Regulatory Announcement

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Company SovGEM Limited
TIDM SOV
Headline SovGEM joins AIM
Released 08:00 23-Nov-04
Number 5215F



Press release
23 November 2004

SovGEM Limited

(SovGEM or the Company)

First day of dealings on the Alternative Investment Market

SovGEM Limited, an emerging market equity finance house, today announces the commencement of dealings of its Ordinary Shares on the Alternative Investment Market (AIM) of the London Stock Exchange. Teather & Greenwood is acting as Nominated Adviser and as Broker to the Company. The stock market EPIC will be SVG.L.

Fundraising by the Company

Pursuant to the Fundraising, the Company has issued 6,325,000 new Ordinary Shares at 50p per new Ordinary Share to a range of UK, European and other institutional and private investors. These new Ordinary Shares represent 27.7 per cent of the enlarged entire issued share capital of the Company.


Hugh de Lusignan, Chief Executive Officer and co-founder of SovGEM, said: We are delighted that the AIM flotation of the Company has been completed successfully and it is gratifying to witness such high levels of investor interest. A number of blue-chip institutions have invested in SovGEM and they join a diverse investor base from around the world. We look forward to working with our new shareholders in the future.

The prospectus in relation to the Company's admission to trading on AIM was published on 15 November. Copies of the prospectus are available, free of charge, from Teather & Greenwood Limited at Beaufort House, 15 St Botolph Street, London EC3A 7QR for one month from 15 November.


- Ends -


Introduction

SovGEM is a newly incorporated Jersey public limited liability company established principally for the purpose of making investments in Chinese small and mid cap companies proposing to float on non- Chinese stock markets, particularly in the US. Occasionally, the Company may also make investments in quoted Chinese companies and in companies in emerging markets other than China. SovGEM has entered into an agreement (the Benchmark Agreement) (with an initial term of five years) with Benchmark Capital & Finance, Inc. (Benchmark) . Under the Benchmark Agreement, Benchmark will provide opportunities on an exclusive basis to SovGEM to invest in Chinese companies which are expected to float within the subsequent three to six months. Further details of the Benchmark Agreement are set out in the Admission Document.


Chinese Economy

The Chinese economy has experienced average compound annual growth of approximately 9.4 per cent. over the past 20 years. The Company believes this growth, coupled with the privatisation of many previously state owned companies, has led to a dynamic and growing SME sector in China. It is this sector that SovGEM and Benchmark are targeting and which the Company believes now requires capital which is not readily available from the Chinese banking sector (which primarily lends to state owned enterprises) or the local public equity markets (which either have waiting lists of up to three years or which are focused on the privatisation of large state owned enterprises). This has led to over 70 Chinese companies obtaining listings and raising capital in the US equity capital markets.


Background on Benchmark

Benchmark is a Chinese advisory firm headquartered in the Central Business District of Beijing, China. It has been operating for approximately five years. Currently, it has offices in Beijing and Xian. It plans to open a third office in Shanghai in the near future. Benchmark has approximately forty-five members of staff which includes bilingual (English and Chinese) certified public accountants, investment bankers and research analysts. Benchmark has long standing business and government contacts in China. It provides advisory, due diligence and market entry assistance to Chinese and international clients.


Benchmark, through its affiliation with Tianjin Hua Er Jie Investment Consulting Co., Ltd (THEJ), has a business relationship with New York Global Securities, Inc. (NYGS), a New York based SEC licensed investment banking broker/dealer. Benchmark shares common ownership with THEJ. Benchmark also has a business relationship with Interbridge Capital Advisors, Inc., a Wall Street strategic advisory and M&A firm. Through its strategic partnerships and business relationships, Benchmark also provides an integrated service to Chinese privately held companies seeking to obtain access to the US capital markets and advises them on the US flotation process. NYGS is ideally positioned to assist with the distribution of the securities to its global retail and institutional investor network.

The Company believes that the success of Benchmark is due in no small part to Benjamin Wey who they believe to possess a deep understanding of both Chinese business culture and the operation of the US equity markets. The interests of Benjamin Wey, and those connected with him, in the Ordinary Shares are set out in the Admission Document.

To date, Benchmark and its strategic partners have assisted in the flotation of two Chinese ventures, Bodisen Biotech, Inc. (Bodisen) (into which the Company may make its first investment, as referred to below) and Genex Pharmaeutical Inc.

Benchmarks criteria for taking a Chinese company to the US markets include:


a leading market position with strong growth potential;


a transparent shareholder structure;


a strong management team and appropriate accounting controls and procedures;


net income in the current financial year of not less than US$750,000 and net assets of not less than US$4 million (in accordance with US GAAP audited accounts);


forecast growth in turnover and net income of not less that 30 per cent. in each of the following two years no material levels of debt and no material contingent liabilities; and
a management shareholding of not less than 30 per cent. which is to be locked up for a period of not less than one year from the date of flotation.


The Directors of the Company are satisfied that Benchmark undertakes detailed due diligence on each company it proposes to float outside China, including a thorough review of the companys markets, product or service offering, management (supported by a due diligence report provided by a leading risk consultant) and accounting procedures (which includes independent preparation of accounts in accordance with US GAAP or IAS).


SovGEM Investment Policies

It is expected that potential investments will be introduced to SovGEM early in Benchmarks due

diligence process. However, it is intended that SovGEM will only make an equity investment following:


a review by SovGEM of the Benchmark due diligence;

a meeting with the target companys management and a review of its facilities in China;

a review by SovGEM of the likely market conditions for a flotation of the target company in the subsequent three months; and

the incorporation of a new holding company in an appropriate jurisdiction (for a US float this would normally be Delaware).

SovGEM will aim to subscribe for shares at a price representing a discount of at least 30 per cent. of the expected flotation valuation.

It is anticipated that each investment will be US$0.5 million - US$1 million in value at cost.

The Company intends that at the time of making an investment, the amount invested in any one venture by SovGEM will not be greater than 25 per cent. of the Companys net asset value nor represent more than 5 per cent. of the issued share capital of the investee company. It is also intended that no more than two investments would be held concurrently in similar or related industrial sectors.

The Company may wish to invest up to 25 per cent. of its net asset value in companies in emerging markets other than China.

The Company will seek to avoid lock-up obligations on the Company of more than 90 days following flotation and would look to realise any investment within the first 180 days of trading.

The Benchmark Agreement provides that should SovGEM invest in China in a company other than

one introduced by Benchmark, SovGEM will retain Benchmark to carry out due diligence.

Bodisen

The Company has been granted an option (Bodisen Option) to invest in Bodisen, which is exercisable within one month of Admission, further details of which are set out in the Admission Document. Bodisen (Stock Symbol BBOI) is a manufacturer of organic fertilizer in China. It is quoted on the Electronic Over the Counter Bulletin Board market in US with a market capitalisation of US$95.46 million, as at 11 November 2004, being the latest practicable date before publication of the Admission Document. In the year to 31 December 2003, Bodisen reported revenue of US$9.8 million and net income of US$1.97 million. The investment is unusual in that it is to be made in the shares of a company already quoted. Pursuant to the Bodisen Option, SovGEM may acquire 200,000 shares of US$1 each in the capital of Bodisen at a price of US$5 per share. As at 11 November 2004, the latest practicable date before the publication of the Admission Document, the bid/ask prices for Bodisen shares were US$6.00/US$6.39 respectively. York Capital Management Limited, the vendor of the Bodisen shares, shares common ownership with Benchmark and is a shareholder in the Company. The investment in Bodisen will constitute 18.48 per cent. of the net assets of the Company.

The Bodisen Option provides for a simple sale of shares; no warranties are given by Bodisen in favour of the Company.


The Company will exercise the Bodisen Option if the Directors determine it to be in the commercial

interests of the Company generally and in particular by reference to the Companys view of the prospects of Bodisen and the likely market demand for Bodisen stock arising from either future newsflow of Bodisen or other demand generating events.

Current Trading and Prospects

The Company is newly incorporated and to date, save for entering into the agreements referred to in this document, it has not traded.

SovGEM believes that China currently offers an attractive environment for privately owned companies and that many of these companies will seek to list on overseas exchanges. Furthermore, the Company believes that the Benchmark Agreement offers potential access to Benchmarks corporate clients preparing to float abroad.

The Company is proposing to make a number of investments, including in Bodisen as referred to above. Benchmark has introduced the Company to several investment opportunities which may meet SovGEMs investment criteria, however the due diligence process is still in its early stages for each of these opportunities and there can be no guarantee that any of these current opportunities will result in a successfully completed investment.

Following the Fundraising the net asset value of the Company will be 12.77 pence per share.

Further financial information on the Company is provided in the Admission Document.

Directors

The Board currently consists of seven Directors whose brief biographies are set out below. Details of the Directors service agreements, which include share option arrangements, are set out in the Admission Document.


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