Hanwei to Expand its Windpower Business by Entering into Memorandum of Understanding for the Acquisition of Daqing Deta Electric Co., Ltd.
Proposed RMB 600 million ($85.3 million) acquisition includes a contract for 1,200 MW of wind power equipment valued at approximately RMB 8.4 billion ($1.2 billion), licenses for turbine and blade technology, and the land and building now being used by Hanwei for its wind power manufacturing plant.
Hanwei provides further updates on current wind power contract with Deta and Ruihao
Vancouver, BC, January 24, 2008. Hanwei Energy Services Corp. ("Hanwei" or the "Company") is pleased to announce that it has entered into a Memorandum of Understanding ("MOU") to acquire 100 percent of Daqing Deta Electric Co., Ltd. ("Deta"), a company located in Daqing, Heilongjiang Province, China, for RMB 600 million ($85.3 million).
The MOU contemplates that Hanwei will pay the acquisition price as to 50 percent in cash and 50 percent in Hanwei common shares at $5.30 per share in a series of payments based on annual wind power equipment manufacturing contracts signed between Deta and Daqing Ruihao Technology Co., Ltd. ("Ruihao"). Under the MOU, signed by Hanwei, Deta and Ruihao, Deta will enter into a contract (the "Wind Power Equipment Contract") with Ruihao to provide 1,200 megawatts (MW) of wind power turbines, blades, towers and control systems (together the "Wind Power Equipment") valued at approximately RMB 8.4 billion ($1.2 billion), and a right of first refusal to provide all future Wind Power Equipment for wind farms that Ruihao owns or controls. Under the Wind Power Equipment Contract, Deta is to be guaranteed a 15% net after tax profit. In return, Hanwei will grant Ruihao the right to purchase, at market prices, all additional Wind Power Equipment manufactured by Hanwei. Ruihao has also agreed to transfer to Deta all of its current wind power equipment technology and its rights to the land and building now being used by Hanwei to house its wind power equipment manufacturing plant.
The MOU does not affect the current RMB 200 million ($28.4 million) wind power equipment manufacturing contract between Hanwei and Deta, but replaces the expression of intent from Deta to purchase from Hanwei an additional RMB 1.5 billion ($213 million) of wind power equipment in 2008 and 2009. The terms of the MOU call for Deta to sign the 1,200 MW Wind Power Equipment Contract with Ruihao prior to the close of the acquisition with terms that include an annual manufacturing contract for 200 MW to 250 MW of Wind Power Equipment at a price that guarantees Deta a 15 percent net profit after tax. The proposed contract would be over a five-year period with 200 MW for 2008 and 250 MW for each of the following four years. The contract has an option to be accelerated if approved by all parties.
Under the MOU, Hanwei will pay the shareholders of Deta a total of RMB 300 million ($42.7 million) in cash and 8,051,746 common shares of Hanwei valued at $5.30 per share. Upon completion and execution of a share purchase agreement between Hanwei and Deta, the Hanwei common shares will be placed in escrow and distributed, along with the following cash payments, under the following schedule:
Initial payment of RMB 96 million ($13.7 million), as to RMB 48 million ($6.8 million) in cash and 1,288,279 Hanwei common shares no later than April 15, 2008 subject to: a) the completion of due diligence by Hanwei; b) the signing by Ruihao and Deta of an agreement for the manufacture of 200 MW of Wind Power Equipment for delivery in 2008; and, c) the concurrent transfer of all of the shares of Deta to Hanwei.
Four payments of RMB 96 million ($13.7 million), as to RMB 48 million ($6.8 million) in cash and 1,288,279 Hanwei common shares to be paid within 30 days after the signing by Ruihao and Deta of agreements for the manufacture of 250 MW of Wind Power Equipment for delivery in each of 2009, 2010, 2011 and 2012. This payment schedule can be accelerated by mutual agreement if Ruihao increases the amount of equipment ordered in any one year above the minimum purchase amount.
A payment of RMB 120 million ($17.1 million) as to RMB 60 million ($8.5 million) in cash and 1,610,351 in Hanwei common shares within 60 days after transfer of title to the land and building used for the wind power equipment manufacturing to Hanwei.
In addition, the MOU provides that after Hanwei acquires Deta, Ruihao will not establish, own or acquire other wind power equipment manufacturing companies, which may constitute competition against Hanwei. Similarly, Hanwei will agree not to establish, own or acquire a wind power farm, which may constitute competition against Ruihao.
The MOU is subject to satisfactory due diligence by all parties, and board and regulatory approval. In addition, Hanwei expects that it will need to raise additional capital to complete the acquisition, expand capacity and fund working capital.
"The Hanwei and Deta teams have been working closely together since early 2007 to secure the contract with Ruihao and to acquire and develop the technology and manufacturing expertise needed to deliver quality wind power equipment," stated Fulai Lang, President and CEO of Hanwei. "The Deta acquisition will provide Hanwei with wind power equipment technology licenses and an anchor customer that will complete our platform and will position us to achieve our goal of being one of the top three providers of wind power equipment in China by 2010. We will be focusing on strengthening our supply chain management and scaling up manufacturing capacity so we can go after new customers later in 2008."
In June 2007, Hanwei announced that Daqing Harvest Longwall High Pressure Pipe Co. Ltd. ("Harvest"), its 82.15 percent owned subsidiary, had signed a cooperation agreement with Deta that included an initial order to manufacture approximately RMB 200 million ($28.4 million) worth of wind power products, including turbines, blades and towers, and an expression of intent to place additional orders with Harvest for wind power products in the amount of RMB 600 million ($85.3 million) in 2008 and RMB 900 million ($128 million) in 2009, subject to satisfactory completion by Harvest of the 2007 order. The cooperation agreement stipulated that Harvest is entitled to earn a net profit after tax return of 15 percent on the RMB 1.7 billion ($242 million) worth of wind power equipment orders intended to be placed over the three years. The June 2007 press release also disclosed that Deta, a privately-owned Chinese company, had signed an agreement with Ruihao, a privately-owned Chinese company based in Daqing, Heilongjiang Province, China to provide wind power equipment. Subsequent to the June release, Hanwei established a 100 percent owned wind power equipment subsidiary in Daqing, China, and commenced the production of wind power turbines, blades and towers. Ruihao has an exclusive right to develop wind power in Durbert Mongolia Autonomous County in Heilongjiang Province and plans to develop over 1,200 MW of wind power in that region, and is in various stages of testing and development in other areas of the Heilongjiang Province.
Wind Power Operations Update
As of December 31, 2007 Hanwei delivered three sets of blades, 30 towers and various electrical accessories under its current wind power contract. Four turbines have been completed and are being tested by Hanwei with a target delivery of February 15, 2008. The previously announced revised delivery was to be 10 sets of blades, 30 towers and 4 turbines by December 31, 2007, however in cooperation with Deta and Ruihao, the companies have mutually agreed to the following delivery schedule:
Additional 16 turbines by March 31, 2007, completing the first order of 20 turbines. Field-testing of the three sets of wind power blades to be completed in early March 2008, with blade manufacturing re-commencing upon satisfactory field-testing. It is expected that delivery of the remaining 17 blade sets will be completed after March 31, 2007 and the final delivery schedule for the blades will be agreed upon after the field-testing.
The delays were caused primarily by supply chain issues on the turbines and by production delays on the blades. Hanwei has taken several steps to address these issues including the hiring of additional technical personnel with experience working for Chinese wind power companies in blade manufacturing, turbine manufacturing, and control systems. Hanwei now has 170 employees in wind power, including 22 in engineering and quality control, 23 in administration and accounting and 125 in production (technicians, skilled labor and production support). In addition, the Company is investigating potential license agreements and joint ventures that would further strengthen its technology and manufacturing capabilities.
About Hanwei Energy Services Corp.
Hanwei Energy Services Corp. provides high value products and services for the energy sector in China and the Asia region. Hanwei serves its major energy customers through manufacturing facilities in China, producing products for the oil, coal power and wind power industries. Hanwei is focusing on providing products and services that address the growing need for improved energy efficiency and environmental protection in China and the Asia region.
For more information please contact:
Kim Oishi, Senior Vice President of Finance and Business Development
416-804-9228
koishi@hanweienergy.com
Or
Kevin O'Connor, Investor Relations
416-962-3300
koconnor@genoa.ca
FORWARD LOOKING INFORMATION
Certain information in this news release is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions. This forward-looking information includes information relating to the proposed acquisition of Deta outlined in the MOU and the associated transfer of title to land and buildings, securing of manufacturing contracts between Ruihao and Deta, and the possibility of raising additional capital; as well as the ability to deliver products to customers in accordance with delivery schedules, the ability to secure licenses and joint venture arrangements and to achieve its goal of becoming a top provider of wind power equipment in China. The forward-looking information in this news release describes Hanwei's expectations as of the date of this news release. The results or events anticipated or predicted in such forward-looking information may differ materially from actual results or events. Material factors or risks which could cause actual results or events to differ materially from a conclusion in such forward-looking information include the risks that the acquisition of Deta may not be completed on the terms set out in the MOU or at all, that required approvals may not be obtained or may be subject to conditions that are unacceptable to the parties, that due diligence undertaken by the parties may not be satisfactory or may not identify all possible risks of the transaction, that Hanwei may not be able to raise the capital it requires from time to time to complete the transaction, or to make cash payments required from time to time, on terms favourable or acceptable to it or at all, that manufacturing agreements may not be entered into between Deta and Ruihao as contemplated in the MOU or at all, that Ruihao may not secure funding and approvals necessary to establish or acquire additional wind farms and accordingly not require additional wind farm equipment, that Hanwei may not be able to effectively integrate or manage expansion of its operations, that supply chain issues or changes in technology or product requirements may cause delays in delivery of products under current or future manufacturing contracts, that a robust market for wind power products is still developing in China, that there is significant uncertainty surrounding wind power regulation in China, that Hanwei must meet Chinese governmental localization requirements, that there are uncertainties related to certain of Hanwei's wind power agreements, that Hanwei depends on its intellectual property and the failure to protect that property may adversely affect future growth, that Hanwei faces significant competition and seasonal fluctuations in revenues, that there may be insufficient insurance for its operations, that changes in costs of raw materials or energy may adversely affect operating margins, that operations are subject to environmental risks and hazards, that there are specific risks associated with doing business in China (including those related to state ownership, government intervention, foreign investment, repatriation of profit, currency conversion, shareholders' rights and enforcement of judgments, a developing legal system, recent regulations relating to cross-border mergers and acquisitions, protection of intellectual property, permits and business licenses, appropriation, tax, infrastructure and interest rate fluctuations), and that exchange rates fluctuate. When relying on Hanwei's forward-looking information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Hanwei cautions that the foregoing list of material factors is not exhaustive and is subject to change. For additional information with respect to certain of these and other factors, refer to the risk factors section of Hanwei's Annual Information Form dated July 10, 2007 filed with Canadian securities regulators, which is available on SEDAR at www.sedar.com.
THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF HANWEI AS OF THE DATE OF THIS NEWS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. HOWEVER, HANWEI EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.
