1.  Introduction

The Board of Directors of Hovid wishes to announce that on 8 November 2018, Hovid International Limited (“HIL”), a wholly-owned subsidiary incorporated under the laws of the British Virgin Islands, had received an offer to subscribe for rights issue (“RI”) from Hovid Limited (“HL”), its 60%-owned subsidiary incorporated in Hong Kong.  The RI totalling 6,000,000 ordinary shares had been offered to HL’s shareholders in the ratio of their respective shareholding in HL at a subscription price of HKD1.00 per ordinary share.  The expiry date for the offer was on 30 November 2018.

On 23 November 2018, HIL had accepted the offer to subscribe for the rights in HL of 3,600,000 ordinary shares at HKD3,600,000.00.  However, up to the date of expiry on 30 November, 2018, HL did not receive the acceptance by its other shareholder, Wellgo Pharmaceutical Company Limited (“Wellgo”).  The new shares were allotted on 21 January 2019, and filed with the Company Registry on 30 January 2019.

Accordingly, the percentage shareholding of HIL in HL increased from 60% to 91.30%, as follows:-

2.  Information on HL

HL was incorporated on 16 March 2001 under the Companies Ordinance (Cap 32) of Hong Kong Special Administrative Region (“HKSAR”) as a private company limited by shares under the name of Ho Yan Hor Company Limited, and changed to its present name on 8 May 2007, for the purpose of establishing and operating a joint venture (“JV”) arrangement between HIL and Wellgo to distribute, market, trade and sales of pharmaceutical products manufactured by Hovid and any other products complementary thereto in HKSAR and Macau.  On 22 August 2007, the joint venture arrangement was formalized between HIL and Wellgo.

HL has a fully paid up issued share capital of HK$1,000,000.00 divided into 1,000,000 ordinary shares, with HIL holding 60% and Wellgo holding the remaining 40%, before the RI.

3.  Rationale for the Subscription

HL’s business has grown over the years since the establishment of the JV arrangement and is expected to grow further as more Hovid’s products are being registered in Hong Kong.  HL will continue to explore its tender markets in both Hong Kong and Macau to contribute towards the revenue growth.

Due to its under-capitalised status bankers are reluctant provide working capital facilities to HL to fund its operations.  The expanded business has impacted the working capital of HL resulting in HL not being able to meet the 30 days’ credit term extended by Hovid for the goods supplied.  Hovid is HL’s main trade supplier.  As at 30 September 2018, trade amount owing to Hovid was HKD6,542,000, with HKD5,649,000 exceeding the 30 days’ credit term, while the non-trade amount owing to HIL was HKD1,018,626.  The non-trade amount was a shareholder’s advance made by HIL to HL and has been outstanding since the incorporation of HL. 

The rationale for the Subscription is summarised below:-

• The Group will have better control over HL’s operation and fund management;
• Hovid can allocate more resources in building its brand name and to increase its market share in Hong Kong and Macau;
• HL will have better chance of getting working capital facilities from bankers; and
• The increase in shareholding is expected to contribute positively towards the earnings of the shareholders of Hovid.

4.  Source of funds

The Subscription was by way of setting off the amounts owing by HL to Hovid and HIL on a dollar-for-dollar basis.

5.  Financial effect of the Subscription

The Subscription will not have any effect on the issued and paid-up share capital of the Company as well as the shareholdings of the substantial shareholders of the Company.

The Subscription is expected to contribute positively to the earnings and net assets of the Company and its Group of Companies for the financial year ending 30 June 2019.  The Subscription will have no effect on the gearing of the Company and its Group of Companies for the financial year ending 30 June 2019. 

6.  Directors’ and major shareholders’ interests

None  of  the  Directors,  major  shareholders  and/or  persons  connected  with  a Director  or  a  major  shareholder  of  the  Company,  have  any  interest,  direct  or indirect, in the Subscription.

This announcement is dated 31 January 2019.