain a reasonably
modern and competitive fleet, not ruling out any future disposal or acquisition of vessels and will make such
decisions on an ad hoc basis to maintain a high financial flexibility and operational competitiveness.
Before the completion of the Disposal, the Group currently owns two modern Post-Panamaxes and eighteen modern grabs fitted Supramaxes including the Vessel. Total carrying capacity will be reduced
by 51,104 metric tons to 1,136,283 metric tons after the Disposal, and the Directors believe that the Disposal will not have any material adverse effect on the operations of the Group.
The terms and conditions of the Agreement have been agreed on normal commercial terms following armís length negotiations with reference to the prevailing market values.
The Directors consider that the Disposal represents an opportunity for the Group to readjust its fleet profile and reduce our operational risk exposures in current high-risk volatile markets and the
Disposal will improve the liquidity position of the Group. The Directors consider that the terms and conditions of the Agreement was concluded between a willing seller and willing buyer and concluded base on armís length
negotiations, the Directors consider such terms and conditions are fair and reasonable and believe that the Disposal is in the interests of the Company and its shareholders as a whole.
Listing Rules Implication
As one or more applicable percentage ratios (as defined in the Listing Rules) for the disposal of the Vessel
exceed 5% but are less than 25%, the Disposal constitutes a
discloseable transaction for the Company under Chapter 14 of the Listing Rules and is subject to the notification
to Stock Exchange and publication of announcement requirements under the Listing Rules.
Jinhui Shipping and Transportation Limited