Securities code: 688065 securities abbreviation: Cathay Biotech Inc(688065) Announcement No.: 2022-007
Reply to the inquiry letter on the change of some raised investment projects
The board of directors and all directors of the company guarantee that there are no false records, misleading statements or major omissions in the contents of this announcement, and bear legal liabilities for the authenticity, accuracy and integrity of its contents according to law. Important risk tips:
1、 Risk that the project investment and construction progress does not meet the expectations
Since the project investment and construction are affected by personnel organization, processing and arrival of supplier equipment, civil engineering and installation speed, loan progress, changes in macro environment, trade and industrial policies, and the recurrence of covid-19 epidemic may also have a certain impact on the project construction and operation, if the project investment and construction progress does not meet the expectations, It will have an adverse impact on the company’s business scale and revenue.
2、 Risk that the project invested with raised funds fails to achieve the expected benefits / risk of digestion of new production capacity
The company expects that the capacity of products can be digested well, but there is still a risk that the capacity of new projects can not be digested in time. If the market environment changes in the future, it may cause adverse changes in the market demand for bio based glutamine and bio based polyamide products, adverse product market development and decline in capacity utilization, resulting in problems in the digestion of new capacity, which may have a negative impact on the company’s performance.
3、 Risks of operation and management of investment projects with raised funds
The company is building a number of projects, including 40000 t / a biological sebacic acid construction project, Wusu technology 30000 t long-chain dicarboxylic acid and 20000 t long-chain polyamide project, 500000 T / a biological glutaric diamine and 900000 T / a biological polyamide. In the future, if the raised projects are due to the construction party, process renewal, government infrastructure support If the production time is prolonged due to the influence of employee recruitment, training and other force majeure factors, it may lead to overspending, delayed capacity release, economic benefits not meeting expectations, and will have an adverse impact on the production and operation of the company.
4、 Risk of joint venture / risk of partner’s failure to perform on time
The investment project of the raised funds after the change is implemented through the joint venture. Although the paid in funds of the partners are close to 100% of the subscribed funds, if the partners fail to perform the agreed obligations on time, or there are differences in business philosophy between the company and the partners, disputes arising from the cooperation between the two sides and other reasons, resulting in slow progress, stagnation or cancellation of the cooperation, It will have an adverse impact on the construction and operation of the investment project with raised funds.
5、 The change of this raised investment project still needs the approval of the general meeting of shareholders
The change of raised funds will take effect after being deliberated and approved by the company’s first extraordinary general meeting in 2022. Therefore, there is still uncertainty whether the change of raised funds can be deliberated and approved by the general meeting of shareholders.
Cathay Biotech Inc(688065) (hereinafter referred to as the “company”, “listed company” or ” Cathay Biotech Inc(688065) “) received the inquiry letter on the change of some raised investment projects in Cathay Biotech Inc(688065) (szkch [2022] No. 0003) (hereinafter referred to as the “inquiry letter”) issued by Shanghai Stock Exchange on January 11, 2022. The company carefully verified and implemented the relevant issues concerned in the letter one by one, The reply to the inquiry letter is as follows:
Question 1:
Relevant announcements disclosed that the total investment of sebacic acid project is 171.102 million yuan, and the company plans to adjust the amount of raised funds from 171.102 million yuan to 501.25 million yuan. The implementation subject will be changed from Kaisai (Jinxiang) biomaterials Co., Ltd., a wholly-owned subsidiary of the company, to Kaisai (Taiyuan) Biotechnology Co., Ltd. (hereinafter referred to as Taiyuan Technology). Taiyuan technology is 50.125% owned by your company and 49.875% owned by Shanxi transformation Industrial Park Group Co., Ltd. (hereinafter referred to as Shanxi industrial group). The company and Shanxi industrial group invested 1 billion yuan in the project construction according to the shareholding ratio. The remaining deficiency is solved by the self financing of the implementation subject. Except for the above adjustment, the rest of the sebacic acid project remains unchanged. Please further explain: (1) the reason, necessity and rationality of the company’s change of the implementation subject of the raised investment project, and whether the change of the implementation subject in the early stage and the reduction of the investment amount belong to a package deal or arrangement; (2) Up to now, the actual contribution of all parties, the project capital investment and the follow-up fund-raising plan; (3) In view of the close shareholding ratio of Taiyuan Technology between your company and Shanxi industrial group, further explain how your company realizes the control of Taiyuan Technology; (4) Combined with the business decisions and income distribution arrangements of both parties of the raised investment project, analyze whether the change of the implementation subject of the raised investment project can fully protect the interests of the company and small and medium-sized investors and the measures to be taken by the company. reply:
1、 Company description
(I) the reason, necessity and rationality of the company’s change of the implementation subject of the raised investment project, and whether the change of the implementation subject in the early stage and the reduction of the investment amount belong to a package deal or arrangement
1. Background and rationality of the company’s investment in Shanxi synthetic biological industry ecological park
In order to accelerate the industrial transformation and upgrading of Shanxi Province and promote the high-quality development of manufacturing industry, the Shanxi provincial Party committee and provincial government decided to further improve the basic capacity of new material industry and the modernization level of industrial chain by vigorously developing biological manufacturing industry, realize green and low-carbon economy and promote energy revolution. At the same time, it is decided to build a synthetic biomaterial Industrial Park in Shanxi transformation and comprehensive reform demonstration zone (hereinafter referred to as “Shanxi comprehensive reform demonstration zone”) to create a 100 billion level bio based green new material industrial cluster leading the world.
Cathay Biotech Inc(688065) is a high-tech enterprise based on synthetic biology and other disciplines, using biological manufacturing technology to engage in the R & D, production and sales of new bio based materials. It is a global representative enterprise using biological manufacturing to produce new materials on a large scale. In terms of strategic layout, the company continues to pay attention to the application, development and upgrading of bio based products, actively expand the types of new products of biological long-chain dicarboxylic acid series, and actively cooperate with downstream industries to develop new application fields on this basis; Relying on the unique advantages of bio amyl diamine, the company has built a high-performance bio based polyamide series product platform, and will further focus on its application and development fields such as spinning and engineering materials.
Based on the industrial transformation and upgrading needs and strategic layout of Shanxi Province, and the company’s above industrial and technological advantages, Shanxi Province actively introduces Cathay Biotech Inc(688065) as the core raw material supply enterprise of the synthetic biomaterial Industrial Park, relying on Cathay Biotech Inc(688065) “bio amyl diamine” Core monomers such as “long chain dicarboxylic acid” and a series of bio based polyamide materials build the whole industrial chain project of Shanxi synthetic new biomaterials, attract upstream and downstream enterprises of biomaterials and build biomaterial industrial clusters.
In October 2020, the company signed a cooperation agreement with Shanxi comprehensive reform demonstration zone to jointly invest in building “Shanxi synthetic biological industry ecological park” (hereinafter referred to as “Industrial Park”) in Shanxi comprehensive reform demonstration zone. For the industrial park construction project, the company and Shanxi comprehensive reform demonstration zone jointly invested 8 billion yuan, and the company, Shanxi comprehensive reform demonstration zone and its coordinated state-owned entities and government industrial funds jointly established one or more holding subsidiaries as the project companies of the investment project.
After the completion of phase I of the industrial park, it will become the most representative synthetic biological industry base in the world. The original planned investment of the project is 25 billion yuan (Announcement No. 2020-011). According to the signed contracts and business conditions under discussion, the total investment of the project is expected to be moderately reduced, mainly due to ① the centralized procurement of main raw materials and on-site processing by equipment suppliers to reduce equipment costs. ② In the overall planning, design and implementation of the three projects in the synthetic biological industrial park, the company has obvious scale effect and increased its bargaining power; ③ Based on the operation experience of Wusu materials, the optimization of design, process, equipment and civil engineering further reduces the construction investment cost.
Up to now, the registered capital and paid in capital of specific investment projects are as follows:
Project name implementation subject investor shareholding ratio registered capital paid in capital
(10000 yuan) (10000 yuan)
40000 tons of Kasai (Taiyuan) Kasai (Jinxiang) biology 50.1250% 50125.00 50125.00
/Nian biotechnology Materials Co., Ltd
FA sebacic acid Company Shanxi industrial group 49.8750% 49875.00 49875.00
Construction Project
2.4 million tons Cathay Biotech Inc(688065) 50.1250% 120300.00 120300.00
/Annual corn deep processing and Kaisai (Taiyuan) 5 million tons Biotechnology Co., Ltd
/Biological Company Shanxi industrial group 49.8750% 119700.00 119700.00
Fermentation broth term
order
Annual output 50 Cathay Biotech Inc(688065) 50.1250% 230575.00 149569.50
10000 ton bio amyl diamine Kaisai (Taiyuan)
And 900000 biomaterials Co., Ltd
Ton bio based company Shanxi industrial group 49.8750% 229425.00 228825.00
Polyamide term
order
Total 800000.00 718394.50
In order to further accelerate industrial transformation and upgrading, the industrial park provides the following competitive support:
(1) The industrial park will be provided with complete, sufficient and cost competitive infrastructure by Shanxi comprehensive reform demonstration zone, including power distribution, steam, water supply, three wastes treatment, special railway and other transportation systems, bulk raw material storage and transportation system, upstream and downstream industrial chain supporting information services, etc.
(2) Shanxi comprehensive reform demonstration zone and the company simultaneously attract investment and introduce downstream supporting projects during the project construction, build a competitive upstream and downstream industrial chain, and form Shanxi synthetic biological new material industrial cluster.
(3) In order to maintain the core technology competitiveness of the industrial park for a long time and make the core technology continuously upgraded and iterated, the governments of Shanxi Province, Taiyuan city and comprehensive reform district jointly invested 1.5 billion yuan as the institutional construction fund of Shanxi Synthetic Biology Research Institute (hereinafter referred to as “Shanxi Research Institute”), a wholly-owned subsidiary of Kasai, which was specially used for the decoration of the laboratory of Shanxi Research Institute Funds for purchase, R & D and operation of scientific research equipment. At the same time, Shanxi comprehensive reform demonstration zone provides a number of preferential policies to attract all kinds of high-end R & D talents.
Based on the above advantages, with the approval of the board of directors, the company changed one of the raised investment projects “40000 t / a biological sebacic acid project of Kasai (Jinxiang) biomaterials Co., Ltd.” to “40000 t / a biological sebacic acid construction project” (hereinafter referred to as “sebacic acid project”), The implementation location was changed from “reserved space of Jinxiang Kaisai in Jining new material industrial park, Jinxiang County, Shandong Province” to “Yangqu Industrial Park in Shanxi comprehensive reform demonstration area”, and the implementation subject was changed from Jinxiang Kaisai, a wholly-owned subsidiary of the company, to Taiyuan Technology, a holding subsidiary of Jinxiang Kaisai. The company has fulfilled relevant information disclosure obligations. For details, please refer to the website of Shanghai Stock Exchange (www.sse. Com. CN.) on December 1, 2020 Announcement on changing the implementation subject and place of some raised investment projects (Announcement No.: 2020-020).
2. Reasons, necessity and rationality for the company to change the implementation subject of raised investment projects
Compared with the original raised investment plan, the changed raised investment project has more advantages in infrastructure guarantee and industrial coordination. Specifically:
(1) The infrastructure (such as steam) supply of the original implementation subject Kaisai (Jinxiang) biomaterials Co., Ltd. (hereinafter referred to as “Jinxiang Kaisai”) mainly depends on the outside, and the cost is relatively high. Considering the large investment scale and perfect infrastructure of the industrial park, which can cover the infrastructure needs of the project at low cost, the company has changed the subject and location of the project;
(2) As part of the construction of the above Industrial Park, the changed sebacic acid project is one of the important measures taken by the company to participate in the construction of the whole industrial chain project of synthetic biological new materials. While moderately expanding the production capacity of core products such as biological long-chain dicarboxylic acid, bio glutamine and bio polyamide, it is convenient for centralized overall management and close cooperation with downstream industrial chains, Produce scale effect and make the company occupy a more favorable competitive position in the industrial chain;
(3) The entry of government funds will provide solid financial support for the further layout of the biological manufacturing industry chain. At the same time, the establishment of the joint venture project company will strengthen the exchange and communication between the company and the government and obtain various support.
3. The implementation subject of the previous change and the reduction of the investment amount do not belong to a package deal or arrangement
When the implementation subject was changed in the early stage, the construction had not yet started. Considering the potential risk of price rise of raw materials for engineering construction, reserved working capital and other comprehensive factors, the company planned a total investment of 1.711 billion yuan based on the project feasibility study report in March 2019.
After the project implementation site is changed to Taiyuan, the project construction progress is fast. During the construction of the project for more than one year, the company has obvious scale effect in the overall planning, design and implementation of the three projects in the industrial park; The unified bidding and purchase policy for main construction raw materials enhances the bargaining power of the project; The optimization of long chain dicarboxylic acid production process and equipment further reduces the construction investment cost; In addition, the project is planned to be put into trial operation in the first half of 2022. The project itself can form effective working capital, self support, acceptance and quality assurance, etc., and will maintain a reasonable payment schedule. Based on the current relatively clear estimation of the actual investment demand, in order to improve the use efficiency and return rate of funds, it is planned to change the corresponding part of the raised funds to the “project with an annual output of 500000 tons of bio amyl diamine and 900000 tons of polyamide”.
(II) up to now, the actual contribution of all parties, the project capital investment and the subsequent fund-raising plan
Sebacic acid project is one of the construction projects jointly invested by the company and Shanxi comprehensive reform demonstration zone of RMB 8 billion. Up to now, the company and Shanxi industrial group have paid in the amount of RMB 50125 million and RMB 49875 million respectively according to the shareholding ratio, totaling RMB 1 billion
