Sateri Holdings Limited ("Sateri" or the "Company"; stock code: 1768) and its subsidiaries ("the Group"), a leading global specialty cellulose company, announced that it entered into a sale and purchase agreement to sell the Group's entire viscose staple fiber ("VSF") business in the PRC to Pacific Viscose Limited ("PVL" or "Purchaser"), an affiliate of the RGE Group controlled by the Company's ultimate controlling shareholder (the "Transaction").
The consideration for the Transaction, which comprises the audited combined net asset value of the VSF business and outstanding shareholder loans as at 31 October 2014, is currently estimated to be US$589.5 million. Taking into account the net debt in the VSF business, which is estimated to be US$273.5 million as at 30 September 2014, the consideration for the Transaction implies an enterprise value of US$863 million for the VSF business. In addition to the estimated consideration of US$589.5 million, the Purchaser will pay an additional US$30 million representing part of the trading debt due from the VSF business to the rest of the Group.
In total, the Group is expected to receive total gross cash proceeds of approximately US$619.5 million from the Transaction. This translates into a gross cash value of HK$1.40 per share, which represents 92.7% of the Company's closing share price of HK$1.51 on 15 September 2014, the last day preceding the initial announcement on the potential Transaction.
While Sateri's Board has not made a final decision on the use of proceeds from the Transaction, it currently anticipates distributing a substantial portion of the net proceeds to the shareholders as a special dividend.
Subject to the fulfillment or waiver of conditions of the sale and purchase agreement, including obtaining independent minority shareholders' approval, the Transaction is expected to be completed before 31 December 2014.
Sateri to Focus on Dissolving Wood Pulp Business
Following the Transaction, the Group will be a leading global pure-play dissolving wood pulp producer. Its remaining business in Brazil, including Bahia Specialty Cellulose ("BSC"), is the world's third largest dissolving wood pulp producer with an annual production capacity of 485,000 tons. In addition to its state-of-the-art production facilities, it also owns over 150,000 hectares (approximately 375,000 acres) of freehold timberland in Brazil, which is currently able to meet all the wood requirements of its dissolving wood pulp mill in Brazil.
Following the Transaction, Sateri will focus on further strengthening its dissolving wood pulp business, particularly in the specialty grade segment. As part of the transaction, a subsidiary of the Group will also enter into an off-take agreement, whereby the Purchaser's affiliate will buy all of the rayon grade dissolving wood pulp produced and sold by the Group for the next three years effective from 1 January 2015. The pricing will be based on the prevailing global open market spot price at the time of purchase. The Purchaser's affiliate has undertaken that in implementing the off-take agreement, it will ensure that BSC is in compliance with the terms as set out in the price undertaking of BSC pursuant to the final ruling of the Ministry of Commerce of the PRC, if applicable. This arrangement would allow the Group to optimize the production level and sales of BSC's dissolving wood pulp mill in Brazil which should lead to economies of scale and better cost control, while enabling the Group to focus its efforts on the production and sale of specialty grade dissolving wood pulp.
As the world's second largest specialty grade dissolving wood pulp producer in terms of potential production capacity, the Group is expected to benefit in the long-term from the strategic shift from rayon grade dissolving wood pulp towards specialty grade dissolving wood pulp. Specialty grade dissolving wood pulp producers not only generally generate higher margins than rayon grade dissolving wood pulp companies due to the ultra-high purity and use in high-value end markets of their products, but also face fewer competitors in the world due to its specialized nature and high barriers to entry.
Sateri's dissolving wood pulp business has shown resilience in recent years, despite a significant decline in the market price for dissolving wood pulp. Benefiting from its leading market position and self-sustaining operational model, Sateri's dissolving wood pulp business has been able to generate consistently strong earnings.
Explaining the rationale for the sale of the Group's VSF business, Sateri Chairman John J. Ying said: "The Board had evaluated and determined the Transaction to be in the interests of Sateri and its Shareholders as a whole. It would not only offer the opportunity to crystallize and unlock the value of the VSF business, but also results in a focused business model with a clear value proposition and enables Sateri to concentrate its efforts on becoming a leading global player in the specialty cellulose market. We also believe that a streamlined business model will be easier for investors to understand, resulting in enhanced comparability with our listed industry peers."
Mr Ying elaborated: "The Board of Directors believes the Transaction values the VSF Business at an attractive level using a full range of valuation metrics and when compared against Sateri's market capitalization before the initial announcement on the Transaction. Furthermore, we have taken into consideration the difficult operating environment faced by the VSF Business in recent years, and believe that the Transaction will enable Sateri to exit from its VSF Business at an attractive valuation amidst the current challenging market environment."
The Transaction is subject to the approval of the independent shareholders in a general meeting in accordance with the Listing Rules of the Hong Kong Stock Exchange. Rothschild is acting as independent financial adviser to the Independent Board Committee of Sateri. Credit Suisse (Hong Kong) Limited is acting as financial advisor to Sateri.
About Sateri Holdings Limited
Listed on the Hong Kong Stock Exchange, Sateri Holdings Limited ("Sateri"; stock code: 1768) is one of the largest specialty cellulose producers in the world. Sateri produces different grades of high-purity dissolving wood pulp and viscose staple fiber, which are natural raw materials and key ingredients to a diverse range of everyday items from textiles, baby wipes and eyeglass frames, to soft ice-cream, sausage casings and pharmaceuticals, as well as industrial products such as high-performance tire cords.
Sateri has a vertically integrated business. Its upstream operations in Brazil consist of a secure renewable plantation that grows eucalyptus trees on its 150,000 hectares of freehold land, and a state-of-the-art mill to produce high-purity dissolving wood pulp. Sateri's downstream business in China consists of production facilities that use dissolving wood pulp to produce viscose staple fiber to capture the fast growing consumer market demand in China.
Sateri attaches high priority to its social and sustainability responsibilities and is committed to preserve and protect the environment in every aspect of its operations. Sateri has corporate offices located in Shanghai and Hong Kong.