Sany Heavy Equipment International : CONTINUING CONNECTED TRANSACTION EQUIPMENT SALE AND LEASING FRAMEWORK AGREEMENT

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SANY HEAVY EQUIPMENT INTERNATIONAL

HOLDINGS COMPANY LIMITED 三 一 重 裝 國 際 控 股 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 631)

CONTINUING CONNECTED TRANSACTION

EQUIPMENT SALE AND LEASING FRAMEWORK AGREEMENT

EQUIPMENT SALE AND LEASING FRAMEWORK AGREEMENT

On 30 July 2020 (after trading hours), the Company and Hunan Zhonghong entered into the Equipment Sale and Leasing Framework Agreement pursuant to which the Group agreed to: (i) either sell the Equipment to Hunan Zhonghong for leasing to Lessees or sell the Equipment to the Lessees who will then on-sell the Equipment to Hunan Zhonghong for leasing back to Lessees; and (ii) to provide a financial guarantee to Hunan Zhonghong in favour of the Lessees in respect of the leasing of the Equipment by Hunan Zhonghong and to repurchase the Equipment in the circumstances as set forth thereunder the Equipment Sale and Leasing Framework Agreement.

IMPLICATION UNDER THE LISTING RULES

As at the date of this announcement, Mr. Liang is a controlling shareholder of the Company, holding

1. 10,870,000 Shares directly by himself and (b) 2,098,447,688 Shares and 479,781,034 convertible preference shares of the Company through Sany Hong Kong (a company held as to 56.38% by Mr. Liang), representing an aggregate of 83.20% of the total number of shares of the Company in issue.

As at the date of this announcement, Hunan Zhonghong is held as to 91.57% by Sany Group and Sany Group is in turn held as to 56.74% by Mr. Liang. As such, Hunan Zhonghong is an associate of Mr. Liang under Rule 14A.12(1)(c) of the Listing Rules and hence a connected person of the Company under Chapter 14A of the Listing Rules. Accordingly, the entering of the Equipment Sale and Leasing Framework Agreement with Hunan Zhonghong constitutes a continuing connected transaction for the Company under Chapter 14A of the Listing Rules.

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As each of the applicable percentage ratios of the proposed annual cap for the sale of Equipment and the financial guarantee and repurchase of the Equipment as contemplated under the Equipment Sale and Leasing Framework Agreement is more than 0.1% but less than 5%, the transactions contemplated under the Equipment Sale and Leasing Framework Agreement are subject to the reporting and announcement requirements but exempt from the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

EQUIPMENT SALE AND LEASING FRAMEWORK AGREEMENT

On 30 July 2020 (after trading hours), the Company and Hunan Zhonghong entered into the Equipment Sale and Leasing Framework Agreement pursuant to which the Group agreed to:

1. either sell the Equipment to Hunan Zhonghong for leasing to Lessees or to sell the Equipment to the Lessees who will then on-sell the Equipment to Hunan Zhonghong for leasing back to Lessees; and
2. provide a financial guarantee to Hunan Zhonghong in favour of the Lessees in respect of the leasing of the Equipment by Hunan Zhonghong and to repurchase the Equipment under the circumstances as set forth thereunder the Equipment Sale and Leasing Framework Agreement.

The Equipment Sale and Leasing Framework Agreement is the framework agreement which provides the mechanism for the operation of the continuing connected transactions contemplated thereunder. It is envisaged that from time to time, and as required, the Group, Hunan Zhonghong and the Lessees will enter into separate Sale and Purchase Agreement in respect of the sale of Equipment, and separate Financial Lease and Guarantee Agreement in respect of the lease of the Equipment by Hunan Zhonghong.

The major terms of the Equipment Sale and Leasing Framework Agreement are set out as follows:

Date:	30 July 2020
Parties:	(a)	the Company
	(b)	Hunan Zhonghong
Subject:	Pursuant to the Equipment Sale and Leasing Framework Agreement,
	the Equipment shall either be sold to Hunan Zhonghong for leasing
	to the Lessees or to the Lessees which shall then be on-sold to Hunan
	Zhonghong for leasing back to the Lessees.

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	The Group, as seller of the Equipment, would provide a financial
	guarantee in favour of the Lessees in respect of the Equipment to
	guarantee their performance under the Finance Lease and Guarantee
	Agreement. If the Lessees default in their payment obligations under
	the Financial Lease and Guarantee Agreement. the Group will be
	required to settle the payment for and on behalf of the Lessee and
	to repurchase the Equipment under the circumstances as set forth
	thereunder the Equipment Sale and Leasing Framework Agreement.
Term:	The Equipment Sale and Leasing Framework Agreement shall
	commence from 31 July 2020 and end on 31 December 2020 (both days
	inclusive).
	Subject to compliance with all relevant Listing Rules by the Group,
	the Equipment Sale and Leasing Framework Agreement shall be
	automatically renewed for another one year, provided that no objection
	is being raised by either Hunan Zhonghong or the Company in relation
	to the renewal.
Pricing and other terms:	The terms under the Sale and Purchase Agreement and the Financial
	Lease and Guarantee Agreement shall conform to the principles and
	provisions set out in the Equipment Sale and Leasing Framework
	Agreement, and shall be agreed between the parties after arm's
	length negotiations on normal commercial terms. The detailed terms
	and conditions, manner of payment, details of the Equipment, price,
	quantity and delivery date in relation to each transaction shall be
	determined in each individual agreement.
	The parties to the Equipment Sale and Leasing Framework Agreement
	have agreed the following pricing terms:
	(i) Sale and Purchase Agreement:
	The prices are determined according to the costs involved (R&D
	costs, raw material costs, labour costs and manufacturing expenses)
	plus the gross profit margin ranging from 25% to 40%, which shall
	in any event be no less favourable to the Group than available to
	Independent Third Parties.

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An initial payment shall be paid upon signing of the Sale and Purchase Agreement and shall be settled directly by the Lessees which is deemed to be the first rental payment made under the Financial Lease and Guarantee Agreement. The remaining payment shall be paid by Hunan Zhonghong to the Group and its agent or any designated parties within 30 days upon the delivery of the Equipment to the Lessees.

1. Financial Lease and Guarantee Agreement:
   Under the Financial Lease and Guarantee Agreement, all payments shall be settled by the Lessees directly with Hunan Zhonghong. If a Lessee defaults on payments, the Group shall settle the outstanding lease payment on behalf of the Lessee.
   In addition, the Group shall repurchase the Equipment at a consideration which is equal to an aggregate amount of the outstanding payment under the Financial Lease and Guarantee Agreement, one month additional interest payment and a nominal consideration of RMB100, which is determined with reference to industry practice in the case of early repayment of lease arrangement and the Group's existing transactions of similar nature with Independent Third Party banks or finance leasing companies under certain circumstances, among others, including the following:
2. 1. the Lessee having incurred an overdue payment for more than 60 days under the Financial Lease and Guarantee Agreement;
   2. the Lessee having breached the terms of Financial Lease and Guarantee Agreement;
   3. the bank account of the Lessee having been frozen and/or under compulsory execution;
   4. the Lessee having been involved in material litigation, arbitration or its major assets are being put under preservation or other compulsory measures; and
   5. there being evidence indicating that the Group and its agents have lost or may have lost their abilities to honour the financial guarantee obligation in connection with the leasing of the Equipment.

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Proposed annual cap and basis of determining the proposed annual cap

INTERNAL CONTROL

Sale and Purchase Agreement:

It is proposed that the annual cap for the sales of Equipment under Sale and Purchase Agreement for the year ending 31 December 2020 will be RMB250,000,000, which is determined with reference to (i) the historical transactions conducted by the Group where similar guarantees were required from the Group by banks and other finance lease companies for sales to individual end-user customers and the volume of such similar transactions for the six months period ended 30 June 2020 of approximately RMB270,000,000; and (ii) the Company's product sales plan and the expected transaction scale which similar guarantees are required.

Financial Lease and Guarantee Agreement:

It is proposed that the annual cap for the financial guarantee and the repurchase of the Equipment in case of default by the Lessees will be RMB213,000,000 for the year ending 31 December 2020, which is determined with reference to the proposed annual cap for the sale of Equipment under the Sale and Purchase Agreement, the principal loan amount taking into account the average loan ratio of 85% and the estimated interest rate.

The Company has adopted the following internal control measures with respect to the transactions contemplated under the Equipment Sale and Leasing Framework Agreement in order to better safeguard the interests of the Shareholders:

1. The Group has a credit control department comprising 12 experienced lawyers and payment collection specialists. This department shall perform due diligence and a credit assessment on Lessees under the relevant Sale and Purchase Agreement, and Financial Lease and Guarantee Agreement in accordance with the Group's internal credit investigation and guarantee policy, among others, on the financial status, credit history, repayment capabilities, business operation and future prospect of the Lessees so as to control default risk by ensuring that the Lessees have good credit standings. To further protect the Group's interest, the Group would also require each Lessee to provide a guarantor who has sufficient assets to guarantee its performance obligation under the Financial Lease and Guarantee Agreement.

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1. In order to ensure that the terms under each individual Sale and Purchase Agreement and the Financial Lease and Guarantee Agreement are on normal commercial terms and are not less favourable to the Group than those offered by Independent Third Parties, the Group will adopt the following measures:
2. 1. In relation to the sale of Equipment under the Sale and Purchase Agreement, the technical department and finance department shall gather information regarding the product cost and pass on such information to the sales and marketing department which shall then determine the selling price based on the pricing principle set out under the paragraph headed "Pricing and other terms" in this announcement, and with reference to at least two similar transactions conducted between the Group and Independent Third Party customers to ensure that the terms offered to Hunan Zonghong shall not be more favourable to Hunan Zonghong than terms offered to Independent Third Party customers.
      The terms are subject to further review and approval by the head of sales and marketing department prior to the signing and execution of the relevant agreement(s);
   2. In relation to the Financial Lease and Guarantee Agreement, the credit control department will obtain at least two quotations from Independent Third Party banks or finance leasing companies and compare the terms with those offered under the Financial Lease and Guarantee Agreement (including but not limited to the duration of the lease, interest rates, repurchase conditions and price etc.) to ensure that the terms offered under the Financial Lease and Guarantee Agreement are not less favourable to the Group than the terms offered by Independent Third Party banks or finance leasing companies. The Group will only enter into an agreement with Hunan Zhonghong if the terms offered by it are not less favourable to the Group than the terms offered by other Independent Third Party banks or finance leasing companies; and
   3. Before signing and execution of any Sale and Purchase Agreement and Financial Lease and Guarantee Agreement, the credit control department shall be satisfied with the results from the credit assessment of the Lessees and the head of marketing department and chief financial officer shall review and approve the terms under the Sale and Purchase Agreement and Financial Lease and Guarantee Agreement;

1. The Group's financial department has a designated employee to monitor related transactions conducted under the Equipment Sale and Leasing Framework Agreement. When the transaction limit reaches 80% of the annual cap, he/she will promptly inform the business department of the Group and the chief financial officer such that the Group can arrange for a revision of the annual cap as appropriate, in compliance with all relevant requirements under Chapter 14A of the Listing Rules. No further transaction will be conducted in excess of the annual cap, and the transactions will only resume after the Group has complied with all relevant Listing Rules requirement under Chapter 14A in relation to the revised annual cap;

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1. The internal audit department of the Group will conduct regular checks on a bi-annual basis to review and assess whether the transactions under the Equipment Sale and Leasing Framework Agreement have been conducted in accordance with the terms of the relevant agreements and on normal commercial terms;
2. The Company's independent non-executive Directors will conduct an annual review of the transactions under the Equipment Sale and Leasing Framework Agreement to ensure that the Group has complied with its internal approval procedures, terms of the Equipment Sale and Leasing Framework Agreement and the relevant Listing Rules; and
3. The Company will engage external auditors to conduct annual review of such transactions under the Equipment Sale and Leasing Framework Agreement.

The Directors consider that the above internal control procedures and pricing policy are effective to ensure that the proposed transactions will be conducted on normal commercial terms and not prejudicial to the interest of the Company and the Independent Shareholders.

REASONS FOR AND BENEFITS OF THE EQUIPMENT SALE AND LEASING FRAMEWORK AGREEMENT

The principal business of the Group is sale and manufacture of port machineries, logistics equipment and other automatic machineries etc. In line with usual market practice, the Group has been providing financial guarantees to banks or independent finance leasing companies in respect of the products sold to end-user customers since 2005.

Hunan Zhonghong has engaged in finance lease business for more than 10 years and has extensive industry experience in the finance leasing business. It, being part of Sany Group, has an in-depth understanding of the Group's operations and a long-term business relationship with the Group. The entering of the Equipment Sale and Leasing Framework Agreement would enable the Group to facilitate its sales to Independent Third Party customers, and monitor the repayment progress of these customers together with Hunan Zhonghong and take appropriate action more efficiently and effectively in order to minimize the default risks associated with the leasing of the Equipment.

Having considered that: (i) the Group would be able to generate sales under the Equipment Sale and Leasing Framework Agreement; (ii) the terms under the Equipment Sale and Leasing Framework Agreement are no less favourable to the Group than the terms offered by banks or other finance leasing companies; and (iii) it is a usual market practice for equipment manufacturers to provide similar financial guarantee in favour of end-user customers in connection with the sale of equipment, the Directors (including the independent non-executive Directors) are of the view that the transactions contemplated and the terms of the transactions under the Equipment Sale and Leasing Framework Agreement are fair and reasonable, the transactions are on normal commercial terms and in the ordinary and usual course of business of the Group and in the interests of the Group and the Shareholders as a whole.

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Since Hunan Zhonghong, being a party to the Equipment Sale and Leasing Framework Agreement, is an associate of Mr. Liang. Mr. Liang Zaizhong, being the son of Mr. Liang, was considered to have a material interest, and thus has abstained from voting on the Board resolution approving the Equipment Sale and Leasing Framework Agreement. Other than Mr. Liang Zaizhong, no other Director has a material interest in the Equipment Sale and Leasing Framework Agreement or has abstained from voting on the relevant Board resolution approving the Equipment Sale and Leasing Framework Agreement.

IMPLICATION UNDER THE LISTING RULES

As at the date of this announcement, Mr. Liang is a controlling shareholder of the Company, holding

1. 10,870,000 Shares directly by himself and (b) 2,098,447,688 Shares and 479,781,034 convertible preference shares of the Company through Sany Hong Kong (a company held as to 56.38% by Mr. Liang), representing an aggregate of 83.20% of the total number of shares of the Company in issue.

As at the date of this announcement, Hunan Zhonghong is held as to 91.57% by Sany Group and Sany Group is in turn held as to 56.74% by Mr. Liang. As such, Hunan Zhonghong is an associate of Mr. Liang under Rule 14A.12(1)(c) of the Listing Rules and hence a connected person of the Company under Chapter 14A of the Listing Rules. Accordingly, the entering of the Equipment Sale and Leasing Framework Agreement with Hunan Zhonghong constitutes as a continuing connected transaction for the Company under Chapter 14A of the Listing Rules.

As each of the applicable percentage ratios of the proposed annual cap for the sale of Equipment and the financial guarantee and repurchase of the Equipment as contemplated under the Equipment Sale and Leasing Framework Agreement is more than 0.1% but less than 5%, the transactions contemplated under the Equipment Sale and Leasing Framework Agreement are subject to the reporting and announcement requirements but exempt from the Independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

INFORMATION ON THE GROUP AND HUNAN ZHONGHONG

The Company is an investment holding company and its subsidiaries are principally engaged in the design, manufacturing and sales of roadheader, combined coal mining unit, mining transportation vehicles, port machinery and marine heavy equipment products.

Hunan Zhonghong is principally engaged in the finance leasing business. As at the date of this announcement, it is owned as to 91.57% by Sany Group and 8.43% by Synnium Machinery Limited, a company with limited liability incorporated under the laws of Hong Kong and whose shareholders consist of the nephew of Mr. Liang and two other Independent Third Parties. Sany Group is in turn held as to 56.74% by Mr. Liang.

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DEFINITIONS

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

"Board"	the board of Directors;
"Company"	Sany Heavy Equipment International Holdings Company Limited
	(三一重裝國際控股有限公司), a company incorporated with
	limited liability on 23 July 2009 under the laws of the Cayman
	Islands and the Shares of which are listed on the Stock Exchange
	(stock code: 631);
"connected person"	has the meaning ascribed to it under the Listing Rules;
"controlling shareholder"	has the meaning ascribed to it under the Listing Rules;
"Directors"	the directors of the Company;
"Equipment"	equipment manufactured by the Group such as mining transport
	equipment, widebody vehicle, engineering machinery, coal
	mining machinery, logistics equipment and other products,
	including but not limited to second-hand mining transport
	equipment, widebody vehicle, engineering machinery, coal
	mining machinery, logistics equipment and other products;
"Equipment Sale and Leasing	the equipment sale and leasing framework agreement entered into
Framework Agreement"	between the Company and Hunan Zhonghong on 30 July 2020, in
	respect of the sale of the Equipment by the Group for leasing to
	the Lessees;
"Financial Lease and Guarantee	individual financial lease and guarantee agreement to be entered
Agreement"	into amongst Hunan Zhonghong, the Lessees and the Group
	in respect of leasing of the Equipment in accordance with
	the principles and terms of the Equipment Sale and Leasing
	Framework Agreement;
"Group"	the Company and its subsidiaries;
"Hong Kong"	the Hong Kong Special Administrative Region of the PRC;

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"Hunan Zhonghong"	Hunan Zhonghong Financial Leasing Co., Ltd.* (湖南中宏融
	資租賃有限公司), a company established under the laws of the
	PRC and a connected person of the Company;
"Independent Shareholders"	the Shareholders who are not interested in or involved in the
	Equipment Sale and Leasing Framework Agreement and the
	transactions contemplated thereunder;
"Independent Third Party(ies)"	means an individual(s) or a company(ies) who or which is/are
	independent of and not connected with (within the meaning of
	the Listing Rules) any Directors, chief executive or substantial
	shareholders (within the meaning of the Listing Rules) of the
	Company, its subsidiaries or any of their respective associates;
"Lessee(s)"	lessee(s) under the Financial Lease and Guarantee Agreement
	who is/are Independent Third Party(ies);
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock
	Exchange;
"Mr. Liang"	Mr. Liang Wengen, the controlling shareholder of the Company;
"PRC"	the People's Republic of China;
"RMB"	Renminbi, the lawful currency of the PRC;
"Sale and Purchase Agreement"	individual sale and purchase agreement to be entered into
	between the Company or the subsidiary as designated by the
	Company and Hunan Zhonghong in respect of sale of Equipment
	in accordance with the principles and terms of the Equipment
	Sale and Leasing Framework Agreement;
"Sany Group"	Sany Group Limited* (三一集團有限公司), a company with
	limited liability established on 18 October 2000 under the laws of
	the PRC;
"Sany Hong Kong"	Sany Hongkong Group Limited, a company with limited liability
	incorporated on 14 October 2005 under the laws of Hong Kong
	and a controlling shareholder of the Company;
"Share(s)"	the ordinary share(s) with nominal value of HK$0.1 each in the
	capital of the Company;

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"Shareholder(s)"	holder(s) of the Share(s);
"Stock Exchange"	The Stock Exchange of Hong Kong Limited; and
"%"	per cent.

• for identification purpose only

By the order of the Board

Sany Heavy Equipment International Holdings Company Limited

Liang Zaizhong

Chairman

Hong Kong, 30 July 2020

As at the date of this announcement, the executive Directors are Mr. Liang Zaizhong, Mr. Qi Jian, Mr. Fu Weizhong and Mr. Zhang Zhihong, the non-executive Directors are Mr. Tang Xiuguo and Mr. Xiang Wenbo, and the independent non-executive Directors are Mr. Ng Yuk Keung, Mr. Poon Chiu Kwok and Mr. Hu Jiquan.

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