Longwei Petroleum (AMEX:LPH) said Friday that it has increased the amount it needs to pay as a deposit for the acquisition of Huajie Petroleum Co.'s assets, which primarly consist of a fuel storage depot in China's northern Shanxi Province with a 100,000 metric ton capacity.
Previously, Longwei, a Chinese company that stores and distributes finished petroleum products, had agreed to pay at least 50% of the total $108.3m purchase price through cash on hand on the closing date of the transaction, June 30, with the rest to be paid by year-end on a promissory note basis.
However, the parties could not agree on terms, and as such, Longwei boosted its deposit to nearly 79% of the total consideration, or $85.1 million (RMB 550 million), with the remaining $23.2 million (RMB 150 million) to be paid by December 31. As of June 30, $85.1 million was paid by Longwei.
"We did not close on the transfer of ownership of the assets because we believe it is important for the integrity of the transaction to complete the purchase under terms suitable to the company and our shareholders," said Cai Yongjun, Chairman and Chief Executive Officer of Longwei.
"We intend to close as soon as possible, and we remain committed to not diluting our shareholders in this transaction."
Huajie Petroleum's assets include 100,000-tonnage fuel tanks, with accessory facilities and equipment, a special transportation railway line, a 3,000-square-meter office building and land use rights for 98 acres of land adjacent to the main regional rail line.
Longwei expects the facility to contribute approximately $300 million to revenues and $40 million to profits during the first 12 months of operations. The acquisition will nearly double the company's storage capacity to a total of 220,000 metric tons, strengthening its position as the largest non-state-owned fuel stoarge and distribution business in the Shanxi Province.
"Given the recent investor concerns about acquisitions and asset purchases by Chinese companies, we believed, based on advice from our U.S. counsel and auditor, that it was in the company's best interest to reach a final agreement on the transfer of assets with a clear transfer of title at closing," said CFO Michael Toups.
"We remain committed to the asset purchase as part of our growth strategy for fiscal 2012 and advanced RMB 335,000,000 (approximately $51.8 million USD) during the quarter ended June 30, 2011 toward the purchase price."
The company said it will continue to look for accretive acquisition opportunities with the potential to build its presence and attract new customers.
Longwei's oil and gas operations consist of transporting, storage and selling finished petroleum products, entirely in China. The company's headquarters are located in Taiyuan City, Shanxi Province.