China-focused investment company Australia China Holdings (ASX:AAK) plans to set up a clean energy joint venture in China with Sydney-based Denzo Group.
Australia China Holdings said the joint venture will aim to commercialise Denzo clean energy technologies - including the conversion of diesel motor engines to also use compressed or liquefied natural gas - in the nation.
Denzo has a business plan to own and/or operate around 100 filling stations in Northern China that will distribute both natural gas and diesel as required, and has developed technology to help convert filling stations for this use.
Under the proposed agreement, Australia China Holdings would take a 45% stake in the joint venture. In exchange, it will lease most of the land it holds in Inner Mongolia to the venture for 20 years. The land will then be used to grow environmentally sustainable fuel crops.
The venture would pay at least $2 million rental, covering the period until the end of the year, for this land.
Thereafter, Australia China Holdings would be entitled to a net dividend of up to $3.15 million, should Denzo's representation that the venture will be able to earn gross revenue of at least $10 million for 2012 and onwards hold true.
Australia China Holdings has previously flagged plans to enter the clean energy sector, and said the agreement can be considered the first step towards this goal.
AAK shares stayed flat on Monday at $0.002.