Kunlun Energy : Voluntary Announcement in relation to Acquisition of Equity Interests in 17 Companies of Jinhong Holding

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Voluntary Announcement

in relation to

Acquisition of Equity Interests in 17 Companies of Jinhong Holding

This announcement is made on a voluntary basis by Kunlun Energy Company Limited (the "Company", together with its subsidiaries, the "Group") to update the shareholders of the Company on the latest business development of the Group.

On 15 August 2019, PetroChina Kunlun Gas Co., Ltd. ("Kunlun Gas"), a wholly-owned subsidiary of the Company, entered into equity transfer agreements (collectively, the "Equity Transfer Agreements") with certain indirect wholly-owned subsidiaries of Jinhong Holding Group Co., Ltd. (金 鴻控股集團股份有限公司) ("Jinhong Holding") respectively, including Zhongyou Jinhong East China Investment Management Co., Ltd. (中油金鴻華東投資管理有限公司)("Jinhong East China Investment"), Zhongyou Jinhong South China Investment Management Co., Ltd. (中油金鴻華南投資 管理有限公司)("Jinhong South China Investment"), China Infrastructure Construction (Tai'an) Co., Ltd.(中國基礎建設（泰安）有限公司) ("Tai'an Company") and China Infrastructure Construction (Xintai) Co. Ltd (中國基礎建設（新泰）有限公司)("Xintai Company", together with Jinhong East China Investment, Jinhong South China Investment and Tai'an Company, the "Sellers"), pursuant to which, Kunlun Gas will acquire equity interests in 17 companies (collectively the "Transactions of Acquiring Equity Interests of 17 Companies") held by Jinhong East China Investment, Jinhong South China Investment, Tai'an Company and Xintai Company. China International Capital Corporation (Hong Kong) Limited and KPMG Advisory (China) Limited act as the financial advisors to Kunlun Gas in these transactions and Zhonglun W&D Law Firm acts as the PRC legal advisor to Kunlun Gas in these transactions.

The information in respect of the Transaction is set out in the table below:

No.	Seller	Target Company	Percentage	Preliminary
			of equity	Consideration
			Interests to	(the
			be Acquired	"Preliminary
				Consideration")
				(in millions of
				RMB)
1.	Jinhong	Liaocheng Development Zone Jinhong Natural	100.00%	165.0667
	East China	Gas Co., Ltd. (聊城開發區金鴻天然氣有限公
	Investment	司) ("Liaocheng Jinhong")

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No.			Seller		Target Company	Percentage	Preliminary
						of equity	Consideration
						Interests to	(the
						be Acquired	"Preliminary
							Consideration")
							(in millions of
							RMB)
2.					Feicheng Jinhong Natural Gas Co., Ltd. (肥城	100.00%	32.3524
					金鴻天然氣有限公司) ("Feicheng Jinhong")
3.					Tai'an Jinhong Natural Gas Co., Ltd. (泰安金	100.00%	15.4207
					鴻天然氣有限公司) ("Tai'an Jinhong")
4.					Hengshui Zhongneng Natural Gas Co., Ltd. (衡	100.00%	130.8938
					水 中 能 天 然 氣 有 限 公 司 ) ("Hengshui
					Zhongneng")
5.					Julu County Zhongcheng Longyuan Gas Co.,	100.00%	3.905
					Ltd. (巨鹿縣中誠隆緣燃氣有限公司) ("Julu
					Zhongcheng")
6.					Tai'an Antai Gas Co., Ltd. (泰安安泰燃氣有限	48.99%	176.2903
					公司) ("Antai Gas")
7.			Jinhong		Hengyang Natural Gas Co., Ltd. (衡陽市天然	34.00%	184.9022
			South		氣有限責任公司 ("Hengyang Natural Gas")
			China
			Investment
8.				Hengyang Xina Natural Gas Co., Ltd. (衡陽西	100.00%	75.064
					納 天 然 氣 有 限 責 任 公 司 ) ("Xina Natural
					Gas")
9.					Xiangtan County Zhongyou Xinxing Gas Co.,	60.00%	148.9356
					Ltd. ( 湘 潭 縣 中 油 新 興 燃 氣 有 限 公
					司)( "Xiangtan Xinxing")
10.					Shaoshan Zhongyou Jinhong Gas Co., Ltd. (韶	100.00%	23.606
					山 中 油 金 鴻 燃 氣 有 限 公 司 ) ("Shaoshan
					Jinhong")
11.					Qidong Zhongyou Jinhong Gas Co., Ltd. (祁東	100.00%	83.347
					中油金鴻燃氣有限公司) ("Qidong Jinhong")
12.					Changning Zhongyou Jinhong Gas Co., Ltd.	60.00%	181.8432
					(常寧中油金鴻燃氣有限公司) ("Changning
					Jinhong")
13.					Chaling Zhongyou Jinhong Gas Co., Ltd. (茶陵	100.00%	104.104
					中 油 金 鴻 燃 氣 有 限 公 司 ) ("Chaling
					Jinhong")

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No.	Seller	Target Company	Percentage	Preliminary
			of equity	Consideration
			Interests to	(the
			be Acquired	"Preliminary
				Consideration")
				(in millions of
				RMB)
14.		Hengshan Zhongyou Jinhong Gas Co., Ltd. (衡	100.00%	28.963
		山 中 油 金 鴻 燃 氣 有 限 公 司 ) ("Hengshan
		Jinhong")
15.		Hengdong Zhongyou Jinhong Gas Co., Ltd. (衡	100.00%	14.916
		東 中 油 金 鴻 燃 氣 有 限 公 司 ) ("Hengshan
		Jinhong")
16.	Taian	Tai'an Gangtai Infrastructure Construction Co.,	80.00%	170.2822
	Company	Ltd. ( 泰 安 港 泰 基 礎 設 施 建 設 有 限 公 司 )
		("Tai'an Gangtai")
17.	Xintai	Tai'an Gangxin Gas Co., Ltd. (泰安港新燃氣	74.00%	115.4581
	Company	有限公司) ("Tai'an Gangxin")
		Total		1,655.3502

All the target companies above other than Tai'an Gangtai are mainly engaged in gas supply and management business. Tai'an Gangtai is mainly engaged in the construction and operation of gas transmission pipelines and pressure stations. Kunlun Gas entered into the Equity Transfer Agreements with each of the Sellers separately in connection with the Transactions of Acquiring Equity Interests of 17 Companies and each of the 17 Equity Transfer Agreements constitutes an integral part of the Transactions of Acquiring Equity Interests of 17 Companies.

Upon completion of the Transactions of Acquiring Equity Interests of 17 Companies, other than Antai Gas (48.99% equity interests of which will be acquired by Kunlun Gas) and Hengyang Natural Gas (34.00% equity interests of which will be acquired by Kunlun Gas), the other 15 target companies will become the subsidiaries of Kunlun Gas and indirect subsidiaries of the Company.

Conditions Precedent

Conditions precedent to the Transactions of Acquiring Equity Interests of 17 Companies include but not limited to:

1. the relevant Equity Transfer Agreements having become effective (including obtaining of the approvals by the internal authoritative organ(s) of Kunlun Gas and/or the Company and the approvals by the internal authoritative organ(s) of the Sellers and/or Jinhong Holding for the relevant transactions, and the completion of all necessary registrations and filing with competent governmental authorities in relation to the relevant transactions);
2. issuance of commitment letters by the Sellers to Kunlun Gas in respect of environmental protection and safety issues of the target companies in the form and substance satisfactory to Kunlun Gas; and
3. • 3 -

1. entry into of the loan agreements by and between the relevant target companies and their affiliates (as the creditors of the target companies) in respect of the claims and liabilities between them, which have been accepted by Kunlun Gas in writing.

Basis of the Consideration and Settlement Method

The aggregate Preliminary Consideration for the Transactions of Acquiring Equity Interests of 17 Companies totals RMB1,655.3502 million, which has been agreed upon in good faith based on the appraised value of the total shareholders' equity of the 17 target companies by a professional appraiser. Kunlun Gas will use its internal resources to fund the Transactions of Acquiring Equity Interests of 17 Companies.

The consideration shall be settled in three instalments as below:

Payment

Conditions to

Percentage of

Target Company to which the

Payment

Payment

Payment Relates

First

Completion

of

50%

of

the

Hengshui Zhongneng

Instalment

industrial

and

Preliminary

commercial

Consideration

registration

in

respect

of

share

60%

of

the

Feicheng Jinhong, Julu Zhongcheng,

transfers of the target

Preliminary

Liaocheng Jinhong, Antai Gas, Tai'an

company in the name

Consideration

Jinhong,

Tai'an

Gangtai,

Tai'an

of Kunlun

Gas

and

Gangxin

satisfaction

of

other

conditions

70%

of

the

Chaling Jinhong, Changning Jinhong,

Preliminary

Hengdong

Jinhong,

Hengshan

Consideration

Jinhong, Hengyang Natural Gas, Xina

Natural

Gas,

Qidong

Jinhong,

Shaoshan Jinhong, Xiangtan Xinxing

Second

Completion

by

a

Actual

Consideration

Chaling Jinhong, Changning Jinhong,

Instalment

third

party

(as defined below) ×

Hengdong

Jinhong,

Hengshan

designated

by

90%

－ the

first

Jinhong, Feicheng Jinhong, Hengyang

Kunlun

Gas

of

instalment

of

Natural Gas, Xina Natural Gas, Julu

auditing the financial

consideration paid by

Zhongcheng, Liaocheng

Jinhong,

statements

of

the

Kunlun Gas in respect

Qidong Jinhong,

Shaoshan

Jinhong,

target company as at

of the relevant target

Antai Gas, Tai'an Jinhong, Xiangtan

the

completion

date

company

Xinxing,

Tai'an

Gangtai,

Tai'an

and

the

profit

and

Gangxin

loss statements of the

target company

for

the

period

between

the

relevant

Actual

Consideration

Hengshui Zhongneng

benchmark date and

× 95% － the

first

completion

date,

instalment

of

issuance

of

the

consideration paid by

relevant

auditor's

Kunlun Gas in respect

reports,

and

of the

relevant target

satisfaction

of

other

company

conditions

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Third	Expiry	of 12-month	The remaining unpaid	17 target companies
Instalment	period	from	the	Actual Consideration
	completion		date,
	completion		of
	rectifications as set
	out in	the	relevant
	Equity		Transfer
	Agreements		and
	satisfaction	of	other
	conditions

The actual consideration (the "Actual Consideration") shall be adjusted based on the audited financial statements of the target companies as at the completion date and the profit and loss statements of the target companies for the period between the benchmark date and the completion date. The formula in relation to the Actual Consideration is as follows: Actual Consideration = The Preliminary Consideration + (net assets of the target companies at the completion date as set out in the auditor's report acceptable to Kunlun Gas － net assets of the target companies at the benchmark date as set out in the auditor's report acceptable to Kunlun Gas).

Latest Development of Satisfaction of the Conditions Precedent

The internal procedures of Kunlun Gas in respect of approval of the Transactions of Acquiring Equity Interests of 17 Companies have been completed.

In accordance with the Administrative Measures for Major Asset Restructuring of Listed Companies (《上市公司重大資產重組管理辦法》) issued by the China Securities Regulatory Commission, the Transactions of Acquiring Equity Interests of 17 Companies constitute major asset restructuring of Jinhong Holding and are subject to the approval by the shareholders of Jinhong Holding at a general meeting. As the directors of the Company (the "Directors") are aware, an extra-ordinarygeneral meeting of Jinhong Holding was held on 2 September 2019, at which the proposal in relation to the Transactions of Acquiring Equity Interests of 17 Companies was considered and approved by the shareholders of Jinhong Holding.

As of the date of this announcement, the industrial and commercial registration in respect of share transfers of these 17 target companies have been completed. Kunlun Gas has paid the first instalment of the consideration to Jinhong South China Investment in respect of the share transfers of Chaling Jinhong, Changning Jinhong, Hengdong Jinhong, Hengshan Jinhong, Hengyang Natural Gas, Xina Natural Gas, Qidong Jinhong, Shaoshan Jinhong and Xiangtan Xinxing (being 70% of the Preliminary Consideration of the relevant target companies) in accordance with the relevant equity transfer agreements.

Reasons for and Benefits of the Transactions of Acquiring Equity Interests of 17 Companies

The Directors are of the view that, the reasons for, and the benefits of, the Transactions of Acquiring Equity Interests of 17 Companies are as below:

1. The Company would be better placed to achieve rapid development in target markets: upon completion of the Transactions of Acquiring Equity Interests of 17 Companies, the Company would be better placed to expand its businesses in gas markets in Hengyang, Tai'an, Hengshui and other cities where the Company has no presence and build the advantage of scale in these markets within a short period of time, which will notably increase the market share of the Company.
2. • 5 -

1. The Company would be better placed to achieve synergistic development by utilizing its abundant resources: the target companies and the Company are complementary in terms of market, resources and funds. Upon completion of the Transactions of Acquiring Equity Interests of 17 Companies, the sales volume of the target companies could be increased notably, their financial conditions will be improved and the utilization rate of their pipeline assets will be increased, which lays the foundation for these target companies to increase their turnover and improve their service quality and efficiency.
2. The Company would be better placed to give full play to its advantages in natural gas upstream and downstream integration.

The Directors are also of the view that (1) the terms and conditions of the Transactions of Acquiring Equity Interests of 17 Companies are fair and reasonable; (2) the Transactions of Acquiring Equity Interests of 17 Companies are on normal commercial terms and in the ordinary and usual course of business of the Company; and (3) the Transactions of Acquiring Equity Interests of 17 Companies are in the interests of the Company and its shareholders as a whole.

Information of the Company and Kunlun Gas

The Company is a limited liability company incorporated in Bermuda and is mainly engaged in investment holding. The principal activities of its subsidiaries, associates and joint ventures are the sales of natural gas, LNG processing and terminal business, transmission of natural gas in the PRC and the exploration and production of crude oil and natural gas in the PRC, the Republic of Kazakhstan, the Sultanate of Oman, the Republic of Peru, the Kingdom of Thailand and the Republic of Azerbaijan.

Kunlun Gas, a limited liability company incorporated in Beijing, the PRC, is a wholly-owned subsidiary of the Company. The principal business of Kunlun Gas includes sale of city gas and LPG.

Information of Jinhong Holding and the Sellers

Jinhong Holding is a joint stock company incorporated in Jilin City, Jilin Province, the PRC, whose principal business includes construction and operation of natural gas transmission pipeline and urban gas network. The shares of Jinhong Holding are listed on the Shenzhen Stock Exchange (stock code 000669). To the best knowledge and belief of the Directors after all reasonable enquiries, Jinhong Holding is an independent third party of the Group.

Jinhong East China Investment is a limited liability company incorporated in Tai'an, Shandong Province, the PRC, whose principal business includes investment in, and construction of, gas transmission and distribution network. Jinhong East China Investment is an indirect wholly-owned subsidiary of Jinhong Holding. To the best knowledge and belief of the Directors after all reasonable enquiries, Jinhong East China Investment is an independent third party of the Group.

Jinhong South China Investment is a limited liability company incorporated in Hengyang, Hunan Province, the PRC, whose principal business includes industrial investments with proprietary funds, asset management and investment advisory services. Jinhong South China Investment is an indirect wholly-owned subsidiary of Jinhong Holding. To the best knowledge and belief of the Directors after all reasonable enquiries, Jinhong South China Investment is an independent third party of the Group.

Tai'an Company is a limited liability company incorporated in Hong Kong Special Administrative Region of the PRC ("Hong Kong"), which is mainly engaged in the investment management. Tai'an Company is an indirect wholly-owned subsidiary of Jinhong Holding. To the best knowledge and belief of the Directors after all reasonable enquiries, Tai'an Company is an independent third party of the Group.

Xintai Company is a limited liability company incorporated in Hong Kong, which is mainly engaged in the investment management. Xintai Company is an indirect wholly-owned subsidiary of Jinhong

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Holding. To the best knowledge and belief of the Directors after all reasonable enquiries, Xintai Company is an independent third party of the Group.

Implications under the Listing Rules

In respect of the Company, the Transactions of Acquiring Equity Interests of 17 Companies do not constitute connected transactions as defined under Chapter 14A of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules"), nor do they constitute notifiable transactions of the Company under Chapter 14 of the Listing Rules. This announcement is made by the Company on a voluntary basis.

By the Order of the Board

KUNLUN ENERGY COMPANY LIMITED

Ling Xiao

Chairman

Hong Kong, 16 October 2019

As at the date of this announcement, the Board of Directors comprises Mr. Ling Xiao as the Chairman and Executive Director, Mr. Zhao Yongqi as the Chief Executive Officer and Executive Director, Mr. Zhao Zhongxun as Executive Director, Mr. Zhou Yuanhong as Executive Director, Mr. Miao Yong as Chief Financial Officer and Executive Director, and Mr. Li Kwok Sing Aubrey, Dr. Liu Xiao Feng, Mr. Sun Patrick and Mr. Tsang Yok Sing Jasper as Independent Non-Executive Directors.

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