QINGDAO HOLDINGS INTERNATIONAL LIMITED THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your shares in Qingdao Holdings International Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.
Hong Kong Exchanges and Clearing Limited, the Stock Exchange and HKSCC take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.
This circular is for information purposes only and is being provided to you solely for the purpose of considering the ordinary resolutions to be voted upon at the SGM of the Company to be held on Tuesday, 13 April 2021. This circular does not constitute an invitation or offer to acquire, purchase or subscribe for securities, nor is it calculated to invite any such offer or invitation. Neither this circular nor any copy thereof may be taken into or distributed, directly or indirectly, in or into the United States (including its territories and dependencies, any State of the United States and the District of Columbia). In particular, this circular does not constitute and is not an offer to sell or a solicitation of any offer to purchase or subscribe for securities in the United States or elsewhere. No securities may be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended. There is no intention to make a public offering of the securities referred to in this circular in the United States.
QINGDAO HOLDINGS INTERNATIONAL LIMITED ڡࢥછٰყϞࠢʮ̡*
(Incorporated in Bermuda with limited liability)
(Stock Code: 00499)
(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION
IN RELATION TO THE ACQUISITION OF APPROXIMATELY 81.91% OF
THE EQUITY INTEREST IN
QINGDAO RURAL CONSTRUCTION FINANCIAL LEASING COMPANY LIMITED*
(ڡࢥ۬ඊܔணፄ༟ॡ༣Ϟࠢʮ̡);
(2) CONNECTED TRANSACTION IN RELATION TO THE ISSUE OF
CONVERTIBLE BONDS UNDER THE SPECIFIC MANDATE;
(3) PROPOSED RIGHTS ISSUE OF RIGHTS SHARES ON THE BASIS OF
ONE (1) RIGHTS SHARE FOR EVERY ONE (1) EXISTING SHARE
HELD ON THE RIGHTS ISSUE RECORD DATE
AT THE RIGHTS ISSUE SUBSCRIPTION PRICE OF HK$0.39 PER RIGHTS SHARE;
AND
(4) NOTICE OF SPECIAL GENERAL MEETING
Financial Adviser to the Company
Underwriter of the Rights Issue
Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders
A letter from the Board is set out on pages 17 to 56 of this circular.
A letter from the Independent Board Committee is set out on pages 57 to 58 of this circular, and a letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 59 to 122 of this circular.
A notice convening the SGM to be held at Unit Nos. 9-11, 26th Floor, Tower 1, Admiralty Centre, No. 18 Harcourt Road, Hong Kong on Tuesday, 13 April 2021 at 11:00 a.m. is set out on pages SGM-1 to SGM-4 of this circular.
A form of proxy for use at the SGM is enclosed. If you do not intend or are unable to attend the meeting and wish to appoint a proxy/proxies to attend and vote on your behalf at the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to with the Hong Kong Share Registrar, Tricor Secretaries Limited at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjournment thereof (as the case may be) should you so wish and, in such event, the instrument appointing a proxy shall be deemed to be revoked.
It should be noted that the Rights Issue is underwritten on a best effort basis and that the Underwriting Agreement contains provisions entitling the Underwriter by notice in writing to the Company to terminate the obligations of the Underwriter thereunder with immediate effect at any time prior to the Latest Time for Termination, upon the occurrence of certain events, including force majeure events. These events are set out in the section headed "Letter from the Board - Rights Issue - Termination of the Underwriting Agreement" on pages 42 to 43 of this circular.
Shareholders should note that the existing Shares will be dealt with in on an ex-rights basis from Thursday, 15 April 2021. The Rights Shares in their nil-paid form will be dealt in from 9:00 a.m. on Wednesday, 28 April 2021 to 4:00 p.m. on Wednesday, 5 May 2021 (both days inclusive). If the Underwriting Agreement is terminated by the Underwriter on or before the Latest Time for Termination, or if any of the conditions of the Rights Issue as set out in the section headed "Letter from the Board - Rights Issue - Conditions Precedent" on pages 38 to 39 of this circular is not fulfilled or waived (as appropriate), the Rights Issue will not proceed. If the Underwriter terminates or rescinds the Underwriting Agreement, the Rights Issue will not proceed.
Any dealings in the Shares from the date of this circular up to the date on which all the conditions of the Rights Issue are fulfilled or waived (as appropriate) and the date on which the Underwriter's right of termination of the Underwriting Agreement ceases, and/or any dealings in the nil-paid Rights Shares shall bear the risk that the Rights Issue may not become unconditional and may not proceed. Any Shareholders or other persons contemplating any dealings in the Shares and/or the nil-paid Rights Shares are recommended to consult their own professional advisers and exercise caution.
*
For identification purposes only
24 March 2021
CONTENTS | |
Page | |
EXPECTED TIMETABLE .............................................. | iii |
DEFINITIONS ........................................................ | 1 |
GLOSSARY .......................................................... | 12 |
CORPORATE INFORMATION .......................................... | 13 |
DIRECTORS AND PARTIES INVOLVED .................................. | 15 |
LETTER FROM THE BOARD .......................................... | 17 |
LETTER FROM THE INDEPENDENT BOARD COMMITTEE ................ | 57 |
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER ................ | 59 |
FORWARD-LOOKING STATEMENTS .................................... | 123 |
RISK FACTORS RELATING TO THE TARGET GROUP ..................... | 124 |
HISTORY AND DEVELOPMENT OF THE TARGET GROUP ................. | 138 |
BUSINESS OF THE TARGET GROUP .................................... | 145 |
RISK MANAGEMENT AND OPERATION OF THE TARGET GROUP .......... | 201 |
CORE MANAGEMENT TEAM OF THE TARGET GROUP ................... | 217 |
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS OF | |
THE ENLARGED GROUP ............................................ | 220 |
FINANCIAL INFORMATION OF THE TARGET GROUP .................... | 222 |
SUBSTANTIAL SHAREHOLDERS OF THE ENLARGED GROUP ............. | 272 |
SHARE CAPITAL ..................................................... | 273 |
I-1 | |
II-1 | |
III-1 |
APPENDIX I - INDUSTRY OVERVIEW ............................
APPENDIX II - REGULATORY OVERVIEW .........................
APPENDIX III - ACCOUNTANT'S REPORT ON THE TARGET GROUP ...
-i-
CONTENTS
Page | ||
FINANCIAL INFORMATION OF THE GROUP ......... | IV-1 | |
UNAUDITED PRO FORMA FINANCIAL INFORMATION | ||
OF THE ENLARGED GROUP ...................... | V-1 | |
STATUTORY AND GENERAL INFORMATION ......... | VI-1 | |
APPENDIX VII - | DOCUMENTS AVAILABLE FOR INSPECTION ......... | VII-1 |
APPENDIX IV
APPENDIX VAPPENDIX VI
- -
-
NOTICE OF SGM ..................................................... SGM-1
The following expected timetable is indicative only and is subject to change. If necessary, further announcements in relation to any revised timetable will be published as and when appropriate.
Events
Time and Date(1)
Latest time for lodging transfer of the Shares for the purpose of ascertaining Shareholders' entitlements to attend and vote at the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:30 p.m. on
Thursday, 1 April 2021
Closure of register of members for the purpose of ascertaining
Shareholders' entitlement to attend and vote at the SGM
(bothdatesinclusive) ................................... Wednesday,7April2021to
Tuesday, 13 April 2021
Latest time for lodging forms of proxy for the SGM . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on
Sunday, 11 April 2021
Record date for attending and voting at the SGM . . . . . . . . . . . . . . . . . . Tuesday, 13 April 2021
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on
Tuesday, 13 April 2021
Announcement of the poll results of the SGM
to be published . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 13 April 2021
Last day of dealings in the Shares on a cum-rights basis . . . . . . . . . . Wednesday, 14 April 2021
First day of dealings in the Shares on an ex-rights basis . . . . . . . . . . . . Thursday, 15 April 2021
Latest time for lodging transfer document of the Shares in order to be qualified for the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:30 p.m. on
Friday, 16 April 2021
Closure of register of members of the Company for the purpose of determining entitlements under the Rights Issue
(both days inclusive) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 19 April 2021 to
Friday, 23 April 2021
Rights Issue Record Date for determining entitlements undertheRightsIssue ....................................... Friday,23April2021
Register of members of the Company re-opens . . . . . . . . . . . . . . . . . . . . Monday, 26 April 2021
Despatch of Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 26 April 2021
Events
Time and Date(1)
First day of dealings in nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on
Wednesday, 28 April 2021
Latest time for splitting nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:30 p.m. on
Friday, 30 April 2021
Last day of dealings in nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on
Wednesday, 5 May 2021
Latest time for acceptance of and payment for the Rights Shares and for application and payment for excess Rights Shares . . . . . . . . . . . . . . . . . . 4:00 p.m. on
Monday, 10 May 2021
Latest time to terminate the Underwriting Agreement and for the Rights Issue to become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on
Tuesday, 11 May 2021
Publication of announcement of completion of the Acquisition and the issue of the Consideration CB and
the results of the Rights Issue on or before . . . . . . . . . . . . . . . . . . . . . . Monday, 17 May 2021
Despatch of refund cheques in relation to wholly or partially
unsuccessful applications for excess Rights Shares . . . . . . . . . . . . . . . . Tuesday, 18 May 2021
Despatch of share certificates for fully-paid Rights Shares . . . . . . . . . . . . Tuesday, 18 May 2021
Commencement of dealings in fully-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . 9:00 a.m. on
Thursday, 20 May 2021
Issue of the Consideration CB on or before . . . . . . . . . . . . . . . . . . . . . . . Monday, 31 May 2021
Completion of the Acquisition on or before . . . . . . . . . . . . . . . . . . . . . . . Monday, 31 May 2021
Acquisition Long Stop Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Saturday, 31 July 2021
Note:
(1) All times and dates in this circular refer to Hong Kong local time and dates unless otherwise specified. Dates stated in this circular for events in the timetable are indicative only and may be extended or varied. Any changes to the anticipated timetable for the Rights Issue will be announced as appropriate.
EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR THE RIGHTS SHARES AND FOR APPLICATION AND PAYMENT FOR THE EXCESS RIGHTS SHARES
The latest time for acceptance of and payment for the Rights Shares and for application and payment for the excess Rights Shares will not take place if there is a tropical cyclone warning signal no. 8 or above, or a "black" rainstorm warning and/or extreme conditions caused by super typhoons announced by the government of Hong Kong:
(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on the Latest Acceptance Date. Instead, the latest time for acceptance of and payment for the Rights Shares and for application and payment for the excess Rights Shares will be extended to 5:00 p.m. on the same day; and
(ii) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on the Latest Acceptance Date. Instead, the latest time of acceptance of and payment for the Rights Shares and for application and payment for the excess Rights Shares will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m..
If the latest time for acceptance of and payment for the Rights Shares and for application and payment for the excess Rights Shares does not take place on the Latest Acceptance Date, the dates mentioned in this section may be affected. The Company will notify the Shareholders by way of announcement(s) of any change to the expected timetable as soon as practicable.
In this circular, the following expressions have the following meanings unless the context specifies otherwise:
"10M2019" | the 10 months ended 31 October 2019 |
"10M2020" | the 10 months ended 31 October 2020 |
"Acquisition" | the sale and purchase of the Target Equity Interest as |
contemplated under the Sale and Purchase Agreement | |
"Acquisition Long Stop Date" | 31 July 2021 |
"acting in concert" | has the meaning ascribed to it under the Takeovers Code |
"Announcement" | the announcement of the Company dated 17 March 2021 |
(as supplemented by the supplemental announcement of | |
the Company dated 22 March 2021) in relation to, among | |
other things, the Sale and Purchase Agreement, the issue | |
of the Consideration CB and the Rights Issue | |
"Base Conversion Price" | HK$1.496 per Conversion Share |
"Board" | the board of Directors |
"BOCOM Asia" | BOCOM International (Asia) Limited, a corporation |
licensed to conduct type 1 (dealing in securities) and type | |
6 (advising on corporate finance) regulated activities | |
under the SFO | |
"Business Day" | any day(s) (other than a Saturday, Sunday or public |
holiday in the PRC and Hong Kong) on which banks in | |
the PRC or Hong Kong are generally open for normal | |
banking business to the public | |
"BVI" | the British Virgin Islands |
"Bye-laws" | the bye-laws of the Company |
"CBIRC" | the China Banking and Insurance Regulatory Commission |
(ʕვБڭᎈ္ຖ၍ଣ։ࡰึ), a regulatory authority | |
formed via the merger of its predecessors, the China | |
Banking Regulatory Commission (ʕვБ္ุຖ၍ଣ։ | |
ࡰึ, the "CBRC") and China Insurance Regulatory | |
Commission (ʕڭᎈ္ຖ၍ଣ։ࡰึ), approved by the | |
National People's Congress of the PRC on 17 March | |
2018, and including, where appropriate, its local | |
counterparts | |
"CCASS" | the Central Clearing and Settlement System established |
and operated by HKSCC | |
-1- |
"Chinese Capital"
Chinese Capital Investment Holdings Limited (ശፄҳ ༟(છٰ)Ϟࠢʮ̡), a company incorporated in Hong Kong with limited liability on 16 November 2010
"CIC"
China Insights Consultancy Limited, a private independent research firm that provides market research and analysis, and an Independent Third Party
"Companies Act"
the Companies Act 1981 of Bermuda, as amended, supplemented or otherwise modified from time to time
"Companies Ordinance"
the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
"Companies (WUMP) Ordinance"
the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
"Company"
Qingdao Holdings International Limited (ڡࢥછٰყϞ ࠢʮ̡*), a company incorporated in Bermuda with limited liability and the Shares of which are listed on the Main Board of the Stock Exchange (Stock Code: 499)
"Completion"
the completion of the Acquisition pursuant to the terms and conditions of the Sale and Purchase Agreement
"Consideration"
approximately HK$2,378.7 million, which shall be satisfied in the manner set out in the section headed "Letter from the Board - Sale and Purchase Agreement - Principal Terms of the Sale and Purchase Agreement - Consideration" in this circular
"Consideration CB"
the convertible bonds of an aggregate principal of approximately HK$2,224.2 million due on the Maturity Date to be issued by the Company for settling part of the Consideration pursuant to the Sale and Purchase Agreement
"Controlling Shareholder(s)"
has the meaning ascribed thereto under the Listing Rules and, for the purpose of this circular, refers to CQIH, CQDHG and QCCIG
"Conversion Share(s)"
new Share(s) to be allotted and issued by the Company upon the exercise of the conversion rights attached to the Consideration CB
"CQDHG"
China Qingdao Development (Holdings) Group Company Limited (ശڡ೯࢝(છٰ)ණྠϞࠢʮ̡ ), a company incorporated in Hong Kong with limited liability on 1 April 2014 and wholly owned by QCCIG, and being one of the Controlling Shareholders and a connected person of the Company
"CQIH"
China Qingdao International (Holdings) Company Limited, a company incorporated in BVI with limited liability on 12 June 2014 and wholly owned by CQDHG, and being one of the Controlling Shareholders
"CQIH Committed Shares"
an aggregate of 344,621,633 Rights Shares agreed to be taken up by CQIH pursuant to the CQIH Undertakings, being 100% of the 344,621,633 Rights Shares provisionally allotted to CQIH pursuant to the Rights Issue
"CQIH Undertakings"
the irrevocable and unconditional undertakings given by CQIH in favour of the Company and the Underwriter on 17 March 2021, the details of which are set out in the section headed "Letter from the Board - Sale and Purchase Agreement - Rights Issue - Irrevocable Undertakings from CQIH" in this circular
"Director(s)"
the director(s) of the Company
"EAF(s)"
the excess application form(s) for use by the Qualifying Shareholders or transferees of the nil-paid Rights Shares who wish to apply for excess Rights Shares
"Enlarged Group"
the Group and the Target Group
"FY2017"
the financial year ended 31 December 2017
"FY2018"
the financial year ended 31 December 2018
"FY2019"
the financial year ended 31 December 2019
"FY2020"
"Group"
the financial year ended 31 December 2020 the Company and its subsidiaries
"HK$" or "HKD" or
"Hong Kong dollar(s)"
Hong Kong dollar(s), the lawful currency of Hong Kong
"HKFRS"
the Hong Kong Financial Reporting Standards
"HKICPA"
Hong Kong Institute of Certified Public Accountants
"HKSCC"
Hong Kong Securities Clearing Company Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited
"Hong Kong"
the Hong Kong Special Administrative Region of the PRC
"Hong Kong Share Registrar"
Tricor Secretaries Limited, the Company's Hong Kong branch share registrar and transfer office
"Independent Board Committee"
the independent board committee of the Board comprising Mr. Yin Tek Shing, Paul, Mr. Wong Tin Kit, Ms. Zhao Meiran and Mr. Li Xue, each being an independent non-executive Director, established to consider, and if thought fit, give a recommendation to the Independent Shareholders in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue
"Independent Financial Adviser"
Rainbow Capital (HK) Limited, a licensed corporation to carry out type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue
"Independent Shareholders"
the Shareholders other than CQIH and its associates
"Independent Third Party(ies)"
any entity(ies) or person(s) who, as far as our Directors are aware after having made all reasonable enquiries, is/are not connected person(s) of the Company within the meaning of the Listing Rules
"Industry Report"
an independent industry report prepared by CIC on the financial leasing industry in the PRC
"Initial Conversion Price"
HK$1.87 per Conversion Share (subject to adjustments pursuant to the terms and conditions of the Consideration CB)
"Last Trading Day"
17 March 2021, being the last trading day for the Shares before the entering into of the Sale and Purchase Agreement
"Latest Acceptance Date"
Monday, 10 May 2021, being the last day for acceptance of and payment for the Rights Shares, or such other date as the Company may determine
"Latest Practicable Date"
17 March 2021, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
"Latest Time for Termination"
4:00 p.m. on Tuesday, 11 May 2021, being the next Business Day after the Latest Acceptance Date, or such other time or date as may be agreed in writing between the Company and the Underwriter
"Listing Rules"
The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended, supplemented or otherwise modified from time to time
"Longyuan Taifu Investment"
Beijing Longyuan Taifu Investment Development Company Limited* (̏ԯඤʩइ၅ҳ༟೯࢝Ϟࠢʮ̡ ), a company established in the PRC with limited liability on 5 February 2013
"Maturity Date"
the date falling on the ninth (9th) anniversary of the date of the issue of the Consideration CB, provided that if such date is not a Business Day, the first Business Day immediately after such date
"MOFCOM"
the PRC Ministry of Commerce (ʕശɛ͏ձਠਕ), or its predecessor, the Ministry of Foreign Trade and Economic Cooperation, as appropriate to the context
"Mr. Chen"
Mr. Chen Penggong (ᘄ̌), the head of the legal and asset management department of the Target Group
"Mr. Hou"
Mr. Hou Xiaopan (ڨʃᖂ), the head of the risk management department of the Target Group
"Mr. Shang"
Mr. Shang Zhitian (֠қ͞), a director of the Target Company and the general manager of the Target Group
"Mr. Wan"
Mr. Wan Jun (ຬࠏ), a director of the Target Company and one of the deputy general managers of the Target Group
"Mr. Xu"
Mr. Xu Hua (ശ), one of the deputy general managers of the Target Group
"Mr. Zhu"
Mr. Zhu Ang (ϡ), one of the deputy general managers of the Target Group
"Ms. Peng"
Ms. Peng Lisha (ుᘆ୶), the head of the finance department of the Target Group
"Ms. Wang"
Ms. Wang Ming (ˮઽ), the spouse of Mr. Shang
"Ms. Xu"
Ms. Xu Meiling (ࢱߕޛ), the head of the internal control and compliance department of the Target Group
"Ms. Zhang"
Ms. Zhang Yang (ੵݱ), a director of the Target Company and one of the deputy general managers of the Target Group
"Non-Qualifying Shareholder(s)"
Overseas Shareholder(s) in respect of whom the Directors, based on the legal advice provided by the legal advisers in the relevant jurisdictions, consider it necessary or expedient to exclude from the Rights Issue, on account either of the legal restrictions under the law of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place
"NUR"
National United Resources Holdings Limited (ᑌΥ༟ ๕છٰϞࠢʮ̡), a company incorporated in Hong Kong with limited liability on 28 July 1992
"Overseas Letter"
the letter from the Company to the Non-Qualifying Shareholders explaining the circumstances in which the Non-Qualifying Shareholders (if any) are not permitted to participate in the Rights Issue
"Overseas Shareholder(s)"
Shareholder(s) whose name(s) appear(s) on the register of members of the Company as at the close of business on the Rights Issue Record Date and whose address(es) as shown on such register is/are outside Hong Kong
"PBOC"
People's Bank of China* (ʕɛ͏ვБ), the central bank of the PRC
"Posting Date"
Monday, 26 April 2021, or such other date as the Company may determine in writing for the despatch of the Prospectus Documents
"PRC" or "China"
the People's Republic of China and, for the purpose of this circular only, excludes Hong Kong, the Macau Special Administrative Region and Taiwan
"PRC GAAP"
the Accounting Standards for Business Enterprises issued by the Ministry of Finance of the PRC on 15 February 2006, and other relevant accounting regulations as promulgated in the PRC
"Prospectus"
the prospectus to be issued by the Company in relation to the Rights Issue
"Prospectus Documents"
the Prospectus, the PAL and EAF
"Provisional Allotment Letter(s)"
or "PAL(s)"
the provisional allotment letter(s) to be used in connection with the Rights Issue in such form as the Company may approve
"Purchaser"
Yangfan (Holdings) Group Limited (౮ω(છٰ)ණྠϞࠢ ʮ̡), a company incorporated in Hong Kong with limited liability on 19 August 2020, and an indirect wholly-owned subsidiary of the Company
"QCCIG"
Qingdao City Construction Investment (Group) Co., Ltd.*
(ڡࢥ̹۬ܔணҳ༟(ණྠ )Ϟࠢபʮ̡ ), a company established in the PRC with limited liability on 23 May 2008 and wholly owned by the State-owned Assets Supervision & Administration Commission of Qingdao Municipal Government (ڡࢥ̹ɛ͏ִ݁Ϟ༟ପ္ຖ၍ ଣ։ࡰึ), and being one of the Controlling Shareholders
"QCIFH"
Qingdao City Investment Finance Holding Group Co., Ltd.* (ڡࢥ۬ҳږፄછٰණྠϞࠢʮ̡ ), a company established in the PRC with limited liability on 5 December 2014 and wholly owned by QCCIG
"Qualifying Shareholder(s)"
Shareholder(s), other than the Non-Qualifying Shareholder(s), whose name(s) appear(s) on the register of members of the Company as at the close of business on the Rights Issue Record Date
"Rights Issue"
the proposed offer of the Rights Shares to the Qualifying Shareholders at the Rights Issue Subscription Price, on the basis of one (1) Rights Share for every one (1) existing Share held by each Qualifying Shareholder on the Rights Issue Record Date
"Rights Issue Long Stop Date"
30 May 2021
"Rights Issue Record Date"
Friday, 23 April 2021, being the date by reference to which entitlements under the Rights Issue are expected to be determined
"Rights Issue Subscription Price"
the subscription price of HK$0.39 per Rights Share
"Rights Share(s)"
the new Share(s) to be allotted and issued in respect of the Rights Issue
"RMB"
Renminbi, the lawful currency of the PRC
"SAFE"
"SAFE Circular No. 37"
"Sale and Purchase Agreement"
the State Administration of Foreign Exchange of the PRC
(ʕശɛ͏ձ̮ි၍ଣ҅)
State Administration of Foreign Exchange Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents' Offshore Investment and Financing and Roundtrip Investment through Special Purpose
Vehicles ( ̮ි၍ଣ҅ᗫྤʫ֢͏ஷཀतࣿͦٙʮ ̡ྤ̮ҳፄ༟ʿڏҳ༟̮ි၍ଣϞᗫਪᕚٙஷٝ')
the sale and purchase agreement dated 17 March 2021 and entered into between the Purchaser and the Vendor in relation to the Acquisition
"SFC"
the Securities and Futures Commission of Hong Kong
"SFO"
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
"SGM"
the special general meeting of the Company to be convened and held at Unit Nos. 9-11, 26th Floor, Tower 1, Admiralty Centre, No. 18 Harcourt Road, Hong Kong on Tuesday, 13 April 2021 at 11:00 a.m. to consider, and if thought fit, approve, among other things, (i) the Acquisition, the Sale and Purchase Agreement and the transactions contemplated thereunder, including the issue of the Consideration CB; and (ii) the Rights Issue
"Share Option Scheme"
the share option scheme approved by the Shareholders on 22 August 2013
"Share(s)"
ordinary share(s) of HK$0.1 each in the share capital of the Company
"Shareholder(s)"
holder(s) of the Shares
"Specific Mandate"
the specific mandate to be granted to the Directors by the Shareholders at the SGM to allot and issue the Conversion Shares to CQDHG
"Specified Event"
an event occurring or matter arising on or after the date of the Underwriting Agreement and prior to the Latest Time for Termination which if it had occurred or arisen before the date of the Underwriting Agreement would have rendered any of the warranties contained in the Underwriting Agreement untrue or incorrect in any respect
"Stock Exchange"
The Stock Exchange of Hong Kong Limited
"Takeovers Code"
The Codes on Takeovers and Mergers and Share Buy-backs issued by the SFC, as amended, supplemented or otherwise modified from time to time
"Target Company"
Qingdao Rural Construction Financial Leasing Company Limited* (ڡࢥ۬ඊܔணፄ༟ॡ༣Ϟࠢʮ̡), a company established in the PRC with limited liability on 11 June 2014
"Target Equity Interest"
approximately 81.91% equity interest in the Target Company to be acquired by the Purchaser from the Vendor pursuant to the Sale and Purchase Agreement
"Target Group"
the Target Company and its subsidiaries
"Tibet Luoyou"
Tibet Luoyou Investment Management Company Limited* (ГᔛഖᎴҳ༟၍ଣϞࠢʮ̡) (formerly known as Shanghai Luoyou Investment Management Company Limited* (ɪऎഖᎴҳ༟၍ଣϞࠢʮ̡)), a company established in the PRC with limited liability on 5 December 2013
"Track Record Period"
FY2017, FY2018, FY2019 and 10M2020
"Underwriter"
Vision Finance International Company Limited, a licensed corporation to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO
"Underwriting Agreement"
the underwriting agreement dated 17 March 2021 and entered into between the Company and the Underwriter in relation to the underwriting arrangements in respect of the Rights Issue
"Underwritten Shares"
such number of Rights Shares (excluding the CQIH Committed Shares and up to 154,655,047 Rights Shares) to be underwritten by the Underwriter on a best effort basis subject to the terms and conditions of the Underwriting Agreement
"United States" or "US"
the United States of America (including its territories and dependencies, any state in the US and the District of Columbia)
"US$" or "USD"
United States dollar(s), the lawful currency of the United States
"Vasari (HK)"
Vasari Investment Holdings (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability on 14 September 2016
"Vasari Investment"
Vasari Investment Holdings Limited, a company incorporated in BVI with limited liability on 3 April 2003 and wholly owned by Vasari (HK)
"Vendor"
CQDHG
1. Unless the context otherwise requires, the terms "associate", "close associate", "connected person", "connected transaction", "core connected person", "subsidiary" and "substantial shareholder" shall have the meanings given to such terms in the Listing Rules.
2. Unless expressly stated or otherwise required by the context, all data are as at the Latest Practicable Date.
3. If there is any inconsistency between the Chinese names of entities or enterprises established in the PRC and their English translations, the Chinese names shall prevail. The English translations of company names in Chinese which are marked with "*" are for identification purpose only.
4. Solely for your convenience, this circular contains translations of certain RMB or USD amounts into Hong Kong dollars at a specified rate. You should not construe these translations as a representation that the RMB or USD amounts could actually be, or have been, converted into Hong Kong dollars at the rate indicated or at all. Unless otherwise indicated, the translations of RMB amounts into Hong Kong dollars have been made at the rate of RMB1.0 to HK$1.2 and the translations of USD amounts into Hong Kong dollars have been made at the rate of USD1.0 to HK$7.75.
GLOSSARY
This glossary contains explanations of certain terms used in this circular in connection with the Enlarged Group and its business. These terms and their meanings may not always correspond to standard industry meanings or usage of these terms.
"CAGR"
"IT"
compound annual growth rate information technology
Registered office
Clarendon House 2 Church Street Hamilton HM11 Bermuda
Principal office
Unit No. 8, 26th Floor Tower 1, Admiralty Centre No. 18 Harcourt Road Hong Kong
Company secretaryAuthorised representativesAudit committeeRemuneration committeeNomination committee
Mr. Chan Kwong Leung, Eric, ACG, ACS Unit 2406, 24/F
Strand 50, 50 Bonham Strand Sheung Wan
Hong Kong
Mr. Yuan Zhi Flat 302, Unit 4 No. 38 Xu Zhou Lu Shi Nan Qu Qingdao City Shandong Province China
Mr. Chan Kwong Leung, Eric Unit 2406, 24/F
Strand 50, 50 Bonham Strand Sheung Wan
Hong Kong
Mr. Li Xue (Chairman) Mr. Yin Tek Shing, Paul Mr. Wong Tin Kit
Ms. Zhao Meiran
Mr. Wong Tin Kit (Chairman) Mr. Yin Tek Shing, Paul
Ms. Zhao Meiran
Mr. Li Xue
Mr. Gao Yuzhen (Chairman) Mr. Yin Tek Shing, Paul Mr. Wong Tin Kit
Ms. Zhao Meiran Mr. Li Xue
Principal share registrar and transfer office
Hong Kong branch share registrar and transfer office
Conyers Corporate Services (Bermuda) Limited Clarendon House
2 Church Street Hamilton HM11 Bermuda
Tricor Secretaries Limited Level 54, Hopewell Centre 183 Queen's Road East Hong Kong
Principal bankersCompany's website
Bank of Communications Co., Ltd.
20 Pedder Street
Central
Hong Kong
Hang Seng Bank Limited 88 Des Voeux Road Central
Hong Kong
http://www.qingdaohi.com
(A copy of this circular is available on the
Company's website. Except for the information contained in this circular, none of the other information contained on the Company's website forms part of this circular)
The current members of the Board are as follows:
Name
Executive Directors
Mr. Gao Yuzhen (৷͗ࠊ)
Business address
Unit No. 8, 26th Floor Tower 1, Admiralty Centre No. 18 Harcourt Road Hong Kong
Nationality
ChineseMr. Yuan Zhi ( ط)
Unit No. 8, 26th Floor Tower 1, Admiralty Centre No. 18 Harcourt Road Hong Kong
ChineseMr. Hu Liang ( ߡڥ)
Non-executive Director
Mr. Li Shaoran (ҽˇ್)
Independent Non-executive
Directors
Mr. Yin Tek Shing, Paul
(ʙᅃ௷)
Unit No. 8, 26th Floor Tower 1, Admiralty Centre No. 18 Harcourt Road Hong Kong
Unit No. 8, 26th Floor Tower 1, Admiralty Centre No. 18 Harcourt Road Hong Kong
Unit No. 8, 26th Floor Tower 1, Admiralty Centre No. 18 Harcourt Road Hong Kong
ChineseChineseChineseMr. Wong Tin Kit (ˮํ؏)
Unit No. 8, 26th Floor Tower 1, Admiralty Centre No. 18 Harcourt Road Hong Kong
ChineseMs. Zhao Meiran (Ⴛߕ್)
Unit No. 8, 26th Floor Tower 1, Admiralty Centre No. 18 Harcourt Road Hong Kong
ChineseMr. Li Xue ( ҽ)
Unit No. 8, 26th Floor Tower 1, Admiralty Centre No. 18 Harcourt Road Hong Kong
Chinese
Financial adviser to the CompanyIndependent Financial Adviser to the
Independent Board Committee and the Independent ShareholdersLegal advisers to the CompanyLegal adviser to the financial adviserReporting accountants for the unaudited pro forma financial information of the Enlarged GroupReporting accountants for the financial information of the Target Group
Industry consultantBOCOM International (Asia) Limited 9/F, Man Yee Building
68 Des Voeux Road Central
Hong Kong
Rainbow Capital (HK) Limited Room 5B, 12/F, Tung Ning Building No. 2 Hillier Street
Sheung Wan
Hong Kong
As to Hong Kong laws: King & Wood Mallesons 13/F, Gloucester Tower The Landmark
15 Queen's Road Central Central
Hong Kong
As to PRC laws: Zhong Lun Law Firm 6/F, 10/F, 11/F, 16/F & 17/F, IFC II No. 8 Century Ave
Pudong New District Shanghai
PRC
As to Hong Kong laws: O'Melveny & Myers 31/F, AIA Central
1 Connaught Road Central Hong Kong
PricewaterhouseCoopers Certified Public Accountants
Registered Public Interest Entity Auditor 22/F, Prince's Building
Central
Hong Kong
PricewaterhouseCoopers Certified Public Accountants
Registered Public Interest Entity Auditor 22/F, Prince's Building
Central
Hong Kong
China Insights Industry Consultancy Limited 10F, Block B
Jing'an International Center 88 Puji Road
Jing'an District Shanghai
PRC
QINGDAO HOLDINGS INTERNATIONAL LIMITED ڡࢥછٰყϞࠢʮ̡*
(Incorporated in Bermuda with limited liability)
(Stock Code: 00499)
Executive Directors: | Registered Office: |
Mr. Gao Yuzhen (Chairman) | Clarendon House |
Mr. Yuan Zhi (Deputy Chairman and Chief Executive Officer) | 2 Church Street |
Mr. Hu Liang | Hamilton HM11 |
Bermuda | |
Non-executive Director: | |
Mr. Li Shaoran | Principal Office: |
Unit No. 8, 26th Floor | |
Independent non-executive Directors: | Tower 1, Admiralty Centre |
Mr. Yin Tek Shing, Paul | No. 18 Harcourt Road |
Mr. Wong Tin Kit | Hong Kong |
Ms. Zhao Meiran | |
Mr. Li Xue | |
24 March 2021 | |
To the Shareholders | |
Dear Sir or Madam, |
(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN
RELATION TO THE ACQUISITION OF APPROXIMATELY 81.91% OF
THE EQUITY INTEREST IN
QINGDAO RURAL CONSTRUCTION FINANCIAL LEASING COMPANY LIMITED*
(ڡࢥ۬ඊܔணፄ༟ॡ༣Ϟࠢʮ̡);
(2) CONNECTED TRANSACTION IN RELATION TO THE ISSUE OF
CONVERTIBLE BONDS UNDER THE SPECIFIC MANDATE;
(3) PROPOSED RIGHTS ISSUE OF RIGHTS SHARES ON THE BASIS OF
ONE (1) RIGHTS SHARE FOR EVERY ONE (1) EXISTING SHARE
HELD ON THE RIGHTS ISSUE RECORD DATE
AT THE RIGHTS ISSUE SUBSCRIPTION PRICE OF HK$0.39 PER RIGHTS SHARE;
AND
(4) NOTICE OF SPECIAL GENERAL MEETING
*
For identification purpose only
INTRODUCTION
Reference is made to the Announcement whereby it was announced that on 17 March 2021 (after trading hours), the Purchaser and the Vendor entered into the Sale and Purchase Agreement, pursuant to which the Purchaser has conditionally agreed to acquire, and the Vendor has conditionally agreed to sell, the Target Equity Interest, being approximately 81.91% of the equity interest in the Target Company, at a consideration of approximately HK$2,378.7 million. The Consideration shall be satisfied as follows: (i) approximately HK$154.5 million shall be payable by the Purchaser (or its designated corporation) to the Vendor (or its nominee(s)) in cash upon Completion; and (ii) approximately HK$2,224.2 million shall be payable by the issue of the Consideration CB by the Company to the Vendor (or its nominee(s)) upon Completion.
As (i) CQDHG intended to consolidate and strengthen its controlling stake in the Target Company in view of the prospect of the financial leasing industry in the PRC and the Target Company as well as the resources available to CQDHG as a leading state-owned enterprise in Qingdao; and (ii) both Chinese Capital and Vasari Investment were financial investors of the Target Company and had been seeking to exit their respective investments, the Vendor entered into the sale and purchase agreement with each of Vasari Investment and Chinese Capital in August 2020 to acquire their respective equity interest in the Target Company (the "Previous Acquisitions"). Details of the sale and purchase agreements in respect of the Previous Acquisitions are set out in the section headed "History and Development of the Target Group - The Target Group" in this circular. Upon completion of the Previous Acquisitions, the Vendor,
which had held approximately 43.15% equity interest in the Target Company, acquired (i)
approximately 25.58% equity interest in the Target Company from Vasari Investment; and (ii) approximately 13.18% equity interest in the Target Company from Chinese Capital (collectively, the "Acquired Interest").
The total consideration paid by the Vendor in respect of the Acquired Interest was approximately US$149.0 million (equivalent to approximately HK$1,154.8 million). According to the relevant regulatory requirements of the State-owned Assets Supervision and Administration Commission of the State Council, as the Previous Acquisitions involved a state-owned enterprise, the value of the Target Company under the Previous Acquisitions shall be appraised by an independent qualified valuer. The consideration of the Acquired Interest was determined primarily based on reassessed net asset value of the Target Group and based on the asset approach valuation methodology with reference to the audited net asset value of the Target Group as at 31 December 2019 under PRC GAAP. As at 31 December 2019, the Target Group's net asset value attributable to shareholders under PRC GAAP (the "PRC GAAP NAV") amounted to approximately RMB2,727.2 million (equivalent to approximately HK$3,272.6 million, whereas the Target Group's valuation under the asset approach (the "PRC Asset Valuation Approach") amounted to RMB2,868.7 million (equivalent to approximately HK$3,442.4 million.
The corresponding valuation of the Acquired Interest under the PRC Asset Valuation Approach amounted to approximately RMB1,111.9 million (equivalent to approximately US$158.8 million based on the then prevailing exchange rate of 1USD:7RMB at the time ofexecution of the sale and purchase agreements of the Previous Acquisitions). Under the asset-based valuation methodology, the appraised equity value of the Target Company is arrived at by summing up the appraised value of each component asset forming the enterprise and then deducting the appraised value of its liabilities. The difference between the PRC GAAP NAV and the PRC Asset Valuation Approach mainly reflects the result of (i) the evaluation of the fair value of the loan receivables based on assessment of their recoverability and adequacy of the amount of bad debt provision; and (ii) the reassessed value of certain fixed assets including office furnitures, electronic equipment and motor vehicles of the Target Group primarily based on replacement cost method, which measured the current cost of replacing an asset with its modern equivalent asset less the physical deterioration and all relevant forms of obsolescence and optimisation of the subject asset. The valuation under the PRC Asset Valuation Approach is principally based on the assumptions that (i) the transaction involving the appraised entity will be conducted in the open, fair and informed market; (ii) the business of the appraised entity will be conducted in a legitimate manner, the scope of the business operation and business model will remain substantially the same and will not be suspended in the foreseeable future; (iii) there will be no material change in the existing laws and policies, political environment, economic environment and social environment applicable to the appraised entity; (iv) the management of the appraised entity remain stable and are dully capable of discharging their duties; (v) the accounting policies adopted by the appraised entity and the applicable tax rates and other government fee and rates will remain substantially the same; and (vi) there will not be any force majeure or unpredictable factors that would have material adverse impact to the appraised entity. The Previous Acquisitions were completed in December 2020, upon which the Vendor was interested in approximately 81.91% of the equity interest in the Target Company. The total investment cost of the Vendor in the Target Company, including the original capital contribution and capital injection in 2015 (totalling approximately US$109.6 million) in respect of approximately 43.15% equity interest of the Target Company, and the consideration under the Previous Acquisitions (totalling approximately US$149.0 million), amounted to approximately US$258.6 million (equivalent to approximately HK$2,004.2 million).
The Target Group is a financial leasing company and is principally engaged in the provision of financial leasing and factoring services in the PRC. Upon Completion, the Target Company will become a non-wholly owned subsidiary of the Company and the financial statements of the Target Group will be consolidated into the financial statements of the Company.
The Acquisition constitutes a very substantial acquisition of the Company under Rule 14.06(5) of the Listing Rules as one or more of the relevant percentage ratios under Rule 14.07 of the Listing Rules are over 100%. Accordingly, the Sale and Purchase Agreement and the transactions contemplated thereunder are subject to the reporting, announcement, circular and shareholders' approval requirements under Chapter 14 of the Listing Rules.
In addition, as at the Latest Practicable Date, CQIH, a Controlling Shareholder which held 344,621,633 Shares (representing approximately 69.02% of the issued share capital of the Company), was wholly owned by CQDHG. Accordingly, CQDHG is an associate of CQIH and a connected person of the Company. The Acquisition is therefore a connected transaction of theCompany under Chapter 14A of the Listing Rules. Since one or more of the applicable percentage ratios in respect of the Acquisition exceeds 5%, the Acquisition is subject to the reporting, announcement, circular and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.
The Listing Committee of the Stock Exchange has determined that the Acquisition is an extreme transaction which is not subject to the reverse takeover rules. The Company is required to prepare a transaction circular with enhanced disclosure comparable to the standard for listing documents for new listing applicants. BOCOM Asia has been appointed as the financial adviser of the Company in relation to the Acquisition to conduct due diligence with reference to Practice Note 21 of the Listing Rules as clarified under the Stock Exchange's Guidance Letter HKEx-GL104-19.
In order to raise sufficient funds to settle part of the Consideration and to finance the associated transaction expenses relating to the Acquisition, the Board proposed the Rights Issue on the basis of one (1) Rights Share for every one (1) existing Share. Assuming no new Shares are issued and no Shares are repurchased on or before the Rights Issue Record Date, the maximum number of 499,276,680 Rights Shares to be issued pursuant to the terms of the Rights Issue represents (i) 100% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 50% of the issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares.
In addition, the Board proposed to issue the Consideration CB to the Vendor (or its nominee(s)) under the Specific Mandate as part of the Consideration. Assuming that there is no change in the issued share capital of the Company other than the issue of the Rights Shares and the Conversion Shares since the Latest Practicable Date and up to the date of full conversion of the Consideration CB, (i) the maximum number of 1,189,386,362 Conversion Shares to be allotted and issued by the Company upon full conversion of the Consideration CB at the Initial Conversion Price represents: (a) approximately 238.2% of the issued share capital of the Company as at the Latest Practicable Date; and (b) approximately 54.4% of the issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares and the Conversion Shares; and (ii) the maximum number of 1,486,732,953 Conversion Shares to be allotted and issued by the Company upon full conversion of the Consideration CB at the Base Conversion Price represents: (a) approximately 297.8% of the issued share capital of the Company as at the Latest Practicable Date; and (b) approximately 59.8% of the issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares and the Conversion Shares.
In the event that the proceeds raised from the Rights Issue are not sufficient to cover the cash payment obligation of the Company under the Sale and Purchase Agreement, the Company intends to use its internal resources and/or other debt financing to settle the shortfall of the cash payment obligation under the Sale and Purchase Agreement.
As CQDHG is an associate of CQIH and a connected person of the Company, the issue of the Consideration CB to the Vendor (or its nominee(s)) as part of the Consideration constitutes aconnected transaction of the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement, circular and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.
General
The purpose of this circular is to provide you with, among other things, (i) further details of the Sale and Purchase Agreement; (ii) further details of the Consideration CB; (iii) further details of the Rights Issue; (iv) further information about the Target Group and the Enlarged Group (including the accountant's report of the Target Group and pro-forma financial information of the Enlarged Group); (v) the recommendation of the Independent Board Committee to the Independent Shareholders in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue; (vi) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue; and (vii) the notice of the SGM.
SALE AND PURCHASE AGREEMENT
Principal Terms of the Sale and Purchase Agreement
The principal terms of the Sale and Purchase Agreement are set out below:
Date
17 March 2021
Parties
(i) The Purchaser: Yangfan (Holdings) Group Limited (౮ω(છٰ)ණྠϞࠢʮ̡)
(ii) The Vendor: CQDHG
Subject Matter
Pursuant to the Sale and Purchase Agreement, the Purchaser has conditionally agreed to acquire, and the Vendor has conditionally agreed to sell, the Target Equity Interest, being approximately 81.91% of the equity interest in the Target Company.
Consideration
The Consideration of approximately HK$2,378.7 million shall be satisfied as follows:
(i) approximately HK$154.5 million shall be payable by the Purchaser (or its designated corporation) to the Vendor (or its nominee(s)) in cash by way of cheque, bank transfer or any other manner as designated by the Vendor upon Completion; and
(ii) approximately HK$2,224.2 million shall be payable by the issue of the Consideration CB in the principal amount of approximately HK$2,224.2 million by the Company to the Vendor (or its nominee(s)) upon Completion.
The Consideration was determined after arm's length negotiations between the Vendor and the Purchaser on normal commercial terms and with reference to the following factors: (i) the unaudited consolidated net asset value of the Target Group of RMB2,363.2 million (equivalent to approximately HK$2,835.9 million) as at 31 December 2019 with reference to the unaudited financial statement of the Target Group prepared based on HKFRS; (ii) the consideration in respect of the Acquired Interest paid by the Vendor in 2020; (iii) the historical financial performance of the Target Group; (iv) the market position, industry outlook, business development and growth prospects of the Target Group; and (v) the settlement terms concluded between the Vendor and the Purchaser (in particular, more than 90% of the Consideration will be settled by way of issuance of the Consideration CB at nil coupon rate and with a nine-year maturity term, and less than 10% of the Consideration will be settled by cash).
The net asset value of the Target Group as at 31 December 2019 made under PRC GAAP was higher than that of HKFRS. The difference was mainly due to the different accounting standards adopted and was resulted primarily from certain adjustments including (i) the provision of impairment loss made based on the new expected credit loss model in accordance with HKFRS 9 "Financial Instruments"; and (ii) the revenue recognition based on HKFRS 15 "Revenue from Contracts with Customers".
The Directors (excluding Mr. Gao Yuzhen, Mr. Yuan Zhi and Mr. Hu Liang, who have abstained from voting on the relevant Board resolutions due to their directorship in CQDHG, but including the independent non-executive Directors), having considered the interest of the Independent Shareholders, are of the view that it would be more appropriate for the Company, being a company listed on the Stock Exchange, to adopt the net asset value of the Target Group under HKFRS as the benchmark in evaluating the Consideration.
In light of the above, the Directors (excluding Mr. Gao Yuzhen, Mr. Yuan Zhi and Mr. Hu Liang, who have abstained from voting on the relevant Board resolutions due to their directorship in CQDHG, but including the independent non-executive Directors) are of the view that the Consideration, representing approximately 1.02x and 0.88x of the price to book ratio of the Target Group's net asset value as at 31 December 2019 and 31 October 2020, respectively, based on HKFRS and the exchange rate of RMB1:HK$1.2, is fair and reasonable.
Consideration Adjustment
If the Vendor procures the Target Company to declare and pay a dividend in respect of its undistributed profits as at 31 December 2019 between the date of the Sale and Purchase Agreement and the date of Completion, the Consideration will be reduced by the amount of dividends received by the Vendor in proportionate to its equity interest in the Target Company.
Consideration CB
Upon Completion, the Company will issue the Consideration CB to the Vendor (or its nominee(s)) to settle part of the Consideration. Set out below are the principal terms of the Consideration CB:
Issuer: The Company
Principal amount: Approximately HK$2,224.2 million
Coupon rate: Zero
Maturity Date:
The date falling on the ninth (9th) anniversary of the date of the issue of the Consideration CB, provided that if such date is not a Business Day, the first Business Day immediately after such date.
Ranking:
The Conversion Shares, when allotted and issued, will be credited as fully paid and will rank pari passu in all respects with the Shares then in issue including the right to all dividends, distributions and other payments made or to be made, on the record date which falls on or after the date of such allotment and issue.
Security:
The obligations of the Company Consideration CB are unsecured.
underthe
Conversion rights and restrictions:
The holder of the Consideration CB shall, subject to the compliance with the procedures set out in the terms and conditions thereunder, have the right at any time during the conversion period to convert the whole or part of the outstanding principal amount of the Consideration CB registered in its name into Conversion Shares, provided that (i) any conversion shall be made in amounts of not less than a whole multiple of HK$10,000,000 on each conversion save that if at any time the aggregate outstanding principal amount of the Consideration CB is less than HK$10,000,000, the whole (but not part only) of the outstanding principal amount of the Consideration CB may be converted; (ii) the conversion price at which the Conversion Shares will be issued shall not in any event be lower than the Base Conversion Price; (iii) the exercise of the conversion right attached to the Consideration CB will not cause the Company to be unable to meet the public float requirement under the Listing Rules; and (iv) the exercise of the conversion right attached to the Consideration CB will not trigger a mandatory general offer obligation under the Takeovers Code on the part of the holder of the Consideration CB and/or its nominee(s) together with the parties acting in concert with any of them.
Conversion period:
The period commencing from the date of issue of the Consideration CB and ending at 4:30 p.m. (Hong Kong time) on the day immediately prior to and exclusive of the Maturity Date.
Initial Conversion
Price(1)(2):
HK$1.87 per Conversion Share, subject to the adjustment mechanism as set out in the instrument of the Consideration CB.
Adjustment events(3):
The Initial Conversion Price may be subject to a downward adjustment on each Reset Date (as defined hereinafter) upon the occurrence of any of the following events (the "Conversion Price Adjustment Events"):
(i) any alteration of the nominal value of the Shares by reason of consolidation, sub-division or re-classification of Shares;
(ii) any issue of Shares credited as fully paid (other than in lieu of cash dividend) by way of capitalisation of profits or reserves of the Company;
(iii) any capital distribution made by the Company to the Shareholders (except where the Initial Conversion Price falls to be adjusted under (ii) above);
(iv) any dividend or other distribution, whether of cash, assets or other properties, by the Company to the Shareholders;
(v) any issue of Shares by way of rights, or any issue or grant of options, warrants or other rights to subscribe for, purchase or otherwise acquire the Shares;
(vi) any issue of other securities of the Company by way of rights, or any issue or grant of options, warrants or other rights to subscribe for, purchase or otherwise acquire securities of the Company;
(vii) any modification of rights of conversion, exchange, subscription, purchase or acquisition attaching to any securities of the Company arising from a conversion or exchange of other existing securities of the Company so that the consideration per Share is less than 95% of the then current market price;
(viii) any other offers by the Company or a subsidiary of the Company to the Shareholders who are entitled to participate in arrangements whereby they may acquire securities of the Company;
(ix) other events not referred to above including, but not limited to, corporate actions that in the Company's opinion would have an effect on the position of the holder of the Consideration CB as compared with the position of the holders of all other securities of the Company which are analogous to any of the above events,
provided that the conversion price at which the Conversion Shares will be issued shall not in any event be lower than the Base Conversion Price.
Reset date:
Each anniversary date after the date of issue of the Consideration CB (the "Reset Date").
Initial Conversion
Price reset(4):
If the average of the volume weighted average price of the Shares for the period of 10 consecutive trading days immediately prior to and excluding the Reset Date is less than the Initial Conversion Price on the Reset Date, the conversion price shall be adjusted on the Reset Date such that the adjusted conversion price will be equal to the Average Market Price. "Average Market Price" means the average of the volume weighted average price of the Shares for the period of 10 consecutive trading days immediately prior to and excluding the Reset Date, provided that:
(i)any such adjustment to the conversion price shall be limited such that the adjusted conversion price in no event shall be less than the Base Conversion Price (taking into account any adjustments which may have occurred prior to the Reset Date);
(ii) subject to (i) above, the Conversion Price Adjustment Events shall apply; and
(iii) any such adjustment to the conversion price shall only be a downward adjustment.
Base Conversion Price(2):HK$1.496 per Conversion Share.
Early redemption at the option of the Company:
The Company shall be entitled to, at its sole discretion and by giving not less than seven (7) Business Days' notice to the holder of the Consideration CB, propose to the holder to redeem the outstanding Consideration CB (in multiples of HK$10,000,000 or such lesser amount as may represent the entire principal amount thereof) of an amount equivalent to 100% of the principal amount of such outstanding Consideration CB at any time after the date of issue of the Consideration CB up to and including the date falling seven (7) Business Days immediately before the Maturity Date.
Transferability(5):
Subject to the compliance with the Listing Rules, the Takeovers Code and all applicable laws and regulations, the Consideration CB may be transferred or assigned in whole or in part in integral multiples of HK$10,000,000 by the Vendor to any party, save and except that the Consideration CB shall not be transferred to a connected person of the Company unless with the prior written consent of the Company.
Voting rights: The Consideration CB shall not carry any voting rights.
Listing:
No application will be made by the Company for the listing of the Consideration CB on the Stock Exchange. An application will be made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares.
Notes:
(1) The Initial Conversion Price was determined primarily based on the net asset value per Share with reference to (i) the combined net asset value of the Target Group as at 31 October 2020 amounting to HK$3,155.5 million and net asset value of the Group attributable to the equity owners as at 30 June 2020 amounting to HK$257.5 million prior to pro-forma adjustment; (ii) the expected increase in the net asset value of the Enlarged Group upon Completion; (iii) the estimated net proceeds of HK$171.7 million to be raised from the Rights Issue; and (iv) the number of Shares to be in issue upon the completion of the Rights Issue and full conversion of the Consideration CB.
In addition to the factors set out above, after taking into account (i) the lengthy maturity term of the Consideration CB; and (ii) the future prospect of the Target Group as evidenced by its financial performance during the Track Record Period, the Directors are of the view that the value of the Company will be enhanced in the future when the benefits of the transactions contemplated under the Sale and Purchase Agreement materialise.
(2) After taking into account the factors set out below, the Directors considered that the Initial Conversion Price and the Base Conversion Price are fair and reasonable:
(i) the Initial Conversion Price was assessed with reference to prevailing market condition, share price performance of the Company and the future value of the Company upon Completion;
(ii) the Initial Conversion Price represented a substantial premium over the prevailing market price of the Shares and the net asset value per Share attributable to the Shareholders as at 30 June 2020; and
(iii) the Base Conversion Price under the conversion price re-set mechanism will not be lower than the average of the volume weighted average price of the Shares for a period of 10 consecutive trading days immediately prior to and excluding the Reset Date.
(3) The Directors (excluding Mr. Gao Yuzhen, Mr. Yuan Zhi and Mr. Hu Liang, who have abstained from voting on the relevant Board resolutions due to their directorship in CQDHG, but including the independent non-executive Directors) considered that the Initial Conversion Price, the Base Conversion Price and the conversion price adjustment mechanism are fair and reasonable and in the interest of the Company and the Shareholders given that (i) the Initial Conversion Price is set at a substantial premium over the prevailing market price of the Shares immediately prior to the date of the Sale and Purchase Agreement; (ii) the conversion price will only be reset on specified Reset Dates and is subject to an 80% adjustment floor of the Initial Conversion Price and will not be lower than the Average Market Price; (iii) all of the other adjustment events of the conversion price are normal anti-dilution provisions serving to mitigate the potential dilutive effect of any issuance of equity securities by the Company; and (iv) it is not uncommon for investors to seek for a downward conversion price adjustment mechanism for convertible bonds with a lengthy maturity period having considered the substantial premium of conversion price over the prevailing market price of Shares since the Initial Conversion Price was determined after taking into account the potential enhancement of the equity value of the Company to be derived from the future benefits of the Acquisition which may or may not be materialised and subject to significant degree of risk of uncertainty.
(4) The Initial Conversion Price and the conversion price re-set mechanism were determined based on arm's length negotiation between the Company and the Vendor.
The Directors noted that the conversion price of the convertible securities issued by companies listed on the Stock Exchange is generally assessed primarily based on, among other things, the prevailing share price of the listed company at the time of issuance of the convertible securities. In light of the significant size of the Target Company, in particular, the substantial enhancement that the Target Company is expected to bring to the Company's future operations and financial performance, the Directors considered that the prevailing market price of the Shares might not reflect the future value of the Company upon Completion and therefore did not provide an appropriate pricing benchmark in determining the conversion price of the Consideration CB with a particularly long maturity term (i.e. nine years).
The conversion price re-set mechanism was put in place so as to incorporate a "mark-to-market" mechanism where the Vendor is allowed to reset the conversion price of the Consideration CB at a fair price based on the prevailing share price of the Company at each anniversary date after the issuance of the Consideration CB, which is not uncommon in transactions relating to convertible securities issued by companies listed on the Stock Exchange.
(5) In any event that the transfer of the Consideration CB shall constitute a connected transaction of the Company, the Company shall take all necessary steps to fully comply with the Listing Rules and the requirements of the Stock Exchange. The transferee's right of conversion of the Consideration CB shall be subject to restrictions applicable to the holder of the Consideration CB as delineated in this section above, including, but not limited to, the Company's fulfillment of the public float requirement under the Listing Rules and that the exercise of the conversion right shall not trigger a mandatory general offer obligation under the Takeovers Code on the part of the holder of the Consideration CB and/or its nominee(s) together with the parties acting in concert with any of them.
Assuming that there is no change in the issued share capital of the Company other than the issue of the Rights Shares and the Conversion Shares since the Latest Practicable Date and up to the date of full conversion of the Consideration CB:
(i) the maximum number of 1,189,386,362 Conversion Shares to be allotted and issued by the Company upon full conversion of the Consideration CB at the Initial Conversion Price represents: (a) approximately 238.2% of the issued share capital of the Company as at the Latest Practicable Date; and (b) approximately 54.4% of the issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares and the Conversion Shares; and
(ii) the maximum number of 1,486,732,953 Conversion Shares to be allotted and issued by the Company upon full conversion of the Consideration CB at the Base Conversion Price represents: (a) approximately 297.8% of the issued share capital of the Company as at the Latest Practicable Date; and (b) approximately 59.8% of the issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares and the Conversion Shares.
The Initial Conversion Price of HK$1.87 per Conversion Share was determined with reference to, among other things, the prevailing market conditions, the Company's share price performance and the future value of the Company after taking into amount the net asset value of the Enlarged Group upon Completion and conversion of the Consideration CB, and it represents:
(i) a premium of approximately 289.6% over the closing price of HK$0.48 per Share as quoted on the Stock Exchange on the date of the Sale and Purchase Agreement;
(ii) a premium of approximately 336.9% over the average closing price of HK$0.428 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including the date of the Sale and Purchase Agreement;
(iii) a premium of approximately 289.6% over the closing price of HK$0.48 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(iv) a premium of approximately 262.4% to the unadjusted consolidated net asset value of approximately HK$0.516 per Share (based on the consolidated net asset value attributable to the equity holders of the Company as at 30 June 2020 of approximately HK$257,468,000 and the number of issued Shares of 499,276,680).
Conditions Precedent
The Acquisition is conditional on each of the following conditions being fulfilled or waived (where applicable):
(i) the Purchaser being satisfied with the results of the due diligence review on the assets, liabilities, operations and affairs of the Target Group to be conducted by the Purchaser and/or its advisers and agents;
(ii) all necessary consents of, approvals by and filings with government authorities required for the consummation of the Acquisition having been obtained or completed to the Purchaser's satisfaction;
(iii) all necessary consents and approvals required to be obtained on the part of the Vendor in respect of the Acquisition and the transactions contemplated thereunder having been obtained;
(iv) all necessary consents and approvals required to be obtained on the part of the Purchaser in respect of the Acquisition and the transactions contemplated thereunder having been obtained;
(v) all necessary consents and approvals required to be obtained in respect of the issue of the Consideration CB and the Rights Issue having been obtained;
(vi) the Listing Committee of the Stock Exchange having granted the listing of, and permission to deal in, the Conversion Shares and the Rights Shares in both nil-paid and fully-paid forms (and such approval not being subsequently revoked or withdrawn);
(vii) the Independent Shareholders having approved the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB, the allotment and issue of the Conversion Shares and the granting of the Specific Mandate);
(viii) the Independent Shareholders having approved the Rights Issue and the Underwriting Agreement by way of poll at the SGM in accordance with the Listing Rules; and
(ix) the warranties provided by the Vendor under the Sale and Purchase Agreement remaining true and accurate and not misleading in all material respect as if repeated at Completion and at all times between the date of the Sale and Purchase Agreement and the date of Completion.
If the conditions precedent above are not satisfied or waived (where applicable) on or before the Acquisition Long Stop Date, the Sale and Purchase Agreement will be terminated and the Acquisition will not proceed.
Completion
Completion shall take place on a date within three (3) Business Days after fulfillment or waiver (as the case may be) of all of the conditions precedent set out in the Sale and Purchase Agreement or such other date as the Purchaser and the Vendor may agree in writing.
Upon Completion, the Target Company will become a non-wholly owned subsidiary of the Company and the financial statements of the Target Group will be consolidated into the financial statements of the Company.
Specific Mandate to Issue the Conversion Shares
The Conversion Shares will be allotted and issued by the Company under the Specific Mandate. The Company will seek the grant of the Specific Mandate from the Independent Shareholders at the SGM.
The allotment and issue of the Conversion Shares will not result in a change of control of the Company.
Application for Listing of the Conversion Shares
An application will be made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares.
Reasons and Benefits of the Acquisition
The Group is principally engaged in the business of (i) leasing of investment properties; (ii) distribution of digital Chinese calligraphy education equipment; and (iii) provision of loan financing services. The Group commenced its loan financing business in 2008. Since then, the Group has been actively pursuing opportunities to expand its money lending business in Hong Kong. In view of the increasing demand for financing services in the PRC, the Group has recently expanded its loan financing business in the PRC by providing an entrusted loan to a PRC property developer. Please refer to the announcement of the Company dated 7 May 2020 for further details.
The Target Company is a financial leasing company and is principally engaged in the provision of financial leasing and factoring services in the PRC. The Target Group is one of the leading foreign-funded financial leasing companies in the PRC focusing on the medical and healthcare, public infrastructure, travelling and tourism sectors. According to the Industry Report, the Target Group ranked: (i) fourth in terms of revenue in medical device financialleasing among the foreign-funded medical device financial leasing companies in the PRC; and (ii) fifth in terms of the medical device finance lease receivables among the foreign-funded medical device financial leasing companies in the PRC. The Target Group has a solid and proven track record with a revenue of approximately RMB594.5 million, RMB866.5 million and RMB1,157.3 million, and a net profit of approximately RMB221.2 million, RMB260.6 million and RMB336.9 million for FY2017, FY2018, FY2019, respectively. The Target Group's revenue and net profit increased at a CAGR of approximately 39.5% and 23.4% between FY2017 to FY2019, respectively. For 10M2020, the Target Group recorded a revenue of approximately RMB1,182.6 million and a net profit of approximately RMB373.3 million.
In view of the operational and financial performance of the Target Group during the Track Record Period, the Board believes that the Acquisition will broaden the Group's revenue base and mitigate the risk of concentration on its existing business segments. Considering the Group's industry experience and resources in loan financing, financial leasing business is a natural extension of the Group's existing loan financing business and will create synergies and complement the Group's existing loan financing services. Following the Acquisition, the Group will be able to offer a wider range of financial services to customers, thus enhancing the competitiveness of its financial services. The Acquisition will also allow the Group to capture the business opportunities in the fast-growing financial leasing industry in the PRC.
Given the substantial size of the Acquisition, in assessing the terms of the Acquisition, the Board has also evaluated the settlement terms of the Acquisition and the associated financial burden to the Group. In view of the Group's existing financial capabilities and the potential financial impact arising from the burden of the settlement of the Consideration, the Consideration CB is set at zero coupon rate and with a maturity term of nine years so as to minimise finance costs and repayment pressure. The Initial Conversion Price of HK$1.87 per Share represents a premium of 289.6% to the closing price of HK$0.48 per Share as quoted on the Stock Exchange on 17 March 2021, being the date of the Sale and Purchase Agreement. As such, the Consideration CB will not have an immediate and material dilution effect on the shareholding of the existing Shareholders.
Furthermore, as part of the fund-raising exercise to finance the Consideration and the relevant transaction expenses, the Board proposed the Rights Issue on the basis of one (1) Rights Share for every one (1) existing Share at the prevailing market price. The Rights Issue will provide an opportunity for the Shareholders to participate in the Company's equity fund raising activities at prevailing market price and to enjoy the potential upside of the Company's share price performance upon Completion and when the benefits of the Acquisition materialise in the future.
In view of the above, the Directors (excluding Mr. Gao Yuzhen, Mr. Yuan Zhi and Mr. Hu Liang, who have abstained from voting on the relevant Board resolutions due to their directorship in CQDHG, but including the independent non-executive Directors) consider that the terms of the Sale and Purchase Agreement are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole.
Simplified Shareholding Structure of the Group, the Target Group and the Enlarged Group
Set out below is the simplified shareholding structure of the Group as at the Latest Practicable Date:
State-owned Assets Supervision &
Administration Commission of Qingdao Municipal Government €ڡࢥ̹ɛ͏ִ݁Ϟ༟ପ ္ຖ၍ଣ։ࡰึ
Set out below is the simplified shareholding structure of the Target Group as at the Latest Practicable Date:
Set out below is the simplified shareholding structure of the Enlarged Group immediately upon Completion:
State-owned Assets Supervision &
Administration Commission of Qingdao Municipal Government €ڡࢥ̹ɛ͏ִ݁Ϟ༟ପ ္ຖ၍ଣ։ࡰึ
Note:
(1) The calculation is based on the assumptions that (i) all Rights Shares have been taken up by the
Qualifying Shareholders and/or the Underwriter or the subscribers procured by it; and (ii) there is no change in the issued share capital of the Company other than the issue of the Rights Shares since the Latest Practicable Date and up to Completion.
Financial and Other Impact of the Acquisition
The Acquisition is a part of the Group's expansion of its business scope to encompass financial leasing services in the PRC. Upon Completion, the Enlarged Group will engage in the business of (i) leasing of investment properties; (ii) distribution of digital Chinese calligraphy education equipment; and (iii) provision of loan financing, financial leasing and factoring services. By diversifying its business scope and broadening its revenue base, the Enlarged Group is expected to generate stable income and cash flows, thus allowing it to achieve sustainable growth and development. The Acquisition is also expected to enable the Enlarged Group to obtain equity and debt financing more easily, thus allowing it to create greater shareholder value.
The table below sets out the audited financial information of the Target Group for FY2017, FY2018, FY2019 and 10M2020 prepared in accordance with HKFRS as extracted from the accountant's report as set out in Appendix III to this circular:
FY2017 | FY2018 | FY2019 | 10M2020 | |
RMB'000 | RMB'000 | RMB'000 | RMB'000 | |
Revenue | 594,464 | 866,540 | 1,157,312 | 1,182,616 |
Profit before taxation | 295,245 | 350,828 | 450,909 | 496,423 |
Profit after taxation | 221,247 | 260,569 | 336,925 | 373,251 |
The audited net asset value of the Target Group attributable to owners of the Target Company as at 31 October 2020 was approximately RMB2,736.5 million.
Upon Completion, the Target Company will become a non-wholly owned subsidiary of the Company and the financial statements of the Target Group will be consolidated into the financial statements of the Company.
Going forward, the Company will continue to monitor and review the performance of its business. Apart from the Acquisition, the Company has no plans to make significant changes to its existing principal business activities immediately after Completion.
RIGHTS ISSUE
In order to raise sufficient funds to settle part of the Consideration and to finance the associated transaction expenses relating to the Acquisition, the Board proposed the Rights Issue, the details of which are summarised below:
Issue Statistics
Basis of the Rights Issue: | One (1) Rights Share for every one (1) existing Share held |
on the Rights Issue Record Date | |
Rights Issue Subscription Price: | HK$0.39 per Rights Share |
Number of existing Shares in issue | 499,276,680 Shares |
as at the Latest Practicable Date: | |
Number of Rights Shares: | Up to 499,276,680 Rights Shares (assuming no new |
Shares are issued and no Shares are repurchased on or | |
before the Rights Issue Record Date) | |
Enlarged issued share capital upon | 998,553,360 Shares (assuming no new Shares are issued |
completion of the allotment and | (other than the Rights Shares) and no Shares are |
issue of the Rights Shares: | repurchased on or before the Completion) |
Maximum gross proceeds to be | Approximately HK$194.7 million before expense |
raised under the Rights Issue: | (assuming no new Shares are issued and no Shares are |
repurchased on or before the Rights Issue Record Date) | |
Underwriter to the Rights Issue: | Vision Finance International Company Limited |
Number of Rights Shares | The Underwritten Shares of up to 154,655,047 Rights |
underwritten by the Underwriter: | Shares |
Rights of excess application: | Qualifying Shareholders may apply for Rights Shares in |
excess of their provisional allotment |
The gross proceeds from the Rights Issue will be approximately HK$194.7 million (assuming that there is no change in the number of issued Shares on or before the Rights Issue Record Date). The estimated net proceeds after deducting the transaction expenses from the Rights Issue and the Acquisition will be approximately HK$171.7 million (assuming that there is no change in the number of issued Shares on or before the Rights Issue Record Date), which are intended to be used in the following manner:
(a) approximately HK$154.5 million (representing 90% of the estimated net proceeds from the Rights Issue) will be applied towards the cash settlement of the Consideration; and
(b) approximately HK$17.2 million (representing 10% of the estimated net proceeds from the Rights Issue) will be used as the Group's general working capital.
In the event that the proceeds raised from the Rights Issue are not sufficient to cover the cash payment obligation of the Company under the Sale and Purchase Agreement, the Company intends to use its internal resources and/or other debt financing to settle the shortfall of the cash payment obligation under the Sale and Purchase Agreement.
Assuming no new Shares are issued and no Shares are repurchased on or before the Rights Issue Record Date, the maximum number of 499,276,680 Rights Shares to be issued pursuant to the terms of the Rights Issue represents (i) 100% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 50% of the issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares.
Save as disclosed in this circular, the Company had no outstanding share options, warrants, derivatives or other securities convertible into or exchangeable for the Shares as at the Latest Practicable Date.
The Rights Issue is only underwritten on a best effort basis. Pursuant to the Company's constitutional documents and the Companies Act, and as advised by the Company's legal adviser, there are no requirements for minimum levels of subscription in respect of the Rights Issue. Subject to fulfillment of the conditions of the Rights Issue, the Rights Issue will proceed regardless of the ultimate subscription level. Based on the CQIH Undertakings given by CQIH, it is anticipated that at least 344,621,633 Rights Shares will be taken up. In the event that the Rights Issue is undersubscribed, any Rights Shares not taken up by the Qualifying Shareholders or transferees of nil-paid Rights Shares or otherwise subscribed by the Underwriter or other subscribers procured by it pursuant to the Underwriting Agreement will not be issued by the Company and the size of the Rights Issue will be reduced accordingly. Investors are advised to exercise caution when dealing in the Shares.
Rights Issue Subscription Price
The subscription price of HK$0.39 per Rights Share is payable in full when a Qualifying Shareholder accepts his/her/its provisional allotment under the Rights Issue or applications for excess Rights Shares, or when a transferee of nil-paid Rights Shares subscribes for the Rights Shares.
The Rights Issue Subscription Price represents:
(i) a discount of approximately 18.8% to the closing price of HK$0.48 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 8.9% to the average closing price of approximately HK$0.428 per Share for the last five consecutive trading days as quoted on the Stock Exchange up to and including the Last Trading Day;
(iii) a discount of approximately 10.3% to the theoretical ex-rights price of approximately HK$0.435 per Share based on the closing price of HK$0.48 per Share as quoted on the Stock Exchange on the Last Trading Day;
(iv) a discount of approximately 24.4% to the unadjusted consolidated net asset value of approximately HK$0.516 per Share (based on the consolidated net asset value of the Company attributable to the equity holders of the Company as at 30 June 2020 of approximately HK$257,468,000 and the number of issued Shares of 499,276,680); and
(v) a theoretical dilution effect (as defined under Rule 7.27B of the Listing Rules) of approximately 9.4%, represented by the theoretical diluted price of approximately HK$0.435 per Share to the benchmarked price of approximately HK$0.48 per Share (as defined under Rule 7.27B of the Listing Rules, taking into account the higher of the closing price on the Last Trading Day of HK$0.48 per Share and the average of the closing price of the Shares as quoted on the Stock Exchange for the last five consecutive trading days prior to the date of the Company's announcement of approximately HK$0.428 per Share).
Under the Rights Issue, each Qualifying Shareholder is entitled to subscribe for the Rights Shares at the same price in proportion to his/her/its existing shareholding in the Company. The Board considers that the discount of the Rights Issue Subscription Price to the current market price will encourage them to participate in the Rights Issue. The Rights Issue Subscription Price and the Rights Issue ratio were determined by the Board based on the funding needs of the Group.
Status of the Rights Shares
The Rights Shares (when allotted, issued and fully paid) will rank pari passu in all respects with the existing Shares in issue. Holders of fully-paid Rights Shares will be entitled to receive all future dividends and distributions which may be declared, made or paid on or after the date of allotment and issue of the fully-paid Rights Shares. Dealings in the Rights Shares will be subject to payment of stamp duty, the Stock Exchange trading fee, transaction levy, investor compensation levy or any other applicable fees and charges in Hong Kong.
Conditions Precedent
The Rights Issue is conditional on each of the following conditions being fulfilled or waived (where applicable):
(i) the Independent Shareholders having approved the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB, the allotment and issue of the Conversion Shares and the granting of the Specific Mandate);
(ii) all conditions precedent in relation to the Acquisition (other than the condition precedent of the Independent Shareholders having approved the Rights Issue by way of poll at the SGM in accordance with the Listing Rules) having been fulfilled or waived (where applicable);
(iii) the Independent Shareholders having approved the Rights Issue and the Underwriting Agreement by way of poll at the SGM in accordance with the Listing Rules;
(iv) the delivery to the Stock Exchange and registration with the Registrar of Companies in Hong Kong, respectively, of a copy of each of the Prospectus Documents duly certified in compliance with the Companies (WUMP) Ordinance (and other documents required to be attached thereto) and otherwise complying with the requirements of the Companies (WUMP) Ordinance, the Companies Ordinance and the Listing Rules;
(v) the despatch of the Prospectus Documents to the Qualifying Shareholders and the posting of the Prospectus stamped "For Information Only" to the Non-Qualifying Shareholders, if any, for information purpose only;
(vi) the Listing Committee of the Stock Exchange granting or agreeing to grant and not having withdrawn or revoked the listing of, and permission to deal in, the Rights Shares in both nil-paid and fully-paid forms;
(vii) all relevant consents and approvals being obtained from the regulatory authorities, including the Stock Exchange, as the case may require in connection with the Rights Issue by the relevant time that each consent and approval is required; and
(viii) the Underwriting Agreement not being terminated by the Underwriter pursuant to the terms thereof on or before the Latest Time for Termination.
If the conditions precedent above are not satisfied or waived (where applicable) on or before the Rights Issue Long Stop Date, the Rights Issue will be terminated.
As at the Latest Practicable Date, none of the conditions precedent had been satisfied.
Underwriting Agreement
The principal terms of the Underwriting Agreement are as follows:
Date: 17 March 2021
Underwriter:
Vision Finance International Company Limited, a licensed corporation to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO
To the best knowledge, information and belief of the Directors having made all reasonable enquiries, the Underwriter is independent of and not connected with the Company and its connected persons
Number of Rights Shares to be underwritten by the Underwriter:
Up to 154,655,047 Rights Shares, being 499,276,680 Rights Shares to be issued pursuant to the Rights Issue less 344,621,633 Rights Shares which CQIH has undertaken to take up under the CQIH Undertakings
Underwriting commission:
4.5% of the aggregate Rights Issue Subscription Price of the Underwritten Shares
The Rights Issue, other than the CQIH Committed Shares that will be provisionally allotted to and which are to be taken up by CQIH pursuant to the CQIH Undertakings on the terms and conditions set out therein, is underwritten by the Underwriter on a best effort basis on the terms of the Underwriting Agreement.
The underwriting commission was determined after arm's length negotiation between the Company and the Underwriter with reference to, among other things, the scale of the Rights Issue, the current and expected market conditions and the underwriting commission charged by underwriters in recent market precedents of rights issues. In particular, the Directors, based on the information available on the website of the Stock Exchange, noticed that a total of 36 listed companies announced their proposed rights issues for the year ended 31 December 2020 (which, to the best knowledge of the Directors, were not subsequently terminated), among which 26 rights issues were underwritten by independent underwriters and ten out of these 26 cases (which raised proceeds in the range of approximately HK$105 million and HK$335 million) charged an underwriting commission in the range of 1.5% and 5.5%. The Directors (excluding Mr. Gao Yuzhen, Mr. Yuan Zhi and Mr. Hu Liang, who have abstained from voting on the relevant Board resolutions due to their directorship in CQDHG, but including the independent non-executive Directors), having taken into account the aforesaid precedent cases of rights issues as well as the reasons for the Rights Issue as detailed in the paragraph headed "Reasons for the Rights Issue and Use of Proceeds" below, consider the terms of the Underwriting Agreement, including the underwriting commission payable by the Company, are on normal commercial terms, fair and reasonable and in the interest of the Company and the Shareholders as a whole. None of the Directors has a material interest in the transactions contemplated under the Underwriting Agreement.
Conditions of the Underwriting Agreement
The Rights Issue is conditional upon the Underwriting Agreement becoming unconditional and not being terminated in accordance with its terms. The Underwriting Agreement is conditional upon the following being fulfilled or waived (as the case may be):
(i) the Independent Shareholders having approved the Rights Issue by way of poll at the SGM in accordance with the Listing Rules;
(ii) the Listing Committee of the Stock Exchange granting or agreeing to grant and not having withdrawn or revoked the listing of, and permission to deal in, the Rights Shares in both nil-paid and fully-paid forms;
(iii) the delivery to the Stock Exchange and registration with the Registrar of Companies in Hong Kong, respectively, of a copy of each of the Prospectus Documents duly certified in compliance with the Companies (WUMP) Ordinance (and other documents required to be attached thereto) and otherwise complying with the requirements of the Companies (WUMP) Ordinance, the Companies Ordinance and the Listing Rules;
(iv) the despatch of the Prospectus Documents to the Qualifying Shareholders and the posting of the Prospectus with the Overseas Letter to the Non-Qualifying Shareholders, if any, for information purpose only;
(v) all relevant consents and approvals being obtained from the regulatory authorities, including the Stock Exchange, as the case may require in connection with the Rights Issue by the relevant time that each consent and approval is required;
(vi) (a) the execution and delivery of the CQIH Undertakings on the date of the Underwriting Agreement; and (b) the compliance by CQIH of all of its obligations as set out in the CQIH Undertakings by the times specified therein, and the CQIH Undertakings not having been terminated;
(vii) all the representations and warranties and other statements in the Underwriting Agreement on the part of the Company being true and accurate in all material respects and not misleading as at the date of the Underwriting Agreement and as at the Latest Time for Termination;
(viii) there being no breach of the undertakings and obligations of the Company under the terms of the Underwriting Agreement at the Latest Time for Termination;
(ix) the Underwriter receiving from the Company certain documents as specified in the Underwriting Agreement by the times and dates specified therein;
(x) the obligation of the Underwriter under the Underwriting Agreement not being terminated in accordance with the terms thereof; and
(xi) there being no Specified Event occurring on or before the Latest Time for Termination.
Save for conditions (vii), (viii), (ix), (x) and (xi) above that may be waived by the Underwriter (in whole or in part), none of the above conditions is capable of being waived by the Underwriter.
If the above conditions are not fulfilled and/or waived (as the case may be) by the Latest Time for Termination or such later date or dates as the Underwriter may agree with the Company in writing, the Underwriting Agreement shall terminate and (save in respect of the provisions in relation to fees and expenses, indemnity, notices and governing law and any rights or obligations which have accrued under the Underwriting Agreement prior to such termination) no party will have any claim against any other party for costs, damages, compensation or otherwise (save for any antecedent breaches), and the Rights Issue will not proceed.
Termination of the Underwriting Agreement
If prior to the Latest Time for Termination, in the absolute opinion of the Underwriter:
(i) one or more of the following events or matters shall occur, arise, exist or come into effect:
(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) after the signing of the Underwriting Agreement; or
(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date hereof) of a political, military, financial, economic or other nature, or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets; or
(c) any material adverse change after the signing of the Underwriting Agreement in the business or in the financial or trading position of any member of the Group; or
(d) any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, strike or lock-out occurring after the signing of the Underwriting Agreement; or
(e) after signing of the Underwriting Agreement, there occurs or comes into effect the imposition of any moratorium, suspension or material restriction on trading in the Shares generally on the Stock Exchange whether due to exceptional financial circumstances or otherwise; or
(f) there is, after signing of the Underwriting Agreement, any change or any development involving a prospective change in market conditions (including without limitation, a change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or restriction on trading in securities, imposition of economic sanctions, in/on Hong Kong, the PRC or other jurisdiction relevant to any member of the Group and a change in currency conditions includes a change in the system under which the value of the Hong Kong currency is pegged with that of the currency of the United States) occurs; or
(g) the Prospectus when published contain information (either as to business prospects or the condition of the Group or as to its compliance with any laws or the Listing Rules or any applicable regulations) which has not prior to the date hereof been publicly announced or published by the Company and which may, in the absolute opinion of the Underwriter, is material to the Group as a whole and is likely to affect the success of the Rights Issue; or
which event or events is or are in the absolute opinion of the Underwriter:
(a) likely to have a material adverse effect on the business or financial or trading position or prospects of the Group as a whole;
(b) likely to have a material adverse effect on the success of the Rights Issue or the level of the Rights Shares taken up; or
(c) make it inappropriate, inadvisable or inexpedient to proceed further with the Rights Issue;
(ii) any breach of any of the warranties or undertakings or any omission to observe any of the obligations or undertakings in the Underwriting Agreement comes to the knowledge of the Underwriter; or
(iii) any Specified Event comes to the knowledge of the Underwriter,
the Underwriter shall be entitled to terminate the Underwriting Agreement by notice in writing to the Company served prior to the Latest Time for Termination.
Upon giving notice pursuant to the Underwriting Agreement, the obligations of the Underwriter and the Company under the Underwriting Agreement shall terminate forthwith provided that the Company shall remain liable to pay to the Underwriter such fees and expenses (other than the underwriting commission) payable by the Company pursuant to the Underwriting Agreement. If the Underwriter exercises such right, the Rights Issue will not proceed.
Information about the Underwriter
The Underwriter is a company incorporated in Hong Kong with limited liability and a corporation licensed to carry on type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO. As at the Latest Practicable Date, the Underwriter did not hold any Shares.
The Underwriter confirms that (i) it is independent of and not connected with the Company or its connected persons; and (ii) it has complied with Rule 7.19(1)(a) of the Listing Rules that it is licensed under the SFO for type 1 regulated activity and its ordinary business include underwriting of securities. To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, the Underwriter and its ultimate beneficial owner(s) and/or associates are third parties independent of the Company.
Irrevocable Undertakings from CQIH
As at the Latest Practicable Date, CQIH held 344,621,633 Shares (representing approximately 69.02% of the issued share capital of the Company). Pursuant to the Rights Issue, 344,621,633 Rights Shares will be provisionally allotted to CQIH. CQIH has executedthe CQIH Undertakings, pursuant to which CQIH has irrevocably and unconditionally undertaken to the Company and the Underwriter that it:
(i) will apply and pay for the CQIH Committed Shares, being all of the 344,621,633 Rights Shares provisionally allotted to CQIH pursuant to the Rights Issue, by lodging the duly completed and signed PAL before the latest time for acceptance of and payment for the Rights Shares;
(ii) will not sell, dispose of or transfer the Shares beneficially held by it, including the 344,621,633 Shares currently held by it, during the period from the date of execution of the CQIH Undertakings to the Rights Issue Record Date (both dates inclusive); and
(iii) save for the Rights Shares provisionally allotted to it, will not apply for any excess Rights Shares.
CQIH has confirmed that its commitment in respect of the application and payment for the CQIH Committed Shares was made after taking into account its financial and investment plans.
Save for CQIH, as at the Latest Practicable Date, the Board had not received any information or other undertakings from any Shareholders of their intention to take up or not to take up the securities of the Company to be offered to them under the Rights Issue.
Qualifying Shareholders
To qualify for the Rights Issue, a Qualifying Shareholder must be registered as a member of the Company on the Rights Issue Record Date and not being a Non-Qualifying Shareholder. In order to be registered as members of the Company on the Rights Issue Record Date, all transfers of Shares (together with the relevant share certificate(s)) must be lodged with the Hong Kong Share Registrar, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong by 4:30 p.m. on Friday, 16 April 2021. It is expected that the last day of dealings in the Shares on a cum-rights basis is Wednesday, 14 April 2021 and the Shares will be dealt with on an ex-rights basis from Thursday, 15 April 2021.
The Company will despatch the Prospectus Documents to the Qualifying Shareholders on the Posting Date.
Application for all or any part of a Qualifying Shareholder's provisional allotment should be made by completing the Provisional Allotment Letter and lodging the same with a cheque or banker's cashier order for the Rights Shares being applied with the Hong Kong Share Registrar, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong on or before 4:00 p.m. on the Latest Acceptance Date.
The Qualifying Shareholders who take up their pro-rata entitlement in full will not experience any dilution to their interests in the Company. If a Qualifying Shareholder does not
take up any of his/her/its entitlement in full under the Rights Issue, his/her/its proportionate shareholding in the Company will be diluted.
Overseas Shareholders
As at the Latest Practicable Date, according to the register of members of the Company, the Company had seven Overseas Shareholders holding a total of 250,622,119 Shares with registered addresses in the following jurisdictions: Australia, the BVI, Canada, New Zealand and the US.
In compliance with Rule 13.36(2)(a) of the Listing Rules, the Company will make enquiries regarding the feasibility of extending the Rights Issue to the Overseas Shareholders in the relevant jurisdictions. If, after making such enquiries, the Directors consider that it would be necessary or expedient on account of either the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory bodies or stock exchanges in that place to exclude such Overseas Shareholder from the Rights Issue, such Overseas Shareholder will become a Non-Qualifying Shareholder and therefore will not be entitled to participate in the Rights Issue, subject to limited exceptions.
The Company will continue to ascertain whether there are any other Overseas Shareholders in any other jurisdiction(s) on the Rights Issue Record Date and will, if necessary, make further enquiries regarding the feasibility of extending the Rights Issue to such other Overseas Shareholders on the Rights Issue Record Date. Further information in this connection will be set out in the Prospectus containing, among other things, details of the Rights Issue, to be despatched to the Shareholders on the Posting Date.
Notwithstanding the foregoing, the Prospectus is expected to include provisions permitting certain categories of sophisticated and/or qualified investors in certain overseas jurisdictions to take up their rights under the Rights Issue, subject to complying with certain certification and other requirements (to be set out in the Prospectus) which the Directors consider necessary or desirable in order to enable those investors to take part in the Rights Issue in compliance with their applicable local laws and regulations. The Company reserves the absolute discretion to determine whether to allow such participation as well as the identity of any person(s) who may be allowed to do so.
The Company reserves the right to treat as invalid any acceptance of or application for Rights Shares where it believes that such acceptance or application would violate the applicable securities laws or other laws or regulations of any territory or jurisdiction.
It is the responsibility of any person (including, without limitation, a nominee, agent and trustee) receiving the Prospectus Documents outside Hong Kong and wishing to take up the Rights Shares to satisfy themselves as to the full and relevant compliance of the laws of the relevant jurisdictions including the obtaining of any governmental or other consents andobserving other formalities which may be required in such jurisdictions, and to pay any taxes, duties and other amounts required to be paid in such jurisdictions in connection therewith. Any acceptance of the Rights Shares by any person will be deemed to constitute a representation and warranty from such person to the Company that such local laws, regulations and requirements of the relevant territory or jurisdiction have been fully complied with. If you are in any doubt as to your position, you should consult a professional adviser.
Overseas Shareholders (excluding those with registered address in jurisdictions which are included in the Rights Issue) on the Rights Issue Record Date may not be eligible to take part in the Rights Issue as explained below.
The Prospectus Documents are not intended to be registered under the applicable securities legislation of any jurisdiction other than Hong Kong. Pursuant to Rule 13.36(2)(a) of the Listing Rules, the Board has made enquiries regarding the legal restrictions under the applicable securities legislation of the relevant jurisdictions and the requirements of the relevant regulatory body or stock exchange with respect to the rights of the Rights Shares to such Overseas Shareholders.
The Company will send copies of the Overseas Letter and the Prospectus to the Non-Qualifying Shareholders for their information only, but will not send them the PAL and the EAF.
Fractional Entitlements
On the basis of provisional allotment of one (1) Rights Share for every one (1) Share held by the Qualifying Shareholders on the Rights Issue Record Date, no fractional entitlements to the Rights Shares will arise under the Rights Issue.
Application for Excess Rights Shares
Qualifying Shareholders shall be entitled to apply, by way of excess application, for (i) the Rights Shares representing the entitlement of the Non-Qualifying Shareholders and which cannot be sold at a net premium; and (ii) any Rights Shares provisionally allotted but not validly accepted by the Qualifying Shareholders or otherwise not subscribed for by transferees of the nil-paid Rights Shares. Application for the excess Rights Shares may be made by completing the EAF and lodging the same with a separate remittance for the excess Rights Shares being applied for by the latest time for the application and payment for the excess Rights Shares. The Board will allocate the excess Rights Shares at its discretion on a fair and equitable basis and on the following principles: (i) as far as practicable, in proportion to the number of excess Rights Shares being applied for under each application; and (ii) no preference will be given to applications made for topping up odd lot holdings to whole board lot holdings.
Any Rights Shares not taken up (i) by the Qualifying Shareholders or transferees of nil-paid Rights Shares under PALs; or (ii) by excess applications by the Qualifying Shareholdersunder EAFs will be taken up by the Underwriter on a best effort basis pursuant to the terms and conditions of the Underwriting Agreement.
Shareholders with Shares held by a nominee (or which are held in CCASS) should note that the Board will consider the nominee (including HKSCC Nominees Limited) as one single Shareholder according to the register of members of the Company. Accordingly, such Shareholders should note that the aforesaid arrangement in relation to the allocation of the excess Rights Shares will not be extended to the relevant beneficial owners individually. Shareholders with Shares held by a nominee (or which are held in CCASS) are advised to consider whether they would like to arrange for the registration of their relevant Shares under the names of the beneficial owners prior to the Rights Issue Record Date for the purpose of the Rights Issue. Shareholders and investors should consult their professional advisers if they are in doubt as to their status.
Application for Listing of the Rights Shares
The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Rights Shares in both nil-paid and fully-paid forms. Nil-paid Rights Shares are expected to be traded in board lots of 2,000. No part of the securities of the Company in issue or for which listing or permission to deal is being or is proposed to be sought is listed or dealt in or on any other stock exchange. Dealings in the Rights Shares (in both nil-paid and fully-paid forms) will be subject to the payment of stamp duty, Stock Exchange trading fee, SFC transaction levy and other applicable fees and charges in Hong Kong.
Share Certificates and refund cheque for the Rights Shares
Subject to the fulfilment of the conditions of the Rights Issue set out below, certificates for all fully-paid Rights Shares are expected to be sent by ordinary post on or before Tuesday, 18 May 2021 to those persons who have validly accepted and, where applicable, applied for, and paid for the Rights Shares, at their own risk, to their registered addresses. Each Shareholder will receive one share certificate for all allotted Rights Shares. Refund cheques in respect of wholly or partially unsuccessful applications for the excess Rights Shares (if any) are expected to be sent by ordinary post on or before Tuesday, 18 May 2021 to the applicants, at their own risk, to their registered addresses.
Rights Shares will be Eligible for Admission into CCASS
Subject to the granting of listing of, and permission to deal in, the Rights Shares in both nil-paid and fully-paid forms on the Stock Exchange as well as compliance with the stock admission requirements of HKSCC, the Rights Shares in both their nil-paid and fully-paid forms will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Rights Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second settlement day thereafter.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. Shareholders should seek advice from their licensed securities dealer(s) or other professional adviser(s) for details of those settlement arrangements and how such arrangements will affect their rights and interests.
Splitting and Transfer of Provisional Allotment Letter
If you wish to accept only part of your provisional allotment or transfer only part of your rights to subscribe for the Rights Shares provisionally allotted to or to transfer all or part of your rights to more than one person, the original PAL must be surrendered and lodged for cancellation and splitting of the relevant PAL(s) first together with a covering letter stating clearly the number of split PALs required and the number of nil-paid Rights Shares to be comprised in each split PAL (which, in aggregate, should be equal to the number of Rights Shares provisionally allotted to such holder as stated in the original PAL) by 4:30 p.m. on Friday, 30 April 2021 to the Hong Kong Share Registrar, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong, who will then cancel this original PAL and issue new PAL(s) in the denominations required, which will be available for collection at the Hong Kong Share Registrar, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong after 9:00 a.m. on the second Business Day after the surrender of this original PAL and the related fee will be borne by the Company. Thereafter, upon collection of new PAL(s), you can transfer the relevant nil-paid Rights Shares to the relevant transferee(s) following the procedures and steps as stated in the below paragraph.
The PAL contains further information regarding the procedures to be followed for acceptance and/or transfer of the whole or part of the provisional allotment of the Rights Shares by the Qualifying Shareholders. All cheques or cashier orders accompanying completed PALs will be presented for payment immediately upon receipt and all interest earned on such monies (if any) will be retained for the benefit of the Company. Completion and return of the PAL with a cheque or a cashier's order, whether by a Qualifying Shareholder or by any nominated transferees, will constitute a warranty by the applicant that the cheque or the cashier's order will be honoured on first presentation. Without prejudice to the other rights of the Company in respect thereof, the Company reserves the right to reject any PAL in respect of which the cheque or cashier order is dishonoured on first presentation, and in that event the provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.
Warning of the Risks of Dealing in the Shares and Nil-Paid Rights Shares
Shareholders and potential investors of the Company should note that the Rights Issue is conditional upon, among others, the Underwriting Agreement having become unconditional and the Underwriter not having terminated the Underwriting Agreement in accordance with the terms thereof (a summary of which is set out in the sub-paragraph headed "Termination of the Underwriting Agreement" above). Accordingly, the Rights Issue may or may not proceed. The Shares will be dealt with on an ex-rights basis from Thursday, 15 April 2021. Dealings in the Rights Shares in nil-paid form are expected to take place from Wednesday, 28 April 2021 to Wednesday, 5 May 2021 (both days inclusive). Any Shareholder or other person contemplating transferring, selling or purchasing the Shares and/or Rights Shares in their nil-paid form is advised to exercise caution when dealing in the Shares and/or the nil-paid Rights Shares. Any person who is in any doubt about his/her/its position or any action to be taken is recommended to consult his/her/its own professional adviser(s). Any Shareholder or other person dealing in the Shares or in the nil-paid Rights Shares up to the date on which all the conditions to which the Rights Issue is subject are fulfilled (or waived (as appropriate)) (and the date on which the Underwriter's right of termination of the Underwriting Agreement ceases) will accordingly bear the risk that the Rights Issue may not become unconditional or may not proceed.
Reasons for the Rights Issue and Use of Proceeds
The Board proposed the Rights Issue to raise funds to settle part of the Consideration and to finance the associated transaction expenses relating to the Acquisition. The Rights Issue will also provide an opportunity for the Shareholders to participate in the Company's equity fund raising activities at prevailing market price and to enjoy the potential upside of the Company's share price performance upon Completion and when the benefits of the Acquisition materialise in the future.
Assuming that there is no change in the number of issued Shares on or before the Rights Issue Record Date and that all Rights Shares have been taken up by the Qualifying Shareholders and/or the Underwriter or the subscribers procured by it, the gross proceeds from the Rights Issue will be approximately HK$194.7 million. The estimated net proceeds after deducting the transaction expenses from the Rights Issue and the Acquisition will be approximately HK$171.7 million (assuming that there is no change in the number of issued Shares on or before the Rights Issue Record Date), which are intended to be used in the following manner:
(a) approximately HK$154.5 million (representing 90% of the estimated net proceeds from the Rights Issue) will be applied towards the cash settlement of the Consideration; and
(b) approximately HK$17.2 million (representing 10% of the estimated net proceeds from the Rights Issue) will be used as the Group's general working capital.
In the event that the proceeds raised from the Rights Issue are not sufficient to cover the cash payment obligation of the Company under the Sale and Purchase Agreement, the Company intends to use its internal resources and/or other debt financing to settle the shortfall of the cash payment obligation under the Sale and Purchase Agreement.
The aforesaid intended use of the net proceeds from the Rights Issue will remain unaffected regardless of the ultimate subscription level.
EFFECT OF THE ISSUE OF THE CONSIDERATION CB AND THE RIGHTS ISSUE ON THE SHAREHOLDING STRUCTURE OF THE COMPANY
As at the Latest Practicable Date, the Company had 499,276,680 Shares in issue. The Company has adopted the Share Option Scheme, which became effective on 27 August 2013, pursuant to which the Company may grant options to subscribe for Shares to selected eligible participants. As at the Latest Practicable Date, the Company had no outstanding convertible securities, options, warrants or other derivatives in issue which are convertible or exchangeable into Shares.
Set out below is the shareholding structure of the Company (a) as at the Latest Practicable Date; (b) immediately after allotment and issue of the Rights Shares (assuming that (i) all Qualifying Shareholders (including CQIH) take up their respective allotment of Rights Shares in full; and (ii) there is no change in the issued share capital of the Company other than the issue of the Rights Shares since the Latest Practicable Date and up to Completion); (c) immediately after allotment and issue of the Rights Shares (assuming that (i) no Qualifying Shareholder takes up any of the Rights Shares (other than CQIH taking up the CQIH Committed Shares) and the Underwritten Shares are fully taken up by the Underwriter; and (ii) there is no change in the issued share capital of the Company other than the issue of the Rights Shares since the Latest Practicable Date and up to Completion); (d) immediately after allotment and issue of the Rights Shares and upon full conversion of the Consideration CB at the Initial Conversion Price (assuming that (i) the Underwriter holds no Share as at the time of conversion of the Consideration CB; and (ii) there is no change in the issued share capital of the Company other than the issue of the Rights Shares and the Conversion Shares since the Latest Practicable Date and up to the date of full conversion of the Consideration CB); and (e) immediately after allotment and issue of the Rights Shares and upon full conversion of the Consideration CB at the Base Conversion Price (assuming that (i) the Underwriter holds no Share as at the time of conversion of the Consideration CB; and (ii) there is no change in the issued share capital of theCompany other than the issue of the Rights Shares and the Conversion Shares since the Latest Practicable Date and up to the date of full conversion of the Consideration CB):
As at the
Latest Practicable DateImmediately after allotment and issue of the Rights Shares (assuming all Qualifying Shareholders (including CQIH) take up their respective allotment of Rights Shares in full)(2)Immediately after allotment and issue of the Rights Shares (assuming no Qualifying Shareholder takes up any of the Rights Shares (other than CQIH taking up the CQIH Committed Shares) and the Underwritten Shares are fully taken up by the
Underwriter)(2)Immediately after allotment Immediately after allotmentand issue of the Rights Shares and upon full conversion of the Consideration CB at the Initial Conversion Price (assuming the Underwriter holds no Share as at the time of conversion of the Consideration CB)(3)and issue of the Rights Shares and upon full conversion of the Consideration CB at the Base Conversion Price (assuming the Underwriter holds no Share as at the time of conversion of the Consideration CB)(3)
Approximate
Approximate
Approximate
Approximate
Approximate
Number of | shareholding | Number of | shareholding | Number of | shareholding | Number of | shareholding | Number of | shareholding | |
Shares held | percentage | Shares held | percentage | Shares held | percentage | Shares held | percentage | Shares held | percentage | |
CQIH(1) | 344,621,633 | 69.02% | 689,243,266 | 69.02% | 689,243,266 | 69.02% | 689,243,266 | 31.50% | 689,243,266 | 27.73% |
CQDHG | - | - | - | - | - | - | 1,189,386,362 | 54.36% | 1,486,732,953 | 59.82% |
Underwriter(4) | - | - | - | - | 154,655,047 | 15.49% | - | - | - | - |
Other Public Shareholders | 154,655,047 | 30.98% | 309,310,094 | 30.98% | 154,655,047 | 15.49% | 309,310,094 | 14.14% | 309,310,094 | 12.45% |
Total | 499,276,680 | 100.0% | 998,553,360 | 100.0% | 998,553,360 | 100.0% | 2,187,939,722 | 100.0% | 2,485,286,313 | 100.0% |
Notes:
(1) As at the Latest Practicable Date, CQIH was wholly owned by CQDHG, which was wholly owned by QCCIG. By virtue of the SFO, QCCIG and CQDHG are deemed to be interested in the Shares held by CQIH.
(2) The calculation is based on the assumption that there is no change in the issued share capital of the Company other than the issue of the Rights Shares since the Latest Practicable Date and up to Completion.
(3) The calculation is based on the assumption that there is no change in the issued share capital of the Company other than the issue of the Rights Shares and the Conversion Shares since the Latest Practicable Date and up to the date of full conversion of the Consideration CB.
(4) This scenario is for illustrative purpose only. Pursuant to the Underwriting Agreement, the Underwriter has undertaken to the Company that, in the event of it being called upon to subscribe for or procure subscribers to subscribe for the Underwritten Shares, (i) it will not and shall procure that the subscribers procured by it, together with parties acting in concert with each of them, will not own 10% or more of the voting rights of the Company immediately after completion of the Rights Issue; (ii) it shall and shall procure subscribers independent of the Company and its connected persons to take up such number of the Underwritten Shares necessary to ensure that the public float requirements under the Listing Rules are complied with upon completion of the Rights Issue; and (iii) it will not, for its own account, and shall procure that the subscribers procured by it will not, together with any party acting in concert with it, hold such number of the Underwritten Shares which will result in it (together with parties acting in concert with it) holding 30% or more of the voting rights of the Company immediately upon completion of the Rights Issue.
FUND RAISING EXERCISE OF THE COMPANY IN THE PAST 12 MONTHS
The Company had not conducted any equity fund raising activities in the 12 months immediately prior to the Latest Practicable Date.
INFORMATION OF THE TARGET GROUP
Please refer to the sections headed "History and Development of the Target Group", "Business of the Target Group", "Core Management Team of the Target Group" and "Financial Information of the Target Group" in this circular for further details.
INFORMATION OF THE VENDOR
CQDHG is a company incorporated in Hong Kong with limited liability on 1 April 2014 and is an investment holding company. As at the Latest Practicable Date, CQDHG was wholly owned by QCCIG, which is a company established in the PRC with limited liability and is wholly owned by the State-owned Assets Supervision & Administration Commission of Qingdao Municipal Government (ڡࢥ̹ɛ͏ִ݁Ϟ༟ପ္ຖ၍ଣ։ࡰึ).
As at the Latest Practicable Date, CQIH held 344,621,633 Shares (representing approximately 69.02% of the issued share capital of the Company). Accordingly, CQIH, CQDHG and QCCIG are Controlling Shareholders and connected persons of the Company under Chapter 14A of the Listing Rules.
TAXATION
Shareholders are advised to consult their professional advisers if they are in doubt as to the taxation implications of the receipt, purchase, holding, exercising, disposing of or dealing in, the nil-paid Rights Shares or the fully-paid Rights Shares and, regarding the Non-Qualifying Shareholders, their receipt of the net proceeds, if any, from sales of the nil-paid Rights Shares on their behalf.
IMPLICATIONS UNDER THE LISTING RULES
Sale and Purchase Agreement
The Acquisition constitutes a very substantial acquisition of the Company under Rule 14.06(5) of the Listing Rules as one or more of the relevant percentage ratios under Rule 14.07 of the Listing Rules are over 100%. Accordingly, the Sale and Purchase Agreement and the transactions contemplated thereunder are subject to the reporting, announcement, circular and shareholders' approval requirements under Chapter 14 of the Listing Rules.
In addition, as at the Latest Practicable Date, CQIH, a Controlling Shareholder which held 344,621,633 Shares (representing approximately 69.02% of the issued share capital of the Company), was wholly owned by CQDHG. Accordingly, CQDHG is an associate of CQIH and aconnected person of the Company. The Acquisition is therefore a connected transaction of the Company under Chapter 14A of the Listing Rules. Since one or more of the applicable percentage ratios in respect of the Acquisition exceeds 5%, the Acquisition is subject to the reporting, announcement, circular and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.
The Listing Committee of the Stock Exchange has determined that the Acquisition is an extreme transaction which is not subject to the reverse takeover rules. The Company is required to prepare a transaction circular with enhanced disclosure comparable to the standard for listing documents for new listing applicants. BOCOM Asia has been appointed as the financial adviser of the Company in relation to the Acquisition to conduct due diligence with reference to Practice Note 21 of the Listing Rules as clarified under the Stock Exchange's Guidance Letter HKEx-GL104-19.
As CQDHG is an associate of CQIH and a connected person of the Company, the issue of the Consideration CB to the Vendor (or its nominee(s)) as part of the Consideration constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement, circular and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.
As Mr. Gao Yuzhen, Mr. Yuan Zhi and Mr. Hu Liang, the executive Directors, are directors of CQDHG and are deemed to have a material interest in the transactions contemplated under the Sale and Purchase Agreement, each of them had abstained from voting on the board resolutions to approve the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB).
Rights Issue
In order to raise sufficient funds to settle part of the Consideration, the Board proposed the Rights Issue on the basis of one (1) Rights Share for every one (1) existing Share. Assuming no new Shares are issued and no Shares are repurchased on or before the Rights Issue Record Date, the maximum number of 499,276,680 Rights Shares to be issued pursuant to the terms of the Rights Issue represents (i) 100% of the total issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 50% of the total issued share capital of the Company as enlarged by the allotment and issue of and the Rights Shares.
In accordance with Rules 7.19A(1) and 7.27A of the Listing Rules, as the Rights Issue will increase the issued Shares by more than 50%, the Rights Issue will be made conditional on approval by the minority Shareholders by way of poll at the SGM, and the Controlling Shareholders and their associates shall abstain from voting in favor of the resolution relating to the Rights Issue at the SGM. Accordingly, CQIH, a Controlling Shareholder which held 344,621,633 Shares (representing approximately 69.02% of the issued share capital of the Company) as at the Latest Practicable Date, and its associates will abstain from voting on the resolutions in relation to the Rights Issue to be proposed at the SGM.
As at the Latest Practicable Date, to the best of the Directors' knowledge, information and belief having made all reasonable enquiries, save for CQIH, no other Shareholder is required or has indicated his/her/its intention to abstain from voting on the resolutions in relation to the Rights Issue to be proposed at the SGM.
As Mr. Gao Yuzhen, Mr. Yuan Zhi and Mr. Hu Liang, the executive Directors, are directors of CQDHG, each of them had abstained from voting on the board resolutions approving the Rights Issue.
ESTABLISHMENT OF INDEPENDENT BOARD COMMITTEE AND APPOINTMENT OF INDEPENDENT FINANCIAL ADVISER
The Independent Board Committee, comprising Mr. Yin Tek Shing, Paul, Mr. Wong Tin Kit, Ms. Zhao Meiran and Mr. Li Xue, each being an independent non-executive Director, has been established to advise the Independent Shareholders in relation to the Sale and Purchase Agreement, the Rights Issue and the issue of the Consideration CB. Each of Mr. Yin Tek Shing, Paul, Mr. Wong Tin Kit, Ms. Zhao Meiran and Mr. Li Xue has confirmed that he/she has no material interest in the Sale and Purchase Agreement, the Rights Issue and the issue of the Consideration CB.
The Company has, with the approval of the Independent Board Committee, appointed the Independent Financial Adviser in accordance with the requirements under the Listing Rules to advise the Independent Board Committee and the Independent Shareholders on matters in relation to the Sale and Purchase Agreement, the Rights Issue and the issue of the Consideration CB.
SGM
A notice of the SGM to be held at Unit Nos. 9-11, 26th Floor, Tower 1, Admiralty Centre, No. 18 Harcourt Road, Hong Kong on Tuesday, 13 April 2021 at 11:00 a.m. is set out on pages SGM-1 to SGM-4 of this circular for the purpose of considering and, if thought fit, approving, among others, (i) the Sale and Purchase Agreement; (ii) the Specific Mandate; and (iii) the Rights Issue. A form of proxy for use at the SGM is enclosed. If you do not intend or are unable to attend the meeting and wish to appoint a proxy/proxies to attend and vote on your behalf at the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Hong Kong Share Registrar, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding of the SGM or any adjournment thereof. Completion and return of the proxy form shall not preclude you from attending, and voting in person at the SGM or any adjournment thereof should you so wish and, in such event, the instrument appointing a proxy will be deemed to be revoked.
Voting on the resolutions at the SGM will be taken by poll.
As CQIH has a material interest in the Acquisition, CQIH and its associates are required under the Listing Rules to abstain from voting on the resolutions in relation to the Sale and Purchase Agreement and the transactions contemplated thereunder to be proposed at the SGM.
In addition, pursuant to Rules 7.19A(1) and 7.27A of the Listing Rules, as the Rights Issue will increase the issued Shares by more than 50%, CQIH and its associates will abstain from voting on the resolutions in relation to the Rights Issue to be proposed at the SGM.
CLOSURE OF REGISTER OF MEMBERS
To ascertain the identity of the Shareholders who are entitled to attend and vote at the SGM, the register of members of the Company will be closed from Wednesday, 7 April 2021 to Tuesday, 13 April 2021 (both days inclusive) during which no transfer of Shares can be registered. In order to be eligible to attend and vote at the SGM, all duly completed transfer forms accompanied by the relevant share certificates must be lodged with the Hong Kong Share Registrar, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong not later than 4:30 p.m. on Thursday, 1 April 2021.
RECOMMENDATIONS
Your attention is drawn to the letter from the Independent Board Committee set out on pages 57 to 58 of this circular and the letter from the Independent Financial Adviser set out on pages 59 to 122 of this circular which contains its advice to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Specific Mandate.
On the basis of the information set out in this circular, the Directors (including the members of the Independent Board Committee after considering the advice of the Independent Financial Adviser) consider that the terms and conditions of the Sale and Purchase Agreement, the Rights Issue and the issue of the Consideration CB are on normal commercial terms, and that the Sale and Purchase Agreement, the Rights Issue and the issue of the Consideration CB are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors, therefore, recommend the Independent Shareholders to vote in favor of the resolutions set out in the notice of the SGM at the end of this circular.
ADDITIONAL INFORMATION
Your attention is drawn to other sections of and appendices to this circular, which contain further information on the Target Group, the Enlarged Group and other information required to be disclosed under the Listing Rules. You should carefully consider all the information in this circular before making a decision in relation to the resolutions to be proposed at the SGM or dealing in the Shares of the Company.
WARNING
As the Completion is subject to fulfilment of the conditions precedent set out in the Sale and Purchase Agreement, the Acquisition may or may not proceed. Shareholders and potential investors are reminded to exercise caution when dealing in the securities of the Company.
Yours faithfully,
By order of the Board
Qingdao Holdings International Limited
Gao Yuzhen
Executive Director and ChairmanThe following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue.
QINGDAO HOLDINGS INTERNATIONAL LIMITED ڡࢥછٰყϞࠢʮ̡*
(Incorporated in Bermuda with limited liability)
(Stock Code: 00499)
24 March 2021
To the Independent Shareholders
Dear Sir or Madam,
(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION
IN RELATION TO THE ACQUISITION OF APPROXIMATELY 81.91% OF
THE EQUITY INTEREST IN
QINGDAO RURAL CONSTRUCTION FINANCIAL LEASING COMPANY
LIMITED* (ڡࢥ۬ඊܔணፄ༟ॡ༣Ϟࠢʮ̡);
(2) CONNECTED TRANSACTION IN RELATION TO THE ISSUE OF CONVERTIBLE BONDS UNDER THE SPECIFIC MANDATE; AND
(3) PROPOSED RIGHTS ISSUE OF RIGHTS SHARES ON THE BASIS OF
ONE (1) RIGHTS SHARE FOR EVERY ONE (1) EXISTING SHARE
HELD ON THE RIGHTS ISSUE RECORD DATE
AT THE RIGHTS ISSUE SUBSCRIPTION PRICE OF
HK$0.39 PER RIGHTS SHARE
We refer to the circular of the Company dated 24 March 2021 (the "Circular"), of which this letter forms part. Unless the context requires otherwise, capitalised terms used herein shall have the same meanings as those defined in the Circular.
We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue,
*
For identification purpose only
details of which are set out in the section headed "Letter from the Board" in the Circular. Rainbow Capital (HK) Limited has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders in this regard. Details of the independent advice from the Independent Financial Adviser, together with the principal factors and reasons they have taken into consideration, are set out on pages 59 to 122 of the Circular.
Having considered the principal factors and reasons and the advice of the Independent Financial Adviser as set out in the letter from the Independent Financial Adviser, we consider that the terms of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue are fair and reasonable so far as the Independent Shareholders are concerned, and have been entered into on normal commercial terms, and in the interests of the Company and the Shareholders as a whole.
Accordingly, we recommend the Independent Shareholders to vote in favor of the ordinary resolutions to be proposed at the SGM in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue.
Yours faithfully,
For and on behalf of the
Independent Board Committee Qingdao Holdings International Limited
Yin Tek Shing, Paul | Wong Tin Kit | Zhao Meiran | Li Xue |
Independent | Independent | Independent | Independent |
non-executive director | non-executive director | non-executive director | non-executive director |
The following is the full text of a letter of advice from Rainbow Capital (HK) Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, in relation to the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue, which has been prepared for the purpose of inclusion in this circular.
Rainbow Capital (HK) Limited
24 March 2021
To the Independent Board Committee and the Independent Shareholders
Dear Sir or Madam,
(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION
IN RELATION TO THE ACQUISITION OF APPROXIMATELY 81.91% OF
THE EQUITY INTEREST IN
QINGDAO RURAL CONSTRUCTION FINANCIAL LEASING COMPANY LIMITED*
(ڡࢥ۬ඊܔணፄ༟ॡ༣Ϟࠢʮ̡);
(2) CONNECTED TRANSACTION IN RELATION TO THE ISSUE OF
CONVERTIBLE BONDS UNDER THE SPECIFIC MANDATE;
AND
(3) PROPOSED RIGHTS ISSUE OF RIGHTS SHARES ON THE BASIS OF
ONE (1) RIGHTS SHARE FOR EVERY ONE (1) EXISTING SHARE
AT HK$0.39 PER RIGHTS SHARE
INTRODUCTION
We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue, details of which are set out in the letter from the Board (the "Letter from the Board") contained in the circular issued by the Company to the Shareholders dated 24 March 2021 (the "Circular"), of which this letter forms part. Unless the context otherwise requires, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.
On 17 March 2021 (after trading hours of the Stock Exchange), the Purchaser and the Vendor entered into the Sale and Purchase Agreement, pursuant to which the Purchaser has conditionally agreed to acquire, and the Vendor has conditionally agreed to sell the Target Equity Interest, being approximately 81.91% of the equity interest in the Target Company, at a consideration of approximately HK$2,378.7 million. The Consideration shall be satisfied as to approximately HK$154.5 million by cash upon Completion and as to approximately HK$2,224.2 million by the issue of the Consideration CB by the Company to the Vendor (or its nominee(s)) upon Completion.
As one or more of the relevant percentage ratios under Rule 14.07 of the Listing Rules are over 100%, the Acquisition constitutes a very substantial acquisition for the Company under Rule 14.06(5) of the Listing Rules. Accordingly, the Sale and Purchase Agreement and the transactions contemplated thereunder are subject to the reporting, announcement, circular and shareholders' approval requirements under Chapter 14 of the Listing Rules.
As at the Latest Practicable Date, CQIH, a Controlling Shareholder which held 344,621,633 Shares (representing approximately 69.02% of the issued share capital of the Company), was wholly-owned by CQDHG. Accordingly, CQDHG is an associate of CQIH and a connected person of the Company. The Acquisition is therefore a connected transaction for the Company under Chapter 14A of the Listing Rules. Since one or more of the applicable percentage ratios in respect of the Acquisition exceeds 5%, the Acquisition is subject to the reporting, announcement, annual review, circular and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.
As CQDHG is an associate of CQIH and a connected person of the Company, the issue of the Consideration CB to the Vendor (or its nominee(s)) as part of the Consideration constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement, circular and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.
As CQIH has a material interest in the Acquisition, CQIH and its associates shall abstain from voting on the resolution in relation to the Sale and Purchase Agreement and the transactions contemplated thereunder to be proposed at the SGM.
To finance part of the Consideration and the associated transaction expenses relating to the Acquisition, the Board proposed to raise a maximum gross proceeds of approximately HK$194.7 million from the Rights Issue on the basis of one (1) Rights Share for every one (1) existing Share. In accordance with Rule 7.19A(1) and 7.27A of the Listing Rules, as the Rights Issue will increase the issued Shares by more than 50%, the Rights Issue will be made conditional on approval by the minority Shareholders by way of poll at the SGM, and the Controlling Shareholders and their associates shall abstain from voting in favor of the resolution relating to the Rights Issue at the SGM. Accordingly, CQIH and its associates shall abstain from voting on the resolution in relation to the Rights Issue to be proposed at the SGM.
The Independent Board Committee, comprising all independent non-executive Directors, namely Mr. Yin Tek Shing, Paul, Mr. Wong Tin Kit, Ms. Zhao Meiran and Mr. Li Xue, has been formed to advise the Independent Shareholders on whether (i) the Sale and Purchase Agreement is entered into in the ordinary and usual course of business of the Group; and (ii) the terms of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue are on normal commercial terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole. We, Rainbow Capital (HK) Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.
As at the Latest Practicable Date, we did not have any relationships or interests with the Group, CQIH, CQDHG and the Target Group that could reasonably be regarded as relevant to our independence. In the last two years, there was no engagement between the Group and us. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist whereby we had received any fees or benefits from the Group, CQIH, CQDHG and the Target Group. Accordingly, we are qualified to give independent advice in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue.
BASIS OF OUR OPINION
In formulating our opinion and advice, we have relied on (i) the information and facts contained or referred to in the Circular; (ii) the information supplied by the Group and its advisers; (iii) the opinions expressed by and the representations of the Directors and the management of the Group; and (iv) our review of the relevant public information. We have assumed that all the information provided and representations and opinions expressed to us or contained or referred to in the Circular were true, accurate and complete in all respects as at the date thereof and may be relied upon. We have also assumed that all statements contained and representations made or referred to in the Circular are true at the time they were made and continue to be true as at the Latest Practicable Date and all such statements of belief, opinions and intentions of the Directors and the management of the Group and those as set out or referred to in the Circular were reasonably made after due and careful enquiry. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and the management of the Group. We have also sought and received confirmation from the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular and that all information or representations provided to us by the Directors and the management of the Group are true, accurate, complete and not misleading in all respects at the time they were made and continued to be so until the date of the Circular.
We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided, representations made or opinion expressed by the Directors and the management of the Group, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or future prospects of the Group, CQIH, CQDHG and the Target Group, or any of its respective substantial shareholders, subsidiaries or associates.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In considering whether the terms of the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB) and the Rights Issue are fair and reasonable so far as the Independent Shareholders are concerned, we have taken into account the principal factors and reasons set out below:
1. Background of the Group
The Group is principally engaged in the business of (i) leasing of investment properties located in the PRC and Hong Kong; (ii) production and sale of digital Chinese calligraphy education equipment and relevant learning and tutorial systems; and (iii) provision of loan financing services. The Group commenced its loan financing business in 2008. Since then, the Group has been actively pursuing opportunities to expand its money lending business in Hong Kong. In view of the increasing demand for financing services in the PRC, the Group has recently expanded its loan financing business in the PRC by providing an entrusted loan to a PRC property developer.
On 6 December 2019, the Company announced that the financial year end date of the Company has been changed from 31 March to 31 December of each year. Set out below is a summary of the consolidated financial information of the Group for the year ended 31 March 2019, the nine months ended 31 December 2019 and the six months ended 30 September 2019 and 30 June 2020 as extracted from the annual report of the Company forthe nine months ended 31 December 2019 and the interim report of the Company for the six months ended 30 June 2020 (the "2020 Interim Report"), respectively:
(i)Financial performance
For the | For the | For the | ||
For the | nine months | six months | six months | |
year ended | ended | ended | ended | |
31 March | 31 December | 30 September | 30 June | |
2019 | 2019 | 2019 | 2020 | |
HK$'000 | HK$'000 | HK$'000 | HK$'000 | |
(audited) | (audited) | (unaudited) | (unaudited) | |
Revenue | 55,938 | 45,824 | 28,277 | 22,877 |
- Production and sale of | ||||
education equipment | 23,586 | 21,193 | 11,858 | 7,432 |
- Leasing of investment | ||||
properties | 31,152 | 23,736 | 15,819 | 15,378 |
- Loan financing | 1,200 | 895 | 600 | 67 |
Cost of inventories sold | (13,587) | (11,550) | (7,003) | (4,521) |
- Finished goods purchased | (28,998) | (10,702) | (8,935) | (4,855) |
- Change in inventories of | ||||
finished goods | 15,411 | (848) | 1,932 | 334 |
Increase/(decrease) in fair | ||||
value of investment | ||||
properties | 1,698 | 10,963 | (2,400) | 4,673 |
Other income and gains | 13,352 | 6,177 | 7,706 | 2,199 |
- Net foreign exchange | ||||
gain | 11,402 | 5,159 | 7,012 | 2,020 |
Employee benefit expenses | (6,896) | (5,893) | (3,490) | (4,335) |
Other operating expenses | (17,991) | (15,300) | (9,083) | (9,072) |
Finance costs | (20,124) | (15,562) | (10,392) | (10,231) |
Profit before tax | 12,319 | 14,563 | 3,615 | 1,920 |
Profit for the year/period | ||||
attributable to the | ||||
Shareholders | 9,535 | 12,929 | 3,829 | 1,626 |
Basic earnings per Share | ||||
(HK cents) | 1.91 | 2.59 | 0.76 | 0.33 |
- 63 - |
(a) For the year ended 31 March 2019 and nine months ended 31 December 2019
For the nine months ended 31 December 2019, revenue generated from production and sale of digital Chinese calligraphy education equipment, leasing of investment properties and provision of loan financing services accounted for approximately 46.2%, 51.8% and 2.0% of the Group's total revenue, respectively.
For the nine months ended 31 December 2019, revenue of the Group was approximately HK$45.8 million, representing a decrease of approximately 18.1% as compared to approximately HK$55.9 million for the year ended 31 March 2019. Such decrease was mainly attributable to a shorter reporting period, which led to (1) a decrease in revenue generated from leasing of investment properties by approximately 23.8% from approximately HK$31.2 million for the year ended 31 March 2019 to approximately HK$23.7 million for the nine months ended 31 December 2019; (2) a decrease in revenue generated from production and sale of digital Chinese calligraphy education equipment by approximately 10.1% from approximately HK$23.6 million for the year ended 31 March 2019 to approximately HK$21.2 million for the nine months ended 31 December 2019; and (3) a decrease in the revenue generated from provision of loan financing services by approximately 25.4% from approximately HK$1.2 million for the year ended 31 March 2019 to approximately HK$0.9 million for the nine months ended 31 December 2019.
For the nine months ended 31 December 2019, profit attributable to the Shareholders was approximately HK$12.9 million, representing an increase of approximately of 35.6% as compared to approximately HK$9.5 million for the year ended 31 March 2019. Such increase was primarily attributable to (1) the decrease in cost of inventories sold by approximately 15.0% from approximately HK$13.6 million for the year ended 31 March 2019 to approximately HK$11.6 million for the nine months ended 31 December 2019, which was in line with the decrease in revenue; (2) the increase in fair value of investment properties from approximately HK$1.7 million for the year ended 31 March 2019 to approximately HK$11.0 million for the nine months ended 31 December 2019; and (3) the decrease in finance costs by approximately 22.7% from approximately HK$20.1 million for the year ended 31 March 2019 to approximately HK$15.6 million for the nine months ended 31 December 2019. This was partially offset by the decrease in other income and gains which mainly represented the exchange gain arising from the translation of monetary items denominated in foreign currencies other than the functional currencies of the members of the Group. Accordingly, earnings per Share increased from approximately 1.91 HK cents for the year ended 31 March 2019 to approximately 2.59 HK cents for the nine months ended 31 December 2019.
Excluding the fair value change of investment properties and net foreign exchange gain, the Group incurred loss attributable to the Shareholders of approximately HK$3.6 million and HK$3.2 million for the year ended 31 March 2019 and the nine months ended 31 December 2019, respectively.
(b) For the six months ended 30 September 2019 and 30 June 2020
For the six months ended 30 June 2020, revenue generated from production and sale of digital Chinese calligraphy education equipment, leasing of investment properties and provision of loan financing services accounted for approximately 32.5%, 67.2% and 0.3% of the Group's total revenue, respectively.
For the six months ended 30 June 2020, revenue of the Group was approximately HK$22.9 million, representing a decrease of approximately 19.1% as compared to approximately HK$28.3 million for the six months ended 30 September 2019. Such decrease was primarily due to the decrease in revenue generated from production and sale of digital Chinese calligraphy education equipment by approximately 37.3% from approximately HK$11.9 million for the six months ended 30 September 2019 to approximately HK$7.4 million for the six months ended 30 June 2020, as a result of (1) the delay of installation works for the Group's digital Chinese calligraphy education equipment in classrooms due to the suspension of classes at schools in the Group's major markets in the PRC in the first quarter of 2020; and (2) the disruption of the Group's production and promotional activities, caused by the COVID-19 outbreak.
Profit attributable to the Shareholders was approximately HK$1.6 million for the six months ended 30 June 2020, representing a decrease of approximately 57.5% as compared to approximately HK$3.8 million for the six months 30 September 2019. Such decrease was mainly attributable to (1) the outbreak of COVID-19, which adversely interrupted the normal production and sales activities of the digital Chinese calligraphy education equipment segment; and (2) the decrease in exchange gains due to the depreciation of RMB against United States dollars and Hong Kong dollars. Accordingly, earnings per Share decreased from approximately 0.76 HK cents for the six months ended 30 September 2019 to approximately 0.33 HK cents for the six months ended 30 June 2020.
Excluding the fair value change of investment properties and net foreign exchange gain, the Group incurred loss attributable to the Shareholders of approximately HK$783,000 and HK$5.1 million for the six months ended 30 September 2019 and the six months ended 30 June 2020, respectively.
(ii) Financial position
As at | As at | As at | |
31 March | 31 December | 30 June | |
2019 | 2019 | 2020 | |
HK$'000 | HK$'000 | HK$'000 | |
(audited) | (audited) | (unaudited) | |
Total assets | 742,752 | 745,030 | 741,743 |
Non-current assets, including: | 619,116 | 607,809 | 607,813 |
- Investment properties | 546,479 | 538,656 | 539,201 |
Current assets, including: | 123,636 | 137,221 | 133,930 |
- Cash and cash equivalents | 71,375 | 72,765 | 90,202 |
Total liabilities | 453,678 | 452,826 | 448,475 |
Current liabilities, including: | 9,997 | 64,787 | 61,156 |
- Interest-bearing bank | |||
borrowings | - | 49,573 | 49,370 |
Non-current liabilities, | |||
including: | 443,681 | 388,039 | 387,319 |
- Loan from the ultimate | |||
holding company | 400,000 | 382,222 | 378,022 |
- Loan from an | |||
intermediate holding | |||
company | 39,150 | - | - |
Net current assets | 113,639 | 72,434 | 72,774 |
Equity attributable to the | |||
Shareholders | 253,258 | 258,458 | 257,468 |
Gearing ratio (Note) | 61.1% | 60.8% | 60.5% |
Note: being total liabilities divided by total assets
As at 30 June 2020, total assets of the Group amounted to approximately HK$741.7 million, which remained stable as compared to that as at 31 March 2019 and 31 December 2019. As at 30 June 2020, investment properties and cash and cash equivalents accounted for approximately 84.9% of the Group's total assets. The investment properties of the Group are located in Hong Kong and the PRC.
As at 30 June 2020, total liabilities of the Group amounted to approximately HK$448.5 million, representing a slight decrease from that as at 31 March 2019 and 31 December 2019. Interest-bearing bank borrowings and loan from the ultimate holding company accounted for approximately 95.3% of the Group's total liabilities. The loan from the ultimate holding company as at 30 June 2020 was unsecured and bore interest at a fixed rate of 4.75% per annum, which will expire on 31 December 2022.
As at 30 June 2020, the Group had cash and cash equivalents of approximately HK$90.2 million with a gearing ratio of approximately 60.5%. Based on the equity attributable to the Shareholders as at 30 June 2020 and 499,276,680 Shares in issue as at the Latest Practicable Date, the net asset value per Share was approximately HK$0.516.
(iii) Prospects
Production and sale of digital Chinese calligraphy education equipment, leasing of investment properties and provision of loan financing services are the three core businesses of the Group. During the period under review, the Group generated minimal profit and even incurred losses after excluding the fair value change of investment properties and net foreign exchange gain. As such, we consider that there is an imminent need for the Group to diversify its income and earnings stream to improve its profitability.
While leasing of investment properties provides the Group with a stable income stream, the Group's sale of education equipment and loan financing business in the first half of 2020 were adversely affected by the COVID-19 outbreak due to the suspension of classes at schools in the Group's major markets in the PRC in the first quarter of 2020 as one of the precautionary measures implemented by the PRC government and the slowing of business activities.
Notwithstanding the impact of COVID-19, as stated in the 2020 Interim Report, the Group remains optimistic about the prospects of its Chinese calligraphy education related products in the long term since Chinese calligraphy training has been made compulsory for students in primary and secondary schools across in the PRC. In the meantime, although the revenue generated from provision of loan financing services was not significant, the Group is dedicated to growing its loan financing business and will explore business opportunities when arisen. As disclosed in the 2020 Interim Report, it is expected that the loan financing business will continue to be part of the main income streams of the Group when the general economic conditions gradually return to normal as the COVID-19 outbreak stabilises.
In May 2020, the Group expanded its loan financing business in the PRC by providing an entrusted loan to a PRC property developer. On 7 May 2020, Qingdao Qifeng Technology Services Co., Ltd. ("Qifeng"), an indirect wholly-owned subsidiary of the Company, Qingdao Urban Rural Construction Micro-credit Loan Co. Ltd. ("QURC") and Huizhou Jiuyu Real Estate Company Limited ("Huizhou Jiuyu") entered into an entrusted loan arrangement (the "Arrangement"), pursuant to which QURC, acting as the lending agent, agreed to release a loan in the principal amount of RMB195.1 million (the "Entrusted Loan"), which will be funded by Qifeng, to Huizhou Jiuyu for acquisition of a land located in Huizhou City, Guangdong Province, the PRC. Huizhou Jiuyu is indirectly held as to 49% by NEQH Development and Construction Co. Ltd. which is in turn held as to 51% by Qingdao Holdings (Hong Kong) Limited, a wholly-owned subsidiary of the Company. On the same date, QCCIG, a Controlling Shareholder, entered into a loan agreement with Qifeng, pursuant to which QCCIG agreed to provide, upon Qifeng's request, an unsecured loan of RMB182 million to Qifeng. The Group intends to use its internal resources and the loan from QCCIG to fund the Entrusted Loan. The Arrangement was approved by the independent shareholders of the Company on 30 June 2020. It is expected that the Group will generate additional interest income under the Arrangement. We consider the Arrangement is consistent with the Group's stated strategy to expand its loan financing business.
2. Background of the Target Group
The Target Group, which commenced its business in 2014, is a finance leasing company headquartered in Qingdao, providing (i) finance leasing service, which includes direct finance leasing and sale and leaseback; and (ii) factoring service in connection with finance leasing service in the PRC. The Target Group currently operates its business by targeting customers in four targeted industries in the PRC, including (i) public infrastructure; (ii) medical and healthcare; (iii) water supplies; and (iv) energy industries.
Set out below is the summary of the consolidated financial information of the Target Group for FY2018, FY2019, 10M2019 and 10M2020 as extracted from Appendix III to the Circular:
(i)Financial performance
2019 | ||||
RMB'000 | RMB'000 | RMB'000 | RMB'000 | |
(audited) | (audited) | (unaudited) | (audited) | |
Revenue | 866,540 | 1,157,312 | 938,847 | 1,182,616 |
- Interest income from sale | ||||
and leaseback | ||||
transactions | 860,801 | 1,147,067 | 933,898 | 1,110,983 |
- Interest income from | ||||
factoring | - | 6,397 | 2,393 | 56,251 |
- Finance lease income | 3,287 | 3,479 | 2,556 | 7,384 |
- Others | 2,452 | 369 | - | 7,998 |
Other income, gains or | ||||
losses | 57,193 | 39,800 | 22,483 | 14,997 |
Expenses | ||||
- Depreciation | (3,124) | (3,789) | (3,002) | (4,839) |
- Interest expenses | (477,824) | (607,765) | (465,032) | (551,267) |
- Administrative expenses | (67,221) | (84,122) | (44,624) | (43,347) |
- Credit impairment losses | (24,736) | (50,528) | (85,464) | (101,737) |
Profit before income tax | 350,828 | 450,909 | 363,209 | 496,423 |
Net profit attributable to | ||||
shareholders of the | ||||
Target Company | 260,569 | 336,925 | 272,347 | 373,251 |
- 69 - |
For the year ended | For the ten months ended |
31 December | 31 October |
2018 | 2019 2020 |
(a) For FY2018 and FY2019
The Target Group's revenue primarily consisted of finance lease income derived from sale and leaseback transactions and direct finance leasing and interest income from factoring. Since July 2019, the Target Group has commenced to provide factoring services. The Target Group generated most of its revenue from interest income from sale and leaseback transactions, which accounted for approximately 99.3% and 99.1% of total revenue for FY2018 and FY2019, respectively.
Interest income from sale and leaseback transactions amounted to approximately RMB1,147.1 million for FY2019, representing an increase of approximately 33.3% as compared to approximately RMB860.8 million for FY2018. Such significant increase was primarily attributable to (1) the increase in revenue from the public infrastructure industry from approximately RMB127.1 million for FY2018 to approximately RMB187.6 million for FY2019; (2) the increase in revenue from the water supplies industry from approximately RMB147.8 million for FY2018 to approximately RMB280.8 million for FY2019; and (3) the increase in revenue from the travelling and tourism industry from approximately RMB48.2 million for FY2018 to approximately RMB108.8 million for FY2019.
Other income, gains or losses, which mainly represented investment gains on financial instruments, government grants and bank interest income, decreased by approximately 30.4% from approximately RMB57.2 million for FY2018 to approximately RMB39.8 million for FY2019, primarily attributable to the decrease in investment gains on financial instruments and bank interest income. This was partially offset by the increase in government grants which represented the fiscal support from the local governments to enterprises and refund of value-added tax.
Interest expenses mainly represented interest on borrowings from bank and other financial institutions, bonds payable, borrowings from related parties and sale and leaseback transactions. The increase in interest expenses by approximately 27.2% from approximately RMB477.8 million for FY2018 to approximately RMB607.8 million for FY2019 was in line with that of revenue.
Administrative expenses, which mainly consisted of employee benefit expenses, tax and surcharges, rental expenses for short-term lease, business travelling expenses, professional service expenses, marketing and distribution expenses and property maintenance fee, increased by approximately 25.1% from approximately RMB67.2 million for FY2018 to approximately RMB84.1 million for FY2019. This was primarily due to the increase in employee benefit expenses, tax and surcharges and professional service expenses.
Credit impairment losses, which represented impairment loss recognised or reversed on loans and receivables, finance lease receivables and other receivables, amounted to approximately RMB24.7 million and RMB50.5 millionfor FY2018 and FY2019, representing approximately 0.2% and 0.3% of total loans and receivables and finance lease receivables as at 31 December 2018 and 2019, respectively.
As a result of the foregoing, net profit attributable to shareholders of the Target Company increased by approximately 29.3% from approximately RMB260.6 million for FY2018 to approximately RMB336.9 million for FY2019.
(b) For 10M2019 and 10M2020
Interest income from sale and leaseback transactions accounted for approximately 99.5% and 93.9% of total revenue for 10M2019 and 10M2020, respectively.
Interest income from sale and leaseback transactions increased by approximately 19.0% from approximately RMB933.9 million for 10M2019 to approximately RMB1,111.0 million for 10M2020, primarily attributable to (1) the increase in revenue from the public infrastructure industry from approximately RMB152.3 million for 10M2019 to approximately RMB188.7 million for 10M2020; (2) the increase in revenue from the water supplies industry from approximately RMB226.3 million for 10M2019 to approximately RMB301.3 million for 10M2020; (3) the increase in revenue from the heating industry from approximately RMB51.4 million for 10M2019 to approximately RMB83.0 million for 10M2020; and (4) the increase in revenue from the travelling and tourism industry from approximately RMB76.9 million for 10M2019 to approximately RMB197.4 million for 10M2020. This was partially offset by the decrease in revenue from the medical and healthcare industry from approximately RMB284.1 million for 10M2019 to approximately RMB210.1 million for 10M2020.
Other income, gains or losses decreased by approximately 33.3% from approximately RMB22.5 million for 10M2019 to approximately RMB15.0 million for 10M2020, primarily attributable to the decrease in government grants.
Interest expenses increased by approximately 18.5% from approximately RMB465.0 million for 10M2019 to approximately RMB551.3 million for 10M2020.
The decrease in administrative expenses by approximately 2.9% from approximately RMB44.6 million for 10M2019 to approximately RMB43.3 million for 10M2020 was primarily due to the decrease in employee benefit expenses and business traveling expenses.
Credit impairment losses amounted to approximately RMB101.7 million for 10M2020, representing approximately 0.7% of total loans and receivables and finance lease receivables as at 31 October 2020, as compared to approximately RMB85.5 million for 10M2019.
As a result of the foregoing, net profit attributable to shareholders of the Target Company increased by approximately 37.0% from approximately RMB272.3 million for 10M2019 to approximately RMB373.3 million for 10M2020.
(ii) Financial position
As at | |||
31 October | |||
2019 | 2020 | ||
RMB'000 | RMB'000 | RMB'000 | |
(audited) | (audited) | (audited) | |
Non-current assets, | |||
including: | 8,618,325 | 10,513,478 | 10,346,166 |
- Loans and receivables | 8,415,198 | 10,116,352 | 9,843,593 |
- Finance lease receivables | 21,255 | 11,010 | 14,837 |
- Cash and cash equivalents | - | 154,000 | 204,000 |
Current assets, including: | 3,763,991 | 5,559,345 | 6,061,632 |
- Loans and receivables | 3,058,763 | 5,032,312 | 5,470,956 |
- Finance lease receivables | 11,368 | 42,495 | 136,946 |
- Cash and cash equivalents | 691,794 | 459,682 | 412,308 |
Total assets | 12,382,316 | 16,072,823 | 16,407,798 |
Current liabilities, | |||
including: | 5,618,227 | 7,395,989 | 4,429,216 |
- Borrowings | 3,952,112 | 4,335,522 | 2,074,168 |
- Bond payables | 918,165 | 2,390,481 | 1,932,285 |
Net current (liabilities)/assets | (1,854,235) | (1,836,644) | 1,632,417 |
Non-current liabilities, | |||
including: | 4,737,787 | 6,313,606 | 9,242,104 |
- Borrowings | 3,335,434 | 2,473,969 | 1,656,690 |
- Bond payables | 571,504 | 2,779,756 | 6,430,861 |
Amounts due to related parties | 300,000 | 110,000 | - |
Total liabilities | 10,356,014 | 13,709,595 | 13,671,319 |
Total equity | 2,026,303 | 2,363,228 | 2,736,479 |
Gearing ratio (Note) | 73.3% | 75.2% | 73.7% |
As at 31 December 2018
Note: being the sum of borrowings, bond payables and amounts due to related parties divided by total assets
As at 31 October 2020, total assets of the Target Group amounted to approximately RMB16,407.8 million, as compared to approximately RMB12,382.3 million and RMB16,072.8 million as at 31 December 2018 and 2019, respectively. As at 31 October 2020, loans and receivables, finance lease receivables and cash and cash equivalents accounted for approximately 98.0% of the Target Group's total assets. Loan and receivables represented receivables arising from sale and leaseback transactions and factoring. Finance lease receivables are mainly secured by leased assets, deposits and/or leased assets repurchase arrangements.
As at 31 October 2020, total liabilities of the Target Group amounted to approximately RMB13,671.3 million, as compared to approximately RMB10,356.0 million and RMB13,709.6 million as at 31 December 2018 and 2019, respectively. As at 31 October 2020, borrowings, bond payables and amounts due to related parties accounted for approximately 88.5% of the Target Group's total liabilities. Borrowings comprised guaranteed and/or secured bank borrowings, borrowings from other financial institutions and interest payable with effective interest rates of 4.98% to 7.61%, 4.49% to 7.95% and 4.49% to 7.50% per annum for FY2018, FY2019 and 10M2020, respectively. Bond payables consisted of (a) asset-backed securities; (b) corporate bonds issued in 2019 and 2020 with coupon rates ranging from 4.02% to 5.50% and maturity of either three years or five years; and (c) a private placement note issued in 2020 with a coupon rate of 3.58% and a maturity of five years.
As at 31 October 2020, the Target Group had net current assets of approximately RMB1,632.4 million with a gearing ratio of approximately 73.7%.
3. Market overview
The Target Group is principally engaged in provision of finance leasing and factoring services in the PRC. For FY2019 and 10M2020, interest income from sale and leaseback transactions and finance lease income accounted for approximately 99.4% and 94.6% of the Target Group's total revenue, respectively.
The Target Group's interest income is primarily derived from three main downstream industries, namely medical and healthcare, public infrastructure and water supplies, which contributed approximately 29.1%, 16.4% and 24.5% of the Target Group's interest income from sale and leaseback transactions for FY2019, respectively. According to the Industry Report, the Target Group ranked fourth and occupied a market share of 1.6% among the foreign-funded medical device finance leasing companies in terms of revenue in 2019.
The Target Group generated over 90% of its revenue from provision of finance leasing service, including direct finance leasing and sale and leaseback. Among the downstream industries, medical and healthcare, public infrastructure and water supplies are the major contributors of the Target Group's revenue. As a result, the financial performance of the Target Group is closely related to the development of the PRC finance leasing industry as well as the downstream industries.
(i) Growth potential in the overall finance leasing market in the PRC
According to the Industry Report, outstanding balance of the finance leasing market in the PRC increased from approximately RMB4.4 trillion by the end of 2015 to approximately RMB6.7 trillion by the end of 2019, representing a CAGR of approximately 10.6%, and is expected to grow at a CAGR of approximately 7.3% from 2019 to 2024. Meanwhile, new contract volume is expected to reach approximately RMB6.9 trillion in 2024 with a CAGR of approximately 9.6% from 2019 to 2024. While penetration rate of finance leasing in developed countries is generally around 20%, it remains at a low level in the PRC, increasing from approximately 5.3% in 2015 to approximately 7.8% in 2019. Penetration rate of the finance leasing market in the PRC is expected to reach approximately 10.0% in 2024. The growth of the finance leasing market in the PRC is expected to be driven by, among other things, (a) massive equipment and machinery demand arising from small and medium-sized enterprises' manufacturing and restructuring needs; (b) the low penetration rate; (c) favorable government policies to make finance leasing an important finance channel for companies with different financing needs; and (d) the rapid growth of downstream industries, including medical and healthcare, public infrastructure and water supplies.
(ii) Rapid growth of downstream industries
According to the Industry Report, with the PRC economic growth, the development of downstream industries, including medical and healthcare, public infrastructure and water supplies, is expected to accelerate, which calls for massive capital to flow in and will drive the development of the finance leasing market as a whole.
(a) The medical and healthcare industry in the PRC
Fixed assets investment of the medical and healthcare industry in the PRC increased at a CAGR of approximately 7.4% from approximately RMB581.2 billion in 2015 to approximately RMB772.6 billion in 2019. Driven by the aging population and growing number of private medical institutions and public hospitals in small lower tier cities or town which are short of medical sources and facilities in general, fixed assets investment of the healthcare industry in the PRC is expected to grow at a CAGR of approximately 3.7% from 2019 to 2024.
(b) The public infrastructure industry in the PRC
Fixed assets investment of urban infrastructure in the PRC increased from approximately RMB10,127.1 billion in 2015 to approximately RMB15,273.7 billion in 2019, representing a CAGR of approximately 10.8%. With increasing urbanisation rate which results in upgrade and expansion of public infrastructures such as water, electricity, gas and heat supply facilities, fixed assets investment of public infrastructure in the PRC is expected to grow at a CAGR of approximately 6.0% from 2019 to 2024.
(c) The water supplies industry in the PRC
The PRC's fixed assets investment in the water supplies industry increased significantly at a CAGR of approximately 12.7% between 2015 and 2019, and is expected to continue increasing at a CAGR of approximately 11.5% over the next five years. This is driven by the continued construction of water transportation, purification treatment and recycling infrastructure in the future resulting from the increase in capital investments from both social funds and governmental funds.
(iii) Overall comment
According to the Industry Report, the finance leasing market in the PRC is very fragmented given the large number of market participants in 2019, which totaled over 12,130 registered companies. Notwithstanding the competitive environment, the finance leasing industry in the PRC has experienced tremendous growth in the past few years and is expected to sustain high growth in the next few years. CIC projected that the finance leasing market in the PRC will grow at a CAGR of approximately 7.3% between 2019 and 2024 in terms of outstanding balance of finance lease receivables with the penetration rate reaching approximately 10.0% in 2024 from approximately 7.8% in 2019. Such growth is driven by, among other things, the rapid growth of downstream industries. The three downstream industries, from which the Target Group mainly derived its revenue, namely healthcare, public infrastructure and water supplies, are expected to grow at CAGRs of approximately 3.7%, 6.0% and 11.5% from 2019 to 2024, respectively, in terms of fixed assets investment. All these suggest that the outlook for the finance leasing industry in the PRC will be positive in the long run.
Independent Shareholders' attention is drawn to the Industry Report contained in Appendix I to the Circular, which set out the overview and prospects of the finance leasing industry in the PRC.
4. Reasons for and benefits of the Acquisition
The Group is principally engaged in the business of (i) leasing of investment properties located in the PRC and Hong Kong; (ii) production and sale of digital Chinese calligraphy education equipment and relevant learning and tutorial systems; and (iii) provision of loan financing services. The Group has commenced its loan financing business since 2008. As disclosed in the 2020 Interim Report, the Group is keen on growing its loan financing business and will explore business opportunities with its best effort. In view of the increasing demand for financing services in the PRC, in May 2020, the Group expanded its loan financing business in the PRC by providing an entrusted loan to a PRC property developer under the Arrangement. As described in the section headed "1. Background of the Group - (iii) Prospects" above, there is an imminent need for the Group to diversify its income and earnings stream to improve its profitability.
The Target Group is principally engaged in provision of finance leasing and factoring services in the PRC, and has a solid and proven track record. During the Track Record Period, the Target Group generated revenue of approximately RMB594.5 million, RMB866.5 million, RMB1,157.3 million and RMB1,182.6 million and net profit of approximately RMB221.2 million, RMB260.6 million, RMB336.9 million and RMB373.3 million, respectively. Between FY2017 and FY2019, the Target Group's revenue and net profit grew at CAGRs of approximately 39.5% and 23.4%, respectively.
Given (i) the profitable track record of the Target Group, as detailed in the section headed "2. Background of the Target Group - (i) Financial performance" above; (ii) the outlook for the finance leasing industry in the PRC as detailed in the section headed "3. Market overview" above; (iii) the Group's experience and resources in the loan financing business since 2008; (iv) provision of finance leasing and factoring services through the Acquisition represents an extension of the Group's existing loan financing business, we concur with the Directors that the Acquisition will broaden the Group's revenue base, improve its profitability and complement its existing loan financing business, allowing the Group to offer a wider range of financial services to its customers and capture the business opportunities in the fast-growing finance leasing industry in the PRC, which is consistent with the Group's stated strategy to expand its loan financing business.
5. Principal terms of the Sale and Purchase Agreement, the Consideration CB and the Rights Issue
(i) The Sale and Purchase Agreement
Details of the Sale and Purchase Agreement are set out in the Letter from the Board, which are summarised below:
Date : 17 March 2021
Parties
:
(a) Yangfan (Holdings) Group Limited, an indirect wholly-owned subsidiary of the Company, as the Purchaser; and
(b) CQDHG, as the Vendor
Subject matter
: Approximately 81.91% of the equity interest in the Target Company
Consideration
: Approximately HK$2,378.7 million, which shall be satisfied upon Completion, as to:
(a) approximately HK$154.5 million by cash; and
(b) approximately HK$2,224.2 million by the issue of the Consideration CB in the principal amount of approximately HK$2,224.2 million.
As disclosed in the Letter from the Board, the Consideration was determined after arm's length negotiations between the Vendor and the Purchaser with reference to (a) the unaudited consolidated net asset value of the Target Group of RMB2,363.2 million (equivalent to approximately HK$2,835.9 million) as at 31 December 2019 with reference to the unaudited financial statement of the Target Company prepared based on HKFRS; (b) the consideration in respect of the acquisition of approximately 25.58% and 13.18% equity interest in the Target Company by the Vendor from Vasari Investment and Chinese Capital, respectively, in 2020; (c) the historical financial performance of the Target Group; (d) the market position, industry outlook, business development and growth prospects of the Target Group; and (e) the settlement terms concluded between the Vendor and the Purchaser.
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If the Vendor procures the Target Company to declare
and pay a dividend in respect of its undistributed
profits as at 31 December 2019 between the date of
the Sale and Purchase Agreement and the date of
Completion, the Consideration will be reduced by the
amount of dividends received by the Vendor in
proportionate to its equity interest in the Target
Company.
Conditions | : | The Acquisition is conditional upon, among other |
precedent | things: |
(a) the Independent Shareholders having approved the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB, the allotment and issue of the Conversion Shares and the granting of the Specific Mandate);
(b) the Independent Shareholders having approved the Rights Issue and the Underwriting Agreement by way of poll at the SGM in accordance with the Listing Rules; and
(c) the Listing Committee of the Stock Exchange having granted the listing of, and permission to deal in, the Conversion Shares and the Rights Shares (and such approval not being subsequently revoked or withdrawn).
If the conditions precedent above are not satisfied or waived (where applicable) on or before the Acquisition Long Stop Date, the Sale and Purchase Agreement will be terminated and the Acquisition will not proceed.
(ii) The Consideration CB
Upon Completion, the Company will issue the Consideration CB to the Vendor (or its nominees) to settle part of the Consideration. Details of the principal terms of the Consideration CB are set out in the Letter from the Board, which are summarised below:
Principal amount : Approximately HK$2,224.2 million
Coupon rate : Zero
Maturity Date
: The date falling on the ninth (9th) anniversary of the date of the issue of the Consideration CB, provided that if such date is not a Business Day, the first Business Day immediately after such date
Initial Conversion
Price
: HK$1.87 per adjustments)ConversionShare
(subjectto
Base Conversion
: HK$1.496 per Conversion Share
Price
Conversion Shares : Assuming that there is no change in the issued share capital of the Company other than the issue of the Rights Shares and the Conversion Shares since the Latest Practicable Date and up to the date of full conversion of the Consideration CB:
(a) the maximum number of 1,189,386,362
Conversion Shares to be allotted and issued by
the Company upon full conversion of the
Consideration CB at the Initial Conversion Price
represents (1) approximately 238.2% of the
issued share capital of the Company as at the
Latest Practicable Date; and (2) approximately
54.4% of the issued share capital of the
Company as enlarged by the allotment and issue
of the Rights Shares and the Conversion Shares;
and
(b) the maximum number of 1,486,732,953
Conversion Shares to be allotted and issued by the Company upon full conversion of the Consideration CB at the Base Conversion Price represents (1) approximately 297.8% of the issued share capital of the Company as at the Latest Practicable Date; and (2) approximately 59.8% of the issued share capital of the Company as enlarged by the allotment and issue of the Rights Shares and the Conversion Shares.
The Conversion Shares will be allotted and issued by the Company under the Specific Mandate.
Conversion rights and restrictions
: The holder of the Consideration CB shall have the right at any time during the conversion period to convert the whole or part of the outstanding principal amount of the Consideration CB registered in its name into Conversion Shares, provided that, among other things:
(a) the conversion price at which the Conversion Shares will be issued shall not in any event be lower than the Base Conversion Price; and
(b) the exercise of the conversion right attached to the Consideration CB will not:
(1) cause the Company to be unable to meet the public float requirement under the Listing Rules; and
(2) trigger a mandatory general offer obligation under the Takeovers Code.
Conversion period : The period commencing from the date of issue of the
Consideration CB and ending at 4:30 p.m. (Hong Kong time) on the day immediately prior to and exclusive of the Maturity Date.
Adjustment events
(the "Conversion Price Adjustments Events")
Reset date of the
Initial Conversion Price
: The Initial Conversion Price may be subject to a downward adjustment on each Reset Date (as defined below) upon the occurrence of, among other things, share consolidation or sub-division, capitalisation of profits or reserves, capital distribution, other distribution by assets or other properties, rights issue or any other offers made to the Shareholders in which they may acquire securities of the Company, provided that the conversion price shall not in any event be lower than the Base Conversion Price.
Further details of the Conversion Price Adjustment Events are set out in the Letter from the Board.
: Each anniversary date after the date of issue of the Consideration CB (the "Reset Date")
Initial Conversion
Price resetEarly redemption at the option of the Company
: If the average of the volume weighted average prices of the Shares for the period of 10 consecutive trading days immediately prior to and excluding the Reset Date (the "Average Market Price") is less than the conversion price on the Reset Date, the conversion price shall be adjusted on the Reset Date such that the adjusted conversion price will be equal to the Average Market Price, provided that:
(a) the adjusted conversion price in no event shall be less than the Base Conversion Price;
(b) subject to (a) above, the Conversion Price Adjustment Events shall apply; and
(c) any such adjustment to the conversion price shall only be a downward adjustment.
: The Company shall be entitled to, at its sole discretion and by giving not less than seven (7) Business Days' notice to the holder of the Consideration CB, propose to the holder to redeem the outstanding Consideration CB of an amount equivalent to 100% of the principal amount of such outstanding Consideration CB at any time after the date of issue of the Consideration CB up to and including the date falling seven (7) Business Days immediately before the Maturity Date.
Transferability
: The Consideration CB may be transferred or assigned in whole or in part by the Vendor to any party, save and except that the Consideration CB shall not be transferred to a connected person of the Company unless with the prior written consent of the Company.
Voting rights
: The Consideration CB shall not carry any voting rights.
Listing
: No application will be made by the Company for the listing of the Consideration CB on the Stock Exchange.
(iii) The Rights Issue
The proceeds from the Rights Issue will be used to finance part of the Consideration and the associated transaction expenses relating to the Acquisition. Details of the terms of the Rights Issue are set out in the Letter from the Board, which are summarised below:
Basis of the Rights
Issue
: One (1) Rights Share for every one (1) existing Share held on the Rights Issue Record Date
Rights Issue
: HK$0.39 per Rights Share
Subscription Price
Number of existing
: 499,276,680 Shares
Shares in issue as at the Latest Practicable Date
Number of Rights
Shares
: Up to 499,276,680 Rights Shares (assuming no new Shares are issued and no Shares are repurchased on or before the Rights Issue Record Date)
Enlarged issued share capital upon completion of the allotment and issue of the Rights Shares
: 998,553,360 Shares (assuming no new Shares are issued (other than the Rights Shares) and no Shares are repurchased on or before Completion)
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Maximum gross | : | Approximately HK$194.7 million before expense |
proceeds to be | (assuming no new Shares are issued and no Shares | |
raised under the | are repurchased on or before the Rights Issue Record | |
Rights Issue | Date) | |
Net proceeds to be | : | Approximately HK$171.7 million after deducting the |
raised under the | transaction expenses from the Rights Issue and the | |
Rights Issue | Acquisition (assuming no new Shares are issued and | |
no Shares are repurchased on or before the Rights | ||
Issue Record Date), which shall be applied towards | ||
the cash settlement of the Consideration and the | ||
Group's general working capital | ||
Excess application | : | There will be excess application arrangement in |
relation to the Rights Issue. | ||
Underwriter to the | : | Vision Finance International Company Limited |
Rights Issue | ||
Number of Rights | : | The Underwritten Shares of up to 154,665,047 Rights |
Shares | Issue | |
underwritten by | ||
the Underwriter | ||
Conditions | : | The Rights Issue is conditional upon, among other |
precedent | things: |
(a) the Independent Shareholders having approved the Sale and Purchase Agreement and the transactions contemplated thereunder (including the issue of the Consideration CB, the allotment and issue of the Conversion Shares and the granting of the Specific Mandate);
(b) the Independent Shareholders having approved the Rights Issue and the Underwriting Agreement by way of poll at the SGM in accordance with the Listing Rules; and
(c) the Listing Committee of the Stock Exchange having granted the listing of, and permission to deal in, the Rights Shares in both nil-paid and fully-paid forms (and such approval not being subsequently revoked or withdrawn).
6. Other alternative methods of financing
The Consideration of approximately HK$2,378.7 million shall be satisfied as to (i)
approximately HK$154.5 million by fund to be raised from the Rights Issue; and (ii) approximately HK$2,224.2 million by the issue of the Consideration CB. Relative to the Group's unaudited consolidated cash and cash equivalents of approximately HK$90.2 million as at 30 June 2020, it is not possible, or in our view prudent, to satisfy the Consideration significantly in cash. We consider the issue of the Consideration CB and the conducting of the Rights Issue to satisfy the Consideration shall prevent a significant cash outlay for the Acquisition and allow the Group to maintain a certain level of cash which is within its financial capability.
The Company has considered alternative financing methods other than the issue of the Consideration CB which forms the bulk of the Consideration. Taking into account (i) the potential lengthy negotiations with banks for any debt financing given the size of the Acquisition and the Group's financial position, which are relatively uncertain and time consuming; and (ii) the requirement of substantial interest payments given the size of the Acquisition which may significantly reduce the Group's liquidity, we concur with the Directors that financing the Acquisition substantially by bank borrowings is not in the interests of the Shareholders. In contrast, the issue of the Consideration CB, which is interest-free with a maturity term of nine years, can minimise the Group's finance costs and repayment pressure.
As regards equity financing, given (i) the large size of the fund-raising exercise that would be required; and (ii) the thin trading liquidity of the Shares as illustrated in the section headed "9. Assessment of the principal terms of the Rights Issue - (i) The Rights Issue Subscription Price - Average daily trading volume of the Shares" below, the Directors consider that it is difficult to find independent third parties who are willing to act as placing agents or underwriters without any favorable terms. On this basis, the Directors consider it is not possible to finance the Consideration entirely by an equity placement or a rights issue. While a rights issue is pre-emptive in nature, allowing all qualifying shareholders to maintain their respective pro-rata shareholdings through participation in the rights issue, financing the Acquisition substantially by an equity placement will result in an immediate and material dilution effect on the shareholding of the existing Shareholders.
In summary, we regard the appropriate 94:6 split between debt financing through the issue of the Consideration CB and cash financing by way of the Rights Issue to be an appropriate and prudent method of financing, after considering that (i) the issue of the Consideration CB with zero coupon and a maturity term of nine years will allow the Group to save substantial finance costs and minimise repayment pressure without resulting in an immediate and material dilution effect on the shareholding of the existing Shareholders; and (ii) the Rights Issue will provide an equal opportunity for all Qualifying Shareholders to participate in the enlargement of the capital base of the Company and enable them to maintain their proportionate interests in the Company and continue to participate in the future development of the Group.
7. Assessment of the Consideration
The Target Group is a finance leasing company headquartered in Qingdao, providing (i) sale and leaseback and direct finance leasing services; and (ii) factoring services.
Price-to-earnings ("P/E(s)"), price-to-book ("P/B(s)") and price-to-sale ("P/S(s)") multiples are the three most commonly used benchmarks in valuing a company. P/E is usually adopted for judging valuations for companies which are profit making. On the other hand, P/B is typically applied for valuing companies which hold relatively liquid assets on their balance sheets and their book values approximate their fair market values such as real estate companies and financial institutions whereas P/S is appropriate for valuing companies which have volatile earnings or loss but with relatively stable revenue such as retailers offering general merchandise.
Given (i) loans and receivables, finance lease receivables and cash and cash equivalents, which are considered as relatively liquid assets, accounted for approximately 98.0% of the Target Group's total assets as at 31 October 2020; and (ii) the Target Group was profit making for the three years ended 31 December 2019 and the ten months ended 31 October 2020, we consider the valuation methodologies using P/B and P/E more appropriate in valuing the Target Group as compared with that using P/S.
Based on (i) the Consideration of approximately HK$2,378.7 million for 81.91% equity interest in the Target Company; (ii) total equity of the Target Group of approximately RMB2,736.5 million as at 31 October 2020; and (iii) the exchange rate of RMB1:HK$1.1588 as at 31 October 2020 extracted from Bloomberg, the P/B implied by the Acquisition is approximately 0.92 time (the "Implied P/B").
Based on (i) the Consideration of approximately HK$2,378.7 million for 81.91% equity interest in the Target Company; (ii) the net profit of the Target Group of approximately RMB437.8 million for the twelve months ended 31 October 2020; and (iii) the average exchange rate of RMB1:HK$1.1138 for the twelve months ended 31 October 2020 extracted from Bloomberg, the P/E implied by the Acquisition is approximately 5.96 times (the "Implied P/E").
(i) Analysis on comparable companies
In evaluating the fairness and reasonableness of the Consideration, we have, on a
best effort basis, searched on Bloomberg and the website of the Stock Exchange and
identified an exhaustive list of companies (the "Comparable Companies") which (a)
are principally engaged in, and have over 50% of their revenue derived from, the
business of finance leasing in the PRC in their latest financial year; and (b) have their
shares listed on the Main Board of the Stock Exchange. Based on these criteria, we
have identified 9 Comparable Companies.
Given that the Comparable Companies are engaged in the same business sector as the Target Group does, we consider that they represent a fair and representative sample for comparison purpose. Although the Comparable Companies have different size, business mix, customer profile, profitability and financial position as compared to those of the Target Group, we consider that the Comparable Companies represent a sufficient sample size based on our selection criteria and can provide a general reference to the valuation of the companies engaged in the finance leasing industry in the PRC.
Details of the Comparable Companies are set out below:
Market capitalisation as at the
LatestCompany name (stock code)Principal activities
P/B (Note 1) (times)P/E (Note 1) (times)
Gearing ratio (Note 3)
Practicable
Date (HK$ million)
Far East Horizon Limited ("Far East") (3360)
Far East specialises in providing financing solutions through equipment-based financial leasing. It currently targets industries that include healthcare, education, infrastructure construction, shipping, printing and machinery industries.
0.95
6.80
84.2% 36,935.44
China Development Bank Financial Leasing Company Limited ("China Development Bank") (1606)
China Development Bank leases aircrafts, ships, commercial vehicles, construction machines, and other equipment.
0.50
4.36
91.3% 14,791.58
Yixin Group Limited ("Yixin") (2858)Yixin offers an online automobile finance transaction platform. It provides loan facilitation, car rental, and other services including financing lease services.
1.06 Loss making
53.7% 18,619.67
Haitong UniTrust International Leasing Company Limited ("UniTrust") (1905)
UniTrust offers financial leasing services. It provides industrial equipment leasing, commercial equipment leasing, medical equipment leasing, and other services.
0.61
7.54
85.6% 10,294.13
Company name (stock code)Principal activitiesMarket capitalisation as at theGearing ratio (Note 3)
Latest Practicable
P/B (Note 1) (times)P/E (Note 1) (times)
Date (HK$ million)
Genertec Universal Medical Group Company Limited ("Genertec") (2666)Zhongguancun Science-Tech Leasing Company Limited ("Zhongguancun") (1601)
International Alliance Financial Leasing Company Limited ("Alliance") (1563)Genertec provides hospital customers with healthcare financial services, hospital investment and management services, healthcare technology services, healthcare digitalization, healthcare resource platforms and clinical department upgrade services. Zhongguancun offers financial leasing services. It provides direct leasing, leaseback, and other related services. It focuses on big data, big environment, great health, and big consumption areas.
Alliance provides finance leasing and advisory services. It offers sale-leaseback and direct finance leasing services for customers in healthcare and public infrastructure industries.
0.79
5.81
0.52
5.94
1.03 Loss making
76.4% 11,992.36
75.3% 1,173.33
66.8% 1,410.00
Company name (stock code)Principal activitiesMarket capitalisation as at theGearing ratio (Note 3)
Latest Practicable
P/B (Note 1) (times)P/E (Note 1) (times)
Date (HK$ million)
China Ever Grand Financial Leasing Group Company Limited
("Ever Grand") (379)
China Rongzhong Financial Holdings Company Limited ("Rongzhong") (3963)Ever Grand manufactures polishing compounds and accessories under its own brand name. It also trades different types of industrial abrasive products in Hong Kong and China. It additionally offers loading and discharging services, storage services, leasing of terminal facilities and equipment. Rongzhong is a finance leasing company. It serves the laser processing, plastics, industrial processing, textile and garments, and hotel industries, as well as others.
Maximum Minimum Average Median
The Acquisition (Note 2)
2.44 (outlier)Loss making 43.7% 246.35
1.94 (outlier)Loss making 96.3% 68.06
1.06 0.50 0.78 0.79 0.92
7.54 96.3% 4.36 43.7% 6.09 74.8% 5.94 76.4% 5.96 83.3%
(Note 4)
Source:Bloomberg, the website of the Stock Exchange and the annual reports of the respective Comparable Companies
Notes:
1. Being the P/Bs and P/Es of the Comparable Companies as at the Latest Practicable Date as extracted from Bloomberg. The outliers were not included in the calculations of the maximum, minimum, average and median of the P/Bs and P/Es of the Comparable Companies.
2. Being the Implied P/B and the Implied P/E of the Acquisition.
3. Being total liabilities divided by total assets as shown in the latest financial results of the Comparable Companies.
4. Being gearing ratio of the Target Group as at 31 October 2020.
As shown above, the P/Bs of the Comparable Companies ranged from approximately 0.50 time to approximately 1.06 times with an average and median of approximately 0.78 time and 0.79 time, respectively, as at the Latest Practicable Date. The Implied P/B of approximately 0.92 time is within the range of those of the Comparable Companies.
On the other hand, the P/Es of the Comparable Companies ranged from approximately 4.36 times to approximately 7.54 times with an average and median of approximately 6.09 times and 5.94 times, respectively, as at the Latest Practicable Date. The Implied P/E of approximately 5.96 times is lower than the average of those of Comparable Companies.
For information only, the gearing ratios of the Comparable Companies ranged from approximately 43.7% to approximately 96.3%. For the impact of the Acquisition on the gearing ratio of the Group, please refer to the section headed "10. Financial effects of the Acquisition and the Rights Issue" below.
(ii) Analysis on comparable transactions
In addition to the Comparable Companies above, we have, on a best effort basis, identified an exhaustive list of comparable transactions (the "Comparable Transactions") involving acquisitions of finance leasing companies in the PRC, with available financial information of the relevant target companies, announced during the period from 1 January 2019 to the Latest Practicable Date. Based on these criteria, we have identified 17 Comparable Transactions. We consider that the aforesaid criteria allow us to identify a sufficient number of comparable transactions for comparison purpose.
Details of the Comparable Transactions are set out below:
Target companies
(Date of announcement)Principal activities of target companiesPercentageof equity interest acquired Consideration
P/B implied by the transactionP/E implied by the transaction
(RMB million) (approximate)
(times) (Note)
(times) (Note)
Huaxu International Financial Leasing Company Limited ("Huaxu")
(27 January 2021) Shanghai Shang Gong Shen Bei Financing & Leasing Company Limited ("SGSB") (16 January 2021) Chongqing Zongshen Financing and Leasing Company Limited ("Zongshen")
(30 December 2020) Taizhong Tianjin International Financing and Leasing Company Limited ("Taizhong") (8 December 2020) Xiamen YLZ Financing and Leasing Company Limited ("YLZ")
(7 December 2020) Optimus Financial Group Limited ("Optimus") (26 June 2020)Jiangsu Hanrui Jingang Financing and Leasing Company Limited ("Jingang")
(23 June 2020) Jiangsu Hanrui Jinkong Financing and Leasing Company Limited ("Jinkong")
Huaxu is principally engaged in financial leasing and provision of consulting and guarantee services for lease transaction.
SGSB is principally engaged in financial leasing and provision of consulting and guarantee services for lease transaction.
Zongshen is principally engaged in financial leasing and provision of consulting and guarantee services for lease transaction.
Taizhong is principally engaged in financial leasing service.
YLZ is principally engaged in financial leasing service.
Optimus is principally engaged in financial leasing, property and automobile finance lease services and car trading.
Jingang is principally engaged in financial leasing and provision of consulting and guarantee services for lease transaction.
Jinkong is principally engaged in financial leasing and provision of consulting and guarantee services for lease transaction.
97.94%
743.27
1.03 loss making
20%
100.00
2.86 (outlier)
338.39 (outlier)
70%
158.93
1.00 11.32
49%
103.94
1.00 39.80
100%
174.00
1.00 loss making
51%
38.18
0.67 Loss making
30%
766.93
1.08 22.24
30%
535.59
1.08 19.84
(23 June 2020)
PercentageTarget companies
(Date of announcement)Principal activities of target companies
of equity interest acquired Consideration
P/B implied by the transactionP/E implied by the transaction
(RMB million) (approximate)
(times) (Note)
(times) (Note)
Hubei Camel Financing and Leasing Company Limited ("Camel") (13 June 2020)Shanghai Guohou Finance Leasing Company Limited ("Shanghai Guohou") (28 April 2020) Shanying (Shanghai) Financing and Leasing Company Limited ("Shanying")
(4 April 2020) Shenzhen International Financing Leasing Company Limited ("Shenzhen Financing")
(17 March 2020) Boshen Financing Lease (Shanghai) Company Limited ("Boshen Financing")
(14 December 2019) Nanjing Huahong Financial Leasing Company Limited ("Nanjing Huahong") (22 October 2019) Shanghai Dongsong Financing and Leasing Company Limited ("Dongsong")
(21 September 2019)Camel is principally engaged in financial leasing, provision of consulting and guarantee services for lease transaction and commercial factoring services. Shanghai Guohou is principally engaged in financial leasing, consulting and commercial factoring services.
Shanying is principally engaged in financial leasing, consulting and commercial factoring services.
Shenzhen Financing is principally engaged in financial leasing and commercial factoring services.
Boshen Financing is principally engaged in financial leasing, consulting and commercial factoring services.
Nanjing Huahong is principally engaged in financial leasing, consulting and commercial factoring services.
Dongsong is principally engaged in rental and leasing business.
30%
57.00
0.99 59.78
75%
183.17
1.34 25.41
100%
560.00
1.08 11.30
48%
151.69
1.03 26.88
75%
419.95
1.33 50.22
100%
321.00
1.03 17.91
75%
64.70
1.01 36.21
Percentage
Target companies
(Date of announcement)Principal activities of target companies
of equity interest acquired Consideration
P/B implied by the transactionP/E implied by the transaction
(RMB million) (approximate)
(times) (Note)
(times) (Note)
Ningxia Sanshi Financing and Leasing Company Limited ("Ningxia Sanshi") (2 April 2019)Ningxia Sanshi is principally engaged in industrial equipment leasing business.
51%
92.77
1.01 Loss making
AB Leasing Company Limited ("AB Leasing") (19 February 2019)AB Leasing is principally engaged in financial leasing business, transfer and absorption of assets through financial leasing, fixed income securities investment business.
100%
4,735.00
1.24 17.00
Maximum Minimum Average Median
1.34 59.78
0.67 11.30
1.06 28.16
1.03 23.83
The Target CompanyThe Target Group is principally engaged in provision of finance leasing and factoring services.
81.91%
0.92 5.96
Source: Bloomberg and relevant announcements in relation to the respective Comparable
Transactions
Note:
Calculated by dividing the consideration for the respective Comparable Transactions (on a 100% basis) by the latest available net asset value or profit attributable to shareholders of the target companies in their latest financial year as at the date of the respective announcements. The outliers were not included in the calculations of the maximum, minimum, average and median of the P/Bs and P/Es of the Comparable Transactions.
We noted that the target companies in the Comparable Transactions are all unlisted companies. As shown above, the P/Bs implied by the Comparable Transactions ranged from approximately 0.67 time to approximately 1.34 times with an average and median of approximately 1.06 times and 1.03 times, respectively. The Implied P/B of approximately 0.92 time is lower than the average and median of those implied by the Comparable Transactions.
On the other hand, the P/Es implied by the Comparable Transactions ranged from approximately 11.30 times to approximately 59.78 times with an average and median of approximately 28.16 times and 23.83 times, respectively. The Implied P/E of approximately 5.96 times is lower than all the P/Es implied by the Comparable
Transactions.
(iii) Previous acquisitions of equity interests in the Target Company by the Vendor
On 20 August 2020, the Vendor entered into a sale and purchase agreement with each of Vasari Investment and Chinese Capital, pursuant to which the Vendor has conditionally agreed to acquire 25.58% and 13.18% equity interest in the Target Company from Vasari Investment and Chinese Capital at a consideration of US$97.5 million (equivalent to approximately HK$755.6 million) and US$51.5 million (equivalent to approximately HK$399.1 million), respectively (the "Previous Acquisitions"). Upon completion of the Previous Acquisitions in December 2020, the Vendor held an aggregate of 81.91% equity interest in the Target Company.
Based on the total consideration for the Previous Acquisitions of US$149.0 million (equivalent to approximately HK$1,154.8 million) for an aggregate of 38.76% equity interest in the Target Company, the implied valuation of 100% equity interest in the Target Company is approximately HK$2,979.4 million (the "Implied Valuation").
Based on the Consideration of approximately HK$2,378.7 million for 81.91% equity interest in the Target Company, the implied valuation of 100% equity interest in the Target Company is approximately HK$2,904.0 million which represents a discount of approximately 2.5% to the Implied Valuation.
(iv) Conclusion
The Implied P/B is within the range of those of the Comparable Companies and the Implied P/E is lower than the average of those of Comparable Companies. To supplement our analysis on the Comparable Companies, we have further considered the Comparable Transactions and the Previous Acquisitions. The Implied P/B is lower than the average and median of those implied by the Comparable Transactions whereas the Implied P/E is lower than all the P/Es implied by the Comparable Transactions. Furthermore, the valuation of 100% equity in the Target Company implied by the Consideration represents a discount of approximately 2.5% to that implied by the Previous Acquisitions. Taking into account that the valuation implied by the Acquisition is within the range of, or compares favorably to, those of the Comparable Companies, the Comparable Transactions and the Previous Acquisitions, we consider the Consideration to be fair and reasonable.
8. Assessment of the principal terms of the Consideration CB
A majority (i.e. approximately 93.5%) of the Consideration shall be settled by way of issue of the Consideration CB in the principal amount of approximately HK$2,224.2 million upon Completion.
In assessing the fairness and reasonableness of the principal terms of the Consideration CB, we have, on a best effort basis, researched and identified an exhaustive list of convertible bonds (the " Comparable CBs ") issued or to be issued by companies listed on the Stock Exchange as consideration for acquisitions conducted by the respective listed companies which were announced during the period from 2 January 2020 to the Latest Practicable Date. Details of the Comparable CBs are set out below:
Premium/ (discount) of the initial conversion price over/(to)
the average closing price
of the shares for the last five consecutive trading days immediately prior to/up to
Premium/ (discount) of the initial conversion price over/(to) the closing price of the shares on
the date of and including the respective date of respective Major conversion priceagreements adjustment events
6.85% Alternation of the nominal amount of shares, issue of shares credited as fully-paid, and capital distribution
agreements
6.12%
Coupon rate per annum
Nil
Maximum aggregate principal amount
(HK$)
29,129,880
Maturity (Approximate in years)
3
Connected transaction (Yes/No)
Yes
Stock codeName of company
TL Natural Gas Holdings Ltd 8536
Date of initial announcement
19 January 2020
No.
1.
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