BlueStar SecuTech, Inc. AIM Cancellation and Tender Offer (1866R)

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RNS Number : 1866R

BlueStar SecuTech, Inc.

23 October 2013

BlueStar SecuTech, Inc. ("BlueStar" or the "Company")

AIM Cancellation and Tender Offer

The Board of BlueStar has concluded, after discussion with a number of its shareholders and advisers, that it is in the best interests of Shareholders to cancel the Company's admission to trading on the AIM Market of the London Stock Exchange.

The Company is today posting a circular to Shareholders (the "Circular") regarding a tender offer ("Tender Offer") for Ordinary Shares and the proposed cancellation of admission of the Company's Ordinary Shares to trading on AIM (the "De-listing"). The proposed Tender Offer applies to a maximum of approximately 23.52 per cent. of the Company's current issued Ordinary Shares, representing 17,121,766 Ordinary Shares, and the price at which the Tender Offer will be undertaken is 2.5 pence per Ordinary Share.

A copy of the Circular will shortly be available on the Company's website at http://www.bstar.com.cn/en/. Capitalised terms in this announcement follow the same definitions as in the Circular unless otherwise specified.

A Shareholders' Meeting is to be convened for 5.00 pm (Beijing time) / 9.00 am (London time) on 14 November 2013 to consider the Proposals which are contained in the Circular. The De-listing is conditional upon the approval of more than 75 per cent. of the votes cast by Shareholders at the Meeting. Prior to making this announcement, the Board has sought the views of a limited number of large Shareholders regarding the De-listing. As a result of that consultation, the Board has received irrevocable undertakings from Shareholders representing 76.48 per cent. of the currently issued Ordinary Shares to vote in favour of the Resolution. If the Resolution is passed at the Shareholders' Meeting, it is anticipated that the De-listing will become effective on 22 November 2013.

The information in this announcement has been extracted from the Circular without material adjustment.

Enquiries:

 
 BlueStar SecuTech,      Antonia Ping CFO & Company    [phone] 
  Inc.                    Secretary                     5855 
 Westhouse Securities                                  [phone] 
  Limited                Richard Baty                   6100 
 

The De-listing

Reasons for the De-Listing

Having carefully considered the overall position of the Company, especially the current trading environment, the Group's operating performance and continued working capital and cash flow management problems, the Board has concluded that the best option is for the Company to seek to cancel its admission to AIM and to continue its strategy away from the public market, at least in the short term.

The Group's trading difficulties and falling share price have resulted in a position where in the view of the Directors the financial, management and potential reputational costs of maintaining the listing outweigh the benefits of remaining on a public market. The Company is now capitalised at approximately GBP3 million and the Directors consider that the prospects of raising funds whilst on the AIM market are remote and, furthermore, liquidity in the Ordinary Shares is extremely limited. The estimated costs of maintaining the Company's AIM quote in the region of GBP150,000 a year are material when compared with the Group's net profit for the year to 31 March 2013 of RMB 3.3 million (approximately GBP330,000, using an exchange rate as at 21 October 2013).

Whilst the Group's results for the year ended 31 March 2013 saw growth over the comparative figures for the year ended 31 March 2012, the Group's net profit of RMB 3.3 million was significantly below the levels achieved up to and including the financial year ended 31 March 2011. The Group's customers are principally PRC banks and in 2011 the Company announced that it was optimistic and looked forward to continued growth for the business. In November 2011, the Company announced that it was confident of achieving its revenue and profits targets for the year to 31 March 2012. In early February 2012 the Company made a further announcement, ahead of the financial year end of 31 March 2012, that the optimism for the period had dissipated and that the results for the year were likely to be significantly below the Board's forecasts. The outcome for that financial year saw revenues decline by 17 per cent. from the previous year, gross profitability fall by 20 per cent. and net profits decline by 94 per cent. to just over RMB 2 million.

Despite the Company's initiatives, seeking to grow the Group's channel sales business and continuing to seek to win more clients in the banking, police and government security agency sectors, the Company recorded only minor growth in revenues of 5 per cent. in the last full financial year to 31 March 2013, suffered a decline in gross profitability and recorded net profits of approximately RMB 3.3 million. The Company has been reliant upon its lenders' continued support and their provision of increased short term loan facilities to bridge working capital troughs.

The Group has had longstanding problems with working capital management and the collection of receivables. Despite attempts to address the issue, debtor days have been consistently high and have continued to rise. The lengthy customer payment terms are a result of a lack of leverage over the Group's main customers and this is exacerbated by payment structures which mandate that payments fall due on completion of long term projects. The Group's consolidated accounts for the year ended 31 March 2013 stated that trade receivables and accrued income amounted to RMB 254 million with debtor days at that time of approximately 500 days based on reported revenues for the period.

The results and trading updates published by the Company since February 2011 have recognised the Group's on-going difficulties in collecting revenue from its customers. Whilst management has attempted to address the working capital problems through a revised approach to payment terms and changes to the sales and customer mix, the Directors consider that the difficulties in funding working capital remain an obstacle to the Group's growth.

The fall in the Company's share price since November 2011 has reflected the trading updates of the Company's operating performance and challenging trading conditions. In the period since November 2011, the Group has maintained net profitability on an annual basis, but trading conditions remain difficult, the Group is dependent upon the continued support of its banks and the Directors consider that further cost savings are required, if the Company is to remain profitable.

Current Operating Results

The Company's last completed financial period was the six months ended on 30 September 2013. Management information for the period indicates that whilst revenues for the period are expected to be between 15-20 per cent. below those for the comparable period ended 30 September 2012, losses for the six month period ended 30 September 2013 are expected to be broadly in line with those for the first half of the financial year ended 31 March 2013.

The Group's issues with the collection of receivables continues with trade payables at 30 September 2013 equating to approximately 667 days' sales (at 30 September 2012: 606 days), based on revenues for the six month period. Whilst the final quarter of the calendar year is traditionally a period of significant cash collection for the Group, the Group's short term bank borrowings in the period to 30 September 2013 have increased significantly from RMB 30 million at 30 September 2012 to RMB 40 million at 31 March 2013, and at 30 September 2013 were RMB 45 million.

Whilst management are confident in the long term prospects for the Group and revenues have recently been second half weighted, the Directors consider that trading conditions remain difficult.

The De-listing will allow the Company to carry on its business without the pressure the Directors believe a quoted company may face to deliver short term performance over long term positioning. Importantly, the Directors also believe that the De-listing will allow executive management based in China more time to focus on driving the business forward. Ultimately, the Board believes that greater shareholder value will be derived by operating the Company's business off-market for the immediate future.

Due to the Group's current working capital and cash flow management problems, the Directors believe the Company is unable to offer Shareholders a price above 2.5 pence for each Ordinary Share purchased under the Tender Offer, which the Company is able to fund from its current banking facilities. The price of 2.5 pence reflects the Company's average share price of 2.51 pence per share during the three months to 30 September 2013. The proposed Tender Offer price does not reflect the recent share price increase from a mid market price of 2.5 pence on 26 September 2013 to a mid market price of 4.13 pence at the close of business on 22 October 2013 (the latest practicable date before this announcement). This increase has occurred despite there being no significant uplift in trading volumes for the Ordinary Shares since 26 September 2013. The Directors consider the price to be offered under the Tender Offer to be appropriate given the challenging circumstances confronting the Company and Shareholders' ability to choose whether or not to accept the Tender Offer.

Under the terms of the Proposals, which are subject to Shareholder approval, Tender Offer Shareholders who are registered as such at the Tender Offer Record Date will have the opportunity to offer to sell to the Company all (or some of) the Ordinary Shares registered in their names at the price of 2.5 pence per share. This price is 1.63 pence less than the closing price of 4.13 pence per Ordinary Share on 22 October 2013.

In deciding whether to make an offer to sell Ordinary Shares to the Company, Tender Offer Shareholders should balance the potential of receiving 2.5 pence in cash immediately for each Ordinary Share sold with the uncertainty of being able to realise their investment in the future. Whilst the Directors' objective is to increase Shareholder value, there is no certainty as to whether they will be successful or when a Shareholder may be able to sell Shares in the future or at what value.

Effect of De-listing

The principal effect of the Proposals and the De-Listing in particular is that Shareholders will no longer be able to buy and sell shares in the Company through a public stock market; that is, liquidity in the Company's shares will be very limited. Upon the De-listing becoming effective, Ordinary Shares shall cease to be available in uncertificated form and shall be withdrawn from CREST. Holders of Ordinary Shares in uncertificated form will then hold those shares in certificated form, for which they will be sent share certificates within 7 days of the CREST facility being withdrawn.

The three non-executive Directors, Mr. Liu Xiao Chuan, Mr. Teo Kean Eek and Mr. Derrick Woolf have agreed with the Board to resign upon the De-listing becoming effective.

The Company also proposes to adopt new articles of association.

Summary

Your Board has accordingly concluded that it is in the best interests of Shareholders as a whole that the De-listing be approved.

The Board believes that it is appropriate to give those Shareholders who are not able or willing to continue to own shares in the Company following the De-listing an opportunity to dispose of their interest in the Company through the Tender Offer more fully described below.

Under the AIM Rules, the De-listing can only be effected by the Company after securing a resolution of Shareholders in a Shareholders' Meeting, whereby at least 75 per cent. of votes cast are in favour of such a resolution, and the expiration of a period of twenty clear Business Days from the date on which notice of the De-listing is given. In addition, a period of at least five clear Business Days following the Shareholder approval of the De-listing is required before the De-listing may be put into effect.

Resolution 1 contained in the Notice seeks Shareholder approval for the De-listing. The Company has received irrevocable undertakings from Shareholders holding 55,686,234 Ordinary Shares, representing approximately 76.48 per cent. of the current issued Ordinary Shares, to vote in favour of the De-listing. Assuming that Shareholders approve this resolution, it is proposed that the De-listing would take place by 22 November 2013.

Tender Offer

Tender Offer

The Board recognises that not all Shareholders will be able or willing to continue to own Ordinary Shares following the De-listing. Although it is under no formal obligation to do so, the Board is therefore arranging for the Company to provide the Tender Offer Shareholders with the opportunity to sell Ordinary Shares held at the Tender Offer Record Date by means of a Tender Form (in the case of Tender Offer Shares held in certificated form, that is, not in CREST) or by TTE Instruction (in respect of Tender Offer Shares held in uncertificated form, that is, represented by Depositary Interests in CREST).

The maximum aggregate number of Ordinary Shares which may be purchased in the Tender Offer is 17,121,766 Ordinary Shares representing approximately 23.52 per cent. of the issued Ordinary Shares. The price to be paid for each Ordinary Share subject to the Tender Offer is 2.5 pence.

A Tender Offer Shareholder may tender up to all of their holdings.

The Company has received irrevocable undertakings in respect of their entire holdings from SecuLine Technologies Inc. and other persons currently beneficially owning 55,686,234 Ordinary Shares in aggregate, representing approximately 76.48 per cent. of the current issued Ordinary Shares, that they will not participate in the Tender Offer in respect of those Ordinary Shares. Details of the undertakings obtained are set out in the table below:

 
 Undertaking provided            Number of Ordinary Shares   Percentage of 
  by                              owned                       issued Ordinary 
                                                              Shares 
 SecuLines Technologies 
  Inc.(1)                        18,450,000                  25.34 % 
 Sunshine Holdings (Private) 
  Limited(2)                     13,720,000                  18.84 % 
 Members of staff of the 
  Company                        7,422,734                   10.19 % 
 Video Sources Communication 
  Limited(3)                     5,370,000                   7.38 % 
 Heartland Capital Management 
  Limited                        3,990,540                   5.48 % 
 Balance Partners Limited        3,207,050                   4.40 % 
 NewTech Capital Management 
  Limited                        2,923,410                   4.02 % 
 Teo Kean Eek/Agile Partners 
  Ltd(4)                         602,500                     0.83 % 
 

(1) Undertaking also given by the beneficial owner of this company, Xiao Gang, a Director, to procure that this company complies with its undertakings.

(2) Undertaking also given by the beneficial owner of this company, Liu Jin Qing, a Director, to procure that this company complies with its undertakings.

(3) Undertakings also given by the beneficial owners of this company, including He Cai Guang, a Director, to procure that this company complies with its undertakings.

(4) Teo Kean Eek, a Director, is the beneficial owner of Agile Partners Limited, which holds 600,000 of these Ordinary Shares. Teo Kean Eek has given undertakings in relation to the 2,500 Ordinary Shares held by him personally and to procure compliance by Agile Partners Limited with its undertakings.

The above irrevocable undertakings are in the same terms, and in each case the party giving the undertaking agrees not to participate in the Tender Offer and to vote their Ordinary Shares in favour of the De-listing at the Shareholders' Meeting.

A guide to the general tax position of Shareholders under UK law and HM Revenue & Customs practice in respect of the Tender Offer will be set out in Part 3 of the Circular.

Articles of Association

The Board considers that there are certain provisions of the Articles which it would not be appropriate to maintain following the De-listing. Resolution number 2 in the Notice would, if passed, provide for new articles of association of the Company to be adopted, which would not include provisions equivalent to the following regulations contained in the current Articles:

(a) Regulation 2.2: pre-emption rights in favour of existing Shareholders on a new issue of shares of the Company;

(b) Regulations 2.9 and 2.10: provision for shares of the Company to be held in uncertificated form;

(c) Regulations 8.15 and 8.16: requirement for one-third of the Directors to retire at each annual general meeting of the Company;

(d) Regulation 13: Shareholders subject to provisions which are equivalent to certain of those contained in the City Code;

(e) Regulation 20: requirements for the Company to comply in certain respects with UK law and practice in relation to its accounting records and published accounts; and

(f) Regulations 25 to 28: provisions requiring Shareholders to disclose interests in shares of the Company.

The new articles of association also reflect certain minor consequential and other changes to the provisions of the Articles.

The current Articles, as well as copies of the proposed new articles of association, will be displayed at the "Investor Relations" page on the Company's website at http://www.bstar.com.cn/en/ and copies will be available for inspection 15 minutes before and during the Shareholders' Meeting at the place of the meeting and at the offices of Edwin Coe LLP, 2 Stone Buildings, Lincoln's Inn, London WC2A 3TH during normal business hours (Saturdays and Sundays excepted) until the time of the meeting.

The Company has received irrevocable undertakings in relation to 55,686,234 Ordinary Shares in aggregate, representing approximately 76.48 per cent. of the current issued Ordinary Shares, to vote in favour of Resolution 2 providing for the adoption of the new articles of association of the Company.

A copy of the Circular will shortly be available from the Company's website at http://www.bstar.com.cn/en/.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

 
 Tender Offer opens                                 23 October 2013 
 Latest time for receipt of Forms of Direction      9.00 am (London time) on 11 
                                                     November 2013 
 Latest time for receipt of Forms of Proxy          9.00 am (London time) on 12 
                                                     November 2013 
 Latest time for receipt of TTE Instructions        by 10.00 am (London time) 
  in respect of Depositary Interests representing    on 13 November 2013 
  uncertificated shares 
 Latest time for receipt of Tender Forms            by 1.00 pm (London time) on 
  for certificated shares                            13 November 2013 
 Record Date for the Tender Offer                   5.00 pm (London time) on 13 
                                                     November 2013 
 Shareholders' Meeting to approve De-listing        5.00 pm (Beijing time)/ 9.00 
                                                     am (London time) on 14 November 
                                                     2013 
 Announcement of results of the Tender              14 November 2013 
  Offer and Shareholders' Meeting 
 CREST Account credited with Tender Offer           21 November 2013 
  proceeds 
 Dispatch of cheques for Tender Offer               21 November 2013 
  proceeds 
 Last day of trading of Ordinary Shares             21 November 2013 
  on AIM 
 Ordinary Shares de-listed from AIM                 22 November 2013 
 CREST facilities for Depositary Interest           22 November 2013 
  Holders cancelled 
 

If any of the above times and/or dates change, the revised times and/or dates will be notified to Shareholders by announcement through the Regulatory News Service of the London Stock Exchange.

All references to times in this announcement and the Circular are to London (UK) time unless otherwise stated. Pursuant to Rule 41 of the AIM Rules, the Directors have notified the London Stock Exchange of the date of the proposed Cancellation.

This information is provided by RNS

The company news service from the London Stock Exchange

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