Orient Paper Approves the Sale of Headquarters Compound
BAODING, China, Aug. 12, 2013
BAODING, China, Aug. 12, 2013 /PRNewswire/ -- Orient Paper, Inc. (NYSE MKT:
ONP) ("Orient Paper" or the "Company"), a leading manufacturer and distributor
of diversified paper products in North China, today announced its Board of
Directors has approved the sale of the land use rights of its headquarters
compound, the office building and all industrial-use buildings (the
"Industrial Buildings") and three employee dormitories (the "Dormitories")
located on Juli Road in Xushui County, Hebei Province, to Hebei Fangsheng Real
Estate Development Co. Ltd. ("Hebei Fangsheng") for approximately $8.23
million in cash.The sale of these assets by the Company to Hebei Fangsheng is
referred to herein as the "Transaction."
When the Transaction was initially proposed, the Board of Directors determined
that, because of the Company's Chairman and Chief Executive Officer, Mr.
Zhenyong Liu's involvement, it would constitute a related-party transaction
under applicable rules and regulations of the Securities and Exchange
Commission.Therefore, the Board of Directors and the Audit Committee obtained
the advice of independent legal and real estate professionals to assist in
assessing the Company's options, including available alternatives, if any, to
the Transaction and in the evaluation the terms and conditions thereof.
Hebei Fangsheng is a qualified real estate development company in China and is
100% owned by Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient
Paper, and his family. The sale was conducted on an arms-length basis, and was
reviewed by Orient Paper's Audit Committee and approved by the Company's Board
of Directors.Mr. Liu did not participate in the meeting of the directors at
which this decision was taken.
Land Use Rights
In 2012, governmental authorities in Xushui County, where Company's
headquarters compound is located, approved a new urban development plan
covering properties occupied by several entities, including the Company, that
had previously been zoned for industrial use. Under this development plan,
these properties were re-zoned for residential use only. Since the development
plan was announced, the Company has evaluated its options to determine the
most effective and least disruptive way to comply with the plan's
requirements. Among the alternatives investigated by the Company were (i)
having the Company establish a land development subsidiary to develop the
headquarters compound by itself, (ii) attempting to solicit proposals from
real estate development companies that might be prepared to purchase the
headquarters compound from the Company and convert the land and buildings to
residential use and (iii) surrendering the Company's land use rights to the
local government. After this investigation and analysis of the various options
available to the Company, at its meeting on August 7, 2013 the Board of
Directors determined that the proposal of Hebei Fangsheng was the most
attractive of the available alternatives and directed the officers of the
Company to proceed with the Transaction.
The sale price of the headquarters compound's industrial land use rights is
approximately $2.79 million, as determined by the valuation from a government
designated appraisal, which was 3.35% higher than a second independent
appraisal commissioned by the Company. The sale price per acre is also 28%
higher than the unit price that the Company paid for the industrial land use
rights for a piece of land right across the street from the Company's main
manufacturing plant in the Xushui County in April 2012.
Industrial Buildings and Dormitories
In addition to the sale of the land use rights, the sale also includes the
Industrial Buildings and the Dormitories located within the headquarters
compound. The sale prices of the Industrial Buildings and Dormitories are
approximately $1.15 million and $4.29 million respectively. The $1.15 million
sale price of the Industrial Buildings was determined by negotiation between
the Company and Hebei Fangsheng and is equal to the appraised value based on
the assumption that the use of the buildings would be continued until they are
retired. Based on the assumption that such buildings would have to be torn
down to comply with the re-zoning, a second independent appraisal obtained by
the Company put the value at $0.4 million.
According to the terms of the agreement covering the sale of the Dormitories,
Hebei Fangsheng will sell all 132 units to current or future qualified
employees of the Company at its acquisition price, which is the Company's
construction original cost of approximately $4.29 million. Hebei Fangsheng
will not seek to profit from the resale of the Dormitories to these employees
of the Company. Hebei Fangsheng also agrees to allow the Company to inspect
the books and records of the sales to ensure the units all sold only to
qualified employees of Orient Paper. The sale of the Dormitories is to
facilitate management's plan of using the Dormitories as an incentive to
provide affordable housing and ownership opportunities for qualified
employees. Although the Company and Hebei Fangsheng agree to set the sale
price of the Dormitories at the Company's original construction cost of the
three dormitory buildings for $4.29 million, an independent appraisal shows
that the value for the three buildings as employee dormitories was $4.6
million. The Company internally estimated that had the Company been a licensed
real estate developer and allowed to resell the dormitory units, the fair
market value of the Dormitories (which is located within the wall of our
Headquarters Compound and next to the digital photo paper factory) could be
approximately $5.1 million.
Gross profit resulting from the sale is approximately $740,000, and net gain
for Orient Paper was approximately $345,000 from the overall Transaction after
payment of applicable taxes and fees. The net proceeds from the sale were
approximately $7.84 million, which are expected to fund the Company's
household and tissue paper business expansion.
Lease back term of Industrial Buildings for three years
In connection with the sale, Hebei Fangsheng agrees to lease the Industrial
Buildings back to Orient Paper at an annual rental of RMB1 million, or
approximately $162,000, for a term of up to three years, while the Company
prepares to relocate its offices and the digital photo paper operations
currently located in the headquarters compound.
As the relocation from Juli Road is mandatory, the sale allows Orient Paper to
continue its operations in the current location for a maximum of three years
while looking for a new location. It also allows the management team to
concentrate on the Company's core business without being distracted by
immediate rezoning issues and property development risks. At the same time,
the proceeds would represent another injection of capital into the Company's
business expansion amid the current tight credit situation in China.
About Orient Paper, Inc.
Orient Paper, Inc. ("Orient Paper") is a leading paper manufacturer in North
China. Using recycled paper as its primary raw material, Orient Paper produces
and distributes three types of paper products namely, packaging paper
(corrugating medium paper), offset printing paper, and other paper products,
including digital photo paper, and household/tissue paper that the company is
currently expanding into.
With production operations based in Baoding in North China's Hebei Province,
Orient Paper is located strategically close to the Beijing and Tianjin region,
home to a growing base of industrial and manufacturing activities and one of
the largest markets for paper products consumption in the country.
Orient Paper's production facilities are controlled and operated by its wholly
owned subsidiary Shengde Holdings, Inc., which in turn controls and operates
Baoding Shengde Paper Co., Ltd., and Hebei Baoding Orient Paper Milling Co.,
Ltd for manufacturing digital photo, printing and packaging paper.
Founded in 1996, ONP has been listed on the NYSE MKT Board since December
2009. (Please visit http://www.orientpaperinc.com)
Safe Harbor Statement
This announcement contains forward-looking statements within the meaning of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact in this
announcement are forward-looking statements, including but not limited to,
anticipated revenues from the digital photo paper business segment; the
actions and initiatives of current and potential competitors; the Company's
ability to introduce new products; the Company's ability to implement the
planned capacity expansion of corrugate medium paper; market acceptance of new
products; general economic and business conditions; the ability to attract or
retain qualified senior management personnel and research and development
staff; and other risks detailed in the Company's filings with the Securities
and Exchange Commission. These forward-looking statements involve known and
unknown risks and uncertainties and are based on current expectations,
assumptions, estimates and projections about the companies and the industry.
The Company undertakes no obligation to update forward-looking statements to
reflect subsequent occurring events or circumstances, or to changes in its
expectations, except as may be required by law. Although the Company believes
that the expectations expressed in these forward looking statements are
reasonable, it cannot assure you that its expectations will turn out to be
correct, and investors are cautioned that actual results may differ materially
from the anticipated results.
SOURCE Orient Paper, Inc.
Contact: Orient Paper, Inc. +1-562-818-3817, email@example.com; or
FleishmanHillard, +852-2530-0228, firstname.lastname@example.org
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