2.6 billion cash leveraged 10 billion yuan acquisition, and Hanlan Environment privatized Canvest Environmental Protection at a premium

Blue Whale News, July 23 (Reporter Xu Xiaochun) On July 22, Hanlan Environment officially disclosed the major asset acquisition plan, and the privatization of Canvest Environmental Protection took another step.

In the end, Hanlan Environment invested 2.6 billion yuan to leverage this industry-eyed acquisition of 10 billion yuan, with 2 billion yuan invested by Guangdong state-owned assets, and the remaining funds were supplemented by the M&A loan applied for by its holding subsidiary, Hanlan Foshan. At the same time, the original shareholders of Canvest Environmental Protection took away some office buildings, land use rights and other assets, as well as Canvest Environmental Protection's newly entered smart parking business company, which accounted for less than 7% of its revenue last year.

State-owned assets contributed 2.6 billion yuan, and loan financing made up for the funding gap of 6.1 billion yuan

Foshan Nanhai Water Supply Group Co., Ltd. (hereinafter referred to as "Nanhai Water Supply"), a subsidiary of Nanhai State-owned Assets Supervision and Administration Bureau, is the controlling shareholder of Grandblue Environment, holding 17.15% of the company's shares. In addition, Guangdong Nanhai Holding Group Co., Ltd. (hereinafter referred to as "Nanhai Holdings") and Foshan Nanhai Urban Construction Investment Co., Ltd., which are directly controlled by the Nanhai District State-owned Assets Supervision and Administration Bureau, hold 15.45% and 4.96% of the shares of Hanlan Environment respectively, and the Nanhai District State-owned Assets Supervision and Administration Bureau controls a total of 37.56% of the voting shares of the listed companies.

In the process of privatization of Canvest Environmental Protection, Hanlan Environment has attracted Nanhai Holdings and Guangdong Hengjian Investment Holding Co., Ltd. (hereinafter referred to as "Guangdong Hengjian"), behind Guangdong Hengjian is the State-owned Assets Supervision and Administration Commission of Guangdong Province, and the two co-investors with state-owned assets have relatively strong financial strength.

As of the close of trading on July 22, Canvest's market value was about HK$11.7 billion, equivalent to about RMB10.6 billion, and Grandblue Environment itself did not have enough funds to support the acquisition plan.

In the end, Hanlan Environment cooperated with the state-owned investors behind it to leverage the acquisition of 10 billion yuan with a capital of 2.6 billion yuan.

In order to privatize Canvest Environmental Protection, Guangdong Hengjian and Nanhai Holdings jointly established a high-quality fund, and Hanlan Environment jointly increased its capital by RMB 4.02 billion to Hanlan Foshan, an indirect subsidiary of Hanlan Environment, through its wholly-owned subsidiary Hanlan Solid Waste and High-quality Fund. Before the capital increase, the registered capital of 580 million yuan was fully subscribed by Hanlan Solid Waste, and the 4.02 billion yuan of the capital increase was also funded by Hanlan Solid Waste of 2.02 billion yuan and the high-quality fund of 2 billion yuan.

After the completion of the capital increase, Hanlan Solid Waste will hold 56.52% of the equity of Hanlan Foshan, and the high-quality fund will hold 43.48% of the equity of Hanlan Foshan. At the same time, Hanlan Foshan will also apply for an M&A loan of 6.1 billion yuan from domestic banks. If it is unable to obtain financing from domestic banks, Hanlan Foshan will also obtain financing loans of HK$4.7 billion and HK$6.3 billion respectively from China Merchants Bank London Branch or China CITIC Bank International Co., Ltd. to cover the situation.

Eventually, Hanlan Foshan intends to increase its capital by up to HK$11.3 billion, or RMB10.5 billion, to Hanlan Hong Kong, the entity in the tender offer for Canvest Environmental Protection, to pay the consideration for the privatization of Canvest. According to the acquisition plan, Hanlan Environment gave the cancellation price of HK$4.9 per share for the privatization of Canvest Environmental Protection, and as of the close of trading on July 22, the share price of Canvest Environmental Protection was HK$4.39 per share, and the main price of privatization was about 11.62% higher than that of Canvest.

Within 12 months after the completion of the privatization, the high-quality development fund controlled by Guangdong state-owned assets will have the right to choose to exit by subscribing for the shares of Grandblue Environment or transferring its equity interest in Canvest in cash.

In 2023, Grandblue Environment's operating income will be approximately RMB12.541 billion, of which RMB6.433 billion will be from solid waste treatment business, accounting for 52.83% of the company's main business revenue, which is the company's core growth driver. In the solid waste treatment business of Grandblue Environment, approximately RMB1.173 billion of revenue came from engineering and equipment business, and revenue from domestic waste incineration business (excluding engineering and equipment) was approximately RMB3.268 billion.

The target of this acquisition, Canvest Environmental Protection, is also an enterprise in the energy conservation and environmental protection industry, and its main business includes domestic waste incineration power generation, smart city environmental sanitation, etc. At present, Canvest is the largest waste-to-energy enterprise in Guangdong Province, with annual operating revenue of about HK$4.98 billion last year, of which the revenue from electricity sales and waste treatment business was about HK$3.43 billion.

Grandblue Environment believes that after the acquisition of Canvest Environmental Protection, the scale and production capacity of the company's solid waste treatment business will be further improved, and the national waste incineration market pattern will also change.

The original shareholders took away emerging businesses such as smart parking

At the same time, the original shareholders of Canvest Environmental Protection divested and took away assets such as smart parking subsidiaries, land and housing, and commercial properties.

According to the 2023 annual report, GTD Development, the majority shareholder of Canvest Environmental Protection, is controlled by an offshore trust company, and the full beneficiaries include the personal trust of Lai Kin-man, Lee Wing-yee and Lee Wing-yi, and the four beneficiaries of the trust are Lee Wing-yi and her immediate family members.

Li Yongyi has 250,000 share options and is able to acquire the corresponding equity interest of Canvest Environmental at a price of HK$4.39 per share, and Li Yongyi is currently accepting the offer of Hanlan Environment with the above options. After the completion of the full privatization, the shareholding ratio of GTD Development will be reduced from 54.75% to 7.23%.

At the same time as Grandblue Environment proceeded with the tender offer, GTD Development acquired Canvest Kewei, an indirect wholly-owned subsidiary of Canvest Environmental Protection, for RMB135 million, which owns the land use rights and related assets related to the above-ground buildings located on the 1/5 hill of the 3rd neighborhood of Yuepu Town, Baoshan District, Shanghai, China.

At the same time, GTD acquired the office building and other assets in Hong Kong for RMB165 million, and the asset portfolio includes Canvest Environmental Protection's commercial properties on the 28th and 29th floors of Kingang Commercial Centre, 9 Des Voeux Road West, Hong Kong, and a parking space at P12 and P22 on the 2nd floor of Kingang Commercial Centre, 9 Des Voeux Road West, as well as a rooftop above the 29th floor.

In addition, GTD took the entire stake in Canvest Technology, which is mainly engaged in the provision of smart parking solutions in China, for HK$30 million. According to the annual report, Canvest provided smart parking solutions for more than 47,000 parking spaces last year, covering Guangdong Province, Hebei Province, Chongqing Municipality, Hubei Province, Shandong Province, Sichuan Province and Hunan Province. However, at present, the proportion of related revenue is relatively small, and last year, Canvest's total environmental sanitation and other services revenue accounted for only HK$342 million, accounting for about 6.9%.