Nantong CIMC Pacific Offshore Engineering and CIMC Enric "reunite"

was Nantong Pacific Ocean Engineering again sees a turning point for a

With the LNG market looking very good, Nantong Pacific Ocean Engineering has become a CIMC Group has made another move, with its subsidiary CIMC Enric acting as a

Valued at 800 million yuan! CIMC

On the evening of July 5, CIMC Group and CIMC Enric announced that CIMC Enric Investment Holding (Shenzhen) Co., Ltd. (the buyer), a wholly-owned subsidiary of CIMC Enric under CIMC Group, is qualified to be a restructuring investor and plans to restructure and invest in Nantong Pacific Ocean Engineering Co., Ltd.

On July 5, 2017, CIMC Enric (Shenzhen), Nantong Pacific Ocean Engineering, and the administrator entered into an investment agreement for participating in the restructuring process of Nantong Pacific Ocean Engineering Co., Ltd. Accordingly, CIMC Enric (Shenzhen) proposed to acquire all equity of Nantong Pacific to purchase its significant assets. The board of directors of CIMC Enric approved the restructuring acquisition on June 28, 2017. The restructuring investment consideration is RMB 799.8 million. Currently, the administrator appointed by the Chinese court is taking over Nantong Pacific Ocean Engineering. The acquisition and restructuring plan must be approved by the creditors of the target company at a creditors' meeting and by the Chinese court.

According to this financial assistance framework agreement, the outstanding amount of financial assistance provided by CIMC Enric Group to Nantong Pacific Ocean Engineering exceeds RMB 1.48 billion. CIMC Enric has made an impairment provision of over RMB 1.184 billion in the 2016 financial year due to the termination of financial assistance. Upon approval and implementation of the restructuring plan, certain parts of the outstanding financial assistance amount will be written off. To CIMC Enric's knowledge, based on the solvency analysis report of Nantong Pacific provided by the administrator, the fair value of the outstanding financial assistance amount as of June 30, 2017, is expected to be approximately RMB 191 million.

Bad debts of 1.184 billion! The first acquisition severely impacted CIMC Group

This is not the first time CIMC Enric has acquired Nantong Pacific Ocean Engineering.

In 2015, CIMC Enric entered into an agreement with SOEG PTE LTD, Jiangsu Pacific Shipbuilding Group, and Chunhe Group, three sellers, to acquire 100% equity of Nantong Pacific. Subsequently, Enric signed another agreement to provide financial assistance to Nantong Pacific, including a loan of RMB 480 million and loan guarantees of RMB 1 billion. In June 2016, due to the sellers' violation of major terms of the agreement, Enric announced the termination of the acquisition of all equity in Nantong Pacific and the termination of financial assistance to Nantong Pacific. However, it was too late, and in August 2016, Nantong Pacific formally entered bankruptcy liquidation proceedings.

As Nantong Pacific has entered bankruptcy reorganization proceedings, coupled with the poor financial condition of the sellers, most of the funds could not be recovered. Therefore, CIMC Enric made a provision for asset impairment of RMB 1.363 billion in 2016, including an asset impairment loss of RMB 1.184 billion. Affected by this, CIMC Group's consolidated financial report for 2016 also included related asset impairment provisions. CIMC Group's bad debt amount in 2016 reached RMB 2.09 billion, an increase of 279% compared to 2015, and CIMC Enric's acquisition of Nantong Pacific

It is understood that based on the audited consolidated financial data of Nantong Pacific Ocean Engineering, its net liabilities as of December 31, 2016, and its net losses for the two fiscal years ended December 31, 2015, and 2016, were over RMB 3.15 billion, over RMB 273 million, and over RMB 3.176 billion, respectively. The audited consolidated total assets were approximately over RMB 1.697 billion. Based on the valuation report, the total assets as of August 5, 2016, were approximately over RMB 1.333 billion.
 

Bright prospects for LNG market, Nantong Pacific Ocean Engineering becomes a hot commodity

Figure: On June 17, Nantong Pacific Ocean Engineering successfully delivered the second largest 38,000 cubic meter ethylene carrier in the world.

Regarding this acquisition of Nantong Pacific Ocean Engineering, the board of directors of CIMC Enric stated that the liquid natural gas (LNG) water transportation and storage and offshore oil and gas module industries have long-term positive outlooks. Nantong Pacific Ocean Engineering has a proven track record in IMOC-type cargo tank design and manufacturing, production design, manufacturing, and delivery of liquid cargo systems for small and medium-sized liquefied ethylene gas (LEG), liquefied petroleum gas (LPG), and liquefied natural gas (LNG) carriers, as well as production design and manufacturing capabilities for offshore oil and gas modules. Its operations in LEG, LPG, and LNG carrier businesses have optimistic prospects, and its main businesses align with CIMC Enric's development strategy, complementing CIMC Enric's existing businesses and generating synergies. As there are not many companies operating similar businesses and holding similar assets to the target company in China, this acquisition project presents a good business opportunity for the company.

It is understood that energy equipment related to the natural gas industry chain is the main source of income for CIMC Enric, accounting for 40.68% of the company's operating revenue last year. Enric started its energy business with natural gas equipment manufacturing and has expanded through a series of external mergers and acquisitions, establishing a complete upstream, midstream, and downstream industrial chain for natural gas. Among these, midstream storage and transportation are particularly prominent, with a domestic market share of nearly 70% for large LNG (liquefied natural gas) storage tanks and ranking first in the domestic market share for LNG trailers.

As the main shipbuilding entity under Liang Xiaolei's Chunhe Group, Nantong Pacific Ocean Engineering was established in 2006. It primarily engages in the design and manufacturing of IMO C-type cargo tanks, the production design, manufacturing, and complete vessel delivery of liquid cargo systems for small and medium-sized liquefied ethylene gas (LEG), liquefied petroleum gas (LPG), and liquefied natural gas (LNG) carriers, as well as the production design and manufacturing of offshore oil and gas modules.

Evidently, with the recent excellent prospects in the natural gas market, acquiring Nantong Pacific Ocean Engineering has become the best timing for CIMC Enric.