THE CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser for independent advice.

If you have sold or transferred all your shares in Huarong International Financial Holdings Limited, you should at once hand this circular to the purchaser(s) or transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected, for transmission to the purchaser(s) or transferee(s).

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

(Incorporated in Bermuda with limited liability)

(Stock Code: 993)

MAJOR TRANSACTION

IN RELATION TO

THE PROPOSED ASSIGNMENT OF THE CREDITORS' RIGHTS BY HUARONG SHENGYUAN BY WAY OF PUBLIC LISTING-FOR-SALES

The Company has obtained written Shareholders' approval for the Assignment pursuant to Rule 14.44 of the Listing Rules. Accordingly, no Shareholders' meeting will be held to approve the Assignment pursuant to Rule 14.44 of the Listing Rules. This circular is being despatched to the Shareholders for information only.

Capitalized terms used in this cover page shall have the same meanings as those defined in the section headed "Definitions" in this circular. A letter from the Board is set out on pages 5 to 13 of this circular.

25 February 2021

CONTENTS

Page

DEFINITIONS ........................................................

1

LETTER FROM THE BOARD ...........................................

5

APPENDIX I

-

FINANCIAL INFORMATION OF THE GROUP ..........

I-1

APPENDIX II

-

SUMMARY OF THE VALUE ANALYSIS REPORT .......

II-1

APPENDIX III

-

GENERAL INFORMATION ..........................

III-1

-i-

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

"Assignment"

the transaction in relation to the assignment of the Creditors' Rights by Huarong Shengyuan to Zhongwei Qingdao pursuant to the CRA Agreement

"associate(s)"

has the meaning ascribed thereto under the Listing Rules

"Benchmark Date"

20 October 2020

"Board"

the board of directors of the Company

"Camellia Pacific"

Camellia Pacific Investment Holding Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of China Huarong and which directly held 21.01% equity interest in the Company as at the Latest Practicable Date

"CHIH"

China Huarong International Holdings Limited (ʕ਷ശፄ ਷ყછٰϞࠢʮ̡), a company incorporated in Hong Kong with limited liability, which was an indirect parent company of the Company and a subsidiary of China Huarong as at the Latest Practicable Date

"China Huarong"

China Huarong Asset Management Co., Ltd. (ʕ਷ശፄ༟ ପ၍ଣٰ΅Ϟࠢʮ̡), a joint stock limited liability company incorporated in the PRC whose issued H shares are listed on the Stock Exchange (stock code: 2799) and the ultimate controlling shareholder of the Company indirectly holding 51% of the Company's total issued share capital through Camellia Pacific and Right Select as at the Latest Practicable Date

"China United"

China United Assets Appraisal Group Co., Ltd. (ʕᑌ༟ପ ൙ПණྠϞࠢʮ̡), a PRC independent valuer

"Company"

Huarong International Financial Holdings Limited, a company incorporated in Bermuda with limited liability, and the issued Shares of which are listed on the Stock Exchange (stock code: 993)

"connected person(s)"

"controlling shareholder(s)"

has the meaning ascribed thereto under the Listing Rules has the meaning ascribed thereto under the Listing Rules

"CRA Agreement"

the Agreement for the Assignment of Creditor's Rights dated 30 December 2020 and entered into by Huarong Shengyuan and Zhongwei Qingdao in relation to the Assignment

"Creditors' Rights"

creditors' rights against Qingdao Jiayaohua being disposed of by Huarong Shengyuan, including the Primary Creditor's Rights and the Guarantee Rights

"Director(s)"

director(s) of the Company

"Final Consideration"

"Group"

the price for the assignment of the Creditors' Rights agreed under the CRA Agreement, being, RMB680 million the Company and its subsidiaries

"Guarantee Rights"

rights to guarantees, securities and pledges and other incidental rights relating to the Primary Creditor's Rights

"HK$"

Hong Kong dollar, the lawful currency of Hong Kong

"Hong Kong"

the Hong Kong Special Administrative Region of the PRC

"Huarong Shengyuan"

Huarong Shengyuan (Beijing) Investment Co. Ltd.* (ശፄ ᳅Ⴣ(̏ԯ)ҳ༟Ϟࠢʮ̡), a company established in the PRC with limited liability, a subsidiary of the Company and the assignor under the CRA Agreement

"Huarong Zhiyuan"

Huarong Zhiyuan Investment & Management Co., Ltd.* (ശፄߧჃҳ༟၍ଣϞࠢப΂ʮ̡), a company established in the PRC with limited liability and a wholly-owned subsidiary of China Huarong as at the Latest Practicable Date

"Latest Practicable Date"

19 February 2021, being the latest practicable date for the purposes of ascertaining certain information for inclusion in this circular

"Listing Rules"

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

"PRC"

the People's Republic of China (for the purpose of this circular only, excluding Hong Kong, the Macao Special Administrative Region of the People's Republic of China and Taiwan)

"Primary Creditor's Rights"

the principal amounts, interest, penalty interest and liquidated damages for two creditor's rights which have become due with a total contractual amount of RMB906.1961 million owed by Qingdao Jiayaohua to Huarong Shengyuan

"Qingdao Jiayaohua"

Qingdao Jiayaohua Realty Co., Ltd.* (ڡࢥྗᘴശໄุϞ ࠢʮ̡), a company established in the PRC with limited liability and an indirectly wholly-owned subsidiary of Carnival Group International Holdings Limited whose shares are listed on the Stock Exchange (stock code: 996)

"Right Select"

Right Select International Limited (Գ኿਷ყϞࠢʮ̡ ), a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of China Huarong and which directly held 29.98% equity interest in the Company as at the Latest Practicable Date

"Rio Carnival"

Rio Carnival (Qingdao) Realty Co., Ltd.* (ऎɪྗϋശ(ڡ ࢥ)ໄุϞࠢʮ̡), a company established in the PRC with limited liability and a guarantor to Qingdao Jiayaohua under the Creditors' Rights

"RMB"

Renminbi, the lawful currency of the PRC

"SFO"

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

"Shareholder(s)"

registered holder(s) of the Shares

"Shares"

ordinary shares with a par value of HK$0.001 each in the share capital of the Company

"Stock Exchange"

The Stock Exchange of Hong Kong Limited

"subsidiary(ies)"

has the meaning ascribed thereto under the Listing Rules

"TJFAE"

Tianjin Financial Assets Exchange Co., Ltd.* (˂ݵږፄ༟ ପʹ׸הϞࠢப΂ʮ̡)

DEFINITIONS

"Transaction Base Price"

the transaction base price for the Assignment, being,

RMB680 million, which the Final Consideration shall not

be lower than

"Value Analysis Report"

the value analysis report on the Creditors' Rights

furnished by China United

"Zhongwei Qingdao"

Zhongwei Group (Qingdao) Co., Ltd.* (ʕᙯණྠ (ڡࢥ)Ϟ

ࠢʮ̡), a company established in the PRC with limited

liability and the assignee under the CRA Agreement

"%"

per cent.

All references in this circular to times and dates are references to Hong Kong times and dates unless otherwise specified.

All percentages stated in this circular are approximations and certain amounts and percentage figures included in this circular have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them.

*

For identification purpose only

(Incorporated in Bermuda with limited liability)

(Stock Code: 993)

Executive Directors:

Mr. Xu Xiaowu (Chairman)

Mr. Wang Junlai (Chief Executive Officer)

2 Church Street

Hamilton HM11

Non-executive Director:

Bermuda

Ms. Wang Qi

Head office and principal place of business:

Independent non-executive Directors:

Unit A, 16/F & Unit A, 17/F

Mr. Hung Ka Hai Clement

Two Pacific Place

Mr. Ma Lishan

88 Queensway

Mr. Guan Huanfei

Hong Kong

To the Shareholders

Dear Sir or Madam,

Registered office: Clarendon House

MAJOR TRANSACTION

IN RELATION TO

25 February 2021

THE PROPOSED ASSIGNMENT OF THE CREDITORS' RIGHTS BY HUARONG SHENGYUAN BY WAY OF PUBLIC LISTING-FOR-SALES

INTRODUCTION

Reference is made to the Company's announcements dated 28 December 2020 and 30 December 2020 in relation to the Assignment.

This circular is despatched to the Shareholders for information purposes only and contains, among other things, further details of the Assignment as well as other information as required under the Listing Rules.

THE ASSIGNMENT

The Company is a PRC state-owned listed financial company. In accordance with the requirements under applicable PRC laws and regulations in relation to the disposal of state-owned asset rights, the disposal of the Creditors' Rights by Huarong Shengyuan (a subsidiary controlled by the Company) constitutes the disposal of state-owned assets, which is required to be publicly conducted at TJFAE in accordance with PRC laws and regulations. In late December 2020, Huarong Shengyuan published an announcement on the website of TJFAE to commence the official process for the disposal of the Creditors' Rights by way of listing-for-sales, and received a notification from TJFAE on 30 December 2020, stating that, following the eligibility vetting process performed by TJFAE, one interested assignee fulfilling the assignment conditions, namely Zhongwei Qingdao, had been secured for the Assignment.

On 30 December 2020 (after the close of trading hours), in accordance with the rules of TJFAE, Huarong Shengyuan entered into the CRA Agreement with Zhongwei Qingdao to assign all interests in the Creditors' Rights at the Final Consideration.

The principal terms of the CRA Agreement are set out as follows:

Date of agreement and effective date

The CRA Agreement was entered into on 30 December 2020 and came into effect on 13 January 2021 upon all of the following conditions being fulfilled:

  • (1) signing and affixing of seals by the legal representatives or persons in-charge or authorised representatives of the two parties;

  • (2) payment of the bidding deposit of RMB20 million in full by Zhongwei Qingdao in accordance with the CRA Agreement; and

  • (3) the Company having obtained the written approvals of the Board and the relevant Shareholders for the CRA Agreement and the Assignment in accordance with the provisions of pertinent laws of Hong Kong and the Listing Rules.

Parties

Huarong Shengyuan (as assignor); and Zhongwei Qingdao (as assignee)

Creditors' Rights

The Creditors' Rights comprise debts owed by Qingdao Jiayaohua as borrower to Huarong Shengyuan as lender, including:

  • (1) Primary Creditor's Rights: as at 20 October 2020, the total amount of the Primary Creditor's Rights under contract was RMB906.1961 million, comprising a principal amount of RMB740.2155 million and interest, penalty interest and liquidated damages with an aggregate amount of RMB165.9806 million. The two creditor's rights comprising the Primary Creditor's Rights include (i) the creditor's rights to an entrusted loan with a principal amount of RMB680 million and interest and penalty interest with an aggregate amount of RMB136.0687 million, and (ii) the creditor's rights to a consulting service fee comprising a principal amount of RMB60.2155 million and liquidated damages of RMB29.9119 million; and

  • (2) Guarantee Rights relating to the Primary Creditor's Rights, which mainly include: (i) the pledge by Qingdao Jiayaohua of land use rights covering an area of 44,399.7 square metres and construction in progress covering an area of 16,996.89 square metres in Laoshan District, Qingdao, Shandong Province, PRC; (ii) the pledge of 100% equity interests in Shenzhen City Duo Li Wei Investment Development

    Co., Ltd.* (ଉέ̹εлਃҳ༟೯࢝Ϟࠢʮ̡)

    provided by Jiaobao Nianhua Investment Consulting (Shenzhen) Co., Ltd.* (ྗᘒϋശҳ༟ፔ༔(ଉέ)Ϟࠢ ʮ̡) and the pledge of 100% equity interests in Qingdao Xin Chuang Hai Trading Limited* (ڡࢥ㒥 ௴ऎਠ൱Ϟࠢʮ̡) provided by Shenzhen City Duo Li Wei Investment Development Co., Ltd.* (ଉέ̹ εлਃҳ༟೯࢝Ϟࠢʮ̡); (iii) the respective joint liability guarantees provided by Beijing Ang Zhan Technology Development Co., Ltd.* (̏ԯ׻࢝߅Ҧ ೯࢝Ϟࠢʮ̡), Rio Carnival and Carnival Group International Holdings Limited; and (iv) the personal joint liability guarantee provided by Jing Baifu (౻ϵ ѿ) (the aforesaid pledgors and guarantors and their respective ultimate beneficial owners (if applicable) are third parties independent of the Company and its connected persons).

Final Consideration and payment

The Final Consideration is RMB680 million. Zhongwei Qingdao shall pay to Huarong Shengyuan in cash in one lump-sum the amount of RMB660 million, representing the balance of the Final Consideration after deducting the bidding deposit already paid, within 30 business days from the date on which the CRA Agreement becomes effective.

In accordance with the consideration specified in the listing-for-sale document, the Transaction Base Price shall not be lower than RMB680 million. The bases on which the Transaction Base Price has been determined include: (i) the contractual value of the Primary Creditor's Rights; and (ii) the value analysis report on the Creditors' Rights furnished by China United in relation to the Assignment, which has determined the recoverable value of the Creditors' Rights at RMB599.9457 million as at 20 October 2020 (the benchmark date for value analysis) based on the actual status of the settlement of the Creditors' Rights, information on relevant market transactions and prevailing market prices, with reference to the historical cost and earnings of the assets, on the assumption that the assets could be disposed of for a realizable value in an open market, and using the integrated factor analysis method to analyse the realizable value on the basis of which the debtor will settle the Creditors' Rights. For further details on the calculation of the recoverable value of the Creditors' Rights, please refer to Appendix II to this circular for a summary of the Value

Analysis Report.

Closing and transfer of risks Unless otherwise agreed by the two parties, closing of the

assignment of the Creditors' Rights shall take place on the

10th business day after the fulfilment of all closing

conditions stipulated under the CRA Agreement, and the

aforementioned closing conditions include (but are not

limited to) the receipt in full of the Final Consideration

from Zhongwei Qingdao by Huarong Shengyuan and

Huarong Shengyuan having obtained the filing

confirmations or approval documents necessary for the

Assignment from relevant governmental authorities in

accordance with PRC laws.

The period commencing on the Benchmark Date and ending on the closing date shall be the transition period. Zhongwei Qingdao shall be entitled to the rights, interests and benefits of the Creditors' Rights accrued during the transition period, and shall also independently assume any known or unknown losses, damages, risks or liabilities arising or that may arise in relation to the Creditors' Rights during the transition period (save for damages intentionally caused by or due to the gross negligence of Huarong Shengyuan). Zhongwei Qingdao has also undertaken not to make any claims for damages or repurchase to Huarong Shengyuan or demand assumption of liabilities by Huarong Shengyuan on the basis of defects or risks associated with the Creditors' Rights which have been stated in the CRA Agreement.

INFORMATION ON THE GROUP AND ZHONGWEI QINGDAO

The Group is principally engaged in the brokerage and dealing of securities, futures and options contracts, margin financing, loan financing, financial advisory, direct investments, investment holding, provision of advising on corporate finance services and provision of management and consultancy services. Huarong Shengyuan is a company established in the PRC with limited liability and principally engaged in investment management businesses in the PRC.

Zhongwei Qingdao is a company established in the PRC with limited liability and principally engaged in the real estate development and operation business in the PRC. Zhongwei Qingdao is indirectly wholly-owned by Zhongwei Group (Hong Kong) Co., Limited, a company incorporated in Hong Kong with limited liability with principal business of investment holding, whose ultimate beneficial owner is Ms. Han Lili.

To the Directors' knowledge, information and belief having made all reasonable enquiries, Zhongwei Qingdao, Zhongwei Group (Hong Kong) Co., Limited and Ms. Han Lili are third parties independent of the Company and its connected persons.

FINANCIAL EFFECT OF THE ASSIGNMENT AND USE OF PROCEEDS

Assets and liabilities

As abovementioned, as at 20 October 2020, the Primary Creditor's Rights under the relevant contracts include (i) the creditor's rights to an entrusted loan with a principal amount of RMB680 million and interest and penalty interest with an aggregate amount of RMB136.0687 million, and (ii) the creditor's rights to a consulting service fee comprising a principal amount of RMB60.2155 million and liquidated damages of RMB29.9119 million.

According to the Group's credit risk policies and procedures, having taken into account, among others, the following factors, the Creditors' Rights have been categorized as a stage-3 item as defined in the Hong Kong Financial Reporting Standard 9 Financial Instruments since the fourth quarter of 2019, meaning that the debts with respect to the Creditors' Rights are credit impaired:

  • (1) Qingdao Jiayaohua, as the borrower of the debts under the Creditors' Rights, is a project company established solely for the development of certain underlying property development projects. As at 31 December 2020, Qingdao Jiayaohua had not generated any operating income and did not have any other existing business. It has delayed in its repayment of the debts with respect to the Creditors' Rights since December 2018.

  • (2) It came to the Company's attention that the businesses and the indebtedness status of two of the guarantors to the Primary Creditor's Rights, namely Beijing Ang Zhan Technology Development Co., Ltd. and Rio Carnival, have seriously deteriorated, and these two guarantors have been involved in a number of litigation and enforcement cases and/or their major assets have been frozen by the PRC courts. On 27 August 2020, the People's Court of Huangdao District, Qingdao issued a ruling that the case of the insolvency and restructuring of Rio Carnival be admitted and that Grant Thornton LLP (Shandong Branch) be appointed administrator of Rio Carnival. In addition, it also came to the Company's attention that a winding-up petition was filed to the High Court of Hong Kong against another guarantor to the Primary Creditor's Rights, namely Carnival Group International Holdings Limited, in early 2020. It is uncertain whether these three guarantors remain as a going-concern. The Company believes that none of these three guarantors will be able to perform their respective guarantee obligations with respect to the debts of Qingdao Jiayaohua.

In order to assess the expected credit loss of the Creditors' Rights, the Group has reviewed and assessed the fair value of the key collateral received from Qingdao Jiayaohua (in the form of a pledge of land use rights and construction in progress) with the involvement of a third party qualified valuer in early 2020, and the management of the Company made a series of impairment provisions to the Creditors' Rights with prudence, by reference to (1) decrease in property value of the land use rights and construction in progress provided as collateral; (2) potential penaltiesof the aforesaid collateral properties due to the delay in construction and development under the PRC laws; and (3) the estimated costs and expenses and timeframe for the Group to enforce its rights under the Creditors' Rights.

Taking into account the aforementioned, as at 30 June 2020, (i) the creditor's rights with an aggregate contractual amount of approximately RMB226 million, including the interest and penalty interest under the entrusted loan, as well as the consulting service fee, have been fully impaired, and (ii) an impairment provision of RMB264 million has been made to the principal amount of the entrusted loan, and hence the net book value of the Creditors' Rights was approximately RMB416 million.

The Assignment will result in a write back of RMB264 million of the impairment losses on impairment of the Creditor's Rights before end of 2020, and the Group will recognize an increase of RMB680 million in cash and cash equivalent upon completion of the Assignment in 2021. The Assignment does not have any impact on the liabilities of the Group.

Earnings

According to calculations based on the Final Consideration, the Company expects to record from the Assignment an unaudited profit before taxation of approximately RMB264 million, which is equivalent to the difference between the Final Consideration and the net book value (after impairment provision) of the Creditors' Rights as at 30 June 2020.

The actual gain arising from the Assignment to be included in the consolidated statements of profit or loss of the Group for the two years ending 31 December 2020 and 31 December 2021 shall be subject to the audit performed by the Company's auditor.

It is proposed that proceeds generated from the Assignment (if completed) will be applied to replenish the Group's general working capital.

REASONS FOR AND BENEFITS OF CONDUCTING THE ASSIGNMENT

The Assignment is aimed at disposing of the Group's non-performing assets.

As aforementioned, the Creditors' Rights have been categorized as a stage-3 item for the purpose of impairment assessment, and the Company reasonably believes that Qingdao Jiayaohua will not be able to repay its debts with respect to the Creditors' Rights and the majority of the guarantors will be unable to perform their respective guarantee obligations with respect to the debts of Qingdao Jiayaohua. The Company expects that it takes at least two years to go through the enforcement procedures in the PRC to partially recover the Creditors' Rights by way of forced sales of the collateral.

On the other hand, disposal of the Creditors' Rights pursuant to the Assignment at the Final Consideration, which is above the net book value and appraised recoverable value of the Creditors' Rights, will allow the recovery of funds, be beneficial to the optimization of the allocation of resources, and facilitate the implementation of the Group's prudent business development strategy in a more effective manner. Moreover, the Assignment will, upon its completion, generate cash income for the Group which will be applied as its general working capital to help facilitate its execution of strategies relating to its financial service business.

The Directors are of the view that the Assignment is conducted on normal commercial terms, is fair and reasonable and in the interest of the Company and its Shareholders as a whole.

LISTING RULES IMPLICATIONS

As the highest applicable ratio is more than 25% but less than 75%, the Assignment constitutes a major transaction (disposal) of the Company under Chapter 14 of the Listing Rules, and the Company is therefore subject to the reporting, announcement and Shareholders' approval requirements thereunder.

To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, none of the Shareholders or their respective associates have any material interests in the Assignment. Accordingly, in the event of a general meeting convened by the Company to approve the Assignment, none of the Shareholders are required to abstain from voting in favour of the resolution approving the Assignment.

As at the date of this circular and as at the Latest Practicable Date, (i) Camellia Pacific and Right Select are directly interested in 1,830,117,664 and 2,611,438,440 Shares respectively, representing 51% of the Company's total issued share capital in aggregate; and (ii) Camellia Pacific and Right Select are both wholly-owned subsidiaries of China Huarong and constituted a closely allied group of Shareholders.

In accordance with Rule 14.44 of the Listing Rules, the Company has obtained written approval from Camellia Pacific and Right Select on 13 January 2021 approving the Assignment, the CRA Agreement and the transactions contemplated thereunder, in lieu of holding a general meeting of the Company.

As at the Latest Practicable Date, the Assignment has yet to be completed. The Assignment may or may not be completed, and Shareholders and potential investors are asked to exercise caution when dealing in the Shares.

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the terms of the Assignment contemplated under the CRA Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, although, as explained above, no general meeting of the Company will be convened for the purpose of approving the Assignment, if a general meeting were to be so convened, the Board would have recommended the Shareholders to vote in favour of the resolution(s) to approve the Assignment at such general meeting. The above recommendation is for Shareholders' reference only.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

Yours faithfully,

By order of the Board

Huarong International Financial Holdings Limited

Xu Xiaowu

Chairman

1. FINANCIAL SUMMARY OF THE GROUP

The audited consolidated financial statements of the Group for each of the three years ended 31 December 2019 (the "Audited Financial Statements") and the unaudited consolidated financial statements of the Group for the six months ended 30 June 2020 (the "Interim Financial Statements") are accessible via the following hyperlinks:

  • • The interim report of the Company for the six months ended 30 June 2020 (the "2020 Interim Report") published on 28 September 2020 (pages 10 to 49):

    https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0928/2020092801251.pdf

    (English version)

    https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0928/2020092801252_c.pdf

    (Chinese version)

  • • The annual report of the Company for the year ended 31 December 2019 (the "2019 Annual Report") published on 28 April 2020 (pages 92 to 228):

    https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0428/2020042801902.pdf

    (English version)

    https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0428/2020042801903_c.pdf

    (Chinese version)

  • • The annual report of the Company for the year ended 31 December 2018 (the "2018 Annual Report") published on 29 April 2019 (pages 88 to 226):

    https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0429/ltn201904293008.pdf

    (English version)

    https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0429/ltn201904293009_c.pdf

    (Chinese version)

  • • The annual report of the Company for the year ended 31 December 2017 (the "2017 Annual Report") published on 10 April 2018 (pages 70 to 179):

    https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0410/ltn20180410730.pdf

    (English version)

    https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0410/ltn20180410731_c.pdf

    (Chinese version)

The Audited Financial Statements and the Interim Financial Statements (but not any other part of the 2017 Annual Report, the 2018 Annual Report, the 2019 Annual Report and the 2020 Interim Report) are incorporated by reference into this circular and form part of this circular.

2. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the financial resources and the banking and other facilities (including but not limited to the internally generated cash flows, existing cash and bank balances and external borrowings) available to the Group, the Group has sufficient working capital for its present requirements for at least the next 12 months from the date of this circular in the absence of unforeseen circumstances.

3. INDEBTEDNESS

As at the close of business on 31 December 2020, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group had the following indebtedness:

Notes

HK$ million

Current

Bank borrowings - secured and unguaranteed

(a), (b)

216

Bank borrowings - unsecured and unguaranteed

(c)

3,112

Other borrowings - unsecured and unguaranteed

(d)

593

Lease liabilities

(f)

56

3,977

Non-current

Bank borrowings - secured and unguaranteed

(a)

31

Other borrowings - unsecured and unguaranteed

(d), (e)

6,714

Lease liabilities

(f)

86

6,831

Total indebtedness

10,808

Pledge of assets

Finance lease receivable pledged

(g)

388

Notes to statement of indebtedness of the Group as at 31 December 2020

The Group had bank borrowings as follows:

  • (a) Bank borrowings of approximately HK$117 million were interest-bearing, secured by a finance lease receivable and unguaranteed;

  • (b) Bank borrowings of approximately HK$130 million were interest-bearing, secured by time deposits and unguaranteed; and

  • (c) Bank borrowings of approximately HK$3,112 million were interest-bearing, unsecured and unguaranteed.

The Group had other borrowings as follows:

  • (d) Unsecured and unguaranteed borrowings of approximately HK$2,616 million from fellow subsidiaries were interest-bearing;

  • (e) Unsecured and unguaranteed borrowings of approximately HK$4,691 million from an intermediate holding company were interest-bearing;

  • (f) The balance represented lease liabilities of approximately HK$142 million arising from lease contracts for plant, property and equipment and were secured by the rental deposits paid and not guaranteed; and

  • (g) The balance represented a finance lease receivable pledged for the bank borrowings mentioned in note (a), which was secured and unguaranteed. The balance was recorded at its gross balance before any impairment allowances.

Save as disclosed above, as at the close of business on 31 December 2020, the Group did not have any outstanding loan capital issued and outstanding or agreed to be issued, bank overdrafts, other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, lease liabilities, guarantees or other material contingent liabilities.

4. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group is engaged in various securities business, corporate finance and asset management business through (i) Huarong International Securities Limited, (ii) Huarong International Capital Limited and (iii) Huarong International Asset Management Limited. Through the scheme of arrangement under the Companies Law of the Cayman Islands to privatize Huarong Investment Stock Corporation Limited which became effective in November 2020, Huarong Investment Stock Corporation Limited became a wholly-owned subsidiary of the Company and the business of Huarong Investment Stock Corporation Limited and its subsidiaries, which comprises direct investments in stock, bonds, funds, derivatives and other financial products, financial services and others including but not limited to finance leasing and money lending, have been consolidated into those of the Group.

In 2021, the Group will continue to pay close attention to the global situation, national policies and market dynamics, actively carry out business operations based on the principal business of China Huarong, and focus on development opportunities in alternative investments and services to cross-border companies. It will make use of the unified platform established upon the privatization and consolidation of Huarong Investment Stock Corporation Limited to integrate resources, bring the synergies among all the financial license businesses of the Group into full play, accelerate business transformation and the implementation of new business, so as to improve the financial position and performance of the Group, and in turn to enhance the long-term growth potential of the Group.

The Assignment will allow the recovery of funds, and hence facilitate the implementation of the Group's business development strategy in a more effective manner.

Two creditors' right assets held against Qingdao Jiayaohua Realty Co., Ltd.

and proposed to be disposed of by Huarong Shengyuan (Beijing) Investment Co. Ltd.

Value Analysis Report

Zhonglian Pingzi Zi [2020] No. 3453

SummaryNote

China United Assets Appraisal Group Co., Ltd. has been engaged by Huarong Shengyuan (Beijing) Investment Co. Ltd. (ശፄ᳅Ⴣ (̏ԯ) ҳ༟Ϟࠢʮ̡) (hereinafter, "Huarong Shengyuan") to conduct analysis and estimation of the recoverable value as at the analysis benchmark date of two creditors' right assets held against Qingdao Jiayaohua Realty Co., Ltd. (ڡࢥྗᘴശໄุϞࠢʮ̡) (hereinafter, "Qingdao Jiayaohua") and proposed to be disposed of by Huarong Shengyuan in accordance with State regulations pertaining to the disposal of non-performing financial assets and the Guiding Opinion for the Appraisal of Non-performing Financial Assets (ږፄʔԄ༟ପ൙ПܸኬจԈ). The analysts carried out on-site inspection, market investigation and verification enquiry in respect of the subject physical assets in accordance with requisite value analysis procedures to provide references and bases for the value recoverable by Huarong Shengyuan. The analysis is provided as follows:

  • I. BENCHMARK DATE FOR VALUE ANALYSIS

    The benchmark date for value analysis is 20 October 2020.

  • II. SUBJECT OF THE VALUE ANALYSIS

    The subject of the value analysis of creditors' right assets is the recoverable value of the two creditors' rights held by Huarong Shengyuan as at 20 October 2020. The scope of the value analysis covers the debtor, guarantor and mortgaged (pledged) assets comprising such creditors' rights.

    As at 20 October 2020, the principals of and interest accrued on the two creditors' rights held by Huarong Shengyuan amounted to RMB906.1961 million in aggregate, comprising: a principal amount of RMB740.2155 million, and interest and penalty interest amounting to RMB165.9806 million, the details of which are set out in the table below:

(Unit: RMB0'000)

Principal

Penalty

Item

amount

Interest

interest

Total

Creditors' rights I

68,000.00

8,317.56

5,289.31

81,606.87

Creditors' rights II

6,021.55

-

2,991.19

9,012.74

Total

74,021.55

8,317.56

8,280.5

90,619.61

Note: In this summary, unless otherwise specified, the currency of the amounts stated is Renminbi.

III. VALUE ANALYSIS METHOD

In accordance with the regulatory requirements of State regulations pertaining to the disposal of non-performing financial assets and the Guiding Opinion for the Appraisal of Non-performing Financial Assets, taking into consideration the inherent characteristics of the creditors' rights, in adherence to the working principles of independence, objectivity, fairness and scientific-mindedness as well as relevant economic principles, such as the principle of change in the owner of title interests and the principle of substitution, among others, on the basis of the actual conditions of the creditors' right assets to be utilised for settlement and information on relevant market transactions and prevailing market rates, with reference to the historical cost and income of the assets, and assuming the disposal and realisation of the assets and an open market, we have adopted the integrated factor analysis method to analyse the realisable value to be utilised by the debtor for settlement of the creditors' right assets, thereby analysing the recoverable value of the two creditors' rights held and proposed to be disposed of by Huarong Shengyuan.

The integrated factor analysis method is one of the common methods adopted for the value analysis of non-performing loans. It is an approach to determine the potential value of creditors' rights mainly through the inspection of relevant information on the creditors' rights and critical study of credit files pertaining to the creditors' rights, taking into consideration findings of investigation and information collected. The solvency of the debtor is analysed in three aspects: repayment financed through its own business operations, repayment backed by guarantor and repayment backed by mortgaged (pledged) assets. Given the specific characteristics of the mortgaged (pledged) assets and properties under seizure and the fact that certain creditors' rights involve risk compensation funds provided by the local government as credit enhancement while certain creditors' rights involve debt repayments on behalf of the debtor by connected parties such as the effective controller, in order to ensure there is no duplication or omission, this value analysis distinguishes the sources of debt repayment into five categories, namely, mortgaged (pledged) assets, properties under seizure, other valid assets, repayment financed by resources from the debtor's own business operations and repayment backed by guarantor, and then arrives at a repayment ratio of the debtor on an aggregated basis. The detailed rationale is set out as follows.

The value of the creditors' rights comprises five components, namely:

V = M+F+X+D+B

D = G×C1

B = W×C2

M = MIN [Z, (S-Y) × (1-K)]

Of which:

V: Analysed value of standalone creditors' rights (value derived from debtor, guarantor and mortgaged (pledged) assets);

  • M: Analysed value of senior creditors' rights (value derived from repayment through mortgaged (pledged) assets);

  • F: Analysed value of properties under seizure (value derived from repayment through properties under seizure);

  • X: Analysed value of other valid assets (value derived from other valid assets of debtor);

  • D: Analysed value of general creditors' rights (value derived from repayment financed through debtor's own business operations);

  • B: Analysed value of guaranteed creditors' rights (value derived from repayment backed by guarantor);

  • G: Amount of general creditors' rights (amount of creditors' rights repayable by debtor);

  • W: Amount of guaranteed creditors' rights (amount of creditors' rights repayable by guarantor);

  • C1: Solvency factor of debtor;

  • C2: Solvency factor of guarantor;

  • Z: Amount of creditors' rights;

  • S: Market value assuming absence of any statutory senior rights to repayment;

  • Y: Statutory senior debt known to the value analyst;

  • K: Discounted rate for mortgaged (pledged) assets.

IV. PROCEDURE OF VALUE ANALYSIS

(I) Overview of the creditors' rights

According to statistical information on the creditors' rights provided by the appointor and the debtor, statistics of debts owed to external parties by the debtor, Qingdao Jiayaohua, as at 20 October 2020 are set out as follows:

Carrying

No. Accounting item value Remarks

(in RMB yuan)

1

Trade payables

71,315,037.73

Construction payments, senior debt

2

Tax payable

866,837.05

Senior debt

3

Other payables

145,655,323.97

General debt

Total

217,837,198.75

- II-3 -

  • (II) Legal validity

    The following is extracted from the legal due diligence report (by account):

    • 1. On 27 August 2020, the People's Court of Huangdao District, Qingdao issued the verdict (2020) Lu 0211 Po No. 4: on 24 August 2020, in response to the petition of Longxin Construction Group Co., Ltd. (ᎲڦܔணණྠϞࠢʮ̡), it is ruled that the case of the insolvency and restructuring of Rio Carnival (Qingdao) Realty Co., Ltd. (ऎɪྗϋശ€ڡࢥໄุϞࠢʮ̡) (hereinafter, "Rio Carnival") be admitted and that Grant Thornton LLP (Shandong Branch) be appointed administrator of Rio Carnival.

      Save for the aforesaid application of Rio Carnival for insolvency and restructuring, no other borrower and guarantor or mortgagor were subject to insolvency.

    • 2. "Legal Opinion on Matters Pertaining to the Assignment of Creditors' Rights Involving, among others, Huarong Shengyuan (Beijing) Investment Co. Ltd. and Qingdao Jiayaohua Realty Co., Ltd." furnished by Grandall Law Firm.

    • 3. The mortgage rights under the loan account have been duly registered.

  • (III) Analysed recoverable value of the creditors' rights M

    1. Valuation method

The core asset inventory, development cost, of Qingdao Jiayaohua included in the scope of the value analysis was work in progress in real estate development. Accordingly, based on the conditions of development of the project, the appraisal has adopted the hypothetical development method to assess the liquidated value of the core asset inventory, development cost, of Qingdao Jiayaohua as at the benchmark date, the details of which are set out as follows:

Given that the project was undergoing the development process with a rather definite cost budget and cost accounting mechanism adopted by the enterprise, the profitable gross floor area (GFA) could be ascertained and the market price was therefore easier to obtain. Accordingly, the hypothetical development method has been adopted for the appraisal, and the computational formula is set out as follows:

Inventory valuation = valid revenue of project - ongoing construction cost - administrative cost in ongoing construction - selling cost in ongoing construction - finance cost in ongoing construction - sales tax and surcharge - land value-added tax ("VAT") - income tax - profit from ongoing construction

Analysed recoverable value of the creditors' rights M = MIN (amount of creditors' rights, realisable value of mortgaged (pledged) assets)

2. Overview of the project

The carrying value of inventory, development cost, was RMB875,266,203.48, representing work in progress (development cost), namely, the Laoshan Qi Ying Li Project (⢹ʆɖߵԢධͦ). The carrying value of the detailed cost items is set out in the table below:

No.

Item

Amount

(RMB yuan)

1

Acquisition cost

566,500,000.00

2

Preliminary expenses

13,214,209.30

3

Construction safety work

157,230,977.13

4

Ancillary facilities

3,149,429.80

5

Indirect development expenses

14,332,723.93

6

Capital cost

120,838,863.32

7

Total

875,266,203.48

The Laoshan Qi Ying Li Project (⢹ʆɖߵԢධͦ) of Qingdao Jiayaohua has a GFA of 111,573.12 square metres (including: above-ground GFA of 69,572.40 square metres and underground GFA of 42,000.72 square metres). Property types include mainly boutique apartment, hotel and office tower. As at the benchmark date for consultation, the Laoshan Qi Ying Li Project had obtained the land use right certificate Lu (2018) Qingdao Laoshan District Real Estate Title No. 0019275 ((2018)ڡࢥ̹⢹ʆਜʔਗପᛆୋ0019275) evidencing land use right for an area of 44,399.70 square metres. Registered land use types include commercial and financial, retail and commercial, dining and tourism. The land use right is of the type of grant and valid for a term ending on 30 April 2049. Its construction land use planning permit number is Di Zi No. 370200200905001 (ήοୋ370200200905001); its construction work planning permit number is Jian Zi No. 370200201605006

(ܔοୋ370200201605006 ); and its construction work permit 370212201808310101. The planning details are set out as follows:numberis

Item

Numeric value

Unit

Planned land use area

44,399.70

square metres

GFA

111,573.12

square metres

Above-ground GFA (plot ratio

69,572.40

square metres

applicable)

Underground GFA

42,000.72

square metres

Building density

33.8%

Green ratio

20.3%

Plot ratio

1.57

Parking space Above ground

Unit

Underground

Unit

30 676

706

As at the benchmark date for value analysis, the project was under seizure by the Qingdao Intermediate People's Court, Shandong Province for a period commencing on 24 September 2020 and ending on 23 September 2023.

3. Valuation and estimation process

(1) Valid sales revenue of the project as a whole

In respect of properties for which no contracts have been signed, in determining the selling prices of various business forms during the valuation, the appraiser has investigated the conditions of development in neighbouring property markets and conducted analysis of and made judgement on the justification of the selling price explanation provided by the enterprise, in order to determine the selling prices of various business forms.

Details of the selling price explanation provided by the enterprise are set out as follows:

"Information on apartment property developments in Qingdao is set out as follows:

AverageNo.

Name of projectAddress of projectPrincipal use

unit price (RMB yuan)

1

San Du Kong JianNo. 10 Haifeng Road,

(ɧܓ٤ග)

Shinan DistrictApartment and commercial space

15,000

(̹یਜऎᔮ༩10)

AverageNo.

Name of projectAddress of projectPrincipal use

unit price (RMB yuan)

  • 2 Yi He Guo JiNo. 10 Xianggang

    (᎚ձ਷ყ)

    Central Road,Apartment, office and 22,000 commercial space

    Shinan District

    (̹یਜ࠰ಥʕ༩10)

  • 3 Qingdao Centre

    No. 8 Xianggang CentralApartment and office 31,000

    (ڡࢥʕː)

    Road, Shinan District

    (̹یਜ࠰ಥʕ༩8)

  • 4 Qingdao Yin Xiang

    No. 1 Jiangdong Road,

    Jin Sha Tan

    JialingApartment-type 30,000 residence

    (ڡࢥΙ൥ږӍᛉ)

    (ྗ௒Ϫ؇༩1)

  • 5 Shen Lan Centre

West side of Ying De

(ଉᔝʕː)

Long Building

Apartment-type 70,000 residence

Based on our investigation, it is noted that there were not many apartment-style residences in the genuine the sense in Qingdao. The earliest apartment-type residential project in Qingdao was San Du Kong Jian at No. 10 Haifeng Road, followed by Yi He Guo Ji and Qingdao Centre, which were built at a later stage. These projects were mostly located in the east of the Shinan District of Qingdao, which was far away from the subject project. In Laoshan District, there were fewer apartment-type residential projects, presenting little direct competition.

Comparative information on residential developments in the neighbouring areas obtained in investigation is set out as follows:

No.

Name of projectAddress of projectYear of completion Principal useAverage quoted price

(RMB yuan)

  • 1 Qing Jian Yue TingNo. 65 Laoshan Road

    2017

    (ڡܔࣀҒ)

    (⢹ʆ༩65)

  • 2 Hai Xin Yi YunNo. 25 Laoshan Road

    2017

    Xiao Zhen

    (⢹ʆ༩25)Multi-storey residence and villa Residence and villa

    Multi-storey 30,000

    Mini-highrise

    (ऎڦԱථʃᕄ)

    27,000, townhouse

    45,000-47,000

  • 3 Lu De Hai De BaoNo. 66 Songling Road

    2017

    (ኁᅃऎᅃఝ)

    (ؒᏊ༩66)

  • 4 Lu Shang Lan An

    No. 88 Songling Road

    2016

    Residence and villa Residence

    Residence 32,000,

    villa 60,000

    40,000-45,000

    Li She

    (ؒᏊ༩88)

    (ኁਠᔝ֦ᘆٸ)

No.

Name of projectAddress of projectYear of completion Principal useAverage quoted price

(RMB yuan)

  • 5 Ai Qin HaiNo. 237 Xianggang

    2003

    Apartment

    East Road

    (ฌೞऎʮభ)

    (࠰ಥ؇༩237)

  • 6 Mei Lin Xiao ZhenNo. 227 Xianggang

    2000

    (ߕ؍ʃᕄ)

    East RoadSlab-type building and multi-storey building Residence and townhouse villa

    39,000-50,000

    Residence 28,000

    (࠰ಥ؇༩227)

  • 7 Shan Shui Ming

    No. 397 Xianggang

    2004

    Yuan (ʆ˥Τ෤)

    East Road

    (࠰ಥ؇༩397)

    Mini-highrise and multi-storey residence

  • 8 Jin Guang Li HaiNo. 2 Laoshan Road

    2000

    Xin Yuan

    (⢹ʆ༩2)

    (ږΈᘆऎอ෤)

  • 9 Fei Cui Hua YuanNo. 6A Laoshan Road

    2001

    (ၰၯڀ෤)

(⢹ʆ༩6໮͠ )

Slab-type building, multi-storey building and residence Multi-storey residence and villaHighrise 30,000, multi-storey 40,000, duplex 50,000 20,000

70,000

Analysis of the supply of projects and the volume of supply within the district described above indicates that the residential property market in the district was robust both in supply and demand, and such development trend will continue in the future. Owing to the scarcity of land supply in the district, very few land sites will be available for development in the district in the future. The district was dominated by large-size properties such as villas, while small-size apartments were scarce. Therefore, the pricing of the rare loft apartment-type residences with immediate sea views (the GFA indicated is the GFA of one floor, but the property is capable of being converted into two or three floors at the choice of the owner) at RMB50,000.00/square metre was within the normal range. The average selling price for commercial space was RMB30,000.00/ square metre, while the price for a car parking space in the complex was determined at RMB150,000.00/slot."

In connection with the pricing explanation provided by the enterprise, the appraiser has made enquiries on the property prices in the district onwww.fang.com, whose research indicates that property prices in Laoshan District was at the level of RMB43,000/square metre.

Diagram of property price movement 2020.01-2020.12 (RMB/m2)

45,000

2020.12

Property price in

40,000

Property price in

Qingdao: 24,847

35,000

30,000

25,000

20,000

01

02

03

04

05

06

07

08

09

10

11

12

Property price of the project

Property priceProperty price

of Laoshan

of Qingdao

Taking into account the advantageous geographic location of the development project, the appraiser is of the view that the pricing of the enterprise is generally justified, and sales revenue for the loft apartments is recognised based on the selling prices set by the enterprise.

Sales of the project is computed as follows:

Table of sales revenue estimates for the project

Estimated

Saleable

revenue

Type

area

Unit price

(before tax)

(m2/unit)

(RMB yuan/

(RMB yuan)

square metre

(unit))

Loft apartment

46,751.91

50,000.00

2,337,595,500.00

Commercial

22,622.61

30,000.00

678,678,300.00

Car parking space

706.00

150,000.00

105,900,000.00

Total

69,374.52

3,122,173,800.00

- II-9 -

Determination of valid sales revenue of the project

In accordance with the relevant policies under Cai Shui [2016] No. 36

Notice on Matters pertaining to Business Tax-to-VAT Conversion (ৌ೼ [2016] 36໮ᗫ׵ᐄҷᄣϞᗫԫධٙஷٝ): sales amount from the disposal of property projects (other than old property projects for which the simplified tax computing method is opted) developed by a property development enterprise which is a general taxpayer is represented by the balance of the entire sales amount plus fees received in addition to the sales amount less land premium paid to government authorities at the time of land assignment. It has also been taken into consideration that the applicable tax rates for VAT payable by general taxpayers in respect of taxable sales activities or imports have been adjusted from 16% to 13% or from 10% to 9%, as applicable, with effect from 1 April 2019. Under the present estimate, businesses occurring after 1 April 2019 are estimated according to the reduced tax rates.

Output tax = (sales revenue - acquisition price) × applicable tax rate ÷ (1 + applicable tax rate)

= (3,122,173,800.00 - 550,000,000.00) × 9% ÷ 1.09 = RMB212,381,339.45

Total value after completion of development (after tax) = total value after completion of development (before tax) - output tax

= 3,122,173,800.00 - 212,381,339.45 = RMB2,909,792,660.55

(2) Determination of ongoing construction cost

With reference to the total project investment estimates provided by the enterprise and after deduction of relevant cost items already charged to development costs, the direct development cost subsequently required is estimated at RMB582,631,011.72 under this valuation, the detailed breakdown of which is set out in the table below:

Unit: RMB yuan

Total project

Ongoing

cost (tax

construction cost

No.

Item

included)

(tax excluded)

1

Project acquisition cost

566,500,000.00

0

2

Preliminary expenses

97,092,000.00

78,382,017.12

3

Construction safety work

556,256,800.00

353,096,362.32

4

Ancillary facilities

135,930,000.00

121,556,992.22

5

Indirect development

43,928,364.00

29,595,640.07

expenses and others

6

Total

1,399,707,164.00

582,631,011.72

(3) Determination of administrative cost in ongoing construction

Based on the average administrative cost ratio of similar property development companies and taking into account the actual conditions of the project, the administrative cost ratio is determined at 3.0%, hence:

Administrative cost in ongoing construction = valid sales revenue (after tax) of the project × 3.0% - administrative cost incurred

= 2,909,792,660.55 × 3.0% - 7,696,198.06 = RMB79,597,581.76

(4) Determination of selling cost in ongoing construction

Based on the average selling cost ratio of similar property development companies, the selling cost ratio is determined at 3.0%, hence:

Selling cost in ongoing construction = valid sales revenue (after tax) of the project × 3.0% - selling cost incurred

= 2,909,792,660.55 × 3.0% - 370,000.00 = RMB86,923,779.82

(5) Determination of finance cost in ongoing construction

Finance cost in ongoing construction: Based on the loan prime rate (LPR) of 3.85% announced by the National Interbank Funding Center as authorised by the People's Bank of China on the benchmark date, a construction period of 1.5 years and project purchase amounts computed according to the remaining construction period of the development, and assuming that preliminary expenses, construction safety cost and infrastructure cost, administrative cost and selling cost are expensed evenly during the entire remaining development period, finance cost in ongoing construction would be:

Finance cost in ongoing construction = 0.0583 V + 21,529,306.56

(6) Determination of sales tax and surcharge

Sales tax: In accordance with the announcement of the State Taxation Administration on the Provisional Measures for the Administration of VAT Chargeable on the Sales of Self-developed Property Projects by Property Development Enterprises (STA Announcement (2016 No. 18)) (גήପක೯Άุ ቖਯІБක೯ٙגήପධͦᄣ࠽೼ᅄϗ၍ଣᅲБ፬ج) and the Notice of the

Ministry of Finance and the State Taxation Administration on the Full Launch of Trial Implementation of Business Tax-to-VAT Conversion (Cai Shui [2016] No.

36) (ৌ݁௅਷࢕೼ਕᐼ҅ᗫ׵Όࠦપකᐄุ೼ҷּᄣ࠽೼༊ᓃٙஷٝ), VAT in this valuation has been considered on the basis of tax computation for general taxpayers. The specific formula adopted is as follows:

VAT = (output tax - credit tax)

Output tax = (sales revenue - acquisition price) × applicable tax rate ÷ (1 + applicable tax rate)

Credit tax = construction payments × applicable tax rate ÷ (1 + applicable tax rate)

In accordance with the relevant policies under Cai Shui [2016] No. 36

Notice on Matters pertaining to Business Tax-to-VAT Conversion (ৌ೼ [2016] 36 ໮ᗫ׵ᐄҷᄣϞᗫԫධٙஷٝ): sales amount from the disposal of property projects (other than old property projects for which the simplified tax computing method is opted) developed by a property development enterprise which is a general taxpayer is represented by the balance of the entire sales amount plus fees received in addition to the sales amount less land premium paid to government authorities at the time of land assignment. It has also been taken into consideration that the applicable tax rates for VAT payable by general taxpayers in respect of taxable sales activities or imports have been adjusted from 16% to 13% and from 10% to 9%, as applicable, with effect from 1 April 2019. Under the present estimate, businesses occurring after 1 April 2019 are estimated according to the reduced tax rates, namely:

Output tax = (sales revenue - acquisition price) × applicable tax rate ÷ (1 + applicable tax rate)

Credit tax = construction payments × applicable tax rate ÷ (1 + applicable tax rate)

Based on the above, the credit tax amount is RMB62,648,812.12, and the output tax amount is RMB212,381,339.45.

VAT computed according to the aforesaid formula is RMB149,732,527.33.

In addition to VAT, sales tax and surcharge comprises mainly city construction tax, education surcharge and stamp duty, of which city construction and maintenance tax is charged at 7% of VAT, education surcharge is charged at 3% of VAT, local education surcharge is charged at 2% of VAT, and stamp duty is charged at 0.05% of sales revenue.

City construction and maintenance tax = VAT × 7.00%

Education surcharge = VAT × 3.00%

Local education surcharge = VAT × 2.00%

Stamp duty = sales revenue × 0.05%

VAT computed using the aforesaid formula is RMB149,732,527.33, while city construction tax, education surcharge and local education surcharge and stamp duty amount to RMB19,528,990.28 in aggregate, as detailed in the table below:

Item

Amount

(RMB yuan)

City construction tax

10,481,276.91

Education surcharge

4,491,975.82

Local education surcharge

2,994,650.55

Stamp duty

1,561,087.00

Total

19,528,990.28

Sales tax expense = city construction tax + education surcharge + local education surcharge + stamp duty = RMB19,528,990.28

(7) Determination of land VAT

According to the appraiser's calculations on the project on the basis of consolidated settlement, assuming the relevant direct cost of the enterprise with an amount of RMB754,427,340.16 (excluding capitalised interest) already recognised will be able to be charged to cost in the future consolidated settlement of land VAT, the land VAT for the project is estimated at RMB394,606,642.33, the details of which are as follows:

Item

Amount

(RMB yuan)

A

Sales revenue

2,909,792,660.55

B

Deductions = 1+2+3+4

1,756,143,760.73

1. Property development cost (after

deduction of interest)

1,337,058,351.88

2. Other development cost = 1×10%

133,705,835.19

3. Tax expenses

17,967,903.28

4. Weighted deduction = 1 × 20%

267,411,670.38

C

Value-added amount A-B

1,153,648,899.82

D

Value-added ratio = C/B

65.69%

E

Total land VAT = C×40% - B×5%

394,606,642.33

(8) Determination of income tax

As estimated, the income tax payable by the project amounts to RMB192,429,842.81, the details of which are set out as follows:

Item

Amount

Remark

(RMB yuan)

Total sales revenue of

2,909,792,660.55

Total project revenue (after tax)

project (1)

Project cost (2)

1,457,897,215.20

Total project cost (excluding

tax)

Selling cost (3)

87,293,779.82

= Selling cost in ongoing

construction + selling cost

already incurred

Administrative cost (4)

87,293,779.82

= Administrative cost in

ongoing construction +

administrative cost already

incurred

Finance cost (5)

93,428,379.26

= Finance cost in ongoing

construction + finance cost

already incurred

Non-operating revenue and

24,502.61

others (6)

Sales tax expenses (7)

19,528,990.28

Land VAT (8)

394,606,642.33

Profit before income tax (9)

769,719,371.23

= (1) - (2) - (3) ... - (8)

Income tax rate (10)

25%

Income tax (11)

192,429,842.81

= (9) × 25%

(9) Profit from ongoing construction

Based on the estimation above, the estimated realisable profit before taxation of the project, income tax and net profit of the project amount to RMB769,719,371.23, RMB192,429,842.81 and RMB577,289,528.42, respectively, the details of which are set out in the table below:

Item

Amount (RMB yuan)

Remark

Total sales revenue of project (1)

  • 2,909,792,660.55 Total project revenue (after tax)

    Project cost (2)

  • 1,457,897,215.20 Total project cost (excluding tax)

Item

Amount (RMB yuan)

Remark

Selling cost (3)

  • 87,293,779.82 = Selling cost in ongoing construction + selling cost already incurredAdministrative cost (4)

  • 87,293,779.82 = Administrative cost in ongoing construction + administrative cost already incurred

    finance cost (5)

    Non-operating revenue and others (6)

  • 93,428,379.26 = Finance cost in ongoing construction + finance cost already incurred 24,502.61

Sales tax expenses (7) 19,528,990.28

Land VAT (8) 394,606,642.33

Profit before income tax (9) 769,719,371.23 = (1) - (2) - (3) ... - (8)

Income tax (10) 192,429,842.81 = (9) × 25%

Net profit of the project (11) 577,289,528.42 = (9) - (10)

Under this appraisal, profit from ongoing construction is estimated based on the percentage of ongoing construction cost according to the following formula:

Profit from ongoing construction = ongoing construction cost ÷ total development cost × net profit of project = RMB230,706,786.80

(10) Recognition of inventory value

Hence: Inventory valuation = valid revenue of project - ongoing construction cost - administrative cost in ongoing construction - selling cost in ongoing construction - finance cost in ongoing construction - sales tax and surcharge - land VAT - income tax - profit from ongoing construction

= 2,909,792,660.55 - 582,631,011.72 - 86,923,779.82 - 79,597,581.76 - (0.0583 V + 21,529,306.56) - 19,528,990.28 - 394,606,642.33 - 230,706,786.80 - 192,429,842.81 = RMB1,230,119,866.99

4. Analysed recoverable value of the creditors' rights M

According to statistical information on the creditors' rights provided by the appointor, statistics of debts owed to external parties by the debtor, Qingdao Jiayaohua as at 20 October 2020 are set out as follows:

No.

Accounting item

Carrying value

Verified debt

Remark

(RMB yuan)

(RMB yuan)

1

Trade payables

71,315,037.73

71,315,037.73

Construction payments,

senior debt

2

Tax payable

866,837.05

866,837.05

Senior debt

3

Other payables

145,655,323.97

145,655,323.97

General debt

4

Long-term borrowing

680,000,000.00

906,124,100.00

Secured and guaranteed

Total

897,837,198.75

1,123,961,298.75

Including probable senior creditors' rights as follows:

External debts owed by Qingdao Jiayaohua (as verified)

Principal

Creditor

and interest Percentage (RMB0'000)

Huarong Shengyuan 90,619.61 100.00%

Total 90,619.61

Remark: The amount of creditors' rights of Huarong Shengyuan has been provided by the appointor and has not been verified.

Consideration has been given to relevant expenses in the actual process of disposal, such as appraisal fees and auctions fees, among others. Moreover, given the characteristics of non-performing creditors' right assets, disposal will generally be more difficult, and hence a fast realisation ratio of certain proportion has also been taken into account. Taking into consideration the aforesaid factors relating to disposal and realisation, a 50% recovery ratio has been adopted.

Huarong Shengyuan obtained the mortgage and guarantee rights to the physical assets of inventory, development cost, of Qingdao Jiayaohua through its merger with Xinyu Huarong Shengyuan Investment Co. Ltd. (อЯശፄ᳅Ⴣҳ༟Ϟࠢʮ̡) (hereinafter "Xinyu Huarong Shengyuan") by way of absorption.

Realisable value of mortgaged (pledged) assets = (market value of mortgaged (pledged) assets - statutory senior repayment amounts) × recovery ratio

= (1,230,119,866.99 - 71,315,037.73 - 866,837.05) × 50%

= RMB578,968,996.00

(IV) Analysed value of properties under seizure F

As at the benchmark date for value analysis, as disclosed in the "Legal Opinion on Matters Pertaining to the Assignment of Creditors' Rights Involving, among others, Huarong Shengyuan and Qingdao Jiayaohua" furnished by Grandall Law Firm: "On 24 September 2020, the Qingdao Intermediate People's Court, Shandong Province ordered the seizure of the land use rights in respect of No. 490 Xianggang East Road, Laoshan District, Qingdao, Shandong Province and buildings erected thereon under the ownership of Qingdao Jiayaohua (Title Certificate Number: Lu (2018) Qingdao Laoshan District Real Estate Property Title No. 0019275) for a period commencing on 24 September 2020 and ending on 23 September 2023."

Save for the aforesaid pledged properties under seizure, there was no other property under seizure within the area under inspection. Therefore, the value of F is 0.

(V) Analysed value of other valid assets X

As at the benchmark date for value analysis, the analysed values of other valid assets within the area under inspection are as follows:

Unit: RMB0'000

Liquidated value of assets assuming non-continuing

No.

Accounting item

Carrying value

operations

1

Cash

2,434.91

2,434.91

Total

2,434.91

2,434.91

The general creditors' rights are accounted for as follows:

Unit: RMB0'000

Carrying value

Verified debt

Percentage

1

Huarong Shengyuan

68,000.00

90,619.61

86.15%

2

Current transactions

14,565.53

14,565.53

13.85%

Total

82,565.53

105,185.14

100.00%

No. Name

Hence, the analysed value of other valid assets under the creditors' rights of Huarong Shengyuan is:

Analysed value of other valid assets under the creditors' rights of Huarong Shengyuan = analysed value of other valid assets × percentage = 24,349,078.61 × 86.15% = RMB20,976,731.22

1. Cash

As at the benchmark date for value consultation, Qingdao Jiayaohua had cash with a book amount of RMB24,349,078.61, held as bank deposits.

Therefore, the realisable value of cash is RMB24,349,078.61.

(VI) Analysed value of general creditors' rights D

The debtor, Qingdao Jiayaohua, was established in 19 March 2014 and is currently operating in strained conditions. While the debtor has been making active effort to remedy its business, such effort has not been effective. Therefore, the solvency factor of Qingdao Jiayaohua is 0.00. Namely, D = 0.

(VII) Analysed value of guaranteed creditors' rights B

As at the benchmark date for value analysis, as disclosed in the "Legal Opinion on Matters Pertaining to the Assignment of Creditors' Rights Involving, among others, Huarong Shengyuan (Beijing) Investment Co. Ltd. and Qingdao Jiayaohua" furnished by Grandall Law Firm:

In relation to the entrusted loan and borrowing contract:

"1. On 24 August 2017, Xinyu Huarong Shengyuan entered into Xing Yin Qing Wei

Dai Zi No. 2017-011 Agency Contract for Entrusted Loan with Industrial Bank Co., Ltd., Qingdao Branch; on the same date, Xinyu Huarong Shengyuan enteredinto Xing Yin Qing Wei Jie Zi No. 2017-011 Entrusted Loan and Borrowing Contract with Industrial Bank Co., Ltd., Qingdao Branch and Qingdao Jiayaohua, pursuant to which Xinyu Huarong Shengyuan entrusted Industrial Bank Co., Ltd., Qingdao Branch to extend an entrusted loan to Qingdao Jiayaohua in the amount of six hundred and eighty million for a loan term of 36 months commencing on

  • 24 August 2017 and ending on 24 August 2020.

  • 2. On 24 August 2017, Industrial Bank Co., Ltd., Qingdao Branch entered into Xing Yin Qing Wei Jie Di Zi No. 2017-011 (ጳვڡ։࠾תο2017-011) Mortgage Contract with Qingdao Jiayaohua, pursuant to which Qingdao Jiayaohua provided security by way of mortgage against the land use rights in respect of its property located at No. 490 Xianggang East Road, Laoshan District (⢹ʆਜ࠰ಥ؇༩490) (former certificate number: Lu (2017) Qingdao Laoshan District Real Estate Property Title No. 0000642 ((2017)ڡࢥ̹⢹ʆਜʔਗପᛆୋ0000642); current certificate number: Lu (2018) Qingdao Laoshan District Real Estate Property Title No. 0019275 ((2018)ڡࢥ̹⢹ʆਜʔਗପᛆୋ0019275)) for debt under the aforesaid No. 2017-011 Entrusted Loan and Borrowing Contract.

  • 3. In August 2020, Industrial Bank Co., Ltd., Qingdao Branch entered into Xing Yin Qing Wei Jie Di Zi No. 2017-011-1 (ጳვڡ։࠾תο2017-011-1) Mortgage Contract with Qingdao Jiayaohua, pursuant to which Qingdao Jiayaohua provided security by way of mortgage against its construction in progress in respect of No. 490-2 Xianggang East Road, Laoshan District, Qingdao, Shandong Province (ʆ ؇޲ڡࢥ̹⢹ʆਜ࠰ಥ؇༩490-2) (Lu (2020) Qingdao Laoshan District Real Estate Property Certificate No. 023016 ((2020) ڡࢥ̹⢹ʆਜʔਗପᗇ׼ୋ 023016)) for debt under the aforesaid No. 2017-011 Entrusted Loan and Borrowing Contract.

  • 4. On 24 August 2017 and 30 August 2017, Xinyu Huarong Shengyuan and Jiabao Nianhua Investment Consulting (Shenzhen) Co., Ltd. (ྗᘒϋശҳ༟ፔ༔(ଉέ)Ϟ ࠢʮ̡) (hereinafter "Jiabao Nianhua") entered into two Equity Pledge Contracts numbered BJ-2017-008-1 and BJ-2017-008-2, respectively, pursuant to which Jiabao Nianhua provided security by way of pledge against the 100% equity interests held by it in Shenzhen City Duo Li Wei Investment Development Co., Ltd. (ଉέ̹εлਃҳ༟೯࢝Ϟࠢʮ̡) (hereinafter "Duo Li Wei") for debt owed by Jiayaohua under the aforesaid No. 2017-011 Entrusted Loan and Borrowing Contract.

  • 5. On 24 August 2017, Xinyu Huarong Shengyuan and Duo Li Wei entered into BJ-2017-008-3 Equity Pledge Contract, pursuant to which Duo Li Wei provided security by way of pledge against the 100% equity interests held by it in Qingdao Xin Chuang Hai Trading Limited (ڡࢥ㒥௴ऎਠ൱Ϟࠢʮ̡) for debt owed by Qingdao Jiayaohua under the aforesaid No. 2017-011 Entrusted Loan and Borrowing Contract.

6. On 24 August 2017, Xinyu Huarong Shengyuan entered into Guarantee

Agreements numbered BJ-2017-008-4, BJ-2017-008-6, BJ-2017-008-8 and BJ-2017-008-10 with Beijing Ang Zhan Technology Development Co., Ltd. (̏ԯ ׻࢝߅Ҧ೯࢝Ϟࠢʮ̡) (hereinafter "Ang Zhan Technology"), Carnival Group International, Rio Carnival and Jing Baifu (౻ϵѿ), respectively, pursuant to which the four guarantors provided joint liability guarantees for debt owed by Qingdao Jiayaohua under the aforesaid No. 2017-011 Entrusted Loan and Borrowing Contract."

In relation to the consultation service agreement:

"1. On 24 August 2017, Xinyu Huarong Shengyuan and Qingdao Jiayaohua entered into BJ-2017-008-13 Consultation Service Agreement, pursuant to which Xinyu Huarong Shengyuan shall provide consultation services to Jiayaohua for a monthly service fee of RMB4,147,701.40, amounting to total consultation service fees of RMB124,431,042 for 30 months. On the same date, Ang Zhan Technology, Carnival Group International Holdings Limited (hereinafter "Carnival Group International"), Rio Carnival and Jing Baifu (౻ϵѿ) entered into respective Guarantee Contracts, pursuant to which the four guarantors provided joint liability guarantees for all debts owed by Jiayaohua under the Consultation Service Agreement."

As Shenzhen City Duo Li Wei Investment Development Co., Ltd., Qingdao Xin Chuang Hai Trading Limited, Beijing Ang Zhan Technology Development Co., Ltd., Carnival Group International Holdings Limited and Jing Baifu involved in the aforesaid provision of pledge and guarantee have not furnished relevant financial information, the guaranteed creditors' rights B is valued at RMB0 in this value analysis.

On 24 August 2020, the case of the insolvency and restructuring of Rio Carnival was admitted at the People's Court of Huangdao District, Qingdao. Owing to the insolvency and restructuring of Rio Carnival, the existing assets of Rio Carnival are not available for the settlement of its debts. Therefore, the value of the creditors' rights guaranteed by Rio Carnival is determined as 0 in this value analysis.

(VIII) Determination of recoverable value of the creditors' rights V

Based on the analysis above, the analysed recoverable value of the creditors' rights M is RMB578,968,996.00, the analysed value of properties under seizure F is 0, the analysed value of other valid assets X is RMB20,976,731.22, the analysed value of general creditors' rights D is 0, and the analysed value of guaranteed creditors' rights B is 0.

Putting the aforesaid estimates into the formula:

V = M+F+X+D+B

We arrive at a recoverable value of RMB599.9457 million for the creditors' rights.

V. RESULTS OF VALUATION ANALYSIS

Following the performance of necessary appraisal procedures and based on due diligence carried out by the appraiser on a best effort basis and information obtained, the following conclusion has been arrived at: as at value analysis benchmark date, the total recoverable value of the two creditors' right assets held against Qingdao Jiayaohua and proposed to be disposed of by Huarong Shengyuan was RMB599.9457 million, representing a recovery ratio of 66.20% for principal as well as interest and a recovery ratio of 81.05% for the principal amount.

In accordance with relevant standards for the appraisal of non-performing financial assets, the conclusion of value analysis is valid for one year, namely, from 20 October 2020 to 19 October 2021.

In using the conclusion of value analysis, full consideration should be given to the following factors:

1. The legal responsibility of the value analyst and the valuation firm is to furnish a professional opinion on the value of the creditors' rights for the purposes of analysis described in this report. The conclusion of this value analysis report should form a basis for reference by the appointor in the determination of the price of the creditors' rights, but should not be regarded as an assurance as to what price may be realised in the disposal of creditors' rights.

2. In accordance with provisions of the Guiding Opinion for the Appraisal of

Non-performing Financial Assets, the appraisal of non-performing financial assets can be distinguished into value appraisal and value analysis. In this appraisal of the creditors' right assets, the relevant value analysis tasks have been conducted mainly by way of inspection of documents and written legal opinions, and interviews with personnel responsible for the settlement and collection of creditors' rights, and thus falls within the category of value analysis under the Guiding Opinion for the Appraisal of Non-performing Financial Assets. The appointor and other users of the report are reminded that the applicability of a conclusion in value analysis as a basis for reference is different from that of a conclusion in value appraisal.

  • 3. The gross area and saleable area data for property developments involved in this value consultation have been provided by the title owners of the properties. This value consultation has not taken into account the effect of potential inconsistency between actual conditions in the future and the estimation on the conclusion of the value consultation.

  • 4. As at the benchmark date for value analysis (20 October 2020), Rio Carnival, a guarantor, had entered the insolvency and restructuring process. According to the audit status report disclosed by the administrator of Rio Carnival, the total assets of Rio Carnival amounted to RMB6,264.4882 million, while liabilities amounted to RMB7,347.2777 million. As Rio Carnival was not in a position to settle its own liabilities, the creditors' rights guaranteed by it is recognised as 0 in this value analysis, and no analysis has been conducted in respect of Rio Carnival involved in the insolvency and restructuring. The appraiser hereby reminds the creditor to declare its creditors' rights in a timely manner.

  • 5. As at the benchmark date for value analysis (20 October 2020), the amount payable to Huarong Shengyuan by the debtor, Qingdao Jiayaohua, according to the latter's book record is RMB680 million. The principal of and interest accrued on the two creditors' rights, as confirmed by Huarong Shengyuan (the appointor), amounted to RMB906.1961 million, comprising a principal amount of RMB740.2155 million and interest and penalty interest of RMB165.9806 million, the details of which are set out in the table below:

    Principal

    Penalty

    Item

    amount

    Interest

    interest

    Total

    (RMB0'000)

    (RMB0'000)

    (RMB0'000)

    (RMB0'000)

    Creditors' rights I

    68,000.00

    8,317.56

    5,289.31

    81,606.87

    Creditors' rights II

    6,021.55

    -

    2,991.19

    9,012.74

    Total

    74,021.55

    8,317.56

    8,280.5

    90,619.61

  • 6. The conclusion of this value analysis represents the result of estimation conducted on the basis of the amount of creditors' rights provided by the appointor, and has not taken into consideration the possible effect of inconsistency between the respective book records of the two parties on the conclusion of the creditors' right analysis. Users of the report should seek an accurate understanding of the implications of the conclusion of this value analysis.

  • 7. The development project of Qingdao Jiayaohua has yet to be completed and marketed. As requested by the appointor, future expenses and costs are considered on a full basis, including costs incurred and relevant tax expenses such as land VAT and enterprise income tax payable in the future. The conclusion of this value analysis represents estimation results (after VAT) subject to the aforesaid limiting conditions. Users of the report should seek an accurate understanding of the implications of the conclusion of this value analysis.

  • 8. VAT adopted in the estimates on the Laoshan Qi Ying Li Project is based on the "Announcement on Policies relating to the Deepening of VAT Reform" (ᗫ׵ଉʷ ᄣ࠽೼ҷࠧϞᗫ݁ഄٙʮѓ) jointly promulgated by the Ministry of Finance, State Taxation Administration and General Administration of Customs on 26 March 2019, which specifies that the applicable tax rates for VAT payable by general taxpayers in respect of taxable sales activities or imports have been adjusted from 16% to 13% or from 10% to 9%, as applicable, with effect from 1 April 2019. The potential inconsistency between VAT computations and the actual tax treatment has not been taken into consideration. The actual VAT amount is subject to the actual amount charged by the taxation authorities.

  • 9. In the estimates on the Laoshan Qi Ying Li Project, land VAT has been estimated according to the method of land VAT settlement in tandem with the purposes of this value consultation. The appraiser has not taken into consideration the effect of advanced land VAT charge and the refundability of advanced land VAT payments on the valuation result. In the computation of development cost deductions, the development cost for residential and commercial properties has been allocated according to gross area. The appraiser has not taken into consideration the effect of differences arising from the actual allocation of development cost deductions on the valuation outcome. The actual land VAT amount is subject to the actual amount charged by the taxation authorities.

  • 10. Owing to limiting conditions, we have only been able to inspect and verify the accounts of other accounting items of the enterprise, but have not been able to secure external confirmation in respect of the recoverability of amounts. Amounts relating to contracts under execution are recognised as their book value, while amounts relating to contracts not under execution are recognised as 0. Users of the report should note that no valuation opinion on the recoverability of amounts is being expressed.

  • 11. In the course of this value analysis, the effect of the cost of the disposal of creditors' rights on the value of the creditors' rights has not been taken into account; furthermore, users of the report should note that the relevant conclusion is an independent analysis of the value of creditors' rights of various accounts, and the effect of the method of disposal, namely, whether the accounts are disposed of individually or collectively as an asset package, on the value of the creditors' rights value has not been taken into consideration.

12. It is impracticable for all factors affecting the value of the creditors' rights to be considered in the analysis of the value of the creditors' rights. The conditions of the assets and of the market at the time of the formulation of the asset disposal plan and at the time of disposal will directly affect the realisation of the value of the creditors' rights. Therefore, the conclusion of the value analysis might be considerably different from the price to be realised from the disposal of the creditors' rights. The appointor is advised to take into consideration the conditions of the assets and of the market at the time of the formulation of the asset disposal plan and at the time of disposal when using the conclusion of the value analysis as a reference for the disposal of the creditors' rights, in order to arrive at reasonable decisions.

The above contents have been extracted from the Value Analysis Report. For a comprehensive understanding of the appraisal, please read carefully the full text of the Value Analysis Report.

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein misleading.

2. INTERESTS OF DIRECTORS

(a) Interests in shares, underlying shares and debentures of the Company and its associated corporations

As at the Latest Practicable Date, none of the Directors and the chief executives of the

Company had any interest or short position in the Shares, underlying Shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Director or chief executive of the Company was taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange.

(b) Interests in assets

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any asset which has been, since 31 December 2019, being the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Group, or was proposed to be acquired or disposed of by or leased to any member of the Group.

(c) Interests in contracts

As at the Latest Practicable Date, no contracts or arrangements were subsisting in which any Director was materially interested and which was significant in relation to the business of the Group.

(d) Interests in competing business

As at the Latest Practicable Date, in so far as the Directors were aware of, none of the Directors and their respective close associates (as defined in the Listing Rules) was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

(e) Directors' service contracts

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which is not expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

3. INTERESTS OF SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS

As at the Latest Practicable Date, so far as was known by or otherwise notified to the Directors and chief executives of the Company, the persons (other than the Directors and chief executives of the Company) who had an interest or short position in the Shares or underlying Shares which were required to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were recorded in the register required to be kept by the Company under section 336 of the SFO were as follows:

Approximate percentage of

Name of ShareholderCapacity/Nature of interest

Number of Shares heldthe issued share capital

China Huarong (Note 1)

Interests in controlled corporation

4,441,556,104 51.00%

(L)

China Huarong (Notes 2 and 3)

Interests in controlled corporation (security interest)

2,144,097,429 24.62%

(L)

CHIH (Notes 1 and 3)

Interests in controlled corporation

4,441,556,104 51.00%

(L)

Interests in controlled corporation (security interest)

135,000,000 1.55%

(L)

Right Select (Note 1)

Beneficial owner

2,611,438,440 29.98%

(L)

APPENDIX III

GENERAL INFORMATION

Approximate percentage of

Capacity/Nature of

Number of

the issued

Name of Shareholder

interest

Shares held

share capital

Camellia Pacific (Note 1)

Beneficial owner

1,830,117,664

21.01%

(L)

Shinning Rhythm Limited

Security interest

2,009,097,429

23.07%

(Note 2)

(L)

China Huarong Overseas

Interests in controlled

2,009,097,429

23.07%

Investment Holdings Co.,

corporation (security

(L)

Limited (Note 2)

interest)

Huarong Huaqiao Asset

Interests in controlled

2,009,097,429

23.07%

Management Co., Ltd.

corporation (security

(L)

(Note 2)

interest)

Huarong Zhiyuan (Note 2)

Interests in controlled

2,009,097,429

23.07%

corporation (security

(L)

interest)

Hero Link Enterprises

Beneficial owner

129,000,000

1.48%

Limited (Note 4)

(L)

China Tian Yuan

Beneficial owner

646,220,529

7.42%

International Finance

(L)

Limited (Note 4)

Interests in controlled

129,000,000

1.48%

corporation

(L)

China Tian Yuan Finance

Interests in controlled

775,220,529

8.90%

Group (Holdings)

corporation

(L)

Limited (Note 4)

Ningxia Tianyuan

Interests in controlled

996,517,500

11.44%

Manganese Industry

corporation

(L)

Group Co., Ltd. (Note 5)

Tian Yuan Manganese

Interests in controlled

996,517,500

11.44%

Limited (Note 5)

corporation

(L)

- III-3 -

Approximate percentage of

Name of ShareholderCapacity/Nature of interest

Number of Shares heldthe issued share capital

China Tian Yuan

Manganese Finance (Holdings) Limited

Interests in controlled corporation

996,517,500 11.44%

(L)

(Note 5)

China Tian Yuan AssetBeneficial owner

996,517,500 11.44%

Management Limited

(L)

(Note 5)

Mr. Jia Tianjiang

(Notes 4 and 5)

Interests in controlled corporation

1,771,738,029 20.34%

(L)

Ms. Dong Jufeng

Interests of spouse

1,771,738,029 20.34%

(Notes 4 and 5)

(L)

(L) long position

Notes:

  • (1) 1,830,117,664 Shares are beneficially owned by Camellia Pacific and 2,611,438,440 Shares are beneficially owned by Right Select. Both Camellia Pacific and Right Select are wholly owned by CHIH. CHIH is owned as to 84.84% by China Huarong and 15.16% by Huarong Zhiyuan. Huarong Zhiyuan is wholly owned by China Huarong. China Huarong is beneficially owned as to 57.02% by the Ministry of Finance of the PRC Government and is deemed to be owned as to 4.39% by the Ministry of Finance of the PRC Government through controlled corporation. Therefore, each of China Huarong and CHIH is deemed or taken to be interested in all the Shares beneficially owned by Camellia Pacific and Right Select by virtue of the SFO.

  • (2) 129,000,000 Shares held by Hero Link Enterprises Limited, 646,220,529 Shares held by China Tian Yuan International Finance Limited and 996,517,500 Shares held by China Tian Yuan Asset Management Limited are pledged to Shinning Rhythm Limited, while 237,359,400 Shares held by Power Tiger Investments Limited are pledged to Tian Yuan Investment Holding Co., Limited, which in turn has assigned such security interest to Shinning Rhythm Limited. Shinning Rhythm Limited is a wholly-owned subsidiary of China Huarong Overseas Investment Holdings Co., Limited, which is in turn a wholly-owned subsidiary of Huarong Huaqiao Asset Management Co., Ltd. Huarong Huaqiao Asset Management Co., Ltd. is owned as to 91% by Huarong Zhiyuan. Huarong Zhiyuan is a wholly-owned subsidiary of China Huarong. Accordingly, each of China Huarong Overseas Investment Holdings Co., Limited, Huarong Huaqiao Asset Management Co., Ltd., Huarong Zhiyuan and China Huarong is deemed to be interested in the security interest in the 2,009,097,429 underlying Shares held by Shinning Rhythm Limited by virtue of the SFO.

  • (3) Fresh Idea Ventures Limited holds direct security interest in 135,000,000 underlying Shares and is a wholly-owned subsidiary of Linewear Assets Limited. Linewear Assets Limited is a wholly-owned subsidiary of the Company, which in turn is owned as to 51% collectively by Camellia Pacific and Right Select. Accordingly, each of CHIH and China Huarong is deemed to be interested in the security interest in the 135,000,000 underlying Shares held by Fresh Idea Ventures Limited by virtue of the SFO.

  • (4) China Tian Yuan Finance Group (Holdings) Limited is deemed or taken to be interested in (i) 129,000,000 Shares held by Hero Link Enterprises Limited, which is held as to 82% by China Tian Yuan International Finance Limited; and (ii) 646,220,529 Shares held by China Tian Yuan International Finance Limited. China Tian Yuan International Finance Limited is a wholly-owned subsidiary of China Tian Yuan Finance Group (Holdings) Limited, which in turn is wholly-owned by Mr. Jia Tianjiang. Accordingly, each of China Tian Yuan International Finance Limited, China Tian Yuan Finance Group (Holdings) Limited, Mr. Jia Tianjiang and his spouse Ms. Dong Jufeng is deemed to be interested in the 775,220,529 Shares beneficially held by Hero Link Enterprises Limited and China Tian Yuan International Finance Limited by virtue of the SFO.

  • (5) 996,517,500 Shares are held by China Tian Yuan Asset Management Limited, which is a wholly-owned subsidiary of China Tian Yuan Manganese Finance (Holdings) Limited, which is in turn a wholly-owned subsidiary of Tian Yuan Manganese Limited, which is in turn a wholly-owned subsidiary of Ningxia Tianyuan Manganese Industry Group Co., Ltd. Ningxia Tianyuan Manganese Industry Group Co., Ltd. is owned as to 99.96% by Mr. Jia Tianjiang. Accordingly, each of China Tian Yuan Manganese Finance (Holdings) Limited, Tian Yuan Manganese Limited, Ningxia Tianyuan Manganese Industry Group Co., Ltd., Mr. Jia Tianjiang and his spouse Ms. Dong Jufeng is deemed to be interested in the 996,517,500 Shares beneficially held by China Tian Yuan Asset Management Limited.

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executives of the Company were not aware of any other person (other than the Directors and chief executives of the Company) who had an interest or short position in the Shares or underlying Shares, which were required to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who were recorded in the register required to be kept by the Company under Section 336 of the SFO.

Except for (a) Mr. Xu Xiaowu and Mr. Wang Junlai, who are executive directors of both the Company and CHIH, and (b) Ms. Wang Qi, who is a non-executive Director and holds senior management position in CHIH, as at the Latest Practicable Date, none of the Directors was a director or an employee of a company which had, or was deemed to have, an interest or short position in the Shares or underlying Shares which were required to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

4. MATERIAL LITIGATION

As at the Latest Practicable Date, to the best of the knowledge, information and belief of the Directors, none of the members of the Group was engaged in any litigation of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Group.

5. MATERIAL CONTRACTS

On top of the CRA Agreement, the terms of which are set out in this circular, the following contracts, not being contracts entered in the ordinary course of business carried on or intended to be carried on by the Group, had been entered into by members of the Group within the two years before the date of this circular up to and including the Latest Practicable Date which were or may be material:

  • (a) the sale and purchase agreement dated 3 March 2019 entered into between Huarong International Asset Management Growth Fund L.P. (an indirect wholly-owned subsidiary of the Company) as the seller and Mr. Zhong Xiaojian as the purchaser, in relation to the disposal by Huarong International Asset Management Growth Fund L.P. to Mr. Zhong Xiaojian of unsecured redeemable 4.5% convertible notes due 2019 issued by ChinaSoft International Limited (a company listed on the Stock Exchange with stock code: 354) and subscribed by Huarong International Asset Management Growth Fund L.P. in the principal amount of US$30,000,000, at a consideration of US$52,000,000;

  • (b) the master agreement dated 22 May 2019 and entered into between the Company and China Huarong in relation to the provision by the Group of financial services to China Huarong and its associates for a term of three years subject to the annual cap of HK$60 million for each year;

  • (c) the agreement dated 29 July 2019 entered into between Linewear Assets Limited (a direct wholly-owned subsidiary of the Company) and China Jinxin Finance Inc. as purchaser in relation to the disposal by Linewear Assets Limited to China Jinxin Finance Inc. of 100 issued shares (being the entire issued share capital) in Option Best Holdings Limited and all loans and other amounts (whether principal, interest or otherwise) outstanding and owed by Option Best Holdings Limited to Linewear Assets Limited at completion, at a consideration calculated based on the following formula: HK$360,000,800 + (HK$300,000,000 x 20%) x D ÷ 360, where "D" is the number of days during the period from (and including) 30 June 2019 to (but excluding) the date of completion. However, as Linewear Assets Limited did not receive any payment of the consideration, completion did not take place and the transaction was aborted;

  • (d) the agreement dated 25 September 2019 entered into between Ocean Charm Investments Limited (an indirect wholly-owned subsidiary of the Company), Mr. Xie Bingzhao as purchaser and Micro Vision Fund Limited (another indirect wholly-owned subsidiary of the Company) as the general partner, in relation to the disposal by Ocean Charm Investments Limited of all of its right, title and interests in Visual Dome Fund L.P. represented by a commitment of HK$117,000,000 to Mr. Xie Bingzhao at a consideration of HK$143,744,055;

  • (e) (i) the master deed dated 18 October 2019 entered into between the Company and China Huarong Overseas Investment Holdings Co., Limited in connection with the Huarong Tianhai Equity Transfer and Wide Trend Share Transfer (each as defined below), pursuant to which the aggregate cash consideration payable by China Huarong Overseas Investment Holdings Co., Limited in respect of such transfers was agreed to be HK$11.23 million; (ii) the equity transfer agreement dated 18 October 2019 entered into between the Company and China Huarong Overseas Investment Holdings Co., Limited in connection with the transfer of 100% equity interest in Huarong Tianhai (Shanghai) Investment Management Company Limited* (ശፄ˂ऎ(ɪऎ)ҳ༟၍ଣϞࠢ ʮ̡) by the Company to China Huarong Overseas Investment Holdings Co., Limited (the "Huarong Tianhai Equity Transfer"); and (iii) the sale and purchase deed dated 18 October 2019 and entered into between Linewear Assets Limited (a direct wholly-owned subsidiary of the Company) and China Huarong Overseas Investment Holdings Co., Limited in relation to the disposal by Linewear Assets Limited of the entire issued share capital of Wide Trend Global Limited to China Huarong Overseas Investment Holdings Co., Limited (the "Wide Trend Share Transfer");

  • (f) the bought and sold note and instrument of transfer dated 23 March 2020 executed by Beyond Steady Limited (an indirect wholly-owned subsidiary of the Company) ("Beyond Steady") and King Wealth Asia Limited in respect of the sale and transfer of 98,500,000 issued ordinary shares of China Sandi Holdings Limited (a company listed on the Stock Exchange with stock code: 910) ("China Sandi") by Beyond Steady to King Wealth Asia Limited at a consideration of HK$30,000,000;

  • (g) the bought and sold note and instrument of transfer dated 23 March 2020 executed by Beyond Steady and Optimal Success Incorporated in respect of the sale and transfer of 214,000,000 issued ordinary shares of China Sandi by Beyond Steady to Optimal Success Incorporated at a consideration of HK$65,285,996.34;

  • (h) the supplemental deed to deed of compensation (the "Supplemental Deed of Compensation") dated 16 December 2020 entered into by Joywise Holdings Limited ("Joywise") in favour of Beyond Steady to, among other things, amend and supplement the terms of the deed of compensation dated 18 December 2017 (the "Deed of Compensation"). The Deed of Compensation was in relation to the subscription of listed securities in Sunshine 100 China Holdings Ltd (the "Target Company") by Beyond Steady and entered into by Joywise, a controlling shareholder of the Target Company, in favour of Beyond Steady to compensate Beyond Steady in cash where the sale proceeds from disposing of any of the subscription shares by Beyond Steady during the compensation period is less than the reference proceeds calculated based on the formula stipulated in the Deed of Compensation (the "Return Undertaking"). The Supplemental Deed of Compensation allows Beyond Steady to continue to benefit from the Return Undertaking for an additional six-month period beginning on 18 June 2021 and ending on 17 December 2021, and to amend the formula for the calculation of Reference Proceeds. Under the Deed of Compensation,

the original maximum amount of the compensation to be received by Beyond Steady would be approximately HK$881 million, which has been adjusted and increased to HK$944 million under the Supplemental Deed of Compensation;

  • (i) the written notice served by Beyond Steady to Mr. Cai Chubing on 18 December 2020 in accordance with the put option and undertaking deed dated 18 December 2017 entered into between Mr. Cai Chubing as grantor, Beyond Steady as grantee and Big Wisdom Limited as guarantor, in order to require Mr. Cai Chubing to purchase from Beyond Steady 99,792,000 ordinary shares of Zhuguang Holdings Group Company Limited (a company listed on the Stock Exchange with stock code: 1176) at the put option exercise price of HK$136,116,288;

  • (j) the third supplemental deed (the "Third Supplemental Deed") dated 28 December 2020 entered into by way of deed poll by Superactive Group Company Limited (a company listed on the Stock Exchange with stock code: 176) ("Superactive") in favour of Star Lavish Limited (an indirect wholly-owned subsidiary of the Company) ("Star Lavish"), to amend and supplement the conditions of the senior secured bonds (the "Bonds") issued by Superactive pursuant to the subscription agreement (the "Subscription Agreement") dated 29 December 2017 entered into between Superactive and Star Lavish Limited. The principal amount of bonds subscribed under the Subscription Agreement was HK$300,000,000 and the interest rate was 8% per annum. The issuer subsequently executed the first and the second supplemental deeds in favor of Star Lavish by way of deed poll on 24 December 2019 and 25 May 2020, respectively, to amend and supplement the bond conditions and the maturity date of the Bonds is 28 December 2020. Pursuant to the Third Supplemental Deed, the principal amount was amended to HK$260,000,000, the interest rate was amended to the rate of 10% per annum, and the final maturity date was extended to 28 June 2022; and

  • (k) the trade confirmation dated 28 December 2020 entered into between Power Sky Developments Limited (an indirect wholly-owned subsidiary of the Company) as the seller and Joyful Richness Holdings Limited as the buyer, in relation to the sale by Power Sky Developments Limited of all of its rights, title, interest and benefit under or in connection with the facility agreement dated 28 August 2017 entered into between BOCI Leveraged & Structured Finance Limited as agent, Huge Group Holdings Limited and Huge Auto Investment Holdings Limited as borrowers, Mr. Huang Chusheng and National Holdings Group Company Limited as guarantors, Power Sky Developments Limited as a lender and certain other lenders as well as any ancillary rights (subject to certain carve out specified therein) to Joyful Richness Holdings Limited for a total consideration of HK$339,323,583.25.

6. QUALIFICATIONS AND CONSENT OF EXPERT

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name Qualifications

China United

the securities business evaluation qualification jointly accredited by the Ministry of Finance of the PRC and the China Securities Regulatory Commission, the national practicing land evaluation qualification accredited by the Ministry of Land and Resources of the PRC and the Grade 1 real estate appraisal qualification accredited by the Ministry of Housing and Urban-Rural Development of the PRC

Grandall Law Firm the PRC legal adviser

Each of China United and Grandall Law Firm has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its report, advice, opinion and/or references to its name in the form and context in which they respectively appear. As at the Latest Practicable Date, neither China Union nor Grandall Law Firm had any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any shares, convertible securities, warrants, options or derivatives which carry voting rights in any member of the Group. As at the Latest Practicable Date, neither China United nor Grandall Law Firm has any interest, either directly or indirectly, in any assets which have been since 31 December 2019 (being the date to which the latest published audited consolidated financial statements of the Company were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

7. GENERAL

  • (a) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.

  • (b) The head office and principal place of business of the Company is located at Unit A, 16/F & Unit A, 17/F, Two Pacific Place, 88 Queensway, Hong Kong.

  • (c) The principal share registrar and transfer office of the Company is MUFG Fund Services (Bermuda) Limited, which is located at 4th floor North Cedar House, 41 Cedar Avenue, Hamilton HM 12, Bermuda.

  • (d) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Tengis Limited, which is located at Level 54, Hopewell Centre, 183 Queen's Road East, Hong Kong.

  • (e) The company secretary of the Company is Ms. Luo Xiao Jing, who is a member of both the Hong Kong Institute of Certified Public Accountants and the Chinese Institute of Certified Public Accountants.

  • (f) This circular is prepared in both English and Chinese. In the event of any inconsistency, the English text shall prevail.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the Company's principal place of business in Hong Kong at Unit A, 16/F & Unit A, 17/F, Two Pacific Place, 88 Queensway, Hong Kong from 9:30 a.m. to 5:30 p.m. (except Saturdays, Sundays and public holidays), for a period of 14 days from the date of this circular:

  • (a) the memorandum of association and bye-laws of the Company;

  • (b) the annual reports of the Company for the years ended 31 December 2017, 2018 and 2019 and the interim report of the Company for the six months ended 30 June 2020;

  • (c) the CRA Agreement;

  • (d) the Value Analysis Report;

  • (e) the Legal Opinion on Matters Pertaining to the Assignment of Creditors' Rights Involving, among others, Huarong Shengyuan (Beijing) Investment Co. Ltd. and Qingdao Jiayaohua Realty Co., Ltd. furnished by Grandall Law Firm;

  • (f) the material contracts referred to in the paragraph headed "5. Material Contracts" in this Appendix III to this circular;

  • (g) the circular of the Company dated 25 September 2020 with respect to, among other things, the very substantial acquisition and non-exempt connected transaction in relation to the proposal for the privatization of Huarong Investment Stock Corporation Limited by way of a scheme of arrangement under section 86 of the Companies Law of the Cayman Islands; and

  • (h) this circular.

Attachments

  • Original document
  • Permalink

Disclaimer

Huarong International Financial Holdings Limited published this content on 24 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 February 2021 08:49:02 UTC.