Shui On Construction in China deal

Shui On Construction in China deal
Published: 23 December 2004

Shui On directors are pleased to announce that on 20 December 2004, SIL, an indirect wholly owned subsidiary of the Company, entered into a Framework Agreement with GWL and GSL to establish a Joint Venture Company with a term of 50 years to carry out cement manufacturing and trading in the PRC

GSL (Guizhou Shuicheng Cement Co) is a company limited by shares incorporated in the PRC with limited liability, which is principally engaged in manufacturing and trading of cement in Guizhou. GWL (Guizhou Wumengshan Development Co) is a company incorporated in the PRC with limited liability and the holding company of GSL, which is a state-owned enterprise with principal business activities of holding and managing state-owned assets and operations, including cement operations in Guizhou.

Following the establishment of the Joint Venture Company, the Joint Venture Company will acquire auxiliary fixed assets from GSL and GWL in cement manufacturing and related inventories with a book value of about
RMB40.5 million (approximately HK$38.2m) and RMB18 million (approximately HK$16.9m) respectively

GSL having procured and produced the grant of a right to excavate limestone at the quarry located at Xiangshui River, Zhongshan District, Liupanshui City, Guizhou during the term of the Joint Venture Company of 50 years and a lease of the operation site at Xiangshui River, Zhongshan District, Liupanshui City, Guizhou, including the said quarry
at Xiangshui River, Zhongshan District, Liupanshui City, Guizhou for an initial term of 20 years with a right of renewal on the same terms to the Joint Venture Company from the relevant government authority in PRC;

The Joint Venture Company will be principally engaged in manufacturing and trading of cement in the PRC. GSL will
lease its fixed assets in wet kiln cement manufacturing to the Joint Venture Company for use at an annual rent of RMB1.5 million (approximately HK$1.4m) for an initial term of 10 years. The Joint Venture Company will have a right to renew the Lease on the same terms upon expiry of its initial term.

The Directors believe that the strong economic growth and increasing modernization in Guizhou will continue to increase the demand for high-grade cement. Guizhou is of strategic importance in the Central Government’s policy to boost the economic development in the interior regions of China. The recent shortage of energy will further enhance
Guizhou as a major "energy" province. The Directors also believe that there is distinctive growth potential for cement in Guizhou, considering its being a beneficiary of the "Go West" policy and the increasing number of infrastructure projects being undertaken or in the pipeline, e.g. coal power generating plants, roads and railway lines.

The cement operation of GSL is a major cement operation in Luipanshui and is crucial to substantially complete the Group’s expansion of cement business in Guizhou. With the establishment of the Joint Venture Company, adding 1.4Mta to its existing capacities of approximately 2.5Mta, the Group will have under its control a total production capacity of roughly 3.9Mta of high-grade cement, which represents a significant market share in Guizhou.