Hong Kong-based IT services provider Armarda Group has finally completed its protracted acquisition of a 45% stake in China Satellite Mobile Communications Group (CSMCG) paving the way for the company to become China’s sole mobile satellite…
Hong Kong-based IT services provider Armarda Group has finally completed its protracted acquisition of a 45% stake in China Satellite Mobile Communications Group (CSMCG) paving the way for the company to become China’s sole mobile satellite communications provider.
Under the terms of the transaction, which was initially signed back in March 2011, CSMCG’s shareholders will receive 920 million new Armarda shares issued at S$0.075 each, totalling approximately US$55.2m, and two loan notes worth HK$25m (US$3.2m) and HK$20m (US$2.6m).
Armarda also has a call option to purchase the remaining 55% of CSMCG from those same shareholders for HK$645.1m. Again this would be split between the issue of new Armarda shares (1.28 billion in total) and HK$25m and HK$30m of loan notes. Armarda previously stated that it would only proceed with this option if CSMCG achieves certain target milestones connected to the sale of satellite phones in China.
Armarda has until 31 October 2012 to decide whether to exercise this option. However, if it chooses not to then conversely the CSMCG’s shareholders have a buyback option to enforce the repurchase of the 45% stake. Alex Chong of Armarda told SatelliteFinance that the reason for this buyback option is to prevent the situation whereby the vendors are ‘stuck’ with the 55% shareholding, in which case “they will encounter tremendous difficulties in attracting new investors as well as in raising finance for the future operational and infra-structure building needs of the company’s business operations in China.”
As to why the deal has taken approximately a year to take effect, Chong said that this was predominantly due to the need to “obtain all required approvals, licences and permits from various PRC (People’s Republic of China) government or municipal government departments.”
In addition, both Armarda and CSMCG have been finalising the distributor agreement with mobile satellite operator Thuraya and a marketing and sales agreement with an unnamed Chinese mobile operator, understood to be either China Mobile, China Telecom or China Unicom.
Back in May 2011, CSMCG signed a partnership agreement with Thuraya whereby the former would become the sole provider of Thuraya’s mobile satellite services and devices throughout China. The long stop date for the contract is 18 May 2012.
Chong said that the parties have since been working on solving the technical issues related to establishing secure reliable connectivity between Dubai and Beijing. There are also preliminary plans to construct and operate a gateway in China.
At the same time, Armarda and CSMCG have been negotiating a definitive business agreement with a Chinese mobile operator regarding the roll out of Thuraya’s mobile satellite services throughout China. These negotiations have focussed on the final revenue and cost sharing models, exclusivity arrangements and marketing plan. The parties also need to receive certain permits and approvals from relevant Chinese governmental departments. The long stop date for the operator agreement is also 18 May 2012.
One of the key conditions for the acquisition was a required shareholding restructuring exercise merging CSMCG and Shanghai Jianhua Satellite Communications, which holds a number of licences and permits to own and operate mobile satellite telecommunication services in China. Both companies are majority-owned by Zhang Jian Hua, the chairman and CEO of CSMCG. Should Armarda exercise the call option to acquire 100% of CSMCG, then Zhang Jian Hua would become the largest shareholder in Armarda .
Asian Corporate Advisors have advised Armarda on the process.
