Hua Hong Semiconductor : RENEWAL OF EXISTING CONTINUING CONNECTED TRANSACTIONS AND PROPOSED NEW ANNUAL CAPS

December 31, 2019 at 06:42 am EST

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.

HUA HONG SEMICONDUCTOR LIMITED

華虹半導體有限公司

(Incorporated in Hong Kong with limited liability)

(Stock code: 1347)

RENEWAL OF EXISTING CONTINUING CONNECTED TRANSACTIONS

AND PROPOSED NEW ANNUAL CAPS

RENEWAL OF EXISTING CONTINUING CONNECTED TRANSACTIONS AND PROPOSED NEW ANNUAL CAPS

The Renewed Agreements

Reference is made to the Announcements in relation to, inter alia, the continuing connected transactions between (i) the Group and Huahong Zealcore under the Old Huahong Zealcore Sales Agreement, (ii) the Group and QST under the Old QST Sales Agreement, (iii) the Group and Huahong Zealcore under the Old Huahong Zealcore Purchase Agreement, (iv) the Group and INESA Entities under the Old INESA Master Purchase Agreement and (v) the Group and Huajin Property Management under the Old Huajin Management Agreement.

The Old Agreements will expire on 31 December 2019. As the Group intends to continue carrying out such transactions in the ordinary and usual course of its business, the Group proposes to enter into the following Renewed Agreements with the relevant parties to renew the Old Agreements on 31 December 2019:

the Renewed Huahong Zealcore Sales Agreement;
the Renewed QST Sales Agreement;
the Renewed Huahong Zealcore Purchase Agreement;
the Renewed INESA Master Purchase Agreement; and
the Renewed Huajin Management Agreement.

Accordingly, the Company has proposed new annual caps for the transactions contemplated under the Renewed Agreements.

PROPOSED NEW ANNUAL CAPS

The Huali Lease and the Huahong Real Estate Lease

Further reference is made to the Prospectus and the Announcements in relation to, inter alia, the continuing connected transactions between (i) the Group and Shanghai Huali under the Huali Lease and (ii) the Group and Huahong Real Estate under the Huahong Real Estate Lease.

As disclosed in the Prospectus, at the time of the listing of the Shares on the Stock Exchange in October 2014, the Stock Exchange granted a waiver to the Company in respect of, inter alia, the non-exempt continuing connected transactions under the Huali Lease and the Huahong Real Estate Lease from strict compliance with the requirement of limiting the respective terms of the Huali Lease and the Huahong Real Estate Lease to three years or less.

The existing annual caps for the transactions contemplated under the Huali Lease and the Huahong Real Estate Lease will expire on 31 December 2019. Since the Huali Lease will continue until 28 February 2030 and the Huahong Real Estate Lease will continue until 31 December 2033 and the Group will continue carrying out the transactions contemplated thereunder in its ordinary and usual course of business, the Board proposes the new annual caps for the transactions under the Huali Lease and the Huahong Real Estate Lease for the three years ending 31 December 2022.

LISTING RULE IMPLICATIONS

As of the date of this announcement,

Huahong Zealcore is 90.66% owned by Huahong Group, a controlling shareholder of the Company;
QST is 33.21% held by SAIL, a controlling shareholder of the Company;
INESA is a controlling shareholder of the Company by virtue of a voting bloc arrangement from INESA to SAIL;
Shanghai Huali is 50.23% owned by SAIL, a controlling shareholder of the Company;
Huahong Real Estate is a wholly-owned subsidiary of Huahong Technology Development, a company 50% held by and consolidated with Huahong Group, a controlling shareholder of the Company, and 50% held by HHNEC, a wholly-owned subsidiary of the Company; and
Huajin Property Management is a wholly-owned subsidiary of Huahong Technology Development, a company 50% held by and consolidated with Huahong Group, a controlling shareholder of the Company, and 50% held by HHNEC, a wholly-owned subsidiary of the Company.

Accordingly, each of Huahong Zealcore, QST, INESA Entities, Shanghai Huali, Huahong Real Estate and Huajin Property Management are connected persons of the Company, and the transactions contemplated under the Renewed Agreements, the Huali Lease and the Huahong Real Estate Lease constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

Since the Group's sale of internal circuits and semiconductor products to Huahong Zealcore and QST are of a similar nature, the transactions under the Renewed Huahong Zealcore Sales Agreement and the Renewed QST Sales Agreement will be aggregated and treated as if they were one transaction pursuant to Rules 14A.82(1) and 14A.83 of the Listing Rules. Accordingly, the proposed new annual caps of these transactions are aggregated for the purpose of calculating the relevant percentage ratios under Chapter 14A of the Listing Rules.

As each of the applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the aggregated amounts of the proposed new annual caps under the Renewed Huahong Zealcore Sales Agreement and the Renewed QST Sales Agreement is, on an annual basis, above 0.1% but below 5%, the transactions contemplated thereunder are only subject to the reporting, annual review and announcement requirements under Chapter 14A of the Listing Rules.

Since the Group's leasing and management transactions with Huahong Real Estate and Huajin Property Management are of a similar nature, the transactions under the Huahong Real Estate Lease and the transactions under the Renewed Huajin Management Agreement will be aggregated and treated as if they were one transaction pursuant to Rules 14A.82(1) and 14A.83 of the Listing Rules. Accordingly, the proposed new annual caps in respect of these transactions are aggregated for the purpose of calculating the relevant percentage ratios under Chapter 14A of the Listing Rules.

As each of the applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the aggregated amounts of the proposed new annual caps under the Huahong Real Estate Lease and the Renewed Huajin Management Agreement is, on an annual basis, above 0.1% but below 5%, the transactions contemplated thereunder is only subject to the reporting, annual review and announcement requirements under Chapter 14A of the Listing Rules.

Further, as each of the applicable percentage ratios set out in Rule 14.07 of the Listing Rules in respect of the highest proposed new annual caps under the Renewed Huahong Zealcore Purchase Agreement, the Renewed INESA Master Purchase Agreement and the Huali Lease is above 0.1% but below 5% respectively, the transactions contemplated thereunder are only subject to the reporting, annual review and announcement requirements but is exempt from independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

1. BACKGROUND

1.1 Renewal of Existing Continuing Connected Transactions and Proposed New Annual Caps

The Renewed Agreements

the Renewed Huahong Zealcore Sales Agreement;
the Renewed QST Sales Agreement;
the Renewed Huahong Zealcore Purchase Agreement;
the Renewed INESA Master Purchase Agreement; and
the Renewed Huajin Management Agreement.

Accordingly, the Company has proposed new annual caps for the transactions contemplated under the Renewed Agreements.

1.2 Proposed New Annual Caps

The Huali Lease and the Huahong Real Estate Lease

2. THE CONTINUING CONNECTED TRANSACTIONS

2.1 Sales Transactions with Huahong Zealcore and QST

2.1.1 Summary of the terms of the Renewed Huahong Zealcore Sales Agreement

The Group entered into the Old Huahong Zealcore Sales Agreement to regulate the sales transactions with Huahong Zealcore. The principal terms of the Renewed Huahong Zealcore Sales Agreement, which shall replace the Old Huahong Zealcore Sales Agreement, with effect from 1 January 2020, are summarised below:

Date:	1 January 2020
Parties:	(i)	the Group; and
	(ii)	Huahong Zealcore
Term:	A term of three (3) years from 1 January 2020 to 31
	December 2022 (both dates inclusive)
Nature of	The Group has agreed to sell integrated circuits and other
transactions:	semiconductor products to Huahong Zealcore as part of its
	ordinary and usual course of business.

2.1.2 Pricing basis of the Renewed Huahong Zealcore Sales Agreement

Although it is not part of the terms of the Renewed Huahong Zealcore Sales Agreement, the Group follows its price quotation management system under its relevant internal standard operating procedure to determine the sales prices of the products under the Renewed Huahong Zealcore Sales Agreement. The price quotation management system requires the relevant internal sales team of the Group to consider and evaluate various factors including the business objectives, strategy and operational factors of the Group on an ongoing basis. In particular, in determining the sales prices of such products, the relevant internal sales team of the Group considers the costs of the products, the prices of comparable products offered by at least two independent third party competitors in the market and the consumers' likely perception of the values of the products.

As the specifications of the integrated circuits and other semiconductor products sold to Huahong Zealcore under the Renewed Huahong Zealcore Sales Agreement are customized to meet the specific requirements of end customers, the actual demand of the end customers of Huahong Zealcore and the development of the chips application industry in the PRC will also affect the determination of the sales prices for such products.

The Group also adheres strictly to its internal approval procedure under the price quotation management system for the pricing of such products which applies equally to independent third party customers as well as its connected persons to ensure that the transactions under the Renewed Huahong Zealcore Sales Agreement shall be conducted on normal commercial terms. The relevant internal sales team of the Group will review the sales prices of the products under the Renewed Huahong Zealcore Sales Agreement on a regular and ongoing basis.

2.1.3 Summary of the terms of the Renewed QST Sales Agreement

The Group entered into the Old QST Sales Agreement to regulate the sales transactions with QST. The principal terms of the Renewed QST Sales Agreement, which shall replace the Old QST Sales Agreement, with effect from 1 January 2020, are summarised below:

Date:	1 January 2020
Parties:	(i)	the Group; and
	(ii)	QST
Term:	A term of three (3) years from 1 January 2020 to 31
	December 2022 (both dates inclusive)
Nature of	The Group has agreed to sell integrated circuits and other
transactions:	semiconductor products to QST as part of its ordinary and
	usual course of business.

2.1.4 Pricing basis of the Renewed QST Sales Agreement

Although it is not part of the terms of the Renewed QST Sales Agreement, the Group follows its price quotation management system under its relevant internal standard operating procedure to determine the sales prices of the products under the Renewed QST Sales Agreement. The price quotation management system requires the relevant internal sales team of the Group to consider and evaluate various factors including the business objectives, strategy and operational factors of the Group on an ongoing basis. In particular, in determining the sales prices of such products, the relevant internal sales team of the Group considers the costs of the products, the prices of comparable products offered by at least two independent third party competitors in the market and the consumers' likely perception of the values of the products.

As the specifications of the integrated circuits and other semiconductor products sold to QST under the Renewed QST Sales Agreement are customized to meet the specific requirements of end customers, the actual demand of the end customers of QST and the development of the chips application industry in the PRC will also affect the determination of the sales prices for such products.

The Group also adheres strictly to its internal approval procedure under the price quotation management system for the pricing of such products which applies equally to independent third party customers as well as its connected persons to ensure that the transactions under the Renewed QST Sales Agreement shall be conducted on normal commercial terms. The relevant internal sales team of the Group will review the sales prices of the products under the Renewed QST Sales Agreement on a regular and ongoing basis.

2.1.5 Reasons for and benefits of entering into the Renewed Huahong Zealcore Sales Agreement and the Renewed QST Sales Agreement

The Group has been selling integrated circuits and other semiconductor products to each of Huahong Zealcore and QST as part of its ordinary and usual course of business, and it is expected that such transactions will continue after 31 December 2019.

Having reviewed the terms and the pricing basis of the Renewed Huahong Zealcore Sales Agreement and the Renewed QST Sales Agreement, the Directors (including the Independent Non-Executive Directors) consider that:

the terms of the Renewed Huahong Zealcore Sales Agreement and the Renewed QST Sales Agreement are fair and reasonable;
the entering into of the Renewed Huahong Zealcore Sales Agreement and the Renewed QST Sales Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Group; and
the entering into of the Renewed Huahong Zealcore Sales Agreement and the Renewed QST Sales Agreement is in the interest of the Company and its Shareholders as a whole.

2.1.6 Historical amounts and existing annual caps

The table below sets out the historical transaction amounts received by the Group from Huahong Zealcore and QST under the Old Huahong Zealcore Sales Agreement and the Old QST Sales Agreement during the periods indicated below and the respective existing annual caps (as aggregated):

				(Unit: USD ' 000)
					For the
		For the year	For the year	six months
		ended	ended	ended
		31 December	31 December	30 June
Transaction amounts	2017		2018	2019
		(audited)	(audited)	(unaudited)
The old Huahong Zealcore
Sales Agreement	6,402	4,996	1,750
The old QST Sales
Agreement	2,975	1,607	747
Sub-total
9,377		6,603	2,497


				(Unit: USD ' 000)
		For the year	For the year	For the year
		ended	ended	ending
		31 December	31 December	31 December
Existing annual caps	2017		2018	2019
The Old Huahong Zealcore
Sales Agreement	12,000	12,600	13,230
The Old QST Sales
Agreement	5,400	7,200	9,600

Sub-total	17,400		19,800	22,830

2.1.7 Proposed new annual caps

The Board proposes that the below new annual caps be set for the transactions with Huahong Zealcore and QST under the Renewed Huahong Zealcore Sales Agreement and the Renewed QST Sales Agreement in respect of the three years ending 31 December 2022, respectively:

			(Unit: USD ' 000)
	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
Transaction	2020		2021	2022
The Renewed Huahong Zealcore
Sales Agreement	5,000	5,500	6,050
The Renewed QST Sales
Agreement	8,000	8,800	9,680
Sub-total
13,000		14,300	15,730

In arriving at the above proposed new annual caps, the Directors considered:

the historical transaction values and volumes of products sold to Huahong Zealcore and QST under the Old Huahong Zealcore Sales Agreement and the Old QST Sales Agreement;
the market demand and expected sales orders received from the Huahong Zealcore and QST during the three-year term ending 31 December 2022.
the estimated annual growth rate of 10% the expected sales amount;
the expected increase in the production capacity of the Group in the forth-coming three years.

2.2 Purchase Transactions with Huahong Zealcore

2.2.1 Summary of the terms of the Renewed Huahong Zealcore Purchase Agreement

The Group entered into the Old Huahong Zealcore Purchase Agreement to regulate the purchase transactions with Huahong Zealcore. The principal terms of the Renewed Huahong Zealcore Purchase Agreement, which shall replace the Old Huahong Zealcore Purchase Agreement with effect from 1 January 2020, are summarised below:

Date:	1 January 2020
Parties:	(i)	The Group; and
	(ii)	Huahong Zealcore
Term:	1 January 2020 to 31 December 2020
Nature of	The	Group has agreed to purchase chemicals for its
transactions:	manufacturing processes of semiconductor products from
	Huahong Zealcore as part of its ordinary and usual course of
	business.

2.2.2 Pricing basis of the Renewed Huahong Zealcore Purchase Agreement

The purchase prices payable by the Group under the Renewed Huahong Zealcore Purchase Agreement are determined with reference to the market prices of comparable products which are available on an arm's length basis and on terms no less favourable than those provided by at least two independent suppliers for identical or comparable products.

Although it is not part of the terms of the Renewed Huahong Zealcore Purchase Agreement, the Group follows its relevant internal standard operating procedure to determine the purchase prices of the products under the Renewed Huahong Zealcore Purchase Agreement. The internal standard operating procedure requires the procurement team of the Group to collect the relevant market information (e.g. costs and qualities of identical or comparable products, services and reputations of relevant suppliers), to review and compare the quotations obtained from at least two independent suppliers for identical or comparable products, and to convene meetings with the relevant personnel of the Group to discuss and assess the procurement criteria on an ongoing basis. According to the internal standard operating procedure, the relevant internal team of the Group will review the purchase prices of the products under the Renewed Huahong Zealcore Purchase Agreement on a regular and ongoing basis.

2.2.3 Reasons for and benefits of entering into the Renewed Huahong Zealcore Purchase Agreement

The Group has been purchasing chemicals for its manufacturing processes of semiconductors from Huahong Zealcore as part of its ordinary and usual course of business, and it is expected that such transactions will continue after 31 December 2019.

Having reviewed the terms and the pricing basis of the Renewed Huahong Zealcore Purchase Agreement, the Directors (including the Independent Non-Executive Directors) consider that:

the terms of the Renewed Huahong Zealcore Purchase Agreement are fair and reasonable;
the entering into of the Renewed Huahong Zealcore Purchase Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Group; and
the entering into of the Renewed Huahong Zealcore Purchase Agreement is in the interest of the Company and its Shareholders as a whole.

2.2.4 Historical amounts and existing annual caps

The table below sets out the historical transaction amounts paid by the Group to Huahong Zealcore under the Old Huahong Zealcore Purchase Agreement during the periods indicated below and the respective existing annual caps:

		(Unit: USD ' 000)
			For the
	For the	For the	six months
	year ended	year ended	ended
	31 December	31 December	30 June
	2017	2018	2019
	(audited)	(audited)	(unaudited)
Transaction amounts	659	651	275
	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
	2017	2018	2019
Existing annual caps	710	725	740

2.2.5 Proposed new annual cap

The Board proposes the following new annual cap for the transactions with Huahong Zealcore under the Renewed Huahong Zealcore Purchase Agreement in respect of the year ending 31 December 2020:

(Unit: USD ' 000)

For the year ending 31 December 2020

Proposed new annual cap

870

In arriving at the above proposed new annual cap, the Directors considered:

the historical transaction values and volumes of chemicals purchased from Huahong Zealcore by the Group under the Old Huahong Zealcore Purchase Agreement;
the need for the Group to increase its purchase orders from Huahong Zealcore to support the expansion of its production capacity in 2020;
the estimated volume of chemicals that Huahong Zealcore can supply; and
the relevant chemicals which can be provided by other independent suppliers.

2.3 Purchase Transactions with INESA Entities

2.3.1 Summary of the terms of the Renewed INESA Master Purchase Agreement

The Group entered into the Old INESA Master Purchase Agreement to regulate the purchase transactions with INESA Entities. The principal terms of the Renewed INESA Master Purchase Agreement, which shall replace the Old INESA Master Purchase Agreement with effect from 1 January 2020, are summarized below:

Date:	1 January 2020
Parties:	(i)	The Group; and
	(ii)	INESA Entities
Term:	From 1 January 2020 to 31 December 2020
Nature of	The Group has agreed to purchase goods and services
transactions:	including packaging, testing of wafers, consulting
	services and software licenses in relation to the Group's
	semiconductor manufacturing operations from INESA
	Entities as part of its ordinary and usual course of business.

2.3.2 Pricing basis of the Renewed INESA Master Purchase Agreement

The purchase prices payable by the Group under the Renewed INESA Master Purchase Agreement are determined with reference to the market prices of comparable products which are available on an arm's length basis and on terms no less favourable than those provided by at least two independent suppliers for identical or comparable products.

Although it is not part of the terms of the Renewed INESA Master Purchase Agreement, the Group follows its relevant internal standard operating procedure in determining the purchase prices of the products under the Renewed INESA Master Purchase Agreement. The internal standard operating procedure requires the procurement team of the Group to collect the relevant market information (e.g. costs and qualities of identical or comparable products, services and reputations of relevant suppliers), to review and compare the quotations obtained from at least two independent suppliers for identical or comparable products, and to convene meetings with the relevant personnel of the Group to discuss and assess the procurement criteria on an ongoing basis. According to the internal standard operating procedure, the relevant internal team of the Group will review the purchase prices of the products under the Renewed INESA Master Purchase Agreement on a regular and ongoing basis.

The transactions contemplated under the Renewed INESA Master Purchase Agreement and the purchase orders contemplated thereunder will at all times be conducted subject to and in accordance with the Listing Rules and the applicable guidelines and regulations of the Stock Exchange.

2.3.3 Reasons for and benefits of entering into the Renewed INESA Master Purchase Agreement

The Group has been purchasing goods and services including packaging, testing, consulting services and software licenses in relation to the Group's semiconductor manufacturing operations from INESA Entities as part of its ordinary and usual course of business.

Further, as the construction of Hua Hong Wuxi's facilities is now approaching its final stage, Hua Hong Wuxi demand for goods and services from INESA Entities, including (i) chip probing test of 12-inch (300mm) wafers produced by Hua Hong Wuxi and (ii) software licenses has drastically increased.

Further, in view of the accuracy and reliability of the chip probing test and the quality of other goods and services provided by INESA to the Group under the Old INESA Master Purchase Agreement, the Group is of the view that INESA Entities possess the necessary professional qualifications, extensive experience and production capacity to support its business and development needs.

Having reviewed the terms and the pricing basis of the Renewed INESA Master Purchase Agreement, the Directors (including the Independent Non-Executive Directors) consider that:

the terms of the Renewed INESA Master Purchase Agreement are fair and reasonable;
the entering into of the Renewed INESA Master Purchase Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Group; and
the entering into of the Renewed INESA Master Purchase Agreement is in the interest of the Company and its Shareholders as a whole.

2.3.4 Historical amounts and existing annual caps

The table below sets out the historical transaction amounts paid by the Group to INESA Entities under the Old INESA Master Purchase Agreement during the periods indicated below and the respective existing annual caps:

		(Unit: USD ' 000)
			For the
	For the	For the	six months
	year ended	year ended	ended
	31 December	31 December	30 June
	2017	2018	2019
	(audited)	(audited)	(unaudited)
Transaction amounts	690	2,391	2,360
		(Unit: USD ' 000)
	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
	2017	2018	2019
Existing annual caps	2,800	2,800	5,800

2.3.5 Proposed new annual cap

The Board proposes that the below new annual caps be set for the purchase transactions with INESA Entities under the Renewed INESA Master Purchase Agreement in respect of the year ending 31 December 2020.

(Unit: USD ' 000)

For the year ending 31 December 2020

Proposed new annual cap

4,730

In arriving at the above proposed new annual cap, the Directors considered:

the historical transaction amounts recognized by the Group under the Old INESA Master Purchase Agreement;
the estimated demand of the Group in 2020 for the relevant goods and services;
the estimated volume of goods and services that INESA Entities can supply; and
the relevant goods and services which can be provided by other independent suppliers.

2.4 Leasing Transactions with Shanghai Huali

2.4.1 Summary of the terms under the Huali Lease

The Group entered into the Huali Lease with Shanghai Huali in relation to the leasing of the fab space in the Group's existing facilities to Shanghai Huali. The principal terms of the Huali Lease are summarised below:

Date:	The Huali Lease Agreement was entered into on 25
	February 2010.
	The Huali Lease Supplemental Agreements were entered
	into on 10 June 2011 and 25 July 2014.
Parties:	(i)	The Group; and
	(ii)	Shanghai Huali
Term:	1 March 2010 to 28 February 2030.
Nature of	Pursuant to the Huali Lease Agreement, the Group has
transactions:	agreed to lease the Factory Premise to Shanghai Huali to
	house their 300mm wafer production line as well as certain
	administrative functions.
	Pursuant to the Huali Lease Supplemental Agreements, the
	lease to Shanghai Huali was extended to include the leasing
	of warehouse space ("Warehouse Space") with gross floor
	area of up to 4,536.1 square meters.
Pricing basis:	The annual rental for the Factory Premise was on a fixed
	amount of RMB75,501,616.5 for factory area leased,
	including a daily rental of approximately RMB2.9 per
	square meter for office space for the first 5 years and
	thereafter adjusted every year by the then relevant PRC
	consumer price index. The total gross floor area of the
	Factory Premise and office space was 91,512.1 square

meters. The annual rental from the sixth year onwards is calculated according to a formula based on the rental of the previous year and the PRC consumer price index rate.

The annual rental under the Huali Lease for 2019 is approximately RMB92,000,000. The respective expected annual rentals for 2020, 2021 and 2022 is RMB97,000,000, RMB102,000,000 and RMB107,000,000 respectively, which are calculated according to a formula based on the rental of the previous year and the PRC consumer price index rate.

2.4.2 Reasons for and benefits of entering into the Huali Lease

The lease of fab space from the Group to Shanghai Huali is a critical part of the Group's strategic investment in 300mm wafer manufacturing capacity. Given (i) the strategic importance of the Group's investment in Shanghai Huali's wafer production line; (ii) the synergy effect expected to be generated from housing the production line in the Group's fab; and (iii) the substantial investment involved in building the 300mm wafer fabrication project at the relevant property, the Directors considered that it is both essential and beneficial for the Group to enter into the Huali Lease with Shanghai Huali.

The Directors (including the Independent Non-Executive Directors) consider that:

the terms of the Huali Lease are fair and reasonable;
the entering into of the Huali Lease is on normal commercial terms or better and in the ordinary and usual course of business of the Group; and
the entering into of the Huali Lease is in the interest of the Company and its Shareholders as a whole.

2.4.3 Historical amounts and existing annual caps

The table below sets out the historical transaction amounts received by the Group from Shanghai Huali under the Huali Lease during the periods indicated below and the respective existing annual caps:

		(Unit: RMB ' 000)
			For the
	For the	For the	six months
	year ended	year ended	ended
	31 December	31 December	30 June
	2017	2018	2019
	(audited)	(audited)	(unaudited)
Transaction amounts	81,791	83,878	42,825

		(Unit: RMB ' 000)
	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
	2017	2018	2019
Existing annual caps	84,000	88,000	92,000

2.4.4 Proposed new annual caps

The Board proposes that the below new annual caps be set for the leasing transactions with Shanghai Huali under the Huali Lease in respect of the three years ending 31 December 2022.

		(Unit: RMB ' 000)
	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
	2020	2021	2022
Proposed new annual caps	97,000	102,000	107,000

In arriving at the above proposed new annual caps, the Directors considered the expected inflation in the forthcoming 3 years, as the terms of the Huali Lease Agreement provides that the rental for each year shall be determined based on the rental rate in the lease agreement adjusted by the PRC consumer price index rate for the previous year.

2.5 Leasing and Management Transactions with Huahong Real Estate

2.5.1 Summary of the terms under the Huahong Real Estate Lease

The Group entered into the Huahong Real Estate Lease with Huahong Real Estate to rent one of their buildings for use as staff quarters for the Group's employees. A summary of the principal terms of the Huahong Real Estate Lease is set out as follows:

Date:	The Huahong Real Estate Lease was entered into on 10
	January 2013, supplemented by a supplemental agreement
	dated 10 June 2014.
Parties:	(i)	The Group; and
	(ii)	Huahong Real Estate
Term:	A term of twenty (20) years from 1 January 2014 to 31
	December 2033 (both dates inclusive)
Nature of	The Group has agreed to lease the Dormitory Premises
transactions:	from Huahong Real Estate to be used as staff quarters for
	the Group's employees. The total gross floor area of the
	Dormitory Premises is 17,412.87 square meters.
Pricing basis:	The annual rental payable for 2017, 2018 and 2019 was
	RMB11,100,000. For the following years, the parties

will mutually agree on a new rental every three years determined after arms' length negotiation with reference to prevailing market rates in neighbouring areas. The parties have agreed that the annual rental payable for 2020, 2021 and 2022 will be approximately RMB12,000,000 based on a daily rate of RMB1.85 per square metre.

2.5.2 Summary of the terms under the Renewed Huajin Management Agreement

The Group entered into the Old Huajin Management Agreement with Huajin Property Management. A summary of the principal terms of the Renewed Huajin Management Agreement, which shall replace the Old Huajin Management Agreement with effect from 1 January 2020, is set out as follows:

Date:	1 January 2020
Parties:	(i)	the Group; and
	(ii)	Huajin Property Management
Term:	From 1 January 2020 to 31 December 2020
Nature of	Huajin Property Management has agreed to provide
transactions:	property management services for the Dormitory Premises.
	The total gross floor area of the Dormitory Premises is
	17,412.87 square meters.
Pricing basis:	The parties have agreed the annual management fees
	payable for 2020 will be approximately RMB1,600,000,
	which includes (i) a basic monthly fee of RMB6.48
	per square meter of the Dormitory Premises and (ii)
	the quarterly security fees and maintenance fees of
	approximately RMB60,000.

The management fees are determined after arms' length negotiation with reference to management fee rates for similar and comparable buildings to the Dormitory Premises.

2.5.3 Reasons for entering into the Huahong Real estate Lease and the Renewed Huajin Management Agreement

Given (i) the Dormitory Premises are in an ideal location in close proximity with the Group's principal place of business and (ii) the importance of the Dormitory Premises housing the Group's employees and providing staff quarters to the Group, the Directors considered that it is both essential and beneficial for the Group to enter into the Huahong Real Estate Lease with Huahong Real Estate and the Renewed Huajin Management Agreement with Huajin Property Management.

Having reviewed the terms and the pricing basis of the Huahong Real Estate Lease and the Renewed Huajin Management Agreement, the Directors (including the Independent Non-Executive Directors) consider that:

the terms of the Huahong Real Estate Lease and the Renewed Huajin Management Agreement are fair and reasonable;
the entering into of the Huahong Real Estate Lease and the Renewed Huajin Management Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Group; and
the entering into of the Huahong Real Estate Lease and the Renewed Huajin Management Agreement is in the interest of the Company and its Shareholders as a whole.

2.5.4 Historical amounts and the existing annual caps

The table below sets out the historical transaction amounts paid by the Group to Huahong Real Estate under the Huahong Real Estate Lease and the Old Huajin Management Agreement during the periods indicated below and the respective existing annual caps:

			(Unit: RMB ' 000)
					For the
	For the	For the	six months
	year ended	year ended	ended
	31 December	31 December	30 June
Transaction amounts	2017		2018	2019
	(audited)	(audited)	(unaudited)
The Huahong Real
Estate Lease	11,186	11,186	5,553
The Old Huajin Management
Agreement	1,502	1,502	751
Sub-total
12,688		12,688	6,304


			(Unit: RMB ' 000)
	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
Existing annual caps	2017		2018	2019
The Huahong Real
Estate Lease	13,000	13,000	13,000
The Old Huajin
Management Agreement	2,000	2,000	2,000
Sub-total
15,000		15,000	15,000

2.5.5 Proposed new annual caps

The Board proposes that the below new annual caps be set for the transactions with Huahong Real Estate under the Huahong Real Estate Lease in respect of the three years ending 31 December 2022. The Board also proposes that the below annual cap be set for the transactions with Huajin Property Management under the Renewed Huajin Management Agreement in respect of the year ending 31 December 2017.

			(Unit: RMB ' 000)
	For the	For the	For the
	year ended	year ended	year ending
	31 December	31 December	31 December
Transaction	2020		2021	2022
The Huahong Real
Estate Lease	14,000	14,000	14,000
The Renewed Huajin
Management Agreement	2,000	N/A	N/A
Sub-total
16,000		14,000	14,000

In arriving at the above proposed new annual caps, the Directors considered the rental and fees payable for the three years ending 31 December 2019 under the Huahong Real Estate Lease and the Renewed Huajin Management Agreement, which have been determined after arm's length negotiation with reference to:

the actual historical transaction amounts for the three years ending 31 December 2019 under the Huahong Real Estate Lease and the Old Huajin Management Agreement;
the prevailing market rates of rental prices and management fees of similar and comparable buildings in neighbouring areas; and
the expected increase in rental payable under the Huahong Real Estate Lease during the forthcoming 3-year period by comparing the rental prices of other similar buildings in in neighbouring areas in terms of age, state of renovation and respective facilities.

3. INFORMATION OF THE COMPANY AND THE COUNTERPARTIES The Company

The Company primarily focuses on research and manufacturing of semiconductors on 200mm wafers for specialty applications, in particular eNVM and power discretes.

Huahong Zealcore

Huahong Zealcore is a 90.66% owned by Huahong Group, a controlling shareholder of the Company. Huahong Zealcore's principal business is research, development and sales of integrated circuits and ancillary products. Huahong Zealcore also engages in import and export business of goods and technology relating to the research, development and sales of integrated circuits.

QST

QST is 33.21% held by SAIL, a controlling shareholder of the Company. QST's principal business is researching, developing, designing and selling high-end magnetic sensors and MEMS sensors.

INESA Entities

INESA is a controlling shareholder of the Company by virtue of a voting bloc arrangement from INESA to SAIL. INESA Entities' principal business is to provide overall services ranging from top-level design and planning to integrated execution, operation, maintenance and financing.

Hua Hong Wuxi

Hua Hong Wuxi is currently a non-wholly owned subsidiary of the Company, and is principally engaged in the design, research, manufacturing, testing, packaging and sale of integrated circuits fabricated on 12-inch (300mm) wafers.

Shanghai Huali

Shanghai Huali is 50.23% owned by SAIL, a controlling shareholder of the Company. Shanghai Huali's principal business is developing and operating a 300mm wafer fab.

Huahong Real Estate

Huahong Real Estate is a wholly-owned subsidiary of Huahong Technology Development, a company 50% held by and consolidated with Huahong Group, a controlling shareholder of the Company, and 50% held by HHNEC, a wholly-owned subsidiary of the Company. Huahong Real Estate's principal business is real estate development, operation, property management, interior design, construction, sales of building material and management of car parks of real estate projects.

Huajin Property Management

Huajin Property Management is a wholly-owned subsidiary of Huahong Technology Development, a company 50% held by and consolidated with Huahong Group, a controlling shareholder of the Company, and 50% held by HHNEC, a substantial subsidiary. Huajin Property Management's principal business is in property management.

4. LISTING RULE IMPLICATIONS As of the date of this announcement,

Huahong Zealcore is 90.66% owned by Huahong Group, a controlling shareholder of the Company;
QST is 33.21% held by SAIL, a controlling shareholder of the Company;
INESA is a controlling shareholder of the Company by virtue of a voting bloc arrangement from INESA to SAIL;
Shanghai Huali is 50.23% owned by SAIL, a controlling shareholder of the Company;
Huahong Real Estate is a wholly-owned subsidiary of Huahong Technology Development, a company 50% held by and consolidated with Huahong Group, a controlling shareholder of the Company, and 50% held by HHNEC, a wholly-owned subsidiary of the Company; and
Huajin Property Management is a wholly-owned subsidiary of Huahong Technology Development, a company 50% held by and consolidated with Huahong Group, a controlling shareholder of the Company, and 50% held by HHNEC, a wholly-owned subsidiary of the Company.

Accordingly, Huahong Zealcore, QST, INESA Entities, Shanghai Huali, Huahong Real Estate and Huajin Property Management are connected persons of the Company, and the transactions contemplated under the Renewed Agreements, the Huali Lease and the Huahong Real Estate Lease constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

None of the Directors has material interest in the above transactions or was required to abstain from voting at the Board meeting.

5. DEFINITIONS

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

"Announcements"

"Board"

"Company"

the announcements of the Company dated 28 December 2016, 9 January 2017 and 27 December 2017.

the board of directors of the Company

Hua Hong Semiconductor Limited, a company incorporated in Hong Kong with limited liability on 21 January 2005, and, except where the context otherwise requires, all of its subsidiaries, or where the context refers to the time before it became the holding company of its present subsidiaries, its present subsidiaries

"connected person(s)"

"controlling shareholder"

"Directors"

"Dormitory Premises"

has the meaning ascribed to it under the Listing Rules

the directors of the Company

dormitory premises situated at Hua Hong Innovation Park, Nong 2777, Jinxiu Road East, Pudong New Area, Shanghai,

PRC

"Factory Premise"

"Group"

"HHNEC"

"Hong Kong"

"Huahong Group"

"Huahong Real Estate"

"Huahong Real Estate Lease"

the factory premise situated at Hill 2, 13th Street, Zhangjiang Hi-Tech Park, Pudong New Area, Shanghai,

PRC

the Company and its subsidiaries, or where the context so requires, in respect of the period before the Company became the holding company of its present subsidiaries (or became such associated companies of the Company), the business operated by such subsidiaries or their predecessors (as the case may be)

Shanghai Huahong NEC Electronics Co., Ltd (上海華虹 NEC電子有限公司), a company incorporated in the PRC

on 17 July 1997 and a wholly-owned subsidiary of the Company

The Hong Kong Special Administrative Region of the PRC;

Shanghai Huahong (Group) Co., Ltd. (上海華虹（集團）有限公司), a company incorporated in the PRC on 9 April 1996 as Shanghai Hua Hong Microelectronics Co., Ltd. and renamed as Shanghai Huahong (Group) Co., Ltd, in 1998, and a controlling shareholder of the Company

Shanghai Huahong Real Estate Co., Ltd. (上海華虹置業有限公司), a company incorporated in the PRC on 28 October 2011, a wholly-owned subsidiary of Huahong Technology Development, and a connected person of the Company

the lease agreement entered into between the Group and Huahong Real Estate on 10 January 2013, supplemented by a supplemental agreement entered into on 10 June 2014, pursuant to which the Group leased the Dormitory Premises from Huahong Real Estate for a term of 20 years effective from 1 January 2014.

"Huahong Technology	Shanghai Huahong Technology Development Co., Limited
Development"	(上海華虹科技發展有限公司), a company incorporated
	in the PRC on 10 May 2010, a company 50% held by and
	consolidated with Huahong Group and 50% held by HHNEC
"Hua Hong Wuxi"	Hua Hong Semiconductor (Wuxi) Co., Ltd. (華虹半導體
	（無錫）有限公司), a company incorporated in the PRC on
	10 October 2017 and a non-wholly-owned subsidiary of the
	Company

"Huahong Zealcore"	Shanghai Huahong Zealcore Electronics Co., Ltd. (上海華
	虹摯芯科技有限公司), a company incorporated in the PRC
	on 30 December 2000 which is 90.66% owned by Huahong
	Group, and a connected person of the Company
"Huajin Property	Huajin Property Management Co., Ltd (上海華錦物業管理
Management"	有限公司), a company incorporated in the PRC on 8 June
	2012, a wholly-owned subsidiary of Huahong Technology
	Development, and a connected person of the Company

"Huali Lease"

"Huali Lease Agreement"

the Huali Lease Agreement and the Huali Lease Supplemental Agreements

the lease agreement entered into between the Group and Shanghai Huali on 25 February 2010, pursuant to which the Group leased the Factory Premise to Shanghai Huali for a term of 20 years commencing on 1 March 2010

"Huali Leasethe supplemental agreements between the Group and Supplemental Agreements" Shanghai Huali dated 10 June 2011 and 25 July 2014, pursuant to which the lease to Shanghai Huali was extended to include the leasing of warehouse space with gross floor area of up to 4,536.1 square metres for a term of 20 years,

commencing on 1 July 2014

"INESA"INESA (Group) Co., Ltd. (上海儀電（集團）有限公司), formerly known as INESA Holding Group, a state-owned company incorporated in the PRC in December 1993, and a controlling shareholder of the Company by virtue of a voting bloc arrangement from INESA to SAIL

"INESA Entities" "Listing Rules"

"Old Agreements"

INESA and its subsidiaries

The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

together, the Old Huahong Zealcore Sales Agreement, the Old QST Sales Agreement, the Old Huahong Zealcore Purchase Agreement, the Old INESA Master Purchase Agreement and the Old Huajin Property Management Agreement

"Old Huahong Zealcore	the purchase agreement entered into between the Group and
Purchase Agreement"	Huahong Zealcore on 1 July 2014, which was subsequently
	renewed on 1 January 2017 (the details of renewal
	were disclosed in the Announcements), to regulate the
	transactions between the Group and Huahong Zealcore in
	connection with the purchase of materials
"Old Huahong Zealcore	the sales agreement entered into between the Group and
Sales Agreement"	Huahong Zealcore on 1 July 2014, which was subsequently
	renewed on 1 January 2017 (the details of renewal
	were disclosed in the Announcements), to regulate the
	transactions between the Group and Huahong Zealcore in
	connection with the sales of integrated circuits and other
	semiconductor products
"Old Huajin	the management agreement entered into between the
Management Agreement"	Group and Huajin Property Management on 10 June
	2014 and subsequently renewed on 1 January 2017 and
	1 January 2018 (the details of renewals were disclosed
	in the Announcements), pursuant to which the Group has
	engaged Huajin Property Management to provide property
	management service
"Old INESA Master	the master purchase agreement entered into between the
Purchase Agreement"	Group and INESA Entities on 23 September 2014, which
	was subsequently renewed on 1 January 2017 (the details of
	renewal were disclosed in the Announcements), to regulate
	the transactions between the Group and INESA Entities in
	connection with the purchase of materials

"Old QST Sales Agreement"

"PRC"

"Prospectus"

the sales agreement entered into between the Group and QST on 1 November 2013, which was subsequently renewed on 1 January 2017 (the details of renewal were disclosed in the Announcements), to regulate the transactions between the Group and QST in connection with the sales of integrated circuits and other semiconductor products

The People's Republic of China (excluding, for the purpose of this announcement, Hong Kong, the Macau Special Administrative Region of PRC and Taiwan)

the Company's prospectus dated 3 October 2014

"QST"	QST Corporation (上海矽睿科技有限公司), a company
	incorporated in PRC on 13 September 2012 which is 33.21%
	held by SAIL and a connected person of the Company
"QST Services Agreement"	the agreement entered into between the Group and Huahong
	Zealcore on 1 November 2013 to regulate the transactions
	between the Group and QST in connection with the
	provision of services to QST
"Renewed Agreements"	together, the Renewed Huahong Zealcore Sales Agreement,
	the Renewed QST Sales Agreement, the Renewed Huahong
	Zealcore Purchase Agreement, the Renewed INESA Master
	Purchase Agreement and the Renewed Huajin Management
	Agreement
"Renewed Huahong	the purchase agreement to be entered into between the
Zealcore	Group and Huahong Zealcore on 1 January 2020 to regulate
Purchase Agreement"	the transactions between the Group and Huahong Zealcore
	in connection with the purchase of materials
"Renewed Huahong	the sales agreement to be entered into between the Group
Zealcore	and Huahong Zealcore on 1 January 2020 to regulate the
Sales Agreement"	transactions between the Group and Huahong Zealcore in
	connection with the sales of integrated circuits and other
	semiconductor products
"Renewed Huajin	the management agreement to be entered into between the
Management Agreement"	Group and Huajin Property Management on 1 January 2020,
	pursuant to which the Group will engage Huajin Property
	Management to provide property management service
"Renewed INESA	the master purchase agreement to be entered into between

Master Purchase Agreement" the Group and INESA Entities on 1 January 2020 to regulate the transactions between the Group and INESA Entities in

	connection with the purchase of materials
"Renewed QST	the sales agreement to be entered into between the Group
Sales Agreement"	and QST on 1 January 2020 to regulate the transactions
	between the Group and QST in connection with the sales of
	integrated circuits and other semiconductor products

"RMB"

"SAIL"

Renminbi, the lawful currency of the PRC

Shanghai Alliance Investment Ltd (上海聯和投資有限公司), a company incorporated in the PRC on September 26,1994 and a controlling shareholder of the Company

"Shanghai Huali"

"Shares"

"Stock Exchange"

"subsidiaries"

"USD"

"%"

Shanghai, PRC, 31 December 2019

Shanghai Huali Microelectronic Co. Ltd (上海華力微電子有限公司), a company incorporated in the PRC on 18 January 2010 which is 50.23% owned by SAIL, and a connected person of the Company

shares of the Company

The Stock Exchange of Hong Kong Limited

has the meaning ascribed thereto in the Listing Rules

United States dollar, the lawful currency of United States

per cent

On behalf of the Board

Hua Hong Semiconductor Limited

Mr. Suxin Zhang

Chairman and Executive Director

As at the date of this announcement, the directors of the Company are:

Executive Directors:

Suxin Zhang (Chairman)

Junjun Tang (President)

Non-Executive Directors:

Yang Du

Takayuki Morita

Jing Wang

Jun Ye

Independent Non-Executive Directors:

Stephen Tso Tung Chang

Kwai Huen Wong, JP

Long Fei Ye

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Hua Hong Semiconductor Ltd. published this content on 31 December 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 December 2019 11:41:06 UTC

Delayed Hong Kong S.E. Other stock markets 11:53:18 2024-04-18 pm EDT			5-day change	1st Jan Change
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Mar. 28	Hua Hong Semiconductor Limited Proposes Final Dividend for the Year Ended 31 December 2023, Payable on 26 June 2024	CI
Mar. 28	Hua Hong Semiconductor Limited Announces Board and Committee Changes	CI

Hua Hong Semiconductor Limited Proposes Final Dividend for the Year Ended 31 December 2023, Payable on 26 June 2024	Mar. 28	CI
Hua Hong Semiconductor Limited Announces Board and Committee Changes	Mar. 28	CI
Chinese Government Urges EV Makers to Buy More Local Chips	Mar. 15	MT
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Hua Hong Semiconductor's 2023 Profit Drops 36% as Revenue Slides 3%	Feb. 25	MT
Hua Hong Semiconductor Shares Drop on Weaker Net Profit	Feb. 06	DJ
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Transcript : Hua Hong Semiconductor Limited, Q4 2023 Earnings Call, Feb 06, 2024	Feb. 06
Hua Hong Semiconductor Limited Reports Earnings Results for the Fourth Quarter Ended December 31, 2023	Feb. 06	CI
Hua Hong Semiconductor Limited Reports Earnings Results for the Full Year Ended December 31, 2023	Feb. 06	CI
Hua Hong Semiconductor Limited Provides Revenue Guidance for the First Quarter of 2024	Feb. 06	CI
Hong Kong Stocks Slip On China's Lack of Stimulus Action; Semiconductors Drop on More Chip Export Curbs Outlook	Jan. 19	MT
Hua Hong Semiconductor Limited Appoints Limin Zhou as Non-Executive Director	Jan. 19	CI
Hua Hong Semiconductor Renews Several Agreements with Affiliates	Dec. 26	MT
BYD, Hua Hong Take Over Abandoned Semiconductor Factories in China’s Chengdu City	Dec. 11	MT
Jefferies Adjusts Hua Hong Semiconductor’s Price Target to HK$21 From HK$25, Keeps at Hold	Nov. 10	MT
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Hua Hong Semiconductor’s Profit Drops in Q3	Nov. 09	MT
Transcript : Hua Hong Semiconductor Limited, Q3 2023 Earnings Call, Nov 09, 2023	Nov. 09
Hua Hong Semiconductor Limited Provides Revenue Guidance for the Fourth Quarter of 2023	Nov. 09	CI
Hua Hong Semiconductor Limited Reports Earnings Results for the Third Quarter Ended September 30, 2023	Nov. 09	CI
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Shanghai, Shenzhen Stock Exchanges to Cement Top Spot in Global IPO Rankings in Q1-Q3, Deloitte Says	23-09-25	MT
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