Guangdong Investment : Connected Translation

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 Hong Kong with limited liability)

(Stock Code: 0270) CONNECTED TRANSACTION

The Board is pleased to announce that on 7 July 2017, HK Water Co, a wholly owned subsidiary of the Company, and Guangdong Water Co entered into the Capital Increase and Joint Venture Agreement with Shantou Construction Development in respect of, among other things, subscription of the registered capital of Project Co. Pursuant to the Capital Increase and Joint Venture Agreement, each of HK Water Co and Guangdong Water Co agreed to make capital contribution in an amount of RMB1,638,752,500 (equivalent to approximately HK$1,888,170,631) and RMB66,887,900 (equivalent to approximately HK$77,068,238), respectively, to Project Co after its restructuring into a limited liability company. Consequent upon the Transaction, HK Water Co, Guangdong Water Co and Shantou Construction Development will be interested as to 49%, 2% and 49% in Project Co, respectively.

Guangdong Water Co is an indirect wholly owned subsidiary, and hence an associate, of Guangdong Holdings, the Company's ultimate holding company. Guangdong Holdings indirectly holds approximately 56.49% of the issued shares of the Company as at the date of this announcement and is the controlling shareholder of the Company. Thus, Guangdong Holdings and Guangdong Water Co are connected persons of the Company and the Transaction constitutes a connected transaction of the Company under the Listing Rules. As the applicable percentage ratios (as defined in Chapter 14 of the Listing Rules) in respect of the Transaction exceed 0.1% but less than 5%, such connected transaction of the Company is subject to the reporting and announcement requirements, but is exempt from the independent shareholders' approval requirement, under Chapter 14A of the Listing Rules.

INTRODUCTION

The Board is pleased to announce that on 7 July 2017, HK Water Co, a wholly owned subsidiary of the Company, and Guangdong Water Co entered into the Capital Increase and Joint Venture Agreement with Shantou Construction Development in respect of, among other things, subscription of the registered capital of Project Co. Pursuant to the Capital Increase and Joint Venture Agreement, each of HK Water Co and Guangdong Water Co agreed to make capital contribution in an amount of RMB1,638,752,500 (equivalent to approximately

HK$1,888,170,631) (of which RMB1,445,426,300 (equivalent to approximately HK$1,665,420,183) as increase in the registered capital and RMB193,326,200 (equivalent to approximately HK$222,750,448) as capital reserve) and RMB66,887,900 (equivalent to approximately HK$77,068,238) (of which RMB58,997,000 (equivalent to approximately HK$67,976,343) as increase in the registered capital and RMB7,890,900 (equivalent to approximately HK$9,091,895) as capital reserve), respectively, to Project Co after its restructuring into a limited liability company. Consequent upon the Transaction, HK Water Co, Guangdong Water Co and Shantou Construction Development will be interested as to 49%, 2% and 49% in Project Co, respectively.

THE CAPITAL INCREASE AND JOINT VENTURE AGREEMENT Date

7 July 2017

Parties

1. HK Water Co (as subscriber);

2. Guangdong Water Co (as subscriber); and

3. Shantou Construction Development (as the existing equity holder of Project Co)

HK Water Co is principally engaged in investment holding and is a wholly owned subsidiary of the Company. Guangdong Water Co is an indirect wholly owned subsidiary of Guangdong Holdings, the Company's ultimate holding company. Guangdong Holdings and Guangdong Water Co are principally engaged in investment holding.

The Company understands that Shantou Construction Development is a state-owned enterprise and is principally engaged in real estate, land development, construction and water supply businesses. To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, Shantou Construction Development is a third party independent of the Company and its connected persons.

As at the date of this announcement, Project Co is undergoing a restructuring reform to become a limited liability company and Shantou Construction Development is interested as to 100% in Project Co.

Capital Increase in Project Co

The Capital Increase and Joint Venture Agreement shall become effective upon approval by the relevant foreign trade and economic authority. Pursuant to the Capital Increase and Joint Venture Agreement, the registered capital of Project Co shall be RMB2,949,849,600 (equivalent to approximately HK$3,398,816,709) after the Transaction and Project Co will be a sino-foreign limited liability company. Each of HK Water Co and Guangdong Water Co agreed to make capital contribution to Project Co in two tranches in the following manner according to the terms and conditions of the Capital Increase and Joint Venture Agreement:-

First Contribution

HK Water Co shall contribute RMB1,609,929,000 (equivalent to approximately HK$1,854,960,194) in cash and Guangdong Water Co shall contribute RMB65,711,400 (equivalent to approximately HK$75,712,675) in cash within 10 business days after fulfilment of the following conditions:

1. the Capital Increase and Joint Venture Agreement being approved by the relevant foreign trade and economic authority and the issuance of certificate of approval for foreign invested enterprise to Project Co;

2. Project Co being registered with the Administration for Industry and Commerce as a limited liability foreign invested enterprise and HK Water Co, Guangdong Water Co and Shantou Construction Development being registered as the equity holders of Project Co (the "AIC Registration");

3. capital contribution by HK Water Co being approved by the relevant foreign exchange authority;

4. receiving account of foreign capital contribution being opened by Project Co;

5. issuance of written confirmation by the relevant governmental authority confirming the ownership by Project Co of certain assets invested by the government;

6. arrangements with contract labours for auxiliary positions of Project Co regarding their retirement, transfer to Shantou Property Management, or otherwise mutual termination of employment relationship having been completed; and

7. the water supply agreement granting the rights relating to the supply of water to the central area of Shantou to Project Co having been executed and having become effective.

Second Contribution

HK Water Co shall contribute RMB28,823,500 (equivalent to approximately HK$33,210,437) in cash and Guangdong Water Co shall contribute RMB1,176,500 (equivalent to approximately HK$1,355,563) in cash after one year of the date on which the Capital Increase and Joint Venture Agreement becomes effective and the first contribution is made, and within 10 business days after fulfilment of the following conditions:

1. the obtaining of necessary license(s) and permit(s) by Project Co for its business operation as a foreign invested enterprise (including but not limited to water drawing permit and hygiene permit); and

2. land use rights certificates in respect of certain lands of Project Co having been obtained from the relevant governmental authority.

Apart from the above, HK Water Co and Guangdong Water Co have no current intention to inject further capital to Project Co. As the Company will hold 49% equity interest in Project Co, Project Co will become an associate company of the Company and the accounts of Project Co attributable to the Group will be recorded in the financial statements of the Group based on the equity method after the Transaction.

Consideration and Basis for Determination of Consideration

The investment by the Company to Project Co under the Capital Increase and Joint Venture Agreement will be funded by the Company's internal resources.

The amount of capital contribution by HK Water Co and Guangdong Water Co has been determined based on arm's length negotiations between the parties to the Capital Increase and Joint Venture Agreement and with reference to the appraised net asset value of Project Co as at

31 December 2016 in the amount of RMB1,638,752,500 (equivalent to approximately HK$1,888,170,631), according to an asset valuation undertaken by an independent third-party valuer using asset-based approach. The aforementioned appraised net asset value has already deducted the appraised net asset value of assets which will not form part of the assets of Project Co after the Transaction. The parties have also taken into account the expected capital requirement and development of Project Co when determining the consideration.

Term and Management of Project Co

Project Co, as a foreign invested enterprise, shall operate for a term of thirty years commencing from the date of issuance of business license of Project Co.

The board of directors of Project Co shall comprise five directors, of whom two shall be nominated by HK Water Co (one of whom shall be the chairman of board of directors of Project Co), one shall be nominated by Guangdong Water Co and two shall be nominated by Shantou Construction Development (one of whom shall be the vice chairman of board of directors of Project Co). The board of supervisors of Project Co shall comprise three supervisors, one of whom shall be nominated by Shantou Construction Development, one of whom shall be nominated by HK Water Co and one of whom shall be the employee representative. The chairman of board of supervisors of Project Co shall be nominated by the Shantou government party.

Transfer Restriction

If an equity holder of Project Co proposes to transfer or otherwise dispose of its equity interest, whether in whole or in part, to a third party, consents from all other equity holders shall be obtained and each of the other equity holders of Project Co shall have the first priority to elect to purchase the subject equity interest. Notwithstanding the above restrictions, Shantou Construction Development shall be entitled to transfer its equity interest in Project Co at nil consideration to other state-owned enterprises in accordance with applicable management regulations in relation to state-owned assets and each of HK Water Co and Guangdong Water Co shall be entitled to transfer their respective equity interests in Project Co, whether in whole or in part, to their holding company or other state-owned or state-controlled enterprises controlled by their holding company, in both cases without the need to first obtain consents from other equity holders of Project Co.

Transition Period

The profits or losses arising from the net assets of Project Co during the transition period from 31 December 2016 to the date of the AIC Registration shall be audited by an auditor appointed in accordance with the terms of the Capital Increase and Joint Venture Agreement and Shantou Construction Development shall be responsible for such profits or losses.

Distribution of Profits

The profits of Project Co shall be distributed in proportion to the percentage of interests of each equity holder in accordance with the Capital Increase and Joint Venture Agreement after the Transaction.