Under the original lease contract, CREG was leasing the WHPG System to Zhong Gang for 9 years from the day the system became operational in October 2010 until September 2019.
However, Zhong Gang Group, a large Chinese steel company that is the controlling shareholder of Zhong Gang, is undertaking a restructuring of its businesses that involves the discontinuation of many system outsourcing arrangements, including the WHPG System, to operate and manage those systems in-house going forward.
After negotiations with Zhong Gang, the Company has agreed to an early transfer of the WHPG System for an early termination fee of approximately US$9.8 million.
According to Company’s estimates, this amount is fairly close to the discounted cash flow value of the total principal repayment and interest income on sales-type leases of US$11.3 million (RMB69.3million) receivable by the Company during the period from January 1, 2015 to September 30, 2019.
Mr. Guohua Ku, Chairman and CEO of CREG commented, "We believe that the early termination fee is fair, taking into account the time value of money, and the opportunity to deploy the cash to more profitable projects in the near future. We welcome this additional boost to our cash flow at a time when we need to fund new projects already under contract. We know there is substantial demand for our systems going forward and we remain fully confident in our ability to increase long-term value for our shareholders."
