TSX: HE
VANCOUVER, May 13 /CNW/ - Hanwei Energy Services Corp. ("Hanwei" or the
"Company") is pleased to announce that it has completed a revised Memorandum
of Understanding ("Revised MOU") to acquire up to 100% of Daqing Deta Electric
Co., Ltd. ("Deta"). The Revised MOU replaces the Memorandum of Understanding
announced on January 24, 2008. The changes in the Revised MOU were made
primarily to comply with Chinese laws regarding the ownership of wind power
technology developed in China and to address certain tax, accounting and
financing issues. To support the working capital requirements for the expanded
manufacturing of wind power equipment pursuant to the Revised MOU, Hanwei has
negotiated a RMB 500 million ($72.9 million) working capital facility through
Defeng Investment Co., Ltd. ("Defeng"), a Daqing, China based finance company
that invests in emerging companies.
"We believe the Revised MOU and working capital facility creates
conditions under which we can complete the acquisition of Deta and focus our
efforts on delivering quality wind power equipment to our customers," said
Fulai Lang, President and CEO of Hanwei. "Our wind power team in China is
working hard to secure the turbine supply chain and commence production of
wind blades using our licensed technology."
Revised MOU
Under the Revised MOU, Hanwei Wind Power Equipment (Daqing) Co., Ltd.
("Hanwei Wind"), a wholly owned subsidiary of Hanwei, will acquire 99% of
Deta, for RMB 591 million ($86.2 million), of which RMB 431 million
($62.8 million) will be paid under an earn out provision from 2008 to
2012 based on the performance of Deta and RMB 160 million ($23.4 million) in
initial cash payments. The earn out provision will be paid with RMB
300 million ($43.7 million) in Hanwei common shares (8,051,746 Hanwei common
shares valued at $5.30 per shares, based on the Bank of Canada exchange rate
of 7.03 as of January 18, 2008) and RMB 131 million ($19.1 million) in cash.
Hanwei Wind will have an option, to acquire the remaining 1% of Deta for
RMB 6 million ($0.88 million) at any time, and the shareholders of Deta will
have an option to require Hanwei Wind to purchase the remaining 1% of Deta for
RMB 6 million ($0.88 million), 12 months after the close of the acquisition,
subject to the approval of the Chinese government. Currently, Chinese law
requires that wind power technology developed in China be partly owned by
Chinese citizens.
Under the Revised MOU, prior to acquisition, Deta will have entered into
a contract (the "Wind Power Equipment Contract") with Heilongjiang Ruihao
Energy Technology Co., Ltd. ("Ruihao") for exclusive manufacturing rights for
a total of 1,200 megawatts ("MW") of turbines, blades, and towers ("Wind Power
Equipment"). The Revised MOU provides that the parties will enter a 200 MW
manufacturing contract in 2008 and will thereafter negotiate an annual
manufacturing contract for 250 MW of Wind Power Equipment during the period of
2009 to 2012 for a total of 1,200 MW with total value of approximately RMB
8.4 billion ($1.2 billion). For the first 200 MW manufacturing contract to be
signed in 2008, the purchase price will be set at RMB 6.2 million
($0.9 million) per MW including turbines and blades. The purchase price for
towers will be set separately with each purchase order, estimated at RMB
0.8 million ($0.12 million) per MW based on the price that Hanwei Wind was
paid in 2007. For future annual manufacturing contracts contemplated to be
signed from 2009 through 2012, the purchase price will be negotiated based on
the market price of the same type of products. Under the initial MOU, Hanwei
was to receive a guarantee of a 15% net profit after tax for supplying
1,200 MW of turbines, blades and towers valued at approximately RMB 7 million
($1 million) per MW. Under the Revised MOU, the 15% net profit guarantee has
been replaced by a set price for the blades and turbines in order for Ruihao
to satisfy certain banking requirements. For the initial 200 MW manufacturing
contract for 2008, the price for the turbines and blades was set at a price
where Hanwei believes it will earn a 15% or higher net after tax profit, based
on costs from its initial deliveries and estimated costs from supply chain
commitments. The prices for the Wind Power Equipment in future years will be
negotiated with a 15% net after tax profit target based on costs and market
prices for similar products.
The Revised MOU does not affect the current RMB 200 million
($29.2 million) wind power equipment manufacturing contract between Hanwei and
Deta, but replaces the expression of intent from Deta to purchase from Hanwei
an additional RMB 1.5 billion ($219 million) of wind power equipment in 2008
and 2009.
Under the Revised MOU, the shareholders of Deta will become employees of
Hanwei Wind and the earn out provision will be tied to the successful
execution of the Wind Power Equipment Contract with Ruihao to provide 1,200 MW
of Wind Power Equipment and Hanwei's ability to achieve a 15% net profit
margin on the contract.
Upon completion and execution of a share purchase agreement between
Hanwei and Deta, 8,051,746 shares at $5.30 per share will be issued and placed
in escrow, to be released together with the cash payments, based on the
successful achievement of the performance targets set out in the Revised MOU,
under the following schedule:1. Initial payment of RMB 100 million ($14.6 million) in cash no later
than May 31, 2008 subject to: a) the completion of due diligence by
Hanwei; b) the signing by Ruihao and Deta of an agreement for the
manufacture of 200 MW of Wind Power Equipment for delivery in 2008;
c) the concurrent transfer of 99% of the shares of Deta to Hanwei
Wind, and d) Hanwei receiving financing.
2. A payment of RMB 60 million ($8.8 million) in cash within 30 days
after Ruihao transfers title to the land and building used for the
wind power equipment manufacturing to Deta, subject to Hanwei
receiving financing.
3. A payment of 1,610,350 Hanwei shares to be paid at the end of 2008 if
the combined company after the acquisition can enter into wind power
equipment sales contracts of 200 MW and achieve a net after tax
profit margin of 15% on the contract.
4. Four payments of 1,610,349 Hanwei shares to be paid annually at the
end of each year of 2009 through 2012 if the combined company after
the acquisition can enter into Wind Power Equipment sales contracts
of 250 MW in each year and achieve a net after tax profit margin of
15% on the contract.
5. Three payments of RMB 32.5 million ($4.7 million) and one payment of
RMB 33.5 ($4.9 million) million in cash to be paid annually from
2009 through 2012 if the combined company after the acquisition can
enter into Wind Power Equipment sales contracts of 250 MW in each
year. This payment is to be made 30 days after the annual sales
contracts are signed and Deta receives 5% prepayment on the contracts
from Ruihao.This proposed acquisition of Deta is subject to entry into a definitive
agreement and related escrow and employment agreements, which are subject to
board approval and satisfactory due diligence. Hanwei expects to complete its
due diligence and share purchase agreement by May 31, 2008. However, as set
out above, the initial payment is subject to Hanwei receiving funding and the
concurrent transfer of 99% of the shares of Deta to Hanwei Wind. In addition,
the share transfer will be subject to Chinese and Canadian regulatory
approval, which may not be obtained before May 31, 2008.
Working Capital Facility
The RMB 500 million ($72.9 million) working capital facility from Defeng
carries an annual interest rate of 8.83% with a 12-month term. Funds can be
accessed in three advances and must be used for working capital to secure
Hanwei's supply chain requirements for the Wind Power Equipment Contract. The
first advance of RMB 160 million has been committed. The second advance of RMB
190 million and the third advance of RMB 150 million will be on a best efforts
basis by Defeng. In addition, on April 7, 2008, the Company received a bank
loan of RMB 40 million ($5.8 million) from a Chinese bank. The loan is
collateralized by certain buildings and production equipment, bears interest
of 8.541% per annum and is due on October 7, 2008.
Wind Power Update
Hanwei is currently working on completing the initial wind power
equipment order it received from Deta in June 2007, for twenty 1.5 MW turbines
and blade sets and 30 towers for a total price of RMB 200 million
($29.2 million). The price of this initial order is subject to adjustment such
that Hanwei is guaranteed to earn a 15% net after tax profit. To date, Hanwei
has delivered 30 towers and 3 sets of blades in the fourth quarter of 2007
generating revenues of approximately $8.6 million and 4 turbines in the first
quarter of 2008, generating revenues of more than $4 million. The remaining
16 turbines (24 MW) and 17 blade sets, which are part of the initial order
with Deta, are scheduled to be delivered in 2008 under a revised schedule that
has been mutually agreed upon by Hanwei, Deta and Ruihao. All of the wind
power equipment manufactured by Hanwei has been produced using Chinese
developed technologies licensed by Deta and Ruihao. Ruihao has installed two
of the turbine and blade sets supplied by Hanwei, which are scheduled to be
connected to the Heilongjiang provincial power grid in June 2008 for final
testing.
Hanwei has successfully established relationships with new Chinese
suppliers for key turbine components, including gearboxes and bearings, that
are to be manufactured to the specifications of the Chinese turbine technology
licensed by Deta and Ruihao. To date, Hanwei has confirmed delivery schedules
from component suppliers for approximately 90 turbines (135 MW), representing
more than 50% of its needs for 2008, and is working with its suppliers to
secure additional components for the current year. Hanwei is expecting 224 MW
in orders for wind power equipment for 2008, including 24 MW from the initial
order with Deta from 2007, and 200 MW in additional orders, subject to the
acquisition of Deta.
As previously announced, to enhance its wind turbine blade production
capabilities and to accommodate the implementation of new manufacturing
processes, Hanwei has entered into a licensing agreement with Aerodyn
Energiesysteme GmbH ("Aerodyn"), a leading international wind power
engineering firm, under which Hanwei has been granted a non-exclusive right to
produce two versions of Aerodyn's aeroBlade 1.5 in China. The licensing
agreement provides Hanwei with the moulds, technical know-how, specifications
and support to produce the 37.5-metre and 40.3-metre versions of the 1.5 MW
blades and to market and sell them in China under the Hanwei brand. The
delivery of the first Aerodyn production mould is expected in May, such that
Hanwei expects to be able to commence blade production in late May 2008.
About Hanwei Energy Services Corp.
Hanwei Energy Services Corp. provides high value products and services
for the energy sector in China and the Asia region. Hanwei serves its major
energy customers through manufacturing facilities in China, producing products
for the oil, coal power and wind power industries. Hanwei is focusing on
providing products and services that address the growing need for improved
energy efficiency and environmental protection in China and the Asia region.
FORWARD LOOKING INFORMATION
Certain information in this news release is forward-looking within the
meaning of certain securities laws, and is subject to important risks,
uncertainties and assumptions. This forward-looking information includes
information relating to the proposed acquisition of Deta outlined in the
Revised MOU, the securing of orders for wind power equipment from Deta for the
2009 to 2012 period, the securing of loan advances from Defeng to provide the
financing for the proposed acquisition of Deta, the establishment of
relationships with new Chinese suppliers for key turbine components, and the
ability to earn a 15% or higher net after tax profit. The forward-looking
information in this news release describes Hanwei's expectations as of the
date of this news release. The results or events anticipated or predicted in
such forward-looking information may differ materially from actual results or
events. Material factors or risks which could cause actual results or events
to differ materially from a conclusion in such forward-looking information
include the risks that the acquisition of Deta may not be completed on the
terms set out in the Revised MOU or at all, that a definitive agreement for
the proposed acquisition of Deta and the related escrow and employment
agreements may not be agreed upon, that the acquisition may not complete on
terms acceptable to the parties, that required approvals may not be obtained
or may be subject to conditions that are unacceptable to the parties, that due
diligence undertaken by the parties may not be satisfactory or may not
identify all possible risks of the transaction, that Hanwei may not be able to
complete the working capital facility from Defeng Investment Co., Ltd. in its
entirety or at each of its funding stages, that Hanwei may not be able to
raise the capital it requires from time to time to complete the transaction,
or to make cash payments required from time to time, on terms favourable or
acceptable to it or at all, that Hanwei may be required to issue shares under
the share purchase agreement between Hanwei and Deta before the wind power
equipment manufacturing contracts are completed, that manufacturing agreements
may not be entered into between Deta and Ruihao as contemplated in the Revised
MOU or at all, that Ruihao may not secure funding and approvals necessary to
establish or acquire additional wind farms and accordingly not require
additional wind farm equipment, that profit margins may be impacted by price
inflation, that Hanwei may not be able to effectively integrate or manage
expansion of its operations, that Hanwei may not be able to negotiate
favourable pricing terms for supplies beyond the first year of the Wind Power
Equipment Contract, that supply chain issues or changes in technology or
product requirements may cause delays in delivery of products under current or
future manufacturing contracts, that a robust market for wind power products
is still developing in China, that there is significant uncertainty
surrounding wind power regulation in China, that Hanwei must meet Chinese
governmental localization requirements, that there are uncertainties related
to certain of Hanwei's wind power agreements, that Hanwei depends on its
intellectual property and the failure to protect that property may adversely
affect future growth, that Hanwei faces significant competition and seasonal
fluctuations in revenues, that there may be insufficient insurance for its
operations, that changes in costs of raw materials or energy may adversely
affect operating margins, that operations are subject to environmental risks
and hazards, that there are specific risks associated with doing business in
China (including those related to state ownership, government intervention,
foreign investment, repatriation of profit, currency conversion, shareholders'
rights and enforcement of judgments, a developing legal system, recent
regulations relating to cross-border mergers and acquisitions, protection of
intellectual property, permits and business licenses, appropriation, tax,
infrastructure and interest rate fluctuations), and that exchange rates
fluctuate. When relying on Hanwei's forward-looking information to make
decisions, investors and others should carefully consider the foregoing
factors and other uncertainties and potential events. Hanwei cautions that the
foregoing list of material factors is not exhaustive and is subject to change.
For additional information with respect to certain of these and other factors,
refer to the risk factors section of Hanwei's Annual Information Form dated
April 3, 2008 filed with Canadian securities regulators, which is available on
SEDAR at www.sedar.com.
THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS
THE EXPECTATIONS OF HANWEI AS OF THE DATE OF THIS NEWS RELEASE AND,
ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE
UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS
INFORMATION AS OF ANY OTHER DATE. WHILE HANWEI MAY ELECT TO, IT DOES NOT
UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME.
For further information: Kim Oishi, Senior Vice President, Finance and
Business Development, Telephone: (416) 804-9228, koishi@hanweienergy.com;
Kevin O'Connor, Investor Relations, Telephone: (416) 962-3300,
ko@spinnakercmi.com
