As part of its diligence in evaluating the potential transaction, the Board received a fairness opinion from its independent financial advisor and investment banking firm, Duff and Phelps, LLC, and appraisal reports from BMI for the respective operating rights and licenses to conduct fishing services using the 20 new vessels.
The Company had previously announced on 28 October 2013 that its Board, excluding Chairman and CEO Mr Xinrong Zhuo, and the Company's Senior Officer, Mr Bin Lin, would evaluate any potential alternative proposals received during a 30 day period.
Under the terms of the proposed transaction, the consideration to be received by the Company consists of:
(i) forgiveness of the Company's current $155.2 million 4 per cent promissory note due on 19 June 2015; and
(ii) the transfer to the Company of the 25-year exclusive operating rights for 20 new fishing vessels, with such rights appraised at $216.1 million by BMI Appraisals Limited.
(iii) forgiveness of current consolidated accounts due from Pingtan to CDGC in the amount of $172.1 million.
After receiving no alternative proposals, on 3 December 2013, the Board, excluding Chairman and CEO Mr Xinrong Zhuo, and the Company's Senior Officer, Mr Bin Lin, unanimously approved moving forward with the transaction and executed and closed the Share Purchase Agreement.
Highlights of the Pingtan Fishing Business
As a result of the closing, Pingtan now owns or has exclusive operating rights to 126 fishing vessels and licenses. These vessels have an average useful life of approximately 17 years, which includes the 20 newly-built and pre-owned fishing drifter vessels as part of this transaction. These vessels are fully licensed to fish in Indonesian or Indian waters. 114 of these vessels are operating in Arafura Sea in Indonesia, and the remaining 12 vessels are operating in the Bay of Bengal in India. The Company sells approximately 30 different species of fish to over 300 distributors and retailers in the PRC.
The Company expects to have all fishing vessels operating at full capacity by the end of April 2014.
At current prices and operating at full capacity, each vessel is expected to generate annual net income of approximately $800,000 to $1 million.
Based on the Company's current projections, Pingtan expects to report net income of between $40 and $43 million (excluding the discontinued dredging business) for the year ending 31 December 2013 and $80 and $85 million for the year ending 31 December 2014. This guidance is based on the current expected timeline for each vessel to operate at full capacity, taking into account maintenance and dry-docking requirements for certain vessels, strong continued demand, and current debt obligations.
Mr Xinrong Zhou, stated, "We are very excited about the possibility of achieving a growing share in a highly fragmented global fishing market. We feel that our Company has the distribution network in place to properly execute on our plan of becoming a leading provider of quality fishing products for China's growing consumer demand. With our current fleet, we will continue to build market share while also utilizing economies of scale with our distributors and wholesalers to pick up incremental margin. As a result, we have provided 2014 net income guidance of between $80 and $85 million."
