Guangdong Investment : Continuing Connected Transactions on the Supply of Electricity

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(Incorporated in Hong Kong with limited liability)

(Stock Code: 0270)

CONTINUING CONNECTED TRANSACTIONS

ON THE SUPPLY OF ELECTRICITY

Reference is made to the announcement of the Company dated 2 November 2017 in relation to the continuing connected transaction on the supply of electricity. The Existing Electricity Transaction Agreement will expire on 31 December 2018. On 6 November 2018, Zhongshan Energy, a subsidiary of the Company, entered into the Zhongyue Tinplate Electricity Transaction Agreement with Zhongyue Tinplate, a wholly-owned subsidiary of Guangnan, for renewal of the Existing Electricity Transaction Agreement.

Save for the Zhongyue Tinplate Electricity Transaction Agreement, on 6 November 2018,

Zhongshan Energy entered into the Nansha Water Electricity Transaction Agreement with Nansha Water, a company indirectly owned by the Company and Guangdong Holdings as to 49% and 11% respectively, pursuant to which Nansha Water has agreed to purchase electricity through the power grid operated by Guangzhou Power Supply on a continuing basis for the period commencing on 1 January 2019 to 31 December 2019.

Since Guangnan is directly owned by GDH (being the immediate controlling shareholder and therefore a connected person of the Company) as to approximately 59.19%, and, hence, an associate of GDH and therefore a connected person of the Company. Zhongyue Tinplate, a wholly owned subsidiary of Guangnan, is also a connected person of the Company. Nansha Water is indirectly owned by Guangdong Holdings (being the ultimate controlling shareholder and therefore a connected person of the Company) as to 11% and, hence, an associate of Guangdong Holdings and therefore a connected person of the Company. Therefore, each of the Transactions constitutes a continuing connected transaction of the Company under the Listing Rules.

Based on the estimated revenue to be received by the Group under the Transactions, the Annual Cap under each of the New Electricity Transaction Agreements, individually and even when aggregated, exceeds 0.1% but is less than 5% of the applicable percentage ratio(s) for the purpose of Chapter 14A of the Listing Rules, the Transactions, individually and even when aggregated, are subject to the reporting and announcement requirements, but are exempt from the independent shareholders' approval requirements under Rule 14A.76(2) of the Listing Rules.

The Company will comply with the annual review requirements under Rules 14A.55 to 14A.57 of the Listing Rules in relation to the New Electricity Transaction Agreements.

ZHONGYUE TINPLATE ELECTRICITY TRANSACTION AGREEMENT

On 6 November 2018, Zhongshan Energy, a subsidiary of the Company, entered into the Zhongyue Tinplate Electricity Transaction Agreement with Zhongyue Tinplate, a wholly-owned subsidiary of Guangnan, pursuant to which Zhongshan Energy has agreed to supply, and Zhongyue Tinplate agreed to purchase, electricity through the power grid operated by Guangdong Power Grid on a continuing basis on the following terms:-

Parties:

Zhongshan Energy Zhongyue Tinplate

Term:

1 January 2019 to 31 December 2019

Volume:

Not exceeding 76,260,000 kWh and the amount of electricity transacted shall be the actual volume of electricity consumed by Zhongyue Tinplate.

Unit price: Zhongshan Energy shall supply, and Zhongyue Tinplate shall purchase, electricity at a unit price which is calculated based on the government prescribed tariff with a discount rate of RMB0.05 per kWh (tax inclusive), which has been determined after arm's length negotiation.

The government prescribed tariff on the sale of electricity is determined by the Guangdong Provincial Development and Reform Commission, which is subject to adjustment from time to time. The discount rate of RMB0.05 per kWh (tax inclusive) is subject to adjustment at the end of the contract term with reference to the weighted average of the unified monthly centralized bidding price spread at the Guangdong Power Exchange Market (廣東電力交易市場) in the year 2019.

Payment terms:

The fees for electricity payable by Zhongyue Tinplate shall be settled with Guangdong Power Grid on a monthly basis, which shall in turn be payable by Guangdong Power Grid to the Group after deduction of the Power Grid Fee charged by Guangdong Power Grid. The amount to be received by the Group under the Zhongyue Tinplate Electricity Transaction Agreement shall therefore be the remainder of the said fees for electricity after deduction of the Power Grid Fee charged by Guangdong Power Grid.

NANSHA WATER ELECTRICITY TRANSACTION AGREEMENT

On 6 November 2018, Zhongshan Energy entered into the Nansha Water Electricity Transaction Agreement with Nansha Water, a company indirectly owned by the Company and Guangdong Holdings as to 49% and 11% respectively, pursuant to which Zhongshan Energy has agreed to supply, and Nansha Water agreed to purchase, electricity through the power grid operated by

Guangzhou Power Supply on a continuing basis on the following terms:-

Parties:

Zhongshan Energy Nansha Water

Term:

1 January 2019 to 31 December 2019

Volume:

Not exceeding 28,680,000 kWh and the amount of electricity transacted shall be the actual volume of electricity consumed by Nansha Water.

Unit price: Zhongshan Energy shall supply, and Nansha Water shall purchase, electricity at a unit price which is calculated based on the government prescribed tariff with a discount rate of RMB0.05 per kWh (tax inclusive), which has been determined after arm's length negotiation.

The government prescribed tariff on the sale of electricity is determined by the Guangdong Provincial Development and Reform Commission, which is subject to adjustment from time to time.

Payment terms:

The fees for electricity payable by Nansha Water shall be settled with Guangzhou Power Supply on a monthly basis, which shall in turn be payable by Guangzhou Power Supply to the Group after deduction of the Power Grid Fee charged by Guangzhou Power Supply. The amount to be received by the Group under the Nansha Water Electricity Transaction Agreement shall therefore be the remainder of the said fees for electricity after deduction of the Power Grid Fee charged by Guangzhou Power Supply.

In respect of the Transactions, Zhongshan Energy will source electricity from Zhongshan Power, which is also a subsidiary of the Company as well as a holding company of Zhongshan Energy and is principally engaged in the operation of power plants, and if necessary, also from other independent electricity suppliers.

BASIS AND REASONS FOR THE TRANSACTIONS AND THE ANNUAL CAP

Estimated	Annual
Revenue	Cap
(RMB)	(RMB)
Zhongyue Tinplate Electricity Transaction Agreement	30,732,780	33,100,000
Nansha Water Electricity Transaction Agreement	11,558,040	12,500,000
Total	42,290,820	45,600,000

The respective Annual Cap for the revenue to be received by the Group under the Transactions, if aggregated, for the period commencing on 1 January 2019 to 31 December 2019 is expected to be RMB45,600,000 (equivalent to approximately HK$51,368,400).

The respective Annual Cap was determined after arm's length negotiation based on, as the case may be, (i) the previous and contemplated electricity consumption of Zhongyue Tinplate; (ii) the contemplated electricity consumption of Nansha Water; (iii) the estimated applicable unit price of electricity to be supplied under the New Electricity Transaction Agreements; and (iv) the estimated amount of the Power Grid Fee to be deducted by Guangdong Power Grid and Guangzhou Power Supply under the Transactions respectively.

The Transactions will enable the Group to secure purchase of electricity from large consumption users, which will in turn help enhance our profitability. Further, the Transactions will enable Zhongshan Power to increase the utilization rate of its power plants, which will in turn maximize the plants' turnover and improve the plants' operating efficiency. The terms of the Transactions were negotiated on an arm's length basis between the parties.

In view of the above, the Directors (including the independent non-executive Directors) are of the view that the New Electricity Transaction Agreements were entered into in the ordinary and usual course of business of the Group and on normal commercial terms or better, and that the terms of the Transactions are fair and reasonable and are in the interests of the Company and its shareholders as a whole.

Mr. Huang Xiaofeng and Mr. Cai Yong are also directors of Guangdong Holdings and GDH. Mr. Zhang Hui, Ms. Zhao Chunxiao, Mr. Lan Runing and Mr. Li Wai Keung are also directors of GDH. All of the abovementioned Directors present at the board meeting of the Company were not counted in the quorum and did not vote on the relevant Directors' resolutions approving, among others, the entering into of the New Electricity Transaction Agreements and the respective Annual Cap. Save as disclosed above, to the best knowledge, information and belief of the Directors and having made all reasonable enquiries, no other Directors have any material interest in the Transactions.

CONNECTED PERSONS

Since Guangnan is directly owned by GDH (being the immediate controlling shareholder and therefore a connected person of the Company) as to approximately 59.19%, and, hence, an associate of GDH and therefore a connected person of the Company. Zhongyue Tinplate, a wholly owned subsidiary of Guangnan, is also a connected person of the Company.

Guangdong Holdings is the ultimate controlling shareholder of the Company, which holds the entire issued share capital of GDH. GDH in turn holds approximately 56.49% of the issued shares of the Company as at the date of this announcement. Nansha Water is indirectly owned by Guangdong Holdings as to 11% and, hence, an associate of Guangdong Holdings and therefore a connected person of the Company. Therefore, each of the Transactions constitutes a continuing connected transaction of the Company under the Listing Rules.

LISTING RULES IMPLICATIONS

Based on the estimated revenue to be received by the Group under the Transactions, the respective Annual Cap under each of the New Electricity Transaction Agreements, individually and even when aggregated, exceeds 0.1% but is less than 5% of the applicable percentage ratio(s) for the purpose of Chapter 14A of the Listing Rules, the Transactions, individually and even when aggregated, are subject to the reporting and announcement requirements, but are exempt from the independent shareholders' approval requirements under Rule 14A.76(2) of the Listing Rules.

The Company will comply with the annual review requirements under Rules 14A.55 to 14A.57 of the Listing Rules in relation to the New Electricity Transaction Agreements.