On 8-Jul-2011, Inno-Tech conditionally agreed to buy Redgate Ventures Ltd (Redgate Ventures) for about HK$1,941m, of which $290m would be in cash, $160m in 0% promissory notes and $1,491m in 3-year 0% notes convertible into up to 5,404m shares (98.27%) of Inno-Tech @$0.38. Cash would be raised by placing $200m of 2-year 0% convertible bonds, conditional on the acquisition. A refundable deposit of HK$80m has already been paid. The agreement was amended on 30-Dec-2011 and amended again on 21-Feb-2012 to knock $190m off the purchase price. The deal is still in progress and the circular has yet to see the light of day.
Redgate Ventures is "a diversified media company in China primarily providing advertising and advertising agency services through an integrated cross-media platform". The group "commenced operations in 2003". It appears that Redgate Ventures is a reworked version of Redgate Media Group, a loss-making Cayman company which aborted its US IPO in Apr-2010. You can read the latest version of their F-1 filing here. The group structures are somewhat different, but several of the mainland subsidiaries are the same. Redgate Ventures had net assets at 31-Dec-2010 of HK$16.5m. It claims to have swung from a $34.2m loss in 2009 to an unaudited $61.1m net profit in 2010 on turnover of $247.6m. The accountant's report in the circular should eventually reveal how they achieved this.
The placing agent for the convertible bonds is Cheong Lee Securities. This is at least the 6th time that Cheong Lee Securities has acted as placing agent for Inno-Tech since 23-Mar-2010. One of the Inno-Tech INEDs since 2-Aug-2010 is Ms Au Yuk Kit (YK Au), is "an associate of" (i.e. related to) Clarea Au Suet Ming, the controlling shareholder of CL Group which owns Cheong Lee Securities, although they haven't said how. YK Au is "a merchant in fashion and marketing industry". Clarea Au, her husband Alan Lee Yuk Lun and their respective brokerage firms featured in Part 1 of this series in relation to CNC.
The vendors in the acquisition are Media Chief Ltd (Media Chief, BVI) for 55% and Carraway Holdings Ltd (Carraway, BVI) for 45%. Carraway is a special-purpose vehicle which became a shareholder 3 days before the deal and is 51% owned by Media Chief and 49% by "an individual who is an Independent Third Party". We wonder who that is and why he or she has an effective 22.05% stake in the deal. Whom is Carraway carrying? The deal has been under negotiation at least since 7-Dec-2010, when Inno-Tech signed a non-binding letter of intent, but at that point there was only one vendor, Media Chief. Anyway, watch that space.
In part 5, somewhat later in the series than we first indicated, we will return to amongst others, Railsmedia and its latest deal.