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JES INTERNATIONAL HOLDINGS LIMITED

(Company Registration No.: 200604831K)

THE PROPOSED ACQUISITION OF 50.82% EQUITY INTEREST IN JYJJP EASTERN


SHIPYARD ACCESSORIES MANUFACTURING CO., LTD (“JIANGSU NEW EASTERN”)
BY JES INTERNATIONAL HOLDINGS LIMITED THROUGH JINGJIANG EASTERN
HEAVY STEEL STRUCTURE CO., LTD (“JEHSS”) FROM JIANGSU EASTERN
SHIPYARD CO., LTD FOR AN AGGREGATE CONSIDERATION OF US$31,000,000.00
(THE “PROPOSED ACQUISITION”)

1. THE INTRODUCTION

The Board of Directors of JES International Holdings Limited (the “Company” or


“JES”) wishes to announce that it had on 23 February 2010, through JEHSS, a
subsidiary of Jiangsu Eastern Heavy Industries Co., Ltd (“JEHI”) a wholly owned
subsidiary of the Company, entered into an acquisition agreement (“Acquisition
Agreement”) with Jiangsu Eastern Shipyard Co., Ltd (“Jiangsu Eastern”) for the
purchase of a 50.82% equity interest in JYJJP Eastern Shipyard Accessories
Manufacturing Co., Ltd (“Jiangsu New Eastern”) for an aggregate consideration of
US$31,000,000.00 (the “Proposed Acquisition”).

The current shareholding of Jiangsu New Eastern is as follows:-

Shareholders % shareholding
Jiangsu Eastern Shipyard Co., Ltd 50.82%
Company 49.18%

Jiangsu Eastern is a domestic company incorporated under the laws of the PRC and
is directly controlled by our Chairman and Chief Executive Officer, Mr. Jin Xin. Mr. Jin
Xin owns 70.10% of Jiangsu Eastern. Jiangsu Eastern is, therefore, by the terms of
Chapter 9 – Interested Person Transaction, under the Singapore Exchange Securities
Trading Limited (“SGX-ST”) Listing Manual (the “Listing Manual”), an associate of
Mr. Jin Xin, and is, accordingly, an interested person. Pursuant to Chapter 9 of the
Listing Manual, the Proposed Acquisition between the companies would therefore
amount to an Interested Person Transaction.

As the Proposed Acquisition by the Company also constitutes a major transaction


under Chapter 10 of the Listing Manual, the Board of Directors of the Company
wishes to announce the following additional details pursuant to the requirements of
the Listing Manual.
2. THE PROPOSED ACQUISITION

Chapter 9 of the Listing Manual

Under Chapter 9 of the Listing Manual, shareholders’ approval and/or an immediate


announcement is required in respect of the transaction between a listed company and
an “interested person” if the value of the transaction is equal to or exceeds certain
financial thresholds. In particular, shareholders’ approval is required where the value
of such transaction(s) is equal to, or more than 5% of the latest audited consolidated
net tangible assets of the listed company.

Based on the audited accounts of the Company and its subsidiaries (the “Group”) for
the financial year ended 31 December 2008, the audited net tangible assets (“NTA”)
of the Group was RMB1,714,366,000.00. Accordingly, in relation to the Group, for the
purposes of the Listing Manual in the current financial year, Shareholders’ approval
would be required where the interested party transaction is of a value equal to, or
more than RMB85,718,300.00, being 5% of the latest audited NTA of the Group. The
amount at risk to the Company, being the Aggregate Consideration (as defined below
in paragraph 3 of this Announcement), is a total of US$31,000,000.00.

Based on the Aggregate Consideration in respect of the Proposed Acquisition, this


amount represents approximately 12.36% of the latest NTA of the Group as at 31
December 2008, which exceeds the 5% threshold mentioned above. The amount of
US$31,000,000.00 is the amount at risk to the Company under the Proposed
Acquisition, and the transaction is, therefore, subject to Shareholders’ approval.

* - Based on the exchange rate of US$1 to RMB6.8379 as at the date of the Acquisition
Agreement, being 23 February 2010.

Chapter 10 of the Listing Manual

The relative figures for the Proposed Acquisition computed on the bases set out in
Rule 1006 of the Listing Manual, are as follows:-

Rule 1006(a) Not applicable to acquisition of assets

Rule 1006(b) Not applicable as there are no net profits attributable from the new
acquisition as Jiangsu New Eastern has yet to commence any
business activities

Rule 1006(c)

Aggregate value of consideration for the US$31,000,000.00


Acquisition
Company’s market capitalization, derived by S$169,100,000.00
multiplying the number of shares in issue by the
weighted average price of such shares transacted
on 22 February 2010, being the market day
preceding the date of the Acquisition Agreement

Size of relative figure 25.89%(1)

Note:-
(1) Derived by converting US$31,000,000.00 to Singapore dollars at the exchange rate of
1.4123, being the exchange rate on 22 February 2010, the market day preceding
the date of the Acquisition Agreement

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Rule 1006(d) No equity securities issued by the Company as consideration for
the Acquisition

Based on the relative figures set out in the table above, the Proposed Acquisition is a
major transaction under Rule 1010 of the Listing Manual, and is subject to
shareholders’ approval at an extraordinary general meeting to be convened (“EGM”).

3. DETAILS ABOUT THE ACQUISITION

The Proposed Acquisition comprises a purchase of a 50.82% equity interest in


Jiangsu New Eastern for an aggregate consideration of US$31,000,000.00 by the
Company through JEHSS. The vendor of the 50.82% equity interest in Jiangsu New
Eastern is Jiangsu Eastern. The aggregate consideration for the Proposed
Acquisition is US$31,000,000.00 (“Aggregate Consideration”), which will be
satisfied by setting off entirely from a sum of US$31,000,000.00 payable by Jiangsu
Eastern to Jiangsu New Eastern. As such, since the Aggregate Consideration will be
fully satisfied by setting off the receivable due from Jiangsu Eastern, there would be
no outflow of cash from the Group.

Jiangsu New Eastern is a Sino-foreign cooperative joint venture enterprise


established on 30 March 2006 by Jiangsu Eastern and Lofty Leader Investment
Limited (“Lofty Leader”), an unrelated company incorporated in Hong Kong, with a
registered capital of US$61,000,000.00. Prior to the completion of the Proposed
Acquisition, the shareholding structure was as follows:-

Shareholders % shareholding
Jiangsu Eastern Shipyard Co., Ltd 50.82%
Company 49.18%

Jiangsu New Eastern has not commenced any business activities. The stated
business scope of Jiangsu New Eastern is to produce and sell ship equipment and
outfitting parts. As at 31 December 2009, the net tangible assets of Jiangsu New
Eastern, as reflected in its management accounts, is approximately
RMB412,540,000.00. The Aggregate Consideration represents the total amount of
registered capital, and it has been arrived at on a willing-buyer and willing-seller
basis.

The Acquisition Agreement will, inter alia, be subject to the following conditions:-

(a) the approval of shareholders at the EGM to be convened;

(b) the approval from the relevant PRC authorities to register the change in
shareholdings of Jiangsu New Eastern;

In respect of (b), the Company had in January 2010 applied for a certificate of
approval from the relevant PRC authority to register the change of shareholdings in
Jiangsu New Eastern. On 2 February 2010, Department of Commerce of Jiangsu
Province (江苏省商务厅 ) issued a certificate of approval, allowing JEHSS to register
the change of shareholders in Jiangsu New Eastern. This certificate of approval is
valid for one month from the date of its issue and the Company will apply for an
extension and/or renewal of the approval as appropriate if the said certificate of
approval expires prior to the EGM being duly convened.

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Background of the Proposed Acquisition

Jiangsu New Eastern was incorporated on 30 March 2006 with a registered capital of
US$61,000,000.00. Originally, Jiangsu Eastern held 50.82% interest of Jiangsu New
Eastern with the remaining 49.18% being held by Lofty Leader. As disclosed in the
Prospectus, by the terms of Jiangsu New Eastern’s articles of association, the entire
registered capital amounting to US$61,000,000.00 had to be paid up by 30 March
2008, failing which, Jiangsu New Eastern might have been liable to be deregistered
by the relevant authority for not fulfilling the conditions of its articles of association.

On 19 September 2007, in the run up to the Company’s IPO, JEHI entered into a
conditional sale and purchase agreement with Jiangsu New Eastern (the
“Assignment Agreement for the 405mu Land”) under which Jiangsu New Eastern
agreed to assign and transfer the land use rights to the 405mu Land (“Land Use
Rights”) together with the buildings erected thereon (the construction of which was
funded by JEHI) to JEHI after it has successfully obtained the Land Use Rights,
subject to PRC requirements being satisfied. The purchase price was agreed at the
actual purchase price that would be paid by Jiangsu New Eastern to the relevant
authority.

The 405mu Land went through a listing for sale process in January 2008 and Jiangsu
New Eastern successfully purchased the 405mu Land at a purchase price of
RMB61,000,000.00 (as announced by the Company on 17 January 2008).

As disclosed in the Company’s prospectus, the 405mu Land is pivotal to the


Company’s key business strategy of expanding its production capacity significantly in
FY2008 and FY2009. The Company has commenced construction of a new shipyard
on the 405mu Land which is adjacent to its existing Shiwei Yard. The said new
shipyard will house a 400 metre long by 140 metre wide dry dock, a hull steel shop
with an area of approximately 100,000 sq.m. and auxiliary facilities, one 1,200 tonne
gantry crane, two 400 tonne gantry cranes and various other lifting equipment. The
new shipyard facility will enable the Company to construct at the same time three bulk
carriers of up to 176,000 DWT each, or two crude oil tankers of up to 300,000 DWT
each, or large ocean engineering vessels and offshore equipment, such as oil rigs. As
at the date of this Announcement, the new dry dock is near completion and the hull
steel structure shop is almost completed and had begun partial operations with some
equipments still undergoing testing.

On 14 January 2008, Jiangsu New Eastern was granted the Land Use Rights,
although upon a final survey by the authorities, the land parcel comprising the 405mu
Land was measured to be 448.5mu. For ease of reference, the 448.5mu land will be
referred to in this Announcement as the 405mu Land.

In late June 2008, Jiangsu Eastern informed the executive management of the
Company that Lofty Leader was unable to pay up its share of the outstanding
registered capital. In order to protect the 405mu Land, which would have been at risk
if Jiangsu New Eastern had been deregistered, the Company acquired Lofty Leader’s
49.18% equity interest in Jiangsu New Eastern for an aggregate consideration of
US$30,000,000.00. As a consequence of the completion of the acquisition, JES
became shareholders in a common entity, i.e, Jiangsu New Eastern, with Jiangsu
Eastern, thereby creating a joint venture (“Resulting Joint Venture”) between the
parties. Further to the Resulting Joint Venture, the parties had entered into an Equity
Transfer Agreement on 5 December 2008 under which Jiangsu Eastern, and/or its
nominee, committed to purchase the Company’s 49.18% equity interest in Jiangsu
New Eastern upon the completion of the construction of the new shipyard and the
assignment of the Land Use Rights to JEHI, subject to the PRC approvals being
secured. Shareholders had, at the extraordinary general meeting held on 29 April
2009, ratified and approved (as applicable) the Resulting Joint Venture and the Equity
Transfer Agreement.

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In December 2009, the Company, following up with the matters set out in the circular
to shareholders dated 14 April 2009, made a preliminary enquiry with the Jingjiang
Park of Jiangyin Economic Development Zone (“JYJJP Committee”) with a view to
putting in a formal application to effect the transfer of the Land Use Rights as the new
yard is nearing completion. In discussions with the JYJJP Committee, the Chief
Executive Officer and Chairman of the Company, Mr. Jin Xin, was informed that an
application would be rejected by the JYJJP Committee as a transfer to JEHI which is
a company outside of the tax jurisdiction of the JYJJP Committee would mean a loss
of tax revenue to JYJJP. The JYJJP Committee cited non fulfillment of certain
conditions, i.e., that Jiangsu New Eastern was to have generated certain amount of
profits prior to any assignment as the official reason, even though the JYJJP
Committee has been aware of the “Assignment Agreement for the 405mu Land” and
the Company’s intention to effect a transfer of the Land Use Rights.

In view of the turn of events as described in the foregoing paragraph, the independent
directors visited the JYJJP Committee in early January of 2010 to gain a better
understanding of the issues. The independent directors, comprising Mr. Chong Teck
Sin and Mr. Ong Kian Guan, were also given a similar reasoning when they met with
the officers representing the JYJJP Committee. As an additional step, the
independent directors consulted Chinese legal advisers and were informed that
technically and formally as written on the ”Assignment Agreement for the 405 mu
Land”, the Land Use Rights can be transferred as the purchase consideration has
been fully paid up.

Rationale and benefits of the Proposed Acquisition

Given the circumstances, the Company had to consider alternative options in order to
secure the Land Use Rights. In this connection, the Company through JEHSS, a
wholly owned subsidiary of JEHI, had on 17 November 2009 purchased JYJJP
Eastern Shipyard Supplies Co., Ltd (“JES Supplies”) from Jiangsu Eastern. The
rationale for purchasing JES Supplies is that JES Supplies has submitted applications
to the JYJJP Committee for the purchase of various parcels of land around the
405mu Land. The acquisition of JES supplies would, therefore, allow the Company to
develop the said parcels of land and expand its entire operations on which the new
shipyard on the 405mu Land is being constructed. For more information on the
acquisition of JES Supplies, please refer to the announcement made by the Company
on 21 November 2009.

Having acquired JES Supplies for the benefit of the land purchase applications
already made by JES Supplies, the Company now has the possibility of acquiring the
entire equity interest in Jiangsu New Eastern, as previously PRC laws did not allow
the acquisition of more than 50% of domestic companies in certain restricted
industries, the shipping industry being one, by effectively foreign controlled entities.
Recently, the Company noted that PRC authorities have applied an increasing liberal
interpretation of the relevant laws to allow a domestic subsidiary of a foreign owned
group to purchase more than 50% of a domestic company even if such a domestic
company was in a restricted industry.

The more liberal interpretation adopted by PRC authorities would mean that the
Company can, through JEHSS, acquire the 50.82% equity interest in Jiangsu New
Eastern from Jiangsu Eastern. The Grandall Legal Group (Shanghai) are of the
opinion that there are no legal impediments to the completion of the Proposed
Acquisition except the approvals listed under paragraph 3 of this
Announcement. The legal opinion issued by the Grandall Legal Group
(Shanghai) will be reproduced in a circular relating to the Proposed Acquisition
to be dispatched to shareholders in due course.

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The benefits to the Company in undertaking the Proposed Acquisition are as follows:-

(a) upon completion of the Proposed Acquisition, Jiangsu New Eastern would
become a wholly-owned subsidiary of the Company and, as a consequence,
the Land Use Rights would reside in the Group;

(b) the consideration to be paid in relation to the Proposed Acquisition will not
result in an outflow of cash from the Group as it will be set-off from a
receivable owed by Jiangsu Eastern to Jiangsu New Eastern;

(c) the Company would have substantial stamp duty savings in a transfer of
shares as opposed to a transfer of land as the stamp duty payable in relation
to a transfer of land is significantly higher than that of a transfer of shares;

(d) the Company would be able to consolidate Jiangsu New Eastern’s profits in
its Group accounts; and

(e) the Group will be able to enjoy tax incentives on the business operations
carried out by Jiangsu New Eastern as Jiangsu New Eastern is entitled to an
exemption from tax for two (2) years commencing from the first year in which
the company is profitable and a 50% reduction in income tax rate for the next
three (3) years.

4. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION

The financial effects of the Proposed Acquisition,

(i) on the net tangible assets (“NTA”) per share of the Group for the most
recently completed audited financial year (being the twelve months ended 31
December 2008) and unaudited financial year (being the twelve months
ended 31 December 2009), assuming the Proposed Acquisition had been
effected on 31 December 2008 and 31 December 2009 respectively; and

(ii) on the earnings per share (“EPS”) of the Group for the most recently
completed audited financial year (being the twelve months ended 31
December 2008) and unaudited financial year (being the twelve months
ended 31 December 2009), assuming the Proposed Acquisition had been
effected on 1 January 2008 and 1 January 2009 respectively,

are as follows

The effects of the Proposed Acquisition on the NTA per Share for FY2008 (audited)
and FY2009 (unaudited) are as follows:

FY2008 (audited) FY2009 (unaudited)


Before After Before After
RMB’000 Acquisition Acquisition Acquisition Acquisition

NTA (2) 1,714,366 1,660,478 1,565,608 1,761,330


NTA per 147.03 142.40 134.27 151.05
share (cents)

Note:-
(2) Excludes minority interests and intangible assets (land use rights).

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The effects of the Proposed Acquisition on the EPS of the Group for FY2008
(audited) and FY2009 (unaudited) are as follows:

FY2008 (audited) FY2009 (unaudited)


Before After Before After
RMB’000 Acquisition Acquisition Acquisition Acquisition

Net profit/(loss) 47,515 44,303 (104,335) (105,678)


after tax
Weighted 1,165,468 1,165,468 1,166,028 1,166,028
average
number of
shares (‘000)
Earnings/loss 4.08 3.80 (8.95) (9.06)
per share
(cents)

The audited figures for FY2009 will, when available, be included in the circular to be
dispatched to shareholders of the Company in due course.

5. INTERESTED PERSON TRANSACTIONS FOR THE FINANCIAL YEAR ENDING


31 DECEMBER 2008 (“FY2008”)

As at the date of this Announcement, save for (a) rental paid by the Group to Jiangsu
Eastern amounting to RMB13,200,000.00 and (b) a processing service fee from
Jiangsu Eastern to the Group amounting to RMB123,728,000.00 as disclosed in the
Company’s annual report for FY2008, there are no discloseable interested person
transactions in FY2008 with either Jin Xin or his associates or with any other
interested persons.

6. INTEREST OF DIRECTORS AND CONTROLLING SHAREHOLDERS

Mr Jin Xin is the Chairman, Chief Executive Officer and Controlling Shareholder of the
Company. As at the date of this Announcement, Mr Jin Xin holds 645,502,000 shares
in the Company through JES Overseas, representing 55.36% of the issued and paid
up capital of the Company. Mr. Sha Pengcheng and Mr. Zhu Xiaoyang being
directors of the Company are deemed interested in the Proposed Acquisition as they
are shareholders and directors of both Jiangsu Eastern and Jiangsu New Eastern.
Save for Mr. Jin Xin, Mr. Sha Pengcheng and Mr. Zhu Xiaoyang’s interests in the
Proposed Acquisition, none of our directors or controlling shareholders have any
interests in the Proposed Acquisition.

Accordingly, Messrs Jin Xin, Sha Pengcheng and Zhu Xiaoyang will abstain from
making any recommendation to the shareholders of the Company in respect of the
Proposed Acquisition.

7. INDEPENDENT FINANCIAL ADVISER

PrimePartners Corporate Finance Pte. Ltd. has, in accordance with Chapter 9 of the
Listing Manual, been appointed as the independent financial adviser (“IFA”) to the
Independent Directors of the Company to provide an opinion on whether the
Proposed Acquisition would be carried out on normal commercial terms and whether
the Proposed Acquisition would be prejudicial to the interests of the Company and its
minority Shareholders.

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8. AUDIT COMMITTEE’S STATEMENT

The Company’s Audit Committee members, being, Mr Chong Teck Sin, Mr Ong Kian
Guan and Mr Tong Chi Ho will consider the opinion of the IFA when it issues its IFA
opinion letter in due course and will form a view, which will be set out in the circular
when it is finalised.

9. CIRCULAR TO SHAREHOLDERS

A circular containing, inter alia, details of the Proposed Acquisition, the formal opinion
of the IFA and a notice convening the EGM of the Company will be dispatched to the
shareholders of the Company in due course.

As the Proposed Acquisition is both an interested person transaction and a major


transaction under Chapters 9 and 10 of the Listing Manual, the approval of
shareholders is required to be sought at the EGM.

10. DOCUMENTS FOR INSPECTION

A copy of the Acquisition Agreement referred to in paragraph 3 of this Announcement


is available for inspection during normal business hours at the Company’s registered
office at 8 Cross Street, #11-00, PWC Building, Singapore 048424 for 3 months from
the date of this Announcement.

11. DIRECTORS’ RESPONSIBILITY STATEMENT

This announcement has been reviewed and approved by the Board of Directors
(including those who may have been delegated detailed supervision of the
preparation of this announcement) who have taken all reasonable steps to ensure
that, to the best of their knowledge and belief, the facts stated and the opinions
expressed in this announcement are fair and accurate, and that no material facts
have been omitted from this announcement. Accordingly, the Board of Directors
jointly and severally accepts responsibility in this connection. Where any information
contained in this announcement has been extracted from published or otherwise
publicly available sources, the sole responsibility of the Board of Directors has been
to ensure that such information has been accurately and correctly extracted from
these sources.

ON BEHALF OF THE BOARD

Jin Xin
Director

24 February 2010

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