Hang Seng Bank : Connected Transaction

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(Stock code: 11)

ANNOUNCEMENT

CONNECTED TRANSACTION

Amendment of a connected transaction

Reference is made to the Company's announcements dated 21 June 2016 and 21 June 2019 in which the Company disclosed, among other things, that on 21 June 2016, HSIC and HAIL entered into the PE Investment Management Agreement, which sets out the terms upon which HAIL will act as investment manager in respect of certain private equity fund investments to be made by HAIL on behalf of HSIC, and on 21 June 2019, HSIC and HAIL have amended and restated the PE Investment Management Agreement.

In order to facilitate a more streamlined investment execution process, HSIC decided to establish a limited partnership vehicle, being H5 LP, through which new private equity fund investments will be made. This investment structure has been established to mirror as closely as possible all of the existing investment arrangements provided under the PE Investment Management Agreement.

On 5 February 2019, HSIC, HGGP and HMGL entered into the Limited Partnership Agreement, which, at the time of entry, was fully exempt from Chapter 14A of the Listing Rules pursuant to the exemption for de minimis transactions under Rule 14A.76.

The Limited Partnership Agreement has been amended and restated on 28 October 2019 to increase the size of the investment mandate such that it is now subject to the reporting and announcement obligations in respect of connected transactions under Chapter 14A of the Listing Rules.

Listing Rules implications

HGGP and HMGL, both being indirect wholly-owned subsidiaries of HSBC, are connected persons of the Company by virtue of HSBC's indirect holding of shares in the Company, representing approximately 62.14% of the number of its shares in issue. The Limited Partnership Agreement is therefore a connected transaction of the Company.

As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing

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Rules) in relation to the Limited Partnership Agreement is more than 0.1% but less than 5%, the Limited Partnership Agreement is exempt from the independent shareholders' approval requirement, and is subject only to the reporting and announcement requirements in respect of connected transactions set out in Chapter 14A of the Listing Rules.

This announcement is being published pursuant to Chapter 14A of the Listing Rules.

BACKGROUND

Reference is made to the Company's announcements dated 21 June 2016 and 21 June 2019 in which the Company disclosed, among other things, that on 21 June 2016, HSIC and HAIL entered into the PE Investment Management Agreement, which sets out the terms upon which HAIL will act as investment manager in respect of certain private equity fund investments to be made by HAIL on behalf of HSIC, and on 21 June 2019, HSIC and HAIL have amended and restated the PE Investment Management Agreement.

In order to facilitate a more streamlined investment execution process, HSIC decided to establish a limited partnership vehicle, being H5 LP, through which new private equity fund investments will be made.

On 5 February 2019, HSIC, HGGP and HMGL entered into the Limited Partnership Agreement, which, at the time of entry, was fully exempt from Chapter 14A of the Listing Rules pursuant to the exemption for de minimis transactions under Rule 14A.76. The Limited Partnership Agreement has been amended and restated on 28 October 2019 to increase the size of the investment mandate such that it is no longer fully exempt from Chapter 14A of the Listing Rules, and is now subject to the reporting and announcement requirements under Chapter 14A of the Listing Rules.

HGGP and HMGL, both being indirect wholly-owned subsidiaries of HSBC, are connected persons of the Company by virtue of HSBC's indirect holding of shares in the Company, representing approximately 62.14% of the number of its shares in issue. The Limited Partnership Agreement is therefore a connected transaction which is subject to the reporting and announcement obligations under Chapter 14A of the Listing Rules.

LIMITED PARTNERSHIP AGREEMENT

On 5 February 2019, HSIC, HGGP and HMGL entered into the Limited Partnership Agreement pursuant to which HSIC, as investor, and HGGP, as general partner have established H5 LP for the purpose of making private equity investments. Under the Limited Partnership Agreement, HMGL has been appointed as manager to manage the assets of H5 LP in accordance with the Limited Partnership Agreement, and may engage HAIL as exclusive investment advisor to provide HMGL with investment advisory services. HSIC is the sole investor of H5 LP.

This investment structure has been established to mirror as closely as possible all of the existing investment arrangements provided under the PE Investment Management Agreement, including the portfolio construction approach, investment restrictions and reporting that have been in place since HSIC commenced its investment programme. However, instead of HSIC

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continuing to make new investments directly in its name, such investments will be made by H5 LP, with funds being provided to H5 LP by HSIC.

At the time of entry, the Limited Partnership Agreement was fully exempt from Chapter 14A of the Listing Rules pursuant to the exemption for de minimis transactions under Rule 14A.76. The Limited Partnership Agreement has been amended and restated on 28 October 2019 to increase the size of the investment mandate such that it is now subject to the reporting and announcement requirements in respect of connected transactions set out in Chapter 14A of the Listing Rules.

Date

5 February 2019, as amended and restated on 28 October 2019

Parties

HSIC

HGGP

HMGL

Investment mandate

HSIC has agreed to commit a total of US$1,160,000,000 to H5 LP, with US$580,000,000 to be invested during each of 2019 and 2020, each a vintage year. HSIC's liability under the Limited Partnership Agreement is limited to the aggregate of its undrawn commitments.

H5 LP has a mandate to make investments in the nature of credit investment of up to US$300,000,000 in each of 2019 and 2020, private equity of up to US$200,000,000 in each of 2019 and 2020, and infrastructure equity of up to US$80,000,000 in each of 2019 and 2020, as determined by HMGL, as manager of H5 LP but subject to certain investment guidelines. These amounts have been determined in accordance with the Group's investment strategies and take into account the Group's intention for the investment structure to mirror the existing investment arrangements provided under the PE Investment Management Agreement.

Capital contributions and distributions

HSIC will make the investment into H5 LP by way of capital contributions as determined by HMGL for the purposes of funding investments and providing other funding needed by H5 LP to cover operating costs and expenses. HSIC is not obliged to make any contribution to H5 LP other than in accordance with the Limited Partnership Agreement, unless required to do so under applicable laws.

Net income and capital proceeds derived from the investments made by H5 LP, after the payment of or making a provision for expenses and such amounts as determined by HMGL to allow H5 LP to meet its obligations and expenses, will be distributed to HSIC.

Fees and expenses

H5 LP is responsible for paying HMGL (i) a management fee of between 0.26% and 0.75% per annum of commitments for the first three years and thereafter of the value of funds under

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management depending on the nature of the investment, payable quarterly in arrears, and (ii) a performance fee of between 10% and 15% of investment proceeds, payable quarterly in arrears, if certain hurdle rates of return are achieved for HSIC in respect of certain investments made in each vintage year. H5 LP is also responsible for all other costs and expenses of operating H5 LP and making the investments (save that HMGL is responsible for its own expenses). Such fees have been determined following negotiation between the parties on an arm's length basis and the Directors consider that these charges are no less favourable to the Group than those which would be payable to independent third party service providers in respect of the provision of similar services.

H5 LP shall indemnify HGGP, HMGL and their affiliates against all liabilities they may incur by reason of having carried out their functions with respect to H5 LP, save where (i) the matter resulted directly from their own gross negligence, wilful default or fraud; (ii) the matter relates to a dispute solely among HGGP, HMGL and their affiliates; or (iii) such an indemnity would contravene any law or regulation. The Company considers the indemnity to be reasonably common in an agreement such as this and is comparable to similar limited partnership agreements.

REASONS FOR AND BENEFITS OF THE LIMITED PARTNERSHIP AGREEMENT

HSIC currently makes its private equity investments directly in its own name, with HAIL providing management services in connection with those investments under the arrangements provided under the PE Investment Management Agreement. HSIC plans to extend the investment scope to include credit investment and to increase its investment mandates over the next few years, and as a result, under the existing arrangements the pre-investment execution, post-investment activity and reporting burden placed on HSIC's senior management and operational functions would increase significantly, resulting in an inefficient operating model.

Accordingly, to facilitate a more streamlined investment execution process, HSIC decided to establish H5 LP, through which all such investments going forward will be made. While the investment mechanics under the Limited Partnership Agreement would remain largely the same as those under the PE Investment Management Agreement, the new investment structure will improve the governance and operational efficiency of the investment model through the consolidation of reporting obligations and the streamlining of other administrative processes.

The Directors (including the Independent Non-executive Directors) consider that the Limited Partnership Agreement, and the transactions contemplated thereunder, is made on normal commercial terms or better as compared with similar limited partnership agreements and in the ordinary and usual course of business of the Group, and that the terms thereof are fair and reasonable and in the interests of the Company and its shareholders as a whole.

CONNECTED TRANSACTION

HGGP and HMGL, both being indirect wholly-owned subsidiaries of HSBC, are connected persons of the Company by virtue of HSBC's indirect holding of shares in the Company, representing approximately 62.14% of the number of its shares in issue. The Limited Partnership Agreement is therefore a connected transaction of the Company.

As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) in relation to the new investment mandate is more than 0.1% but less than 5%, the

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Limited Partnership Agreement is exempt from the independent shareholders' approval requirement, and is subject only to the reporting and announcement requirements in respect of connected transactions set out in Chapter 14A of the Listing Rules.

None of the Directors have a material interest in the entry into the Limited Partnership Agreement nor have they abstained from voting on the resolutions of the Directors in relation to the approval of the entry into the Limited Partnership Agreement.

GENERAL

The Company and its subsidiaries are principally engaged in commercial and retail banking business and offer a comprehensive range of financial products and services to the customers. HSBC and its subsidiaries are also principally engaged in commercial and retail banking business and offer a comprehensive range of banking and related financial services through an international network in the Asia-Pacific region, Europe, the Americas, the Middle East and Africa. The principal activity of HGGP is the acting as general partner of H5 LP. The principal activities of HMGL are investment advice and investment management services for hedge funds, private equity and real estate funds.

This announcement is published pursuant to Rules 14A.35 and 14A.68 of the Listing Rules.

DEFINITIONS

"Company" means Hang Seng Bank Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange (Stock Code: 11)

"connected person" has the meaning ascribed to it under the Listing Rules

"Directors" means the directors of the Company

"Group" means the Company and its subsidiaries

"H5 LP" means H5 LP Inc., an incorporated limited partnership in Guernsey with separate legal personality pursuant to the Limited Partnerships (Guernsey) Law 1995

"HAIL" means HSBC Alternative Investments Limited, a company incorporated in England with limited liability

"HK$" means Hong Kong dollars, the lawful currency of the Hong Kong Special Administrative Region, the People's Republic of China

"HGGP" means HSBC (Guernsey) GP PCC Limited, a protected cell company incorporated in Guernsey

"HMGL" means HSBC Management (Guernsey) Limited, a company incorporated in Guernsey with limited liability

"HSBC" means HSBC Holdings plc, a company incorporated in England and Wales with limited liability, the shares of which are listed on the Stock Exchange (Stock Code: 5)

"HSBC Group" means HSBC and its subsidiaries

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"HSIC" means Hang Seng Insurance Company Limited, a company incorporated in Hong Kong with limited liability and a wholly owned subsidiary of the Company

"Independent Non-executiveDirectors" means the independent non-executive directors of the Company

"Limited Partnership Agreement" means the limited partnership agreement dated 5 February 2019, as amended and restated on 28 October 2019 between HGGP, HSIC and

HMGL

"Listing Rules" means the Rules Governing the Listing of Securities on the Stock Exchange

"PE Investment Management Agreement" means the agreement dated 21 June 2016 between HSIC and HAIL in relation to private equity investment management services, as amended and restated on 4 May 2018, 10 May 2018 and 21 June 2019

"Stock Exchange" means The Stock Exchange of Hong Kong Limited

"US$" means United States dollars, the lawful currency of the United States

As at the date hereof, the Board of Directors of the Company comprise Dr Raymond K F Ch'ien* (Chairman), Ms Louisa Cheang (Vice-Chairman and Chief Executive), Dr John C C Chan*, Mr Nixon L S Chan# , Ms L Y Chiang*, Ms Kathleen C H Gan# , Ms Margaret W H Kwan, Ms Irene Y L Lee*, Dr Eric K C Li*, Dr Vincent H S Lo# , Mr Kenneth S Y Ng# , Mr Peter T S Wong# and Mr Michael W K Wu*.

• Independent Non-executive Directors
  # Non-executive Directors

By Order of the Board

C C Li

Secretary

Hong Kong, 28 October 2019

恒生銀行有限公司

HANG SENG BANK LIMITED

Incorporated in Hong Kong with limited liability

Registered Office and Head Office: 83 Des Voeux Road Central, Hong Kong

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