BALLOON catheter specialist QT Vascular (QTV) is looking to acquire the entire interest in Tengri Coal and Energy (TCE) for S$1 billion in cash and new shares.

If completed, the deal is expected to result in a reverse takeover (RTO) of QTV, it said in a bourse filing on Sunday night.

The Catalist-listed medtech firm will seek approval from the Singapore Exchange (SGX) and its shareholders for the proposed acquisition at an extraordinary general meeting (EGM) to be convened.

Conditions precedent include QTV disposing all its existing assets and liabilities, so that it will become a shell company into which TCE can be injected.

Singapore-incorporated TCE's wholly-owned operating entities are Tengri Petrochemicals and Tsaidam Energy.

Tengri Petrochemicals holds mining licences issued to mine coal deposits in Bayan sourm, Tuv province in Mongolia, while Tsaidam Energy holds licences to construct power plants and energy facilities in the country.

TCE plans to build and operate an electricity supply business in Mongolia.

QTV's board of directors said the RTO will give the company "a new lease of life" and could potentially increase its market capitalisation.

The proposed acquisition provides an opportunity for QTV to venture into a new business area in the coal and energy industry in Mongolia, which has potential for growth and "significant potential upside", the board added.

The target group - including TCE and its subsidiaries - recorded net losses before tax of about US$516,000 in 2019, net liabilities attributable to shareholders of about US$2.2 million and net tangible liability value of about US$2.3 million as at Dec 31, 2019. These figures are based on the group's unaudited consolidated financial statements as at Dec 31, 2019.

However, the target group's financial statements have not taken into account the actual valuation of TCE's assets, which will be based on an independent valuation to be commissioned and completed before the EGM, QTV said.

The independent valuation will take into account all permits and licences to mine half a billion tonnes of coal located in the middle of Mongolia near major infrastructure; all designs, permits and licences to build and operate a 600-megawatt (MW) coal-fired power plant; and all designs, permits and licences to build and operate the required electricity transmission infrastructure.

It will also take into account the executed agreements with a Chinese state-owned enterprise to provide 85 per cent debt financing for the construction of a power plant. TCE has signed an agreement with a New York venture capital firm to provide the rest of the funding for, among others, the remaining 15 per cent for the plant's construction.

In addition, the independent valuation will consider the 25-year off-take agreements for all of the 600MW of generated power from the coal-fired plant. Half of this power will go to the Mongolian government, while the other half will be used for an industrial minerals processing project owned by TCE's seller, subject to compliance with the requirements for interested-person transactions.

QTV has signed a conditional sale and purchase agreement with the seller, Phoenix Capital Enterprises, which beneficially owns TCE.

The S$1 billion purchase price takes into account the assets owned by the target group, including its power plant licence, off-take agreements, as well as indicated and inferred mineral resources.

QTV will fork out a cash deposit, and the balance will be paid by issuing new shares to the seller. For illustrative purposes, assuming the deposit is zero, the purchase price will be fully paid by issuing some 186.27 billion new shares in QTV at about 0.537 Singapore cent apiece.

The illustrative issue price is at a 10.5 per cent discount to QTV's last traded price per share of 0.6 cent on Aug 20.

The purchase price will be adjusted in the event the independent valuation comes up to less than S$1 billion. The parties have also agreed that the shell company value ascribed to QTV shall be S$12 million at all times.

Holders of QTV shares before the completion of the proposed acquisition are entitled to net proceeds of corporate actions, as well as future proceeds arising from the disposal of its drug-coated peripheral product line Chocolate Touch, which may include royalty payments of up to US$16.1 million, and/or future sales proceeds from selling the Chocolate Touch asset to G Vascular. QTV announced last month that it was in the process of selling the product line to G Vascular for up to S$20 million.

As it is likely that the TCE group may be eligible for a mainboard listing on SGX, QTV intends to seek a transfer of its listing from Catalist to the mainboard, concurrent with the completion of the proposed acquisition.

QTV on Sunday also proposed to undertake a share consolidation exercise to allow the company to comply with SGX mainboard rules for a minimum issue price of S$0.50. The ratio for the share consolidation will be determined later by QTV and Phoenix Capital.

Shares of QTV rose 0.1 Singapore cent or 14.3 per cent to trade at 0.8 cent as at 10.36am on Monday. About 55.3 million shares changed hands, making it the third most actively traded by volume on the bourse.

Published Date:2020-08-24