Rykadan Capital : Announcements and Notices - (1) Very Substantial Disposal New Framework Agreement in Relation to Sale of the Property by Way of the New Disposal and (2) Very Substantial Acquisition Grant of the New Option

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RYKADAN CAPITAL LIMITED

宏 基 資 本 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 2288)

(1) VERY SUBSTANTIAL DISPOSAL

NEW FRAMEWORK AGREEMENT IN RELATION TO

SALE OF THE PROPERTY BY WAY OF THE NEW DISPOSAL

AND

1. VERY SUBSTANTIAL ACQUISITION GRANT OF THE NEW OPTION

NEW FRAMEWORK AGREEMENT

The Board wishes to announce that on 13 June 2019, after arm's length negotiations, Power City and the Target Company entered into the New Framework Agreement with the Purchaser, an independent third party, which will replace the Original Framework Agreement and the Original Property SPA. On the same date, the Memorandum was also entered into between the same parties to supplement the New Framework Agreement.

Termination of the Original Framework Agreement and the Original Property SPA

The Original Framework Agreement and the Original Property SPA will be automatically terminated upon the New Framework Agreement becoming effective.

New Disposal

Power City has agreed to sell, and the Purchaser has agreed to purchase, the entire equity interest in the Target Company, which owns the Property (comprising Block 4 and the Remaining Blocks). After Completion, the Target Company will cease to be a subsidiary of the Group and the Company will cease to own any part of the Property. Under the New Disposal, there will be no separate direct disposal of Block 4 to the Purchaser as originally contemplated under the Original Property SPA.

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Grant of the New Option

If there is (i) any undisclosed debt of the Target Company before the Completion Date or (ii) any defect in Power City's title over the equity interest of the Target Company after the agreed period, the Purchaser is entitled to demand Power City to pay off such undisclosed debt or to rectify such defect (as the case may be). If after the expiry of 30 days from receiving the Purchaser's demand, Power City still fails to settle such undisclosed debts and the amount of such unsettled debts is over RMB200,000, or to rectify such defect (as the case may be), the Purchaser is entitled to either (i) terminate the New Framework Agreement and the Target Company SPA, and demand Power City to return any of the Consideration paid and pay the Purchaser an amount equal to ten times of the undisclosed debts, and subject to Power City making the aforesaid payment, to transfer the shares in the Target Company back to Power City; or (ii) to continue to perform the New Framework Agreement and the Target Company SPA, and demand Power City to pay the Purchaser an amount equal to ten times of the undisclosed debts. Please refer to the section headed "New Framework Agreement - Other principal terms - Undertakings" for further details.

LEASE AGREEMENT

On 13 June 2019, at the same time that the New Framework Agreement is entered into, the Target Company also entered into the Lease Agreement with the Purchaser, which will supersede the previous leasing arrangement in respect of Block 4 upon it becoming effective.

LISTING RULES IMPLICATIONS

New Disposal

As one of the applicable percentage ratios (as defined in the Listing Rules) calculated under the Listing Rules in respect of the New Disposal is more than 75%, the New Disposal constitute a very substantial disposal of the Company and is therefore subject to the reporting, announcement, circular and shareholders' approval requirements under Chapter 14 of the Listing Rules.

Grant of the New Option

Under Rule 14.74(1) of the Listing Rules, the New Option constitutes an "option" within the meaning of Rule 14.72(1) of the Listing Rules and as the exercise of such options is not at the discretion of the Group, on the grant of the New Option, the transaction will be classified as if it had been fully exercised.

The grant of the New Option constitutes a very substantial acquisition of the Company and is therefore subject to the reporting, announcement, circular and shareholders' approval requirements under Chapter 14 of the Listing Rules.

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A circular containing, among other things, further information of the New Framework Agreement and other information as required under the Listing Rules, and the notice of EGM to consider and, if thought fit, approve the resolution(s) relating to the New Framework Agreement and the transactions contemplated thereunder is expected to be despatched to the Shareholders on or before 30 August 2019, being more than 15 working days as additional time is required to complete various reports and information (including the valuation report on the Property) in accordance with the relevant requirements of the Listing Rules.

Completion will be conditional upon, among other things, the satisfaction of the conditions set out in the section headed "New Framework Agreement - Conditions precedent" in this announcement. Accordingly, the New Disposal and the grant of the New Option may or may not be materialised. Shareholders and potential investors should therefore exercise caution when dealing in the securities of the Company.

BACKGROUND

Reference is made to the circular of the Company dated 22 September 2017 in relation to, among other things, the Original Framework Agreement and the Original Property SPA. Pursuant to the terms of the Original Framework Agreement and the Original Property SPA, it was originally contemplated that the Property would be sold, directly or indirectly, to the Purchaser in two stages, namely through (1) the disposal of Block 4 by the Target Company to the Purchaser, followed by (2) the disposal by Power City of its 100% equity interest in the Target Company (which would by then be holding only the Remaining Blocks) to the Purchaser.

As disclosed in the annual report 2018 and interim report 2018 of the Company and further elaborated in the section headed "Reasons for and benefits of the New Disposal" below, due to the difficulties encountered in obtaining approval from the authorities for the Original Disposals which were structured to effectively dispose the Property in two stages, the Group and the Purchaser had re-assessed and further negotiated on the deal structure for the disposal of the Property, in order to complete such disposal.

The Board wishes to announce that on 13 June 2019, after arm's length negotiations, Power City and the Target Company entered into the New Framework Agreement with the Purchaser, an independent third party, which will replace the Original Framework Agreement and the Original Property SPA.

NEW FRAMEWORK AGREEMENT

The principal terms of the New Framework Agreement are summarised below:

Date

13 June 2019

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Parties

1. Power City, an indirect subsidiary of the Company;
2. the Target Company, a direct wholly-owned subsidiary of Power City; and
3. the Purchaser.

Termination of the original agreements

The Original Framework Agreement and the Original Property SPA will be automatically terminated upon the New Framework Agreement becoming effective.

Assets to be disposed of

As at the date of this announcement, the Target Company owns the Property (which comprises Block 4 and the Remaining Blocks).

Power City has agreed to sell, and the Purchaser has agreed to purchase, the entire equity interest in the Target Company. After Completion, the Target Company will cease to be a subsidiary of the Group and the Company will cease to have any interest in the Property. Under the New Disposal, there will be no separate direct disposal of Block 4 to the Purchaser as originally contemplated under the Original Property SPA.

Conditions precedent

Completion is conditional upon:

1. the New Framework Agreement and the transactions contemplated thereunder having been approved by the Shareholders in accordance with the Listing Rules on or before 30 September 2019;
2. the New Framework Agreement and the transactions contemplated thereunder having been approved at the shareholders' meeting of the Purchaser on or before 30 September 2019; and
3. if the New Framework Agreement is entered into after the listing of the shares of the Purchaser on a domestic stock exchange in the PRC, the shareholders of the Purchaser having performed such decision-making processes as may be required by the China Securities Regulatory Commission.

Effectiveness

The New Framework Agreement, which is legally binding on the parties thereto, shall become effective upon (a) it being signed by, and chopped with the official seals of the signing parties and (b) the conditions in the sub-section headed "Conditions precedent" above having been satisfied.

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Consideration

The Consideration is comprised of the Share Consideration and the Loan Repayment.

Subject to the Post-Completion Adjustment (if any), the Share Consideration should be determined with reference to the Reference Date Audit Report, and is to be calculated as follows:

1. the agreed total price of the Property of RMB363,738,488, being the agreed unit price of the Property (i.e. approximately RMB6,954 per sq.m.) multiplied by the gross floor area of the Property (i.e. 52,304.07 sq.m.); plus
2. the amount of the assets of the Target Company (other than the Property) as at the Reference Date as shown in the Reference Date Audit Report, which should only comprise bank deposit, accounts receivables, accounts prepayment and other receivables; minus
3. the total liabilities of the Target Company as at the Reference Date as shown in the Reference Date Audit Report.

Based on the latest unaudited management accounts prepared in accordance with the Chinese Accounting Standards, the amount of the assets of the Target Company (other than the Property) was approximately RMB8 million, whereas the total liabilities of the Target Company was approximately RMB120 million, as at 31 March 2019. For illustration purpose only, the Consideration would be approximately RMB252 million assuming the Reference Date were 31 March 2019.

The Purchaser is also required to make the Loan Repayment to Power City. The amount of the Loan Repayment is to be calculated as the amount of the loan owing by the Target Company to Power City, including shareholder's loan and other liabilities. Based on the latest unaudited management accounts prepared in accordance with the Chinese Accounting Standards of the Target Company, such amount was approximately RMB112 million as at 31 March 2019.

As elaborated in the section headed "Reasons for and benefits of the New Disposal" below, the parties have been facing difficulties in implementing the Original Disposals in the way it was originally structured. Had there not been such difficulties, the disposal of the Property would have proceeded to completion according to the terms of the Original Framework Agreement. Considering that it would be the only available opportunity for the investors of Power City to exit from the investment in the Property, the Original Framework Agreement is a contract which is legally binding on the parties, and the parties intend to overcome such difficulties so as to give effect to the spirit and intent of the Original Framework Agreement, Power City and the Target Company therefore worked with the Purchaser and came up with a modified structure to implement the transactions contemplated under the Original Framework Agreement. It was against such backdrop that the terms of the New Framework Agreement were negotiated and agreed after arm's length negotiations between the parties. That also helps to explain why it was agreed that the Consideration shall be determined with reference to the agreed consideration for the Original Disposals. The Purchaser had bargained that the difference between (i) the transaction costs (in terms of tax and other administrative expenses) that are expected to be borne by the respective parties under the New Disposal, and (ii) the transaction costs (in terms of tax and other administrative expenses)

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