Prosperity to sell its China cement business

Prosperity to sell its China cement business
Published: 21 December 2009

The Board of Prosperity has announced that the company has entered into a memorandum of understanding with TCC International Holdings (TCC),  in relation to the possible sale of the entire issued share capital of Upper Value Investments (the ’Target Company’), and certain outstanding shareholder loans, understood to amount to some 16Mt of capacity. Upper Value Investments  is a wholly-owned subsidiary of Pro-Rise Business (Pro-Rise) which, in turn, is wholly-owned by Prosperity.

The Target Company holds directly and indirectly certain equity interests in companies principally engaged in the business of the manufacture and sale of cement and clinker in China.

Under the terms of the agreement, the aggregate consideration for the disposal, which is payable in cash, is HK$3800m (c. £300m), subject to certain adjustments set out below in the sub-paragraph headed "Consideration". The consideration assumes that the Shareholder Loan to be transferred to TCC (part of the Taiwan Cement Corporation) is HK$1093m (c £86m). To the extent that the Shareholder Loan outstanding at the Completion Date is higher or lower than this amount, the consideration will increase or decrease respectively on a dollar for dollar basis. Furthermore, expenses relating to the Disposal are expected to be insignificant. Accordingly, following completion of the Disposal, Prosperity expects to have an increase in its cash position by approximately HK$3,800m (c. £300m) and will have no significant debt.

Commenting, Wong Ben Koon, Chairman and CEO of Prosperity, said:  "The Directors believe that the sale of its cement business is a positive development for Shareholders. The cement industry is a capital intensive industry. Due to high transportation costs, each cement plant only has a limited geographical reach. As a result, in order to maintain its market leadership position in the cement business, the Group would have to continually invest in new production facilities. This capital requirement would limit the flexibility of the Company to invest in its existing iron ore related business as well as other businesses which the Board believes could yield a better return for the Group in the longer term.

“Capacity expansion is also often hampered by lack of suitable sites for the new plants. Therefore, while the cement business has generally performed well historically and the outlook for its existing cement operation is promising, the Board believes that it will become harder to achieve further significant organic growth in the cement business.

“Given the opportunity arising from the disposal, which the Directors consider to be at the right price, the directors believe it would be appropriate for the Group to dispose of the cement business and concentrate its capital on its iron ore related business and potentially venture into other high prospect businesses for the China market (for example natural resources and real estate) in order to maximise value for shareholders, exploiting the strength and connections of management."