On August 31, 2023, ZG Group (“Looking for Steel Network”) officially submitted a listing application to the Hong Kong Stock Exchange for AQUILA ACQUISITION CORPORATION (SPAC, hereinafter referred to as “Aquila”) with application documents relating to the special purpose acquisition company merger and acquisition transaction (de-SPAC) of AQUILA ACQUISITION CORPORATION (SPAC).
https://www1.hkexnews.hk/app/sehk/2023/105670/documents/sehk23083102130_c.pdf
A special purpose acquisition company (SPAC) is a shell company with no actual business operations. After the initial public fund-raising and listing, a SPAC company must acquire an unlisted company within a specified period of time, so that the latter can indirectly obtain listed status. This process is called de-SPAC.
Earlier, on August 31, Aquila (07836.HK) announced that it had entered into a merger agreement with Steel Search Network. It had concluded PIPE investment agreements with 10 PIPE investors. The PIPE investment amount was HK$605.3 million, and the agreed valuation of the SPAC merger and acquisition transaction was HK$10.04 billion. This is the first de-SPAC deal disclosed since Hong Kong's new SPAC regulations.
Aquila, initiated by CMB International Asset Management Limited and AAC Mgmt Holding Ltd, was listed on the Hong Kong Stock Exchange on March 18, 2022. At that time, it was subscribed by 99 professional investors (including 40 institutional professional investors) and raised approximately HK$1,06.5 million. According to the listing rules, Aquila must announce the special purpose acquisition company merger and acquisition transaction within 24 months after the listing date, and must complete the special purpose acquisition company merger and acquisition transaction within 36 months after the listing date.
According to the merger agreement between Aquila and Steel Net, each Aquila Class A share can be exchanged for 1.05 newly issued Class A shares of the successor company, and each Aquila Class B share (sponsor share) can be exchanged for 1 newly issued Class A share of the successor company after being converted to Class A shares. Each Aquila warrant can be exchanged for 1 equivalent successor company listing warrant. The redeemed Aquila shares will be redeemed at a price of not less than HK$10 per share. The purchase price offer amount determined by the fair value of Aquila shares may be paid to the objecting shareholders in cash.
Successor companies are required to submit a new listing application to the Hong Kong Stock Exchange to approve the listing and trading of the successor company's Class A shares and succession company warrants on the main board of the Stock Exchange. Aquila will apply to the Stock Exchange to withdraw the listing status of Aquila Class A shares (subject to approval by Aquilaa shareholders) and Aquila's listing warrants. After delivery, the listing status of Aquila Class A shares and Aquila listing warrants will be withdrawn, and the Class A shares of the successor company and the listing warrants of the successor company will be listed on the main board of the Hong Kong Stock Exchange.
According to the Hong Kong Stock Exchange listing rules, target groups must comply with the requirements of section 8.04 and section 8.05 of the listing rules, with the exception of all new listing requirements contained in chapter 8 of the listing rules (section 8.05 of the listing rules).
* Section 8.04 of the Hong Kong Stock Exchange Listing Rules stipulates that issuers and their businesses must be those deemed suitable for listing by the Exchange; section 8.05, namely the “profit test” in section (1), the “market capitalization/revenue/cash flow test” in section (2), and the “market capitalization/revenue test” in section (3).
Looking for Steel Net submitted a prospectus on the Hong Kong Stock Exchange on June 25, 2018, to adopt a different voting rights structure and be listed on the Hong Kong Main Board in the form of red chips. At the time, it was co-sponsored by Citigroup, China Merchants Securities, and Goldman Sachs.
Target Group's main business
According to data from Insight Consulting, according to online steel trading volume in 2022, Find Steel Network operates the world's largest digital platform for tripartite steel trading. According to Insight Consulting data, by connecting major players in the steel trading industry to its digital platform, Find Steel Network is the first in China to provide one-stop B2B integrated services covering the entire value chain of steel trading, including online steel trading, logistics, warehousing and processing, fintech solutions, SaaS products and big data analysis.
Using steel as an important industrial raw material as an entry point, Find Steel has established a highly flexible digital infrastructure and redefined steel trading and service standards. Looking for steel mesh has now become a trusted brand in the industry. With deep industry insight and advanced digital infrastructure, it is gradually expanding into diverse non-steel raw material markets, including electronic components, electrical equipment, and hardware, mechatronics, etc.
According to Insight Consulting's data, in 2022, the digital platform Sanfang recorded 35.3 million tons of steel transactions on the digital platform, accounting for about 38% of China's total online steel transactions.
As of March 31, 2023, the digital platform for finding steel nets connected more than 167,200 registered buyers. The company's buyer base was broad and loyal. Among the top 500 buyers in 2020 according to GMV contributions, 93.2% of buyers still traded with the company in 2022. During the track record period, the average annual cash retention rate of SME buyers reached 127.6% in terms of GMV.
According to Insight Consulting's data, Find Steel Net is currently the only asset-light digital trading platform in the industry that provides comprehensive services. As of March 31, 2023, Steel Search has established a logistics fulfillment network covering the whole country, cooperating with more than 1,500 registered logistics carriers, and connecting the capacity of more than 100,000 trucks. According to Insight Consulting's data, according to the 2022 steel logistics flow meter, Find Steel Net is the largest third-party steel trading terminal logistics service provider in China.
Looking for Steel Net has launched three fintech solutions tailored to buyers and sellers: Fat Cat White Bar, Fat Cat Easy Collection, and Fat Cat Bills, to effectively address the financing needs of industry participants and provide richer payment options. As of March 31, 2023, the loan balance under the Sanfang Fat Cat White Bar and the Sanfang Fat Cat Easy Pick service reached RMB 1,364 billion. According to Insight Consulting's data, according to the loan balance of fintech solutions as of the end of 2022, Find Steel Net is the largest third-party fintech solution provider for steel trading in China.
Looking for Steel Net launched Fat Cat Cloud, the first SaaS product in the steel trading industry, in June 2020. It is an ERP system that seamlessly integrates with the company's digital platform. In addition, the company has also launched a series of other SaaS products, including Fat Cat Treasurer and Tengcaitong, which have jointly promoted the improvement of transaction efficiency in the industry. According to Insight Consulting's data, in terms of the number of SaaS subscribers as of the end of 2022, Find Steel Net ranked first among China's Sanfang Steel Trading Digital Platforms.
Inherit the Group's shareholder structure
The successor company uses a different voting rights structure. Each Class A share can vote for 1 vote, and each Class B share can vote for 10 votes. Class B shares are indirectly held by Mr. Wang Dong and Mr. Wang Changhui. The other shareholders are all Class A shareholders. As of the date of the application documents, the shareholder structure of the successor company immediately following the completion of the merger and acquisition transaction of the special purpose acquisition company (assuming presumptive execution) is as follows:
Mr. Wang Dong, controlled by Trust Wangdong Holdings, holds 157,523,425 Class B shares, holds 13.23% of the shares, and has 54.14% voting rights;
Mr. Wang Changhui, controlled by Wangchanghui Holding through trust, holds 33,512,437 Class B shares, holds 2.82% of the shares, and has 11.52% voting rights;
Mr. Rao Huigang Holdings, controlled by a trust, holds 3.03% of the shares and has 1.24% voting rights;
The shareholders mentioned above are people acting in concert, holding a total of 19.08% of the shares and holding 66.90% of voting rights.
The share incentive plan (excluding Wang Dong and Wang Changhui) holds 2.53% of the shares and has 1.04% voting rights;
Domestic investors include Shanghai Yanmao, Shenzhen Cangxin and Shenzhen Cangjin, Shanghai Maxstone, Shanghai Weiyi, Wuxi Baiao, Shanghai Yunqi, Shanghai Yunjia, Shenzhen Xianfeng, Jiaxing Fengyi, Zhuhai Fuhai, Hangzhou Sanren, Xinyu Zhongfu, and Huaxing Capital. Through Fatcat International Limited, they hold 14.55% of the shares and have 5.95% voting rights;
K2 Evergreen Partners L.P., holds 2.40% of the shares and has 0.98% voting rights;
K2 Partners II L.P., holds 5.60% of shares and has 2.29% voting rights;
Jamenia Holdings Limited holds 0.55% of shares and has 0.22% voting rights;
Unavo Holdings Limited holds 0.55% of shares and has 0.22% voting rights;
Zhen Partners Fund I, L.P., holds 4.45% of the shares and has 1.82% voting rights;
Matrix Partner China II, L.P., holds 6.84% of shares and has 2.80% voting rights;
Matrix Partners China II-A, L.P., holds 0.76% of the shares and has 0.31% voting rights;
Toasto Time Limited holds 0.42% of the shares and has 0.17% voting rights;
Tenzing Holdings 2011 Ltd., holds 0.81% of shares and has 0.33% voting rights;
Sequoia Capital CV IV Holdco, Ltd., holds 3.12% of the shares and has 1.28% voting rights;
IDG-Accel China Capital II L.P., holds 3.53% of the shares and has 1.44% voting rights;
IDG-Accel China Capital II Investors L.P., holds 0.16% shares and has 0.06% voting rights;
Quick Returns Ventures Limited, holds 1.84% of shares and has 0.75% voting rights;
Success Path Enterprises Limited holds 3.68% of the shares and has 1.50% voting rights;
PricewaterhouseCoopers holds 0.74% of the shares and has 0.30% voting rights;
Huaxing Capital Partners, L.P., controlled by Huaxing Capital, holds 0.74% of the shares and has 0.30% voting rights;
Bright Future International Trading Ltd, controlled by Huaxing Capital, holds 2.21% of the shares and has 0.90% voting rights;
MSA China Fund I L.P., holds 0.86% of the shares and has 0.35% voting rights;
Jianshi Investment holds 8.63% of the shares and has 3.53% voting rights;
Jianshi Tianhui holds 0.01% of shares and has 0.00% voting rights;
* PIPE investors hold 5.09% of shares and have 2.08% voting rights;
Aquila Class A shareholders hold 8.83% of the shares and have 3.61% voting rights;
The founder of Aquila holds 2.03% of the shares and has 0.83% voting rights;
* PIPE investors
Aquila and Looking for Steel Net have signed PIPE investment agreements with 10 PIPE investors, with a PIPE investment amount of HK$605.3 million.
Assuming that no shareholders redeem shares and have no objections, or that no new investors are introduced, the expected capital injection from Steel Net after the merger will be Aquila's current cash plus the investment amount of PIPE investors HK$605.3 million. Ultimately, the successor company and sponsor will determine based on the sponsor's commission and ban on sale agreement.
PIPE investors include:
Xuzhou Zhenxin, a subsidiary of the Xuzhou State-owned Assets Administration Commission; Yulong Group under the Chongqing Jiulongpo District State-owned Assets Administration Commission; Oriental Asset Management under Oriental Securities (600958.SH, 03958.HK); Token Group; Sichuan Puxin, a subsidiary of Luzhou Laojiao; Ninghai Zhenwei, a fund manager; Xuchang Industrial Investment under the Xuchang Jian'an District Finance Bureau; Shanghai Haoyuan; and Zhengzhou Chengxin, a wholly-owned subsidiary of the State-owned Assets Affairs Center of Shangjie District, Zhengzhou.
Directors and Executives
Succession Group's board of directors consists of 9 directors, including 4 executive directors, 2 non-executive directors, and 3 independent non-executive directors.
Board of Directors (9 members)
Executives (11)
Executives include: Chairman of the Board of Directors, Mr. Wang Dong, Executive Director and Chief Financial Officer; Mr. Wang Changhui; Senior Vice President; Ms. Zhou Min; Vice President Mr. Zhang Xiaokun; Vice President Mr. Zhang Xurui; Vice President Mr. Dong Yaming; Vice President Ms. Chen Qing; Vice President Mr. Tan Meiqiang; Vice President Mr. Zeng Lingyu; and Mr. Meng Long, Secretary of the Board of Directors and Assistant CEO.
Target group company performance
According to the listing application documents, in the past three months of 2020, 2021, 2022 and the first three months of 2023, the revenue of steel mesh searching was RMB 1,349.8 million, $1,353.4 million, 905.4 million and RMB 221.6 million, respectively. The net losses for the corresponding period were RMB 456 million, $274.4 million, 366.1 million and RMB 444.6 million, respectively. Adjusted net losses for the corresponding period were RMB 254.9 million, $109.1 million, RMB 230.1 million and RMB 0.3 million respectively.
Aquila announced yesterday that although the target group recorded a net loss for the three years ended 31 December 2022 and the three months ended March 31, 2023, the target group achieved positive operating cash flow in 2022, and its business model and future performance have great potential.
Intermediary team
The intermediary teams involved in this special purpose acquisition deal include CMB International, HSBC, and UBS as co-sponsors and overall coordinators; Mercer Asia and UBS as financial advisors to the target company; Deloitte as its auditors; Shihui and Kai Yi are Chinese lawyers for the target company and Hong Kong and US lawyers respectively; Jun He and Security are lawyers for the Chinese brokerage firm, Hong Kong and the US; Fuerde is SPAC's Hong Kong and US lawyers; Fu Heng is the sponsor's attorney; and Quanzhou is the industry advisor.