Southgobi Announces Discloseable and Connected Transaction Deferral of Payment Obligations Under Convertible Debenture and Amended and Restated Cooperation Agreement
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March 20, 2025
SOUTHGOBI ANNOUNCES DISCLOSEABLE AND
CONNECTED TRANSACTION
DEFERRAL OF PAYMENT OBLIGATIONS UNDER
CONVERTIBLE DEBENTURE AND
AMENDED AND RESTATED COOPERATION AGREEMENT
VANCOUVER – SouthGobi Resources Ltd. (TSX-V: SGQ, HK: 1878) (“SouthGobi” or the “Company”)
announces that reference is made to the announcements of the Company dated November 11, 2022,
March 26, 2023, August 30, 2023, October 13, 2023, November 17, 2023, January 19, 2024, March 19,
2024, and April 30, 2024 (collectively, the “ Announcements”) and the management proxy circular of
the Company dated July 25, 2024 (the “ July 2024 Management Proxy Circular ”) in relation to the
deferral agreements under the Convertible Debenture (as defined below). Unless otherwise specified,
terms used in this announcement shall have the meaning as defined in the Announcements and the
July 2024 Management Proxy Circular.
The March 2025 Deferral Agreement
The Company announces that, on March 20, 2025, the Company and its subsidiaries, namely
Southgobi Sands LLC and SGQ Coal Investment Pte. Ltd., entered into a new deferral
agreement (the “March 2025 Deferral Agreement”) with JD Zhixing Fund L.P. (“JDZF”), the
registered holder of the Company’s US$250 million Convertible Debenture issued on
November 19, 2009 (the “Convertible Debenture”) and the Company’s largest shareholder,
pursuant to which JDZF agreed to grant the Company:
(i) a deferral of the cash interest, payment-in-kind interest (“ PIK Interest ”),
management fees and related deferral fee of approximately US$111.6 million (the
“2024 Deferred Amounts”) which will be due and payable to JDZF on or before
August 31, 2025 pursuant to the deferral agreement dated March 19, 2024 and the
deferral agreement dated April 30, 2024;
(ii) a deferral of the cash interest payment of approximately US$7.9 million (the “May
2025 Cash Interest ”) which will be due and payable to JDZF on May 19, 2025
under the Convertible Debenture;
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(iii) a deferral of the cash interest of approximately US$8.1 million and PIK Interest (the
“November 2025 PIK Interest”) of approximately US$4.0 million (collectively, the
“November 2025 Cash and PIK Interest”) which will be due and payable to JDZF
in each case on November 19, 2025 under the Convertible Debenture; and
(iv) a deferral of the management fees of approximately US$6.1 million which will be
due and payable to JDZF on May 16, 2025, August 15, 2025, November 15, 2025,
and February 15, 2026, respectively (the “Deferred Management Fees ”, and
together with the 2024 Deferred Amounts, the May 2025 Cash Interest, the
November 2025 Cash and PIK Interest, and the Deferred Management Fees, the
“Deferred Amounts”) under the amended and restated cooperation agreement
dated April 23, 2019 (the “Amended and Restated Cooperation Agreement”).
The principal terms of the March 2025 Deferral Agreement are as follows:
Effectiveness of the March 2025 Deferral Agreement
The effectiveness of the March 2025 Deferral Agreement is subject to the Company
providing notice to, and obtaining acceptance (if required) from the TSX Venture
Exchange (“ TSX-V”) and requisite approval from disinterested shareholders of the
Company in accordance with the requirements of applicable Canadian securities laws
(see section entitled “ Shareholders’ Approval Pursuant to MI 61 -101 Requirements
under Applicable Canadian Securities Laws” below) and Rule 14.33 and Rule 14A.36
of the Hong Kong Listing Rules and the Inside Information Provisions under Part XIVA
of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).
The Deferral
JDZF agreed to grant the Company a deferral (the “Deferral”) of the Deferred Amounts
until August 31, 2026 (the “Deferral Date”).
As consideration for the deferral of the Deferred Amounts which relate to the payment
obligations arising from the Convertible Debenture, the Company agreed to pay JDZF
a deferral fee equal to 6.4% per annum (the “ Convertible Debenture Deferral Fee”)
on the outstanding balance of such Deferred Amounts, commencing on the date on
which each such Deferred Amounts would otherwise have been due and payable
under the Convertible Debenture.
As consideration for the deferral of the Deferred Amounts which relate to payment
obligations arisi ng from the Amended and Restated Cooperation Agreement, the
Company agreed to pay JDZF a deferral fee equal to 1.5% per annum (the
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“Cooperation Agreement Deferral Fee”, and together with the Convertible Debenture
Deferral Fee, the “ Deferral Fees ”) on the o utstanding balance of such Deferred
Amounts commencing on the date on which each such Deferred Amounts would
otherwise have been due and payable under the Amended and Restated Cooperation
Agreement.
The March 2025 Deferral Agreement does not contemplate a fixed repayment
schedule for the Deferred Amounts or related deferral fees. Instead, the March 2025
Deferral Agreement requires the Company to use its best efforts to pay the Deferred
Amounts and related deferral fees due and payable under the March 2025 D eferral
Agreement to JDZF. During the period beginning as of the effective date of the March
2025 Deferral Agreement and ending as of the Deferral Date, the Company will provide
JDZF with monthly updates of its financial status and business operations, and the
Company and JDZF will on a monthly basis discuss and assess in good faith the
amount (if any) of the Deferred Amounts and related deferral fees that the Company
may be able to repay to JDZF, having regard to the working capital requirements of
the Company’s operations and business at such time and with the view of ensuring
that the Company’s operations and business would not be materially prejudiced as a
result of any repayment.
If at any time before the Deferred Amounts and related deferral fees are f ully repaid,
the Company proposes to appoint, replace or terminate one or more of its chief
executive officer, its chief financial officer, or any other senior executive(s) in charge
of its principal business function or its principal subsidiary, the Compa ny will first
consult with, and obtain written consent (such consent shall not be unreasonably
withheld) from JDZF prior to effecting such appointment, replacement or termination.
The occurrence of a Deferral Event of Default or an Event of Default (as suc h terms
are defined in the Convertible Debenture) will: (i) entitle JDZF to pursue any and all
remedies against the Company and the Guarantors in accordance with the Convertible
Debenture; and (ii) result in the principal, interest and other amounts owing under the
March 2025 Deferral Agreement, the Convertible Debenture and related security
agreements becoming immediately due and payable without any requirement for JDZF
to deliver notice to the Company.
The aforementioned summary of the principal terms of the March 2025 Deferral Agreement is
not comprehensive, and is qualified in its entirety by reference to the full text of the March
2025 Deferral Agreement, a copy of which has been filed on the Company’s profile on
SEDAR+ at www.sedarplus.ca.
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Basis of Determination of the Deferral Fees
The Deferral Fees, which are expected to be satisfied by the internal resources and/or external
borrowings of the Group were determined on an arm’s length basis (or on terms no less
favourable to the Group than terms available from independent third parties) among the parties
to the March 2025 Deferral Agreement, taking into account the following factors:
(i) the deferral fees stipulated under the previous deferral agreements, including the
deferral fee at the rate of 6.4% per annum as consideration for the deferred payments
arising from the Convertible Debenture contemplated under the April 2024 Deferral
Agreement, which is the latest deferral agreement contemplating the same before the
March 2025 Deferral Agreement, and the deferral fee at the rate of 1.5% per annum
as consideration for the deferred payments arising from the Amended and Restated
Cooperation Ag reement contemplated under the March 2024 Deferral Agreement,
which is the latest deferral agreement contemplating the same before the March 2025
Deferral Agreement;
(ii) historically, the higher finance costs incurred by the Group for receiving financial
assistance from independent third parties of the Group within the past five years, the
rate of which generally fell within the range from 15% to 16.8%;
(iii) based on the publicly available information and to the Company's understanding, the
finance costs of industry peers and listed companies in a similar industry as the Group
are of a similar range as the those of the Deferral Fees, with the interest rates ranged
from 3% to 13.2% per annum; and
(iv) the reasons and benefits as set out in the section entitled “Reasons fo r, and Benefits
of, the March 2025 Deferral Agreement” below.
General Information of the Parties
The Group
The Company is an integrated coal mining, development and trading company. SGQ Coal
Investment Pte. Ltd. is a wholly-owned subsidiary of the Company incorporated under the laws
of Singapore, which is principally engaged in the investment holding business activities.
Southgobi Sands LLC is a wholly -owned subsidiary of the Company incorporated under the
laws of Mongolia, which is principally engaged in coal mining, development and exploration of
properties in Mongolia.
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JDZF
JDZF is an exempt limited partnership formed under the laws of the Cayman Islands, which is
principally engaged in investment holding activities. JDZF’s general partner and limited partner
are JD Dingxing Limited and Inner Mongolia Tianyu Trading Limited. To the best of the
Company’s knowledge and belief, the ultimate beneficial owner of the limited partner is Mr.
Yong An and the general partner is Ms. Chongli n Zhu. Mr. Yong An is the Chairman and
founder of Inner Mongolia Tianyu Innovation Investment Group Co. Ltd.* (內蒙古天宇創新投
資集團有限公司) (“Tianyu Group”), and has conducted business in Inner Mongolia region
since 1998. Ms. Chonglin Zhu was the Chief Financial Offi cer of Tianyu Group from March
2015 to September 2022, and was also responsible for managing JDZF. Ms. Chonglin Zhu
has served as the executive Director and Senior Vice President of Finance of the Company
since September 8, 2022, and was appointed as the Chief Financial Officer of the Company
on February 2, 2024.
Reasons for, and Benefits of, the March 2025 Deferral Agreement
In evaluating the transaction s contemplated under the March 2025 Deferral Agreement, the
board (the “ Board”) of directors (the “ Directors”) of the Company has taken into account,
among other things, the terms of the Deferral and the March 2025 Deferral Agreement, the
Company’s financial position and the possible funding alternatives reasonably available to the
Company and considered that: (i) the Deferral is offered on reasonable commercial terms not
less advantageous to the Company than if the Company obtained similar financing from a
person dealing at arm’s length with the Company; (ii) the terms of the Deferral are reasonable
in the circumstances of the Company; (iii) the Deferral is designed to improve the financial
position of the Company; (iv) the Deferral will enhance the Company’s ability to continue as a
going concern in the near term and provide the Company with financial f lexibility to consider
and explore different measures to secure additional capital or to pursue a strategic debt
restructuring or refinancing plan with JDZF; and (v) the best interests of the Company and its
shareholders (the “ Shareholders”) will be served by approving the Deferral and the March
2025 Deferral Agreement.
Board Review and Approval
Based on the above, the Board (excluding (i) the Directors who are appointed by JDZF
pursuant to contractual nomination rights contained in the securityholders agreement between
the Company, JDZF, and a former shareholder of the Company and certain deferral
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agreements between JDZF, the Company, and certain of its subsidiaries relating to the
Convertible Debenture, namely, Mr. Ruibin Xu, Ms. Chonglin Zhu, and Mr. Chen Shen
(collectively, the “ Deferral Interested Directors ”); and (ii) the independent non -executive
Directors, whose views are to be contained in the letter from the independent board committee
(the “Independent Board Committee ”) in the Company’s management proxy circular (the
“Management Proxy Circular”) to be despatched to the Shareholders) are of the view that
the March 2025 Deferral Agreement and the transactions contemplated thereunder are
entered into, despite not in the ordinary and usual course of business of the Group, on normal
commercial terms (on arm’s length basis or terms no less favourable to the Group than terms
available from independent third parties), and are fair and reasonable and in the interests of
the Company and the Shareholders as a whole.
The Deferral Interested Directors who have a material interest in the March 2025 Deferral
Agreement and the transactions contemplated thereunder were required to abstain from
voting on the Board resolutions approving the same. Except for the Deferral Interested
Directors, none of the Company’s Directors have any material interest in the March 2025
Deferral Agreement and the transactions contemplated thereunder, and none of the Directors
were required to abstain from voting on the Board resolutions approving the same.
Shareholders’ Approval Pursuant to MI 61 -101 Requirements under Applicable
Canadian Securities Laws
Pursuant to Part 5 of Multilateral Instrument 61-101 (“MI 61-101”) under applicable Canadian
securities laws, the Company is required to seek minority shareholder approval of the March
2025 Deferral Agreement, excluding the common shares of the Company (the “ Common
Shares”) beneficially owned by JDZF (as defined below) (the "Disinterested Shareholders”
or the “Independent Shareholders”) because: (i) JDZF is a related party of the Company for
purposes of MI 61-101 because JDZF has beneficial ownership of more than 10% of the voting
rights attached to the outstanding Common Shares; and (ii) the March 2025 Deferral
Agreement is a related party transaction for purposes of MI 61-101 because the March 2025
Deferral Agreement materially amends the terms of an outstanding debt or liability owed by
the Company to a related party.
To the best of the Company’s knowledge, as of the date hereof, 85,714,194 Common Shares,
representing approximately 28.89 % of the issued and outstanding Common Shares, are
beneficially owned by JDZF. Accordingly, the 85,714,194 votes attached to the Common
Shares beneficially owned, or over which control or direction is exercis ed, by JDZF will be
excluded from the vote to approve the March 2025 Deferral Agreement.
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With respect to the deferral of the PIK Interest portion of the 2024 Deferred Amounts and the
November 2025 PIK Interest, PIK Interest under the terms of the Convertible Debenture must
be paid and satisfied by the Company by way of issuing Common Shares at an issue price
determined based on the 50 -trading day volume weighted average price (“ VWAP”) of the
Common Shares as at the date of payment. Shareholders are cautioned that, as a result of
deferring the payment date of the PIK Interest portion of the 2024 Deferred Amounts and the
November 2025 PIK Interest, the final number of Common Shares that the Company will issue
to satisfy the PIK Interest portion of the 2024 Deferred Amounts and the November 2025 PIK
Interest will depend on the prevailing 50 trading day VWAP of the Common Shares as of the
future payment date, and may result in a number of Common Shares being issued that could
be greater than, or lesser than, the number of Common Shares that the Company would have
had to issue on the original payment date for the PIK Interest portion of the 2024 Deferred
Amounts and the November 2025 PIK Interest.
Hong Kong Listing Rules Implications
Pursuant to the Hong Kong Listing Rules, JDZF is a substantial shareholder of the Company
holding approximately 28.89% of the Common Shares and hence a connected person of the
Company. The entering into of the March 2025 Deferral Agreement constitutes a connected
transaction of the Company under Chapter 14A of the Listing Rules.
As one or more of the applicable percentage ratios (as defined under Rule 14.07 of the Hong
Kong Listing Rules) in respect of the transactions contemplated under the March 2025 Deferral
Agreement exceed 0.1% but all are less than 5%, the entering into of the March 2025 Deferral
Agreement, on a standalone basis, constitutes a connected transaction of the Company and
is subject to reporting and announcement requirements but exempt from circular Independent
Shareholders’ approval requirement under Chapter 14A of the Hong Kong Listing Rules.
However, pursuant to Rules 14.22 and 14A.81 of the Hong Kong Listing Rules, as the
counterparties to the April 2024 Deferral Agreement (the “Previous Transaction”), and t he
March 2025 Deferral Agreement are JDZF and such transactions are similar in nature and
completed within a 12-month period, such transactions shall be aggregated.
Accordingly, as one or more of the applicable percentage ratios (as defined under Rule 14.07
of the Hong Kong Listing Rules) in respect of the transactions contemplated under the March
2025 Deferral Agreement, upon aggregation with the Previous Transaction, exceed 5% but all
are less than 25%, the entering into of the March 2025 Deferral Agreement, on an aggregated
basis, constitutes a discloseable and connected transaction of the Company and is subject to
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reporting, announcement, circular and Independent Shareholders’ approval requirements
under Chapter 14 and Chapter 14A of the Hong Kong Listing Rules.
The Meeting and Despatch of Management Proxy Circular
At the Company’s upcoming annual general meeting of shareholders (the “ Meeting”), the
Company will, among other things, propose a resolution for the Independent Shareholders to
consider and, if thought fit, approve the March 2025 Deferral Agreement and the transactions
contemplated thereunder.
Given that JDZF is involved in and/or interested in the March 2025 Deferral Agreement and
the transactions contemplated thereunder, JDZF will abstain from voting at the Meeting on the
resolution approving it. Accordingly, the 85,714,194 votes attached to the Common Shares
beneficially owned, or over which control or direction is exercised, by JDZF will be excluded
from the vote to approve the March 2025 Deferral Agreement.
Save for the aforesaid and to the Directors’ best knowledge, information and belief and having
made all reasonable enquiries, no other Shareholder has a material interest in the March 2025
Deferral Agreement and therefore no other Shareholder is required to abstain from voting on
the relevant resolution at the Meeting.
As the March 2025 Deferral Agreement and the transaction s contemplated thereunder are
subject to the approval by the Independent Shareholders, the Independent Board Committee
comprising of all the independent non-executive Directors, namely Mr. Yingbin Ian He, Ms. Jin
Lan Quan, and Mr. Fan Keung Vic Choi has been established by the Company to advise the
Independent Shareholders in respect of the above transaction. The Company will appoint an
independent financial adviser (the “ Independent Financial Adviser ”) to advise the
Independent Board Committee and the Independent Shareholders in respect of the above
transaction.
The Management Proxy Circular containing, among other things, (i) details of the Deferral and
the March 2025 Deferral Agreement; (ii) a letter from the Independent Board Committee to the
Independent Shareholders; (iii) the recommendations from the Independent Financial Adviser
to the Independent Board Committee and the Independent Shareholders; and (iv) the notice
of the Meeting, which will be filed under the Company’s profile on SEDAR+ at
www.sedarplus.ca and despatched to shareholders of the Company in accordance with
applicable securities laws on or before May 27, 2025 (which is anticipated to be more than
fifteen business days after the date of publication of this announcement) as more time is
required for the Company to compile certain information to be included in the Management