TORONTO, Nov. 22, 2011 /CNW/ - China Green Star Agricultural Corporation
(TSXV: GRE) ("Green Star" or the "Corporation") announced that its board of directors has approved a proposed
corporate reorganization whereby its indirect subsidiary, Pucheng
Hongli Agriculture Products Technology Development Co., Ltd. ("WFOE"), is to acquire the 100% equity interest in Fujian Pucheng Star of
Green Foodstuff Co., Ltd. ("China Opco"), resulting in China Opco becoming a wholly-owned subsidiary of the
Corporation (the "Acquisition"), and terminating the variable interest equity ("VIE") structure currently in place between WFOE and China Opco.
Background of Reorganization
PRC regulations issued in 2006, known as Circular 10, made it necessary
to obtain central Ministry of Commerce ("MOFCOM") approval to transform a Chinese company into an offshore holding
company owned by the PRC entrepreneurs. As it was virtually impossible
to obtain central MOFCOM approval for small and medium sized companies,
the PRC professionals have used two structures which they believe would
make the transactions not subject to Circular 10 approval.
Under the VIE structure, the PRC entrepreneurs set up an offshore
entity, which enters into a "series of contracts" with the PRC
operating company. These series of contracts shift the bulk of the
economic benefits and obligations of the operating company to the
offshore company. In most cases, the series of contracts result in the
offshore company having effective control over the PRC operating
company, or at least over major decisions, and the operating company's
ﬁnancials will be consolidated with those of the offshore company under
Canadian GAAP and IFRS.
The Corporation used the VIE structure where WFOE entered into a series
of contracts with China Opco and China Opco shareholders to transfer
all economic benefit, obligations and control in and over China Opco to
WFOE. The equity interest in China Opco remains with the China Opco
"Slow walk" or "option" arrangement
The Circular 10 approval requirement applies to a "round-trip
investment" where an offshore company owned or established by PRC
nationals acquires their company in China. PRC professionals believe
MOFCOM approval may be not applicable when an offshore company that was
neither established by, nor is owned by PRC nationals, at the time of
its acquisition of the Chinese operating company. Instead of an
immediate ownership interest in the offshore company, the PRC
entrepreneurs are granted the right, but not the obligation, to acquire
that interest in the future. This structure is called the "slow walk"
or "option" structure.
With respect to the Corporation, the slow-walk structure was used in
addition to the VIE structure before the proposed Acquisition. Under
the slow-walk structure, the China Opco shareholders, Mr. Guan Lianyun
and Ms. Luo Huirong, have not acquired ownership in the controlling
shareholders of the Corporation (and indirectly, WFOE). The
controlling shareholders of the Corporation (and indirectly, WFOE),
being Bliss Time Limited and Ally Fast Limited, two BVI companies, have
always been, and are still being, owned by a U.S. national.
Reasons for Reorganization
Following the completion of the Corporation's qualifying transaction,
the Corporation encountered some practical difficulties related to the
VIE structure. First, under the VIE structure, China Opco was not a
true subsidiary of WFOE. The local PRC governmental officials do not
have experience with or understanding of the VIE structure.
Accordingly, China Opco encountered difficulties from the local
government when applying for approval under the foreign currency
control rules in transferring foreign currency directly to China Opco
where Corporation conducts its main business operations.
In addition, the Corporation believes that its shareholders and
prospective investors would prefer a direct equity structure as opposed
to a VIE structure.
Lastly, the VIE structure has its own associated risks in not having
equity ownership of China Opco. These risks were disclosed in the
prospectus with respect to the qualifying transaction and management
believes that the Acquisition would eliminate the risks specifically
associated with the VIE structure.
For these reasons, Green Star's board has approved in principal the
proposed Acquisition by WFOE from China Opco shareholders to acquire a
100% equity interest in China Opco.
Terms of Reorganization
To effect the Acquisition, it is expected that the WFOE will enter into
an equity purchase agreement with each of Mr. Guan Lianyun and Ms. Luo
Huirong, to purchase 60% and 40% of the equity interest in China Opco,
respectively. According to equity purchase agreement to be executed,
the purchase price is to be RMB 3.822 million and RMB 2.548 million
respectively. However, it is proposed that no consideration will
actually be paid by WFOE to Mr. Guan or Ms. Luo for the Acquisition, as
Mr. Guan and Ms. Luo will be waiving the purchase price. The
Corporation's PRC counsel has advised that the waiver of consideration
does not contravene PRC law.
WFOE is expected to enter into termination agreements with China Opco
and its shareholders to terminate all contractual agreements with
respect to the VIE structure, with such termination taking effect upon
completion of the Acquisition. In all of the termination agreements,
there will be a clause stating that in the event the proposed
Acquisition is held to be invalid or void by the PRC government in the
future, the original VIE agreements will become effective.
Each of the sellers, Mr. Guan Lianyun and Ms. Luo Huirong, is a
director, officer and principal shareholder of the Corporation.
Accordingly, the Acquisition constitutes a "related party
transaction". Green Star anticipates that the Acquisition will not be
subject to any formal valuation or a requirement for minority
shareholder approval. Both Mr. Guan and Ms. Luo declared their
interest in the Acquisition and abstained from voting at the board
meeting approving the Acquisition. The Acquisition will have no effect
on Mr. Guan or Ms. Luo's security holdings in the Corporation. As the
Corporation already consolidates its financial results with China Opco,
it is expected that the Acquisition will have no significant impact on
the operations or financial condition of the Corporation.
The Acquisition is conditional upon receipt of approval of the TSX
Venture Exchange as well as approval of the applicable PRC regulatory
authorities. The Acquisition is expected to be completed after all
required regulatory approvals are obtained.
About Green Star
Green Star operates two main divisions, agricultural and food
processing. The agricultural division is involved in the cultivation
and harvesting of agricultural products such as fresh fruit and
vegetables, for sale either directly as fresh fruit and vegetables or
canned, and sold overseas and domestically. The food processing
division is primarily involved in the manufacturing of canned food
which includes canned tomato paste, canned boiled bamboo shoots, canned
oranges, canned peaches and various other types of fruits and
vegetables. The historical revenue mix is approximately 80% canned
foods and 20% agricultural produce.
Green Star's PRC operating company has been operating for over 18 years,
and has focused on maintaining product and reputational excellence and
a high standard of food quality, through the application of science and
technology in production, quality control and assurance, business
operations and management. Key assets include a well established
management team, modern production facilities, and a close partnership
with local farmers.
China Green Star Agricultural Corp. is listed on the TSX Venture
Exchange under the symbol "GRE."
For more information on the Company, please visit our web site at www.cgsac.com.
Caution Regarding Forward-Looking Information:
Certain statements in this press release may constitute ''forward
looking'' statements which involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or
implied by such forward looking statements. When used in this press
release, such statements may use such words as ''may'', ''will'',
''expect'', ''believe'', ''plan'' and other similar terminology.
Forward looking information in this press release includes management's
expectation of waiver of consideration by the sellers and the
Acquisition being exempt from formal valuation and minority shareholder
approval requirements, management's expectation of impact of the
Acquisition on the Corporation's operations and financial results and
on security holdings of the sellers, the expectation on the receipt of
regulatory approvals for the Acquisition and expected completion time
for the Acquisition. These statements reflect management's current
expectations regarding future events and operating performance and
speak only as of the date of this press release. These forward looking
statements involve a number of risks and uncertainties. Some of the
factors that could cause actual results to differ materially from those
expressed in or underlying such forward looking statements are the
effects of, as well as changes in: international, national and local
business and economic conditions; political or economic instability in
the Company's markets; competition; legislation and governmental
regulation; and accounting policies and practices. The foregoing list
of factors is not exhaustive. Please see the Company's annual
Management's Discussion & Analysis dated April 28, 2011, available on www.sedar.com, for a more detailed description of the risk factors. The Company
undertakes no obligation to update publicly or revise any forward
looking information, whether a result of new information, future
results or otherwise, except as required by law.
Neither TSX Venture Exchange nor its Regulation Services Provider (as
that term is defined in the policies of the TSX Venture Exchange)
accepts responsibility for the adequacy or accuracy of this release.
SOURCE China Green Star Agricultural Corporation
For further information:
| Green Star Agricultural Corp. || TMX Equicom |
| Michael Lam || Philip Dale |
| Chief Financial Officer || 416-815-0700 ext. 253 |
| 416 849 3858 || firstname.lastname@example.org |