China Uranium Development Co., a unit of Guangdong Nuclear, agreed to pay more than HK$984 million ($126 million) for control of drug supplier Vital Group Holdings Ltd. (1164), according to a Hong Kong stock exchange filing yesterday.
The acquisition gives Guangdong Nuclear access to investors in a financial center that it supplies with electricity from atomic plants 50 kilometers (31 miles) away. Uranium prices and stocks have plunged since the March 11 disaster in Japan prompted countries worldwide to review or halt nuclear power programs pending safety checks.
“Buying a company like this gives them a quick way to get a backdoor listing and access to funds to buy uranium resources,” said Gordon Kwan, head of regional energy research at Mirae Asset Securities in Hong Kong. “Despite the Japan crisis, China will expand its nuclear power program after initial safety checks and this is a good time to get bargains securing uranium resources.”
The stock exchange filing didn’t detail China Uranium’s plans for Vital. Guangdong Nuclear spokesman Liu Kaixin didn’t answer three calls during office hours. Three calls to Vital executive director James Liu during office hours weren’t answered.
The transaction may be treated by Hong Kong regulators as a takeover if Guangdong Nuclear doesn’t try to inject large amounts of assets into Vital, according to Katherine U, a partner at legal firm Minter Ellison in Hong Kong.
“The stock exchange does have strict regulations about circumventing the listing rules. If the company changes the focus of the business, but doesn’t try to roll in assets from the existing business, it’s not a backdoor listing,” she said. “These kind of takeover deals are quite common in Hong Kong.”
Reverse takeovers are treated as initial listings, the Hong Kong Stock Exchange says on its website. The transaction needs approval by the Securities and Futures Commission, Vital said in its statement yesterday.
Three years ago, CNNC Nuclear International Uranium Corp., a unit of the nation’s biggest atomic power plant operator, China National Nuclear Corp., purchased a stake in Hong Kong- listed aluminum and zinc die-casting company United Metals Holdings Ltd. and changed its name.
The renamed CNNC International Ltd. in 2009 bought Canada- listed Western Prospector Group, which explores for uranium in Mongolia. It acquired uranium assets in Niger from its parent last year, the China Daily reported.
China has the world’s biggest nuclear program, with 26 reactors under construction and 28 planned, according to the World Nuclear Association. The government suspended approval of new projects on March 16 pending safety checks of existing plants as Japan tried to prevent a meltdown at Fukushima Dai- Ichi, the worst nuclear disaster since Chernobyl.
Germany said on March 15 it will close seven nuclear reactors for safety review. India said on March 14 it will examine its 20 atomic plants.
Guangdong Nuclear owns the Daya Bay and Ling Ao nuclear power stations in southern China, according to its website. Daya Bay, which supplies about a quarter of Hong Kong’s electricity, discovered a radiation leak in October which it said was in a contained area.
36 Percent Discount
China Uranium will buy 1.67 billion Vital shares for 23 cents each, a 36 percent discount to the last traded price. It will pay HK$600 million for the bonds, which are convertible at the same price per share. Vital shares surged 33 percent in two days before they were suspended on March 4.
Initial details of the transaction were published on the Hong Kong Stock Exchange website on March 22. Vital suspended trading on March 4 pending a possible restructuring. It said on Jan. 25 that a supplier had lost the Chinese import license for one of its main drug products.
Vital has 779 employees in mainland China, Hong Kong and Macau, according to its 2010 earnings statement released yesterday. Its shares traded at 36 Hong Kong cents on March 3. They will remain suspended until a further announcement on the Guangdong Nuclear deal, according to yesterday’s statement.
To contact the reporter on this story: John Duce in Hong Kong at Jduce1@bloomberg.net
To contact the editor responsible for this story: Amit Prakash at email@example.com