China Ceramics Co., Ltd. (“China Ceramics” or the “Company”) announced today that it has initiated the acquisition of a new production facility in Gaoan, China (the “Gaoan Facility”).
As previously disclosed in the Company’s F-4 dated November 10, 2009, Jinjiang Hengda Ceramics, now a wholly owned subsidiary of China Ceramics, entered into a definitive acquisition agreement for the Gaoan Facility with a group of investors (the “Investors”) prior to the closing of its business combination with China Ceramics on November 20, 2009. China Ceramics paid cash of RMB 145.4 million (approx. US$ 21.3 million) to the Investors and assumed loans of RMB 99.0mm (approx. US$ 14.5 million) for a current total cost of RMB 244.4 million (approx US$ 35.8 million). The loans bear interest at an average rate of 5.31% per annum. China Ceramics expects to directly invest approximately US$ 4 million in the Gaoan Facility in early 2010 for a total first stage cost of approximately US$ 40 million. The closing of the acquisition of the Gaoan Facility is subject to the Gaoan City Administration for Industry and Commerce transferring the registration and business license for the Gaoan Facility from the Investors to China Ceramics. The Company has assumed operational control of the Gaoan facility and does not expect the Administration for Industry and Commerce to reject the transfer. The Company expects the transfer to occur within the next two months.
Currently the Gaoan Facility has three production lines installed and China Ceramics anticipates adding another four production lines in 2010 and five in 2011. The first three production lines have been operational since early December. Finished products are expected to ship from the factory to distributors in early January 2010. The three new production lines are expected to contribute an additional 11mm sq. meters of production of exterior ceramics tiles per year. The addition of production lines in 2010 and 2011 are expected to cost approximately $20 million for each year. Together with the current production capacity at the Company’s Jinjiang, China plant, the expected production capacity in 2010 will be approx 39m sq. meters. China Ceramics will discontinue outsourcing production to other ceramics tile manufacturers in January 2010.
China Ceramics also announced today that the Company has signed an agreement with a new exclusive distributor in Guangdong Province that will begin distributing the Company’s products in 2010. Post this announcement, China Ceramics will have a network of 32 exclusive distributors. China Ceramics continues to negotiate distribution agreements with new exclusive distributors and large real estate developers in order to increase the Company’s penetration of the PRC market.