REDtone sells part of its China business

• Net proceeds from sale to be mainly used to fund its working capital
• Part of group’s plan to ‘simplify its core business,’ REDtone says

TELECOMMUNICATIONS service provider REDtone International Bhd has agreed to sell its third-party payment licence in China for approximately RM14 million (US$4.4 million).
 
The licence is held by Shanghai Hongsheng Business Administration Co Ltd’s wholly-owned unit Shanghai Qianyue Business Administration Co Ltd (SQ), which is involved mainly in the provisioning of shopping cards in Shanghai. The business is still at its infancy stage.

Shanghai Hongsheng Business Administration (SHHS) is a wholly-owned subsidiary of REDtone Telecommunications China Ltd (REDtone China), which in turn, is wholly-owned by REDtone Asia Inc, a company which REDtone International has a 92.31% stake in.
 
REDtone International informed Bursa Malaysia on Aug 1 that REDtone China had signed a share sale agreement with Guotai Investment Holdings Ltd for the purpose of selling the licence to Guotai.
 
The filing was made to Bursa Malaysia one week after the agreement had been signed.
 
REDtone International said the disposal would allow the company to “simply its core business,” essentially its telco-related business. This means its business in China will be mainly in the marketing and distribution of discounted calls, mobile reloads and other related telco activities.
 
“Barring unforeseen circumstances, the group expects the divestment to generate cash for business expansion and to simplify REDtone China’s business. The net proceeds arising from the divestment is expected to be utilised for the working capital of the group,” REDtone International said in its filing to Bursa Malaysia.
 
While it did not reveal how much revenue or profit the REDtone China’s telco-related business is generating, the company’s recently-released financial results revealed that its business in China (which is inclusive of SQ’s business) is generating RM21.13 million (US$6.59 million) in revenue and RM4.28 million (US$1.34 million) in net profit for the 12 months ended May 31, 2014.
 
A year ago, it was registering a net profit of RM762,000 (US$237,690) on the back of RM22.38 million (RM6.98 million) in revenue.
 
“The group expects limited growth prospects from the discounted voice call business and distribution of prepaid and reload services in China.
 
“Nevertheless, this segment continues to generate solid cash flow to the group,” REDtone International said when it released its full-year financial results on July 31.
 
The sale of the third party licence does not need the approval of REDtone shareholders or regulatory authorities.
 
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