31. BUSINESS COMBINATION
(a) Acquisition of Shanghai SECCO
On October 26, 2017, a subsidiary of the Company, Gaoqiao Petrochemical Co., Ltd., purchased 50% equity interest in Shanghai SECCO from BP Chemicals East China Investment Limited with a cash consideration of RMB 10,135 (“the Transaction”). Before the Transaction, the Company and one of its subsidiaries held 30% and 20% equity interest in Shanghai SECCO, respectively. After the Transaction, the Company, together with its subsidiaries, hold 100% equity interest of Shanghai SECCO, which became a subsidiary of the Company.
Shanghai SECCO is principally engaged in the production and sale of petrochemical products including acrylonitrile, polystyrene, polyethylene, etc.
Based on the purchase price allocation performed, details of the purchase consideration, the net assets acquired and goodwill are as follows:
|
|
|
RMB |
|
|
Purchase consideration |
|
|
|
|
Acquisition date (October 26, 2017) |
|
|
|
|
-Cash consideration for the purchase of 50% equity interest acquired |
|
10,135 |
|
|
-Acquisition-date fair value of the 50% equity interest held before the acquisition |
|
10,135 |
|
|
|
|
|
|
|
Total purchase consideration |
|
20,270 |
|
|
|
|
|
|
The assets and liabilities recognized as a result of the acquisition are as follows:
|
|
|
Fair value |
|
|
|
|
RMB |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
5,653 |
|
|
Trade accounts receivable, net |
|
538 |
|
|
Bills receivable |
|
641 |
|
|
Inventories |
|
1,702 |
|
|
Prepaid expenses and other current assets |
|
2,130 |
|
|
Total current assets |
|
10,664 |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
9,587 |
|
|
Construction in progress |
|
231 |
|
|
Deferred tax assets |
|
11 |
|
|
Lease prepayments |
|
1,920 |
|
|
Long-term prepayments and other assets |
|
1,134 |
|
|
|
|
|
|
|
Total non-current assets |
|
12,883 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
23,547 |
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payables |
|
(2,092 |
) |
|
Accrued expenses and other payables |
|
(1,517 |
) |
|
Income tax payable |
|
(423 |
) |
|
|
|
|
|
|
Total current liabilities |
|
(4,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities (Note 22) |
|
(1,786 |
) |
|
Net assets acquired |
|
17,729 |
|
|
Goodwill (Note 18) |
|
2,541 |
|
The goodwill is attributable to the high profitability of the acquired business and synergy to be achieved post the Transaction among Shanghai SECCO and the Group’s existing petrochemical operations located in eastern China.
As of Acquisition Date, the gain of RMB 3,941 was recognized as a result of remeauring the 50% equity interest held before the acquisition to its fair value, which is included in other operating (expense)/income in the Group’s consolidated statement of income for the year ended December 31, 2017.
Shanghai SECCO contributed revenue of RMB 5,222 and net profit of RMB 726 to the Group for the period from the Acquisition Date to December 31, 2017.
If the acquisition had occurred on January 1, 2017, consolidated pro-forma revenue and profit for the year ended December 31, 2017 would have been RMB 2,365,632 and RMB 74,930 respectively. These amounts have been calculated using the subsidiary’s results and adjusting them for the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from January 1, 2017, together with the consequential tax effects.
(b) Acquisition of Gaoqiao Branch of SAMC
Pursuant to the resolution passed at the Directors’ meeting on October 29, 2015, the Company entered into the JV Agreement with Sinopec Assets Management Corporation (“SAMC”) in relation to the formation of the Gaoqiao Petrochemical Co., Ltd. According to the JV Agreement, the Company and SAMC jointly set up Gaoqiao Petrochemical Co., Ltd. for RMB 100 in cash in 2016. Subsequently, the Company subscribed capital contribution with the net assets of Gaoqiao Branch of the Company and SAMC subscribed capital contribution with the net assets of Gaoqiao Branch of SAMC. The capital contribution was completed on June 1, 2016, after which the Company held 55% of Gaoqiao Petrochemical Co., Ltd.’s voting rights and became the parent company of Gaoqiao Petrochemical Co., Ltd.
As Sinopec Group Company controls both the Group and SAMC, the non-cash transaction described above between Sinopec and SAMC has been accounted as business combination under the common control and it has been reflected in the accompanying consolidated financial statements as combination of entities under common control in a manner of predecessor value accounting. Accordingly, the assets and liabilities of Gaoqiao Branch of SAMC have been accounted for at historical cost, and the consolidated financial statements of the Group prior to these acquisitions have been restated to include the results of operation and the assets and liabilities of Gaoqiao Branch of SAMC on a combined basis.
At the completion date, the non-controlling interests amount to RMB 2,137 was recognized in relation to SAMC’s 45% interest in Gaoqiao Branch of the Company.