LED International Holdings Limited
("LED" or the "Company")
Grant of approval for leasing company
The board of directors of the Company (the "Board") is pleased to announce that the Shanghai Municipal Commission of Commerce ("SMCC") has granted the Company a highly sought after leasing finance licence to enable the Company to provide lease financing to customers. The Company will form a new wholly owned direct subsidiary, Green Pearl Leasing (China) Company Limited ("GP Leasing Co"), in order to carry on this business.
Stephen Weatherseed, Chairman, commented: "We are pleased to make this extremely important announcement as we continue with the transform of LED into an energy management service provider in the PRC. It is extremely difficult to obtaining a lease financing licence in China and a huge amount of credit should be given to all of those involved. We consider that the ability to offer our customers lease financing will enable us to develop our energy management business more quickly and help us secure new contracts. At the same time, we will also be able to offer lease financing to customers throughout the PRC whether or not they are a customer of LED which has the potential to provide us with additional revenues."
The Company's newly established energy management contract ("EMC") business model is substantially dependent on debt capital finance, predominantly either through bank finance for the Company and/or its subsidiaries (the "Group") or through equipment leasing finance for its customers. Therefore, in order to launch its EMC business model more widely, theCompany applied for a leasing finance service license, which is a regulated business carried out by non-financial institutions in the People's Republic of China (the "PRC"), in the last quarter of 2012.
In accordance with the SMCC's approval document, the Company is obliged to contribute 20 per cent. of GP Leasing Co's registered capital of RMB100 million, to be contributed in US$ (approximately £10 million),within 3 months from the date of approval by the SMCC. The remaining 80 per cent. of the registered capital must be contributed within 2 years from the date of approval by the SMCC. GP Leasing Co must be formed within 30 days from the date of approval by the SMCC.
The board of directors of GP Leasing Co will be Kent Chu, LED'sFinancial Controller, (Executive Director and General Manager), Danny Ho (Non-Executive Director) and Stephen Chan, LED's CEO (Non-Executive Chairman).
The Board considers that GP Leasing Co will assist the Group in the development of its EMC business model for the foreseeable future. Further announcements in relation to formation and capital contribution to GP Leasing Co will be made at the appropriate time.
Update on leasing finance company
The board of directors of the Company is also pleased to announce an update in relation to the required capital contribution to be made to its leasing finance company, Green Pearl Leasing (China) Company Limited in an amount of USD2,691,900 (equivalent to RMB16,535,803.32, or approximately GBP1,700,000.00) (the "Contribution"), further details of which were announced on 21 June 2013 and 18 November 2013. An independent certified public accounting firm in China has confirmed that the Company has made the Contribution as required.
New leasing finance contract secured
The board of directors of the Company (the "Board") is pleased to announce that the Company's wholly-owned direct subsidiary, Green Pearl Leasing (China) Co. Ltd. ("Green Pearl"), has entered into a leasing finance contract (the "Contract") with Jiangsu Siyuan Port Company Limited ("Siyuan"), based in Jiangsu, China. The projected total interest receivable by Green Pearl under the Contract is approximately RMB1,320,000 (approximately £137,000) over a two-year period.
Pursuant to the Contract, Green Pearl purchased various port loading and reloading equipment (the "Equipment") from Siyuan at a consideration of RMB12,000,000 (approximately £1,246,000) and the Equipment shall be leased back to Siyuan for a term of two years from 25 December 2014 to 25 December 2016 (the "Lease Period").
Summary of the Contract
Under the Contract, Green Pearl shall purchase the Equipment from Siyuan at a consideration of RMB12,000,000 (approximately £1,246,000) and the Equipment shall be leased back to Siyuan for the Lease Period.
The lease rent to be paid by Siyuan to Green Pearl comprises of two components: the principal lease cost of RMB12,000,000 (approximately £1,246,000) (the "Principal Lease Cost") and the aggregate lease interest of RMB1,320,000 (approximately £137,000) calculated at a rate of 11 per cent. per annum for the Lease Period (the "Interest").
Siyuan shall pay the first half of the Principal Lease Cost of RMB6,000,000 (approximately £623,000) to Green Pearl upon the commencement of the Contract. Pursuant to the Contract, Siyuan duly paid RMB3,000,000 (approximately £311,000) of this amount to Green Pearl on 30 December 2014 and the remaining RMB3,000,000 (approximately £311,000) shall be paid by Siyuan on 5 January 2015.
The second half of the Principal Lease Cost of RMB6,000,000 (approximately £623,000) shall be paid by Siyuan to Green Pearl in twenty four installments of RMB250,000 (approximately £26,000) each and are payable on the 25th day of every calendar month during the Lease Period.
The Interest payable by Siyuan to Green Pearl shall be paid by Siyuan in twenty four installments of RMB55,000 (approximately £5,700) each and are payable on the 25th day of every calendar month during the Lease Period.
During the Lease Period, the ownership of the Equipment shall vest in Green Pearl. Upon expiry of the Lease Period and subject to full satisfaction of all the obligations under the Contract, Siyuan will have the option and the right to purchase the Equipment at a nominal purchase price of RMB1 to obtain the title of and all rights in the Equipment from Green Pearl.
Pursuant to the Contract, Mr. Xu Xiu Zhi, the major ultimate shareholder of Siyuan, has provided an unlimited personal guarantee to secure the obligations of Siyuan under the Contract.
Siyuan shall make all the insurance payments for the integrated property insurance of the Equipment in favour of Green Pearl.
LED's Chief Executive Officer, Stephen Chan, said: "I am delighted to announce this important lease finance contract with Siyuan. This is the first lease finance contract entered into by Green Pearl since it obtained its leasing finance license and represents a significant milestone for the Company. It is the culmination of all our hard work over the past 2 years and we look forward to entering into more leasing finance contracts in the coming year."
Over the past few years, the Group has provided EMC services in the PRC. The Group's EMC company ("EMCO") has been operated through Shenzhen Green Pearl Energy Management Services Company Limited ("GPEMCO"), a company with a valid and effective EMCO registration with the National Development and Reform Commission. Operating through GPEMCO enables the Group to take advantage of certain favorable policies and terms for the EMC industry within the PRC. In previous periods, the Group secured a number of contracts to support the Group's strategy and mark the commencement of the successful implementation of its energy efficiency solutions under the EMC business model. On 5 December 2014, GPEMCO was awarded an EMC contract by Tianjin Tian Gang United Special Steels Company Limited, a subsidiary of Tianjin Iron & Steel Group Company Limited, based in Tianjin, the PRC, for a contract amount of RMB1,830,000 (approximately HK$2,283,000 or £189,000) over a six-year period. Further contracts continue to be negotiated, details of which will be announced as appropriate.
The Board continues gradually to drive the Group to secure meaningful revenues from the domestic PRC EMC market, as well as implementing measures to reduce the Group's overhead expenditure. The Board remains convinced that the Group's overall operations remain sound.
The Group has not engaged in any manufacturing operation after the disposal of its remaining effective equity interest (60%) in Kepu Electronic Technology (Shenzhen) Company Limited ("Kepu").
On 5 December 2014 the Company announced that the required capital contribution to be made to its leasing finance company, GP Leasing Co in an amount of approximately USD2,692,000 (equivalent to approximately RMB16,535,000, HK$20,996,000 or GBP1,700,000) has been made as required.
Update on Shenzhen Lamp Energy Management Investment Company Limited
On 25 March 2013 LED announced the acquisition of Shenzhen Lamp Energy Management Investment Company Limited (subsequently renamed to Shenzhen Green Pearl Energy Management Services Company Limited ("GPEMCO")). This acquisition was structured as a direct acquisition of GPEMCO's immediate parent company, Shenzhen Green Pearl Energy Management Technology Development Company Limited ("Shenzhen GP Energy"), by the Company's 60% subsidiary, Green Pearl Energy Conservation Holdings Limited ("GP Energy Holdings") (the "Acquisition").
The Acquisition has been restructured in such a way such that GP Energy Holdings had set up Carten International Limited, a wholly owned subsidiary in Hong Kong, as an investment company to acquire Shenzhen GP Energy, which will subsequently be restructured and transformed from a domestic PRC company to a Wholly Foreign Owned Enterprise ("WFOE") under the laws of the PRC.
GP Energy Holdings signed the relevant acquisition agreement with Mr. So Hing Chung (the "Acquisition Agreement") on 21 March 2013. One of the terms of the Acquisition Agreement is that the business and assets, including patents and intellectual property rights, inventories and energy management contracts of Strongbase New Opto-Electronics Technology Company Limited (a former subsidiary of the Company, the disposal of which was announced on 25 March 2013) (together the "Assets") be transferred to GPEMCO.
As at the date of this announcement, the Acquisition has yet to be fully completed as the Company is in the process of obtaining consent from the PRC government for the transformation of Shenzhen GP Energy into a WFOE. Despite the delay, the Company retains control over and safeguards the Assets by exercising management control over GPEMCO.
The Board expects that the Acquisition and the related transactions will be completed in the middle of 2016.
Further announcements will be made in due course.
Entry in to a shareholders' agreement with Shanghai Guang Dian Asset Management Company Limited
The board of directors of LED is pleased to announce that the Company has entered into an agreement with Shanghai Guang Dian Asset Management Company Limited ("SHGD") dated 27 May2016 (the "Shareholders' Agreement"), under which LED and SHGD will make a total capital contribution of RMB200.0 million (being approximately £21.3 million) to Green Pearl Leasing (China) Company Limited ("GP Leasing"). GP Leasing is currently a 100% owned subsidiary of LED. The capital contribution shall be made by LED and SHGD in equal shares of RMB100.0 million (being approximately £10.7 million) each. LED's contribution shall beinclusive of the previous capital contributions made by LED, being approximately RMB16.5 million (being approximately £1.7 million).Further details of LED's previous capital contribution to GP Leasing are contained in the Company's announcement of 5 December 2014. LED intends to fund its approximately RMB83.5 million (being approximately £9.0 million) by raising the required relevant fund from the potential investors, including SHGD, within twelve months as stipulated in the Shareholders' Agreement SHGD's capital contribution will be by way of a cash investment in GP leasing, in return for which they will receive new shares in GP Leasing which represent 50% of GP Leasing's enlarged issued share capital.
GP Leasing was incorporated by LED in Shanghai, in the People's Republic of China (the "PRC") on 20 August 2013 with a registered capital of RMB100.0 million (being approximately £10.7 million) and is currently 100% owned by LED. GP Leasing engages in a range of business operations, including:
i) providing financing for leasing businesses;
ii) financing acquisitions of assets from outside the PRC for the purpose of leasing;
iii) maintaining and improving the depreciation values of the leasing assets;
iv) leasing related consultancy; and
v) guarantee services (in so far as are permitted by the laws and the administrative regulations).
LED's Chief Executive Officer, Stephen Chan, is currently one of three directors sitting on the board of directors of GP Leasing.
The board of directors of LED believes that by entering into the Shareholders' Agreement, LED will strengthen its strategic relationship with SHGD, thereby allowing LED to move into the business of leasing which would enhance LED's business operations and improve the long-term profitability of LED.
Background to SHGD
SHGD is incorporated in the PRC by contributing capital of RMB66.6 million (being approximately £* million) on 16 September 2015, and it is also a significant and established financing and asset management enterprise operating in the PRC fund management market. It is principally engaged in the business of corporate finance related advisory and consultancy services, and is known for its prudent approach in terms of risk management in relation to its investment portfolio. SHGD currently manages a portfolio of approximately RMB5.0 billion(being approximately £* million).
Mr. Yu Hong Xiang, the Legal Representative and director of SHGD, and Mr. Jin Yi Min, the supervisor of SHGD, owns 50 per cent. equity interest each in SHGD. The investment portfolio under management includes but is not limited to a private equity investment fund management firm in Qian Hai, Shenzhen, and some major equity stakes in listed firms at A-Stock of Shanghai Stock Exchange and National Equities Exchange and Quotations.
Summary of the Shareholders' Agreement
· LED and SHGD will each be required to make their respective capital contributions to GP Leasing within thirty working days from the approval by Shanghai Administration for Industry and Commerce. Capital contributions to GP Leasing should be completed fully within twelve months. The registered share capital of GP Leasing will be increased to RMB200.0 million (being approximately £21.3 million) and LED and SHGD will each hold a 50 per cent. shareholding in GP Leasing.
· LED and SHGD are entitled to appoint two and one director(s) to the board of directors of GP Leasing respectively. LED is also entitled to appoint the Legal Representative of GP Leasing.
· The board of directors of GP Leasing will exercise the management functions of GP Leasing. The directors of GP Leasing are required to conduct a board meeting at least once every six months, with the quorum being two-thirds of the total number of directors.
· LED is entitled veto powers on various matters such as any change in the composition of the board of directors and other significant strategic decisions of GP Leasing.
· LED and SHGD are prohibited from disposing of their respective shares in GP Leasing for a period of three years from the date of their obtaining of the respective shares (the “Lock-in Period”).
· After the end of the Lock-in Period, should either LED or SHGDdecide to dispose of its shares in GP Leasing, the non-disposing party is entitled to the right of first refusal.
· LED and SHGD are each entitled to pre-emptive rights to acquire any new shares that would be issued by GP Leasing in the future, save for where the new shares are issued for incentive-based stock options for the employees of GP Leasing or as a result of the subdivision of existing shares of GP Leasing or for profit distribution.
· LED shall be entitled to appoint a supervisor to oversee GP Leasing on such matters as finance and compliance by the management with the Articles of Association of GP Leasing and the relevant laws and regulations of the PRC.
It`s been a long saga thus far .Waiting for some of LED investments to pay off.
Perhaps finally a change is in the air .