On March 10, 2023, ZG Group ("Zhaogang.com"), a steel industry internet company, updated its listing application on the Hong Kong Stock Exchange regarding the application documents for the merger and acquisition transaction (De-SPAC) of AQUILA ACQUISITION CORPORATION (a SPAC, hereinafter referred to as "Aquila"). This is a re-application following the invalidation of the submissions made on August 31, 2023, and March 10, 2023.

https://www1.hkexnews.hk/app/sehk/2024/106967/documents/sehk24120900301_c.pdf

A Special Purpose Acquisition Company (SPAC) is a shell company that does not operate any actual business. After raising funds through an initial public offering, a SPAC must acquire a private company within a specified period, allowing the latter to gain public company status indirectly. This process is called De-SPAC.

On August 31, 2023, Aquila (07836.HK) announced the signing of a merger agreement with Zhaogang.com and entered into a PIPE investment agreement with 10 PIPE investors, with the PIPE investment amount expected to be 0.6053 billion Hong Kong dollars and the agreed valuation of the SPAC merger transaction set at 10.004 billion Hong Kong dollars. This is the first disclosed De-SPAC transaction since the new SPAC regulations in Hong Kong.

Aquila was initiated by China Merchants International Asset Management Co., Ltd. and AAC Mgmt Holding Ltd, and was listed on the Hong Kong Stock Exchange on March 18, 2022. At that time, it was subscribed by 99 professional investors (including 40 institutional professional investors), raising approximately 1.00065 billion Hong Kong dollars.

Zhaogang.com submitted its prospectus to the Hong Kong Stock Exchange on June 25, 2018, intending to use a different voting rights structure to be listed on the Main Board in Hong Kong as a red-chip company. At that time, it was jointly sponsored by Citigroup, China Merchants, and Goldman Sachs.

Main Business of Target Group

According to data from Zhan Shi Consulting, based on online steel trading volume in 2023, Zhaogang.com operates the largest digital platform for third-party steel trading in the world. By connecting major participants in the steel trading industry to its digital platform, Zhaogang.com has pioneered a one-stop B2B comprehensive service in China covering the entire steel trading value chain, including online steel trading, logistics, warehousing and processing, financial technology solutions, Saas products, and big data analysis.

According to information from Zrac Insights, in 2023, Find Steel recorded a digital platform third-party steel trading volume of 47.3 million tons, accounting for approximately 40% of China's total third-party online steel trading volume.

As of September 30, 2024, Find Steel's digital platform has connected over 14,800 registered sellers and 181,100 registered buyers. Among the top 500 buyers by GMV in 2021, 91.8% of buyers continued to trade with the company in 2023. During the performance record period, the average yearly cash retention rate for small and medium-sized enterprise buyers reached 131.1% by GMV.

According to information from Zrac Insights, Find Steel is also currently the only light asset digital trading platform in the Industry that offers comprehensive services. As of September 30, 2024, Find Steel has established a logistics fulfillment network covering the entire country, cooperating with over 1,700 registered logistics carriers and connecting over 173,900 trucks. According to Zrac Insights, based on the steel logistics volume in 2023, Find Steel is the largest third-party steel trading terminal logistics service provider in China.

Find Steel launched the first SaaS product in the steel trading industry, Fat Cat Cloud, in June 2020. It is an ERP system seamlessly integrated with the company's digital platform. In addition, the company has launched a series of other SaaS products, including Fat Cat Manager and Tengcaitong, which have jointly promoted improved trading efficiency in the Industry. According to information from Zrac Insights, based on the number of SaaS subscription customers as of the end of 2022, Find Steel ranks first among third-party steel trading digital platforms in China.

Inherit the Group Shareholder Structure.

The inheritance company adopts a different voting rights structure, where each Class A share can vote once, and each Class B share can vote ten times. Class B shares are indirectly held by Mr. Wang Dong and Mr. Wang Changhui, while other shareholders are all Class A shareholders. As of the application document date, immediately following the completion of the special purpose acquisition company's merger transaction (assuming presumption [1] is implemented), the shareholder structure of the inheritance company is as follows:

Mr. Wang Dong holds 157,523,425 Class B shares through trusts controlled by Wangdong Holdings and Pangmao1 Ltd, accounting for 13.23% of the shares and possessing 54.14% of the voting rights.

Mr. Wang Changhui holds 33,512,437 Class B shares through trusts controlled by Wangchanghui Holding and Pangmao2 Ltd, accounting for 2.82% of the shares and possessing 11.52% of the voting rights.

Mr. Rao Huigang, through the REITs controlled Raohuigang Holdings, holds 3.03% of the shares, with 1.24% of the voting rights;

The aforementioned shareholders are acting in concert, collectively holding 19.08% of the shares and possessing 66.90% of the voting rights.

2023 pre-IPO equity incentive plan* (excluding Wang Dong and Wang Changhui), holds 2.53% of the shares, with 1.04% of the voting rights;

* Among them, Ms. Gong Yingxin, Mr. Zhang Xiaokun, Ms. Chen Qing, and Mr. Tong Yaming hold 0.12%, 0.93%, 0.07%, and 0.06% of the shares respectively through Gongyingxin Holdings, Zhangxiaokun Holdings, Chenqing Holdings, Tongyaming Holding, as well as other employees.

Domestic investors include Shanghai Yanmao, Shenzhen Cangxin, and Shenzhen Cangjin, Shanghai Maiston, Shanghai Weiyi, Wuxi Bai'aoji, Shanghai Yunqi and Hangzhou Yunjia, Shenzhen Xianfeng, Jiaxing Fenglin, Zhuhai Fuhai, Hangzhou Sanren, Xinyu Zhongfu, Huaxing Capital, etc. holding Shanghai Hemao, through Fatcat International Limited, hold 14.55% of the shares, with 5.95% voting rights;

K2 Evergreen Partners L.P., holds 2.40% of the shares, with 0.98% of the voting rights;

K2 Partners II L.P., holds 5.60% of the shares, with 2.29% of the voting rights;

Jamenia Holdings Limited, holds 0.55% of the shares, with 0.22% of the voting rights;

Unavo Holdings Limited, holding 0.55%, possesses 0.22% voting rights;

Zhen Partners Fund I, L.P., holding 4.45%, possesses 1.82% voting rights;

Matrix Partner China II, L.P., holding 6.84%, possesses 2.80% voting rights;

Matrix Partners China II-A, L.P., holding 0.76%, possesses 0.31% voting rights;

Toasto Time Limited, holding 0.42%, possesses 0.17% voting rights;

Tenzing Holdings 2011 Ltd., holding 0.81%, possesses 0.33% voting rights;

Sequoia China, through HSG CV IV Holdco, Ltd, holding 3.12%, possesses 1.28% voting rights;

IDG-Accel China Capital II L.P., holding 3.53%, possesses 1.44% voting rights;

IDG-Accel China Capital II Investors L.P., Hold 0.16%, with 0.06% voting rights;

Quick Returns Ventures Limited, Hold 1.84%, with 0.75% voting rights;

Success Path Enterprises Limited, Hold 3.68%, with 1.50% voting rights;

PwC Capital, Hold 0.74%, with 0.30% voting rights;

Huaxing Capital Partners, L.P. controlled by Huaxing Capital, Hold 0.74%, with 0.30% voting rights;

Bright Future International Trading Ltd controlled by Huaxing Capital, Hold 2.21%, with 0.90% voting rights;

MSA China Fund I L.P., Hold 0.86%, with 0.35% voting rights;

Jianshi Investment, Hold 8.63%, with 3.53% voting rights;

Jianshi Tianhui, Hold 0.01%, with 0.00% voting rights;

* PIPE investors, Hold 5.09%, with 2.08% voting rights;

Aquila Class A shareholders, Hold 8.83%, with 3.61% voting rights;

Aquila promoter, Hold 2.03%, with 0.83% voting rights;

[1] Assumed: (i) The capital restructuring before the merger is completed; (ii) Aquila Class A shareholders will not exercise their redemption rights for the Aquila Class A shares they hold; (iii) Aquila Class A shareholders will not exercise their claims; (iv) 60,530,000 A Class shares of the inheriting company (subject to adjustment) will be issued to PIPE investors according to the PIPE investment agreement; (v) No permitted equity financing; and (vi) All options granted under the pre-2023 listing stock option plan are exercised.

* PIPE investors

Aquila and Zhugang Network have entered into PIPE investment agreements with 10 PIPE investors, with a PIPE investment amount of 0.6053 billion Hong Kong dollars.

Assuming no shareholders redeem shares and there are no dissenting shareholders, or no new investors are introduced, then after the merger, Zhugang Network is expected to receive funding which will be Aquila's current cash plus the PIPE investors' investment amount of 0.6053 billion Hong Kong dollars, which will ultimately be determined by the inheriting company and the promoters based on the promoter's share and lock-up agreement.

PIPE investors include:

Xu Zhou Zhoxin under the Xuzhou State-owned Assets Supervision and Administration Commission, Yulong Group under the Chongqing Jiulongpo District State-owned Assets Supervision and Administration Commission, Orient under Orient Securities (600958.SH, 03958.HK), Glencore Group, SiChuan Puxin under Luzhou Laojiao, NINGHAI Zhenwei managed by Zhenwei Fund Management, Xuchang Industrial Investment under the Xuchang Jian'an District Finance Bureau, Shanghai Haoyuan, Spring Prosper, and a wholly-owned subsidiary of the Zhengzhou State-owned Assets Affairs Center in Shangjie District.

Directors and executives

The board of directors of the inheritance group consists of 9 directors, including:

• 4 executive directors: Mr. Wang Dong (co-founder, chairman of the board, CEO), Mr. Wang Changhui (co-founder, COO), Ms. Gong Yingxin (senior vice president), Ms. Zhou Min (vice president of finance);

• 2 non-executive directors: Mr. Ye Qian (supervisor of Beiqi Foton Motor (600166.SH), director of BAIC (01958.HK), general manager of Shouyuan New Energy), Mr. Jiang Rongfeng (managing director of China Merchants International, general manager of China Merchants International Asset).

• 3 independent non-executive directors: Mr. Wang Xiang (senior advisor of Xiaomi (01810.HK)), Mr. Chen Yan (executive director of Shenghe Asset), Mr. Wang Weisong (associate professor at Shanghai University of Finance and Economics).

In addition to the executive directors, the executives include vice president Mr. Zhang Xiaokun, vice president Mr. Zhang Xurui, vice president Mr. Dong Yaming, vice president Ms. Chen Qing, vice president Mr. Zeng Lingyu, board secretary and CEO assistant Mr. Meng Long.

Target Group Company Performance

According to the listing application documents, in the past years of 2021, 2022, 2023, and the first nine months of 2024, the revenue of Find Steel Network was 1.353 billion yuan, 0.905 billion yuan, 1.168 billion yuan, and 1.141 billion yuan, respectively. The corresponding net losses for these periods were 0.274 billion yuan, 0.366 billion yuan, 0.469 billion yuan, and 0.54 billion yuan, respectively. The adjusted net losses for these periods were 0.26 billion yuan, 0.293 billion yuan, 0.08 billion yuan, and 0.42 billion yuan.

Aquila stated that although the target group recorded net losses during the historical performance period, the target group achieved positive operating cash flow in 2022, 2023, and the first nine months of 2024, and its business model and future performance have tremendous potential.

Intermediary Team

The intermediary team participating in this special purpose acquisition company merger transaction mainly includes: China Merchants International, HSBC, and UBS as co-sponsoring institutions and overall coordinators; Meich Asia and UBS as financial advisors for the target company; Deloitte as its auditor; DLA Piper and Kaizen respectively as Chinese lawyers for the target company, and lawyers for the target company in Hong Kong and the USA; JunHe and Anli Shermans as Chinese lawyers for the brokerage, and brokerage lawyers in Hong Kong and the USA; FTI Consulting as lawyers for the SPAC company in Hong Kong and the USA; Poole as the sponsor's lawyer in Hong Kong; and ZL Consulting as its industry advisor.