China Oriental : DISCLOSEABLE TRANSACTION IN RELATION TO THE ACQUISITION OF IRON AND STEEL PRODUCTION CAPACITY BETWEEN FANGCHENGGANG JINXI AND TIANJIN TIANZHONG

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(incorporated in Bermuda with limited liability)

(Stock code：581)

DISCLOSEABLE TRANSACTION

IN RELATION TO THE ACQUISITION OF

IRON AND STEEL PRODUCTION CAPACITY BETWEEN FANGCHENGGANG JINXI AND TIANJIN TIANZHONG

BACKGROUND

Reference is made to the announcement of the Company dated 3 September 2019 (the ''Announcement'') in relation to the Investment Agreement entered into by Jinxi Limited and the Fangchenggang City Government. Pursuant to the Investment Agreement, on 3 September 2019, Jinxi Limited established Fangchenggang Jinxi, the Project Company, to assume all of the interests and obligations of Jinxi Limited under the Investment Agreement, including but not limited to the procurement of the transfer of iron and steel production capacity to Fangchenggang City for the purpose of achieving the annual iron and steel production capacity required for the first phase of the Project. In this regard, Fangchenggang Jinxi entered into the Capacity Transfer Agreement with Tianjin Tianzhong, details of which are set out below.

Unless otherwise stated, capitalised terms used herein shall have the same meanings as defined in the Announcement.

• For identification purposes only

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THE CAPACITY TRANSFER AGREEMENT

On 28 November 2019 (after trading hours), Fangchenggang Jinxi entered into the Capacity Transfer Agreement with Tianjin Tianzhong in relation to the transfer of the Target Capacity from Tianjin Tianzhong to Fangchenggang Jinxi at a total consideration of RMB1.158 billion. The principal terms of the Capacity Transfer Agreement are summarised below:

Date

28 November 2019 (after trading hours)

Parties

(1)	Transferor	:	Tianjin Tianzhong
(2)	Transferee	:	Fangchenggang Jinxi

As of the date of this announcement, to the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Tianjin Tianzhong and its ultimate beneficial owner(s) is/are third parties independent of the Company and its connected persons (as defined under the Listing Rules).

Assets to be transferred

Pursuant to the terms of the Capacity Transfer Agreement, Tianjin Tianzhong agreed to sell, and Fangchenggang Jinxi agreed to acquire, the Target Capacity, being the Target Iron Production Capacity (being iron production capacity of 870,000 tonnes per year) and the Target Steel Production Capacity (being steel production capacity of 1,350,000 tonnes per year).

Consideration

The consideration for the Target Capacity is RMB1.158 billion, which shall be paid by Fangchenggang Jinxi to Tianjin Tianzhong in cash in the following manner:

1. RMB1.0422 billion (the ''First Partial Payment'') shall be paid within 5 business days of the publication of the official announcement in relation to the transfer of the Target Capacity on the website of the Industry and Information Technology Department of Tianjin City; and
2. RMB115.8 million shall be paid within 3 days upon the receipt of the value-added-tax invoice to be issued by Tianjin Tianzhong and such invoice shall be issued to Fangchenggang Jinxi within 15 business days of the receipt of the First Partial Payment by Tianjin Tianzhong.

The total consideration for the Target Capacity shall be funded with the internal financial resources of the Group.

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Basis of consideration

The total consideration for the Target Capacity was arrived at based on the prevailing market prices of the iron and steel production capacity after arm's length negotiations between Fangchenggang Jinxi and Tianjin Tianzhong.

Termination

Should the official announcement on the transfer is not published within 2 months after the signing of the Capacity Transfer Agreement due to the policy of the relevant authority, Tianjin Tianzhong will refund all the payments received, without interest, and the Capacity Transfer Agreement will be terminated. Should the authority require additional time to approve the transfer of the Target Capacity, both parties may enter into supplemental agreement(s).

INFORMATION ON THE PARTIES

Information on the Group and Fangchenggang Jinxi

The Company is an investment holding company with trading of steel products and iron ore business. As of the date of the announcement, the Group is principally engaged in the manufacturing and sales of steel products, trading of steel products and iron ore and real estate business.

Fangchenggang Jinxi is a company incorporated in the PRC with limited liability and a 97.6% indirectly owned subsidiary of the Company. It is principally engaged in manufacturing and sales of steel products.

Information on Tianjin Tianzhong

Tianjin Tianzhong is a company incorporated in the PRC with limited liability. It is principally engaged in manufacturing and sales of steel products.

REASONS FOR AND BENEFITS OF THE CAPACITY TRANSFER

The Group is principally engaged in the manufacturing and sales of steel products, trading of steel products and iron ore and real estate business. The Group currently has manufacturing plants in Hebei Province and Guangdong Province of the PRC and sells mainly to customers located in the PRC.

In order to strengthen the Group's leading position in manufacturing of H-section steel products in the PRC, the Group seeks to expand its production capacity and efficiency. As disclosed in the Announcement, Jinxi Limited entered into the Investment Agreement with the Fangchenggang City Government. Currently, the Group's major production base is located in Tangshan, a region subject to more stringent environmental protection measures in recent years, which restrict the Group's operation and increase production costs. Besides, the proximity of Fangchenggang Economic and Technological Development Zone to the port would enable the Group to save costs on transportation of raw materials and expand into the

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nearby steel market at low costs. The Board is of the view that the Project, if materialised, would provide a desirable location for the Group to expand and reach to new market in a cost-effective manner as well as diversifying the business risk in the long run.

Pursuant to the Investment Agreement, within five days from the signing of the Investment Agreement, Jinxi Limited should commence relocation of its existing production capacity located in Tangshan to Fangchenggang City or otherwise procure the transfer of production capacity from other means to Fangchenggang City, in order to achieve the annual iron and steel production capacity required for the first phase of the Project. By entering into the Capacity Transfer Agreement, Fangchenggang Jinxi will procure the Target Capacity for the Project, which could be directed to the Project.

Based on the above, the Directors (including the independent non-executive Directors) consider that the terms and conditions (including the total consideration) of the Capacity Transfer Agreement are fair and reasonable and on normal commercial terms and in the interests of the Company and the Shareholders as a whole.

Pursuant to the terms of the Investment Agreement, the Group may further procure the transfer of iron and steel production capacity from different means to Fangchenggang City, which may constitute a notifiable transaction of the Company under Chapter 14 of the Listing Rules. The Company will make announcement and obtain Shareholders' approval in compliance with the requirements of the Listing Rules as and where appropriate.

IMPLICATIONS UNDER THE LISTING RULES

Given that the highest of all the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the acquisition of the Target Capacity is 5% or more but less than 25%, the acquisition of the Target Capacity constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules and is subject to the notification and announcement requirements thereunder.

As there is uncertainty as to whether the Group would make a successful bidding for the Land, and the Project and the transactions contemplated thereunder remain subject to approvals from the relevant government or administrative authorities and the respective board of directors and shareholders of the Company, Jinxi Limited or Fangchenggang Jinxi, as the case may be, the Project may or may not materialise wholly or partly. Shareholders of the Company and public investors are advised to exercise caution when dealing in the shares of the Company.

DEFINITION

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

''Capacity Transfer	a transfer agreement dated 28 November 2019 entered into
Agreement''	between Fangchenggang Jinxi and Tianjin Tianzhong in
	relation to	the transfer of the Target Capacity from Tianjin
	Tianzhong	to Fangchenggang Jinxi

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''Investment Agreement''	the agreement dated 3 September 2019 entered into between
	Jinxi Limited and the Fangchenggang City Government in
	relation to, amongst others, the Project
''Jinxi Limited''	Hebei Jinxi Iron and Steel Group Company Limited* (河北
	津西鋼鐵集團股份有限公司), a company established in the
	PRC with limited liability and a 97.6% indirectly owned
	subsidiary of the Company
''Fangchenggang Jinxi''	Fangchenggang Jinxi Section Steel Technology Limited*
	(防城港津西型鋼科技有限公司), a company established in
	the PRC with limited liability and a 97.6% indirectly owned
	subsidiary of the Company
''Shares''	ordinary share(s) of HK$0.10 each in the share capital of
	the Company
''Shareholder(s)''	holder(s) of the Shares
''Target Capacity''	collectively, the Target Iron Production Capacity and the
	Target Steel Production Capacity
''Target Iron Production	iron production capacity of 870,000 tonnes per year (subject
Capacity''	to the final determination of the Industry and Information
	Technology Department of Tianjin City)
''Target Steel Production	steel production capacity of 1,350,000 tonnes per year
Capacity''	(subject to the final determination of the Industry and
	Information Technology Department of Tianjin City)
''Tianjin Tianzhong''	Tianjin Tianzhong Giant Heavy Industry Co., Ltd.* (天津市
	天重江天重工有限公司), a company established in the PRC
	with limited liability
''%''	per cent
	By order of the Board
	China Oriental Group Company Limited
	HAN Jingyuan
	Chairman and Chief Executive Officer

Hong Kong, 28 November 2019

As at the date of this announcement, the Board of Directors of the Company comprises Mr. HAN Jingyuan, Mr. ZHU Jun, Mr. SHEN Xiaoling, Mr. ZHU Hao, Mr. HAN Li and Mr. Sanjay SHARMA being the Executive Directors, Mr. Ondra OTRADOVEC being the Non- executive Director and Mr. WONG Man Chung, Francis, Mr. WANG Tianyi, Mr. WANG Bing and Dr. TSE Cho Che, Edward being the Independent Non-executive Directors.

This announcement is published on the websites of the Company (www.chinaorientalgroup.com) and the Stock Exchange (www.hkexnews.hk).

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