China Water Industry : DISCLOSABLE TRANSACTION IN RELATION TO THE FORMATION OF A JOINT VENTURE

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

(Incorporated in Cayman Islands with limited liability)

(Stock code: 1129)

DISCLOSABLE TRANSACTION IN RELATION TO

THE FORMATION OF A JOINT VENTURE

The Board is pleased to announce that on 23 December 2019 (after trading hours), Yingtan Property and the JV Partners entered into the JV Agreement pursuant to which Yingtan Property and the JV Partners have agreed to establish the JV Company for the cooperation of carrying out the Property Development Project. The JV Company will be owned as to 40% by Yingtan Property and in aggregate as to 60% by the JV Partners.

Pursuant to the terms of the JV Agreement, the total investment amount would be RMB309 million (equivalent to approximately HK$346.08 million) and will be contributed by Yingtan Property and the JV Partners pursuant to their respective equity interest in the JV Company.

As one or more of the applicable percentage ratios calculated under Rule 14.07 of the Listing Rules in respect of the formation of the JV Company exceeds 5% but is less than 25%, the formation of the JV Company constitutes a disclosable transaction of the Company under Chapter 14 of the Listing Rules and is therefore subject to the announcement requirement, but is exempt from the circular and Shareholders' approval requirements, under the Listing Rules.

INTRODUCTION

The Board is pleased to announce that on 23 December 2019 (after trading hours), Yingtan Property and the JV Partners entered into the JV Agreement pursuant to which Yingtan Property and the JV Partners have agreed to establish the JV Company for the cooperation of carrying out the Property Development Project. The JV Company will be owned as to 40% by Yingtan Property and in aggregate as to 60% by the JV Partners.

Pursuant to the terms of the JV Agreement, the total investment amount would be RMB309 million (equivalent to approximately HK$346.08 million) and will be contributed by Yingtan Property and the JV Partners pursuant to their respective equity interest in the JV Company.

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THE JV AGREEMENT

Date

23 December 2019

Parties

(i)	Party A:	Yingtan Property
(ii)	Party B:	Yingtan Sanhao

1. Party C:Mr. Zhang Qing Bang*（章青邦）
2. Party D:Mr. Li Wei Han*（李衛漢）

To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, as at the date of this announcement, the JV Partners and its ultimate beneficial owners are Independent Third Parties

Investment of the JV Company

Pursuant to the JV Agreement, the Yingtan Property and the JV Partners shall establish the JV Company in Yugan County, to participate in the bidding of the Land for the development of the Property Development Project and the total investment amount of the JV Company would be RMB309 million (equivalent to approximately HK$346.08 million).

The JV Company upon establishment shall be hold as to 40%, 11%, 26% and 23% by Yingtan Property, Yingtan Sanhao, Mr. Zhang Qing Bang and Mr. Li Wei Han respectively.

Auction deposit

To participate in the land auction, an auction deposit amounting to RMB185 million (equivalent to approximately HK$207.2 million) will have to be paid by the JV Company on or before 4:00 p.m. 24 December 2019, thus Yingtan Property and the JV Partners will have to deposit the relevant funding pursuant to their respective equity interest in the JV Company to the designated bank account of the JV Company on 23 December 2019. Amount of auction deposit to be paid up by each equity holder of the JV Company will be as follows:

	RMB million
Yingtan Property	74 (equivalent to approximately HK$82.88 million)
Yingtan Sanhao	20.35 (equivalent to approximately HK$22.79 million)
Mr. Zhang Qing Bang	48.1 (equivalent to approximately HK$53.87 million)
Mr. Li Wei Han	42.55 (equivalent to approximately HK$47.66 million)

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Any parties fail to deposit the full amount of the auction deposit to the designated bank account of the JV Company on 23 December 2019 and result in the JV Company not being able to participate in the auction, a penalty amounted to RMB1.0 million (equivalent to approximately HK$1.12 million) shall be paid to each of the parties to the JV Agreement who deposited on time.

The auction deposit amount to be paid by Yingtan Property was determined after arm's length negotiations between the parties based on the equity interest to be held by Yingtan Property in the JV Company.

Termination

If the JV Company failed to win during the auction, the JV Agreement shall be terminated and the auction deposit amount injected to the JV Company shall be refunded to each equity holder within three days upon obtaining deposit refunded from the relevant government authority. Any expenses in association with the deregistration of the JV Company shall be shared by each of the parties to the JV Agreement pursuant to their respective equity interest in the JV Company.

Further payment of remaining initial total investment amount

Should the JV Company successfully win the auction, the parties of the JV Agreement shall pay the remaining consideration for the acquisition of the Land and other associated expenses pursuant to the relevant equity interest of each of the equity holders of the JV Company.

If any party fail to duly pay up the relevant amounts and result in the breach of terms for the Land acquisition, such party shall compensate the other parties on all losses in association with such delay/default in payment. Other parties may also elect to pay on behalf of the default party(ies) and treat such payment as either further investment in the JV Company or borrowings to the default party(ies). Should the additional payment be treated as borrowings to the default party(ies), a monthly interest of 2% shall be charged on the such borrowings amount and the equity interest of the default party shall be pledged against such borrowings.

The total investment amount of the JV Company shall not exceed RMB309 million(equivalent to approximately HK$346.08 million) and for any further funding required by the JV Company, the JV Company will finance such financial need via external borrowings. Hence, the maximum investment amount payable by Yingtan Property pursuant to the terms of the JV Agreement would be RMB123.6 million (equivalent to approximately HK$138.43 million).

The total payment to be made by Yingtan Property was determined after arm's length negotiations between the parties based on the equity interest to be held by Yingtan Property in the JV Company.

Members meeting, board composition and appointment of senior management

Members meetings of the JV Company shall vote in accordance with the equity interest of each of the parties to the JV Agreement. For general matters, approval must be obtained from more than half of the equity interest holders of the JV Company. For significant matters, approval must be obtained from two third (2/3) of the equity interest holders of the JV Company.

The board of the JV Company shall comprise 5 directors, two directors will be appointed by Yingtan Property, one director will be appointed by Yingtan Sanhao and two directors will be appointed by Mr. Zhang Qing Bang and Mr. Li Wei Han. All board approval must obtain two third (2/3) of the votes of the directors.

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In respect of appointment of senior management, Yingtan Property will be entitled to appoint the general manager, financial controller and cashier of the JV Company. Mr. Zhang Qing Bang and Mr. Li Wei Han will be entitled to appoint the chairman (also the legal representative) and supervisor and the accountant of the JV Company.

INFORMATION OF THE JV COMPANY

The JV Company will be incorporated in the PRC. The JV Company will be principally engaged in property development and upon successful bidding of the land use right in Yugan County, the PRC, the JV Company will carry out the Property Development Project.

Total asset value of the JV Company upon incorporation would be the capital injected to the JV Company amounted to RMB185 million (equivalent to approximately HK$207.2 million), for payment of auction deposit.

THE PROPERTY DEVELOPMENT PROJECT

Upon successfully winning the auction, the Property Development Project shall comprised of a plots of land located in Yugan County, the PRC, with total area of 68,448.45 m2. The Land is

located at the western part of Yugan County, south of Century Avenue, east of Xiwu Road, west of the production and living land of Yanxi Village*（余干縣城西片區，世紀大道以南、西五路東側、 嚴溪村生產生活用地西側）with parcel No. DEI2019085. The terms of the land use rights of the

Land for residential use is 70 years and commercial use is for 40 years. The Property Development Project will comprise both residential properties and commercial properties.

EXPECTED FINANCIAL EFFECTS OF THE FORMATION OF THE JV COMPANY

Upon completion of the formation of the JV Company, the JV Company will be accounted for by the Group as an associated company. The capital contribution will be accounted for as an equity transaction that will not result in the recognition of any gain or loss in profit or loss.

The investment amounting to RMB123.6 million (equivalent to approximately HK$138.43 million) which will be financed by internal resources of the Group will be recorded as a cash outflow to the Group.

INFORMATION ON THE JV PARTNERS

Yingtan Sanhao is a company incorporated in the PRC, of which pursuant to the business license is principally engaged in the trading of (i) building materials, hardware, sanitary ware, appliances, agricultural and sideline products, pre-packaged food, office supplies; (ii) sales of medical machinery, air defense door sales and installation services, sales of decoration materials, interior and exterior decoration, labor dispatch; and (iii) provision of municipal engineering, civil engineering, road construction, landscaping, lighting engineering, water conservancy and hydropower engineering, fire services, and steel structure engineering services; and (iv) provision of logistic services and online trade agency services.

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Yingtan Sanhao will be holding as to 11% equity interest in the JV Company.

Mr. Zhang Qing Bang is a private property investor in the PRC, and will be holding as to 26% equity interest in the JV Company.

Mr. Li Wei Han is a private property investor in the PRC, and will be holding as to 23% equity interest in the JV Company.

To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, the JV Partners and their respective ultimate beneficial owner(s) are third parties independent of and not connected with the Company and its connected person(s).

REASONS FOR THE FORMATION OF THE JV COMPANY

The Group principally engages in (i) provision of water supply and sewage treatment services; (ii) construction of water supply and sewage treatment infrastructure; and (iii) investment and operation of new energy and renewable energy projects.

With a view to broadening the revenue base and improving the profitability of the Group, in 2018, the Group commenced property development and as at the date of this announcement had invested in six property development projects in the PRC.

With the optimistic view of the property development market in the PRC together with the Group's past experience in real estate projects, the Board expected that the property development will contribute considerable profits and cash flow for the Group and the Group has been continue to explore appropriate opportunities to further invest in the property development market in the PRC. In view of such, the Board considers that the investment in the JV Company will provide the Group a good business opportunity to further invest in the property development market in the PRC.

Taking into account of the above, the Directors consider that the entering into of the JV Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and the investment in the JV Company is in the interests of the Company and its shareholders as a whole.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios calculated under Rule 14.07 of the Listing Rules in respect of the formation of the JV Company exceeds 5% but is less than 25%, the formation of the JV Company constitutes a disclosable transaction of the Company under Chapter 14 of the Listing Rules and is therefore subject to the announcement requirement, but is exempt from the circular and Shareholders' approval requirements, under the Listing Rules.

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DEFINITIONS

In this announcement, unless the context otherwise requires, the following terms shall have the following meanings:

"Board"

"Business Day"

the board of Directors

a day (other than Saturday, Sunday, statutory holiday and any day on which a tropical cyclone warning no. 8 or above or a black rainstorm warning is hoisted at any time between 9:00 a.m. and 5:00 p.m.) on which licensed banks in Hong Kong are open for business

"Company"China Water Industry Group Limited (stock code: 1129), a company incorporated in Cayman Islands with limited liability and the issued shares of which are listed on the Main Board of the Stock Exchange which owns 100% of the Target Company as of the date of this announcement

"Director(s)"

"Group"

"HK$"

"Hong Kong"

"Independent Third Party"

"JV Agreement"

"JV Company"

"JV Partners"

"Land"

director(s) of the Company

the Company and its subsidiaries

Hong Kong dollar, the lawful currency of Hong Kong

the Hong Kong Special Administrative Region of the PRC

a third party independent of the Company and the connected persons (has the meaning ascribed thereto in the Listing Rules) of the Company and is not a connected person (has the meaning ascribed thereto in the Listing Rules) of the Company

the joint venture agreement dated 23 December 2019 entered into between Yingtan Property and the JV Partners in relation to the formation of the JV Company

an equity joint venture enterprise to be established in the PRC and will be holding by Yingtan Property as to 40% and by JV Partners in aggregate as to 60%

Yingtan Sanhao will be holding 11% equity interest of the JV Company, Mr. Zhang Qing Bang*（章青邦）will be holding as

to 26% equity interest in the JV Company and Mr. Li Wei Han* （李衛漢）will be holding as to 23% equity interest in the JV

Company

a plots of land located in Yugan County, the PRC, with total area of 68,448.45 m2

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"Listing Rules"

"PRC"

the Rules Governing the Listing of Securities on the Stock Exchange

the People's Republic of China, which for the purpose of this announcement, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

"Property Development	the property development project to be carried out by the JV
Project"	Company upon establishment in Yugan County, the PRC
"Shareholders"	Shareholders of the Company
"Shares"	shares of the company
"Stock Exchange"	The Stock Exchange of Hong Kong Limited
"RMB"	Renminbi, the lawful currency of the PRC
"US$"	United States dollar, the lawful currency of United States
"Yingtan Property"	鷹潭祥瑞置業有限公司 (Yingtan Xiang Rui Property Limited*),
	a company incorporated in the PRC, which is an indirect non-
	wholly-owned subsidiary of the Company

"Yingtan Sanhao"

"%" or "per cent."

"m2"

鷹潭三浩貿易有限公司 (Yingtan Sanhao Trading Company Limited*), a company incorporated in the PRC

percentage or per centum

Square meter

Unless otherwise defined, for the purpose of this announcement and for the purpose of illustration only, RMB amounts have been translated using the following rates: RMB1.00:HK$1.12. Such translations should not be construed as a representation that the amounts in question have been, could have been or could be converted at any particular rate or at all.

By Order of the Board

China Water Industry Group Limited

Mr. Lin Yue Hui

Chairman and CEO

Hong Kong, 23 December 2019

As at the date of this announcement, the Board comprises Mr. Lin Yue Hui (Chairman and CEO), Mr. Zhong Wei Guang (COO), Mr. Liu Feng, Ms. Chu Yin Yin, Georgiana, Ms. Deng Xiao Ting, Mr. Ho Chi Ho and Mr. Zhu Yongjun, all being executive Directors, and Mr. Wong Siu Keung, Joe, Mr. Guo Chao Tian, Ms. Qiu Na and Mr. Lam Cheung Shing, Richard, all being independent nonexecutive Directors.

• For identification purpose only

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