China Resources

[Tackler]

United China shakes dust off, to carry on in China

2004-02-05 18:44 ET - News Release

Mr. Chang Kun So reports

UNITED CHINA OBTAINS FINANCING, RENEWS ITS CEMENT PLANT CONSTRUCTION IN HAINAN, PRC

United China International Enterprises Group has, for the last 10 years, been financing the construction of a cement producing plant in Hainan, China. It has spent $86.3-million on construction and machinery payments, and $9.95-million on interest on outstanding debt facilities at June 30, 2003. Because of the financial crisis in Asia in 1997, the company's ability to raise needed funds to continue and complete the construction was impaired and construction halted. The anticipated cost to complete construction, including required equipment purchase, installation, pilot run and regulatory approval, is $19.2-million. While plant construction is approximately 90 per cent complete, plans are to take approximately 18 months to complete equipment purchase, installation, engineering and the pilot run before beginning commercial production. The following is management's estimates with respect to percentage completion of the various buildings to be completed.

 
  
 Building      Construction  Percentage  
               in progress  to completion 
  
 Raw materials 
 crushing            88%         12% 
  
 Raw materials 
 proportioning       95%          5% 
  
 Pyro process        87%         13% 
  
 Fuels               95%          5% 
  
 Cement grinding     92%          8% 
  
 Storage and  
 shipping            95%          5% 
  
 Electric system     95%          5% 
 

The company had cash on hand of $5,336,000 at the date of its most recent quarter filed, being Sept. 30, 2003. It had working capital of $4,368,000 and liabilities, which consisted of a bank loan of $5,336,000. In addition, the company had $32.6-million debentures payable and $14-million in loans from shareholders. The debentures are unsecured and the debentureholders have waived interest for the year and extended the maturity date to three years from the date of completion of construction of the cement production facility. The loans bear interest at 7.4 per cent per year with repayment terms to be determined on completion of the construction of the facility. The company has kept its interests in the property on which the plant is located in good standing.

On May 1, 2003, the company entered into a loan agreement with the Bank of China, Hainan branch (the bank loan). The bank loan is for approximately $26-million and is secured by all assets of the company. The company received the first draw on the bank loan on Sept. 28, 2003, of approximately $5.3-million, with interest at 3.6 per cent per year due in three years. The company is planning to recommence plant construction in the first quarter of 2004.

The company now has construction of the plant out to tender. While management believes that construction can be completed by early to mid-2005, and production will commence shortly thereafter, there is no assurance that this will be the case.

The company believes that the market demand for cement for the various infrastructure, commercial and residential construction sectors in Hainan province continues to be strong.

The company will, in any event, be required to either obtain additional equity or debt financing or refinance the bank loan. Even if the construction and startup are completed as planned by September, 2006, when the first part of the bank loan is due, the company will not have generated sufficient profit to repay the entire amount of the bank loan in three years from the date of draw. While management believes that it will have sufficient cash flow by that time to be able to refinance, there is no assurance that this will be the case.

While management believes its estimates are reasonable and are supported by its ability to raise financing with the Bank of China, there can be no certainty that the plant will be completed within the time frame or the budget contemplated, or at all. It is possible that the general economic environment, or competition from others in the company's geographic area could result in there being insufficient demand for the company's product. While management is professionally advised, there is the possibility of unanticipated regulatory or legal change. The company's project could be affected by political change in China or in the relations between China and Taiwan where the controlling shareholders and management reside. Unanticipated natural disaster such as an outbreak of SARS could interfere with the company's ability to complete its project on time. Delays in the project or failure of the company to reach its sales targets could result in the company requiring additional financial resources. There can be no assurances that such financing will be available, and if it is available it may result in dilution of the shares of the company.

In addition, resulting from its financial difficulties, the company was suspended from trading since April 3, 2001, for failure to pay the 2001 annual sustaining fee to the TSX Venture Exchange. The company also became subject to cease trade orders by the British Columbia Securities Commission and the Alberta Securities Commission on May 29, 2001, for failure to file financial statements. Within the past several months, the company has made the payments to the commissions and the TSX-V as required, filed all of the financial statements required to bring its filings up to date, and filed a reactivation application with the commissions pursuant to relevant policies and has applied to the exchange to have the shares of the company returned to trade. The commissions are now prepared to rescind these cease trade orders once required confirmation of mailing of the company's financial statements are filed on SEDAR.

On Oct. 19, 2003, Wang Ko-Chi and Tsou Chi-Pin resigned as directors and Chuo Chaw Chi and Fu Chung Cheng were appointed as directors to fill the vacancies. Chang Kun So was appointed president of the company. On Nov. 24, 2003, Chen Chao-Chia resigned as a director to pursue her career as a school principal. On Dec. 30, 2003, Mr. Cheng was appointed as chief financial officer of the company. On Jan. 14, 2004, Stephen K. Winters, the company's solicitor, was appointed as a director of the company.

The company entered into a consulting agreement on Nov. 1, 1996, with UCG Investment Consulting Inc., of which Shelly Lin is the sole shareholder. UCG provides investor relations, business consulting and regulatory communications services, for which UCG is to be paid $5,175 per month. UCG has not been paid for services since the company was cease traded on May 29, 2001, and no amount payable has accrued or will be paid for the intervening period. UCG will be paid from the date that the company's shares are returned to trade. The term of the agreement is one year, and is renewable each year for an additional year unless terminated by the company or UCG.

The company plans to hold its next annual general meeting on March 30, 2004, the record date for which will be Feb. 20, 2004.