Silk Road Logistics : Announcements and Notices - UPDATE ON LISTING STATUS AND SUSPENSION OF TRADING

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Silk Road Logistics Holdings Limited

絲路物流控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 988)

UPDATE ON LISTING STATUS

AND

SUSPENSION OF TRADING

This announcement is made by Silk Road Logistics Holdings Limited (the "Company", together with its subsidiaries, the "Group") pursuant to Rule 13.09(2) of the Rules Governing the Listing of Securities (the "Listing Rules") on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") and the Inside Information Provisions (as defined in the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

References are made to the announcements of the Company dated 28 November 2021, 6 December 2021 and 27 February 2022 (the "Announcements") in respect of, amongst other things, (i) the decision of the Listing Division of the Stock Exchange (the "Listing Division") that the Company had failed to comply with Rule 13.24 of the Listing Rules (the "LD Decision"), (ii) the Company's written request for a review by the Listing Committee of the Stock Exchange (the "Committee") of the LD Decision, (iii) the decision of the Listing Committee of the Stock Exchange (the "Listing Committee") that the Company failed to maintain a sufficient level of operations and assets as required under Rule 13.24 of the Listing Rules to warrant the continued listing of its shares, and the Listing Committee decided to up hold the LD Decision to suspend trading in the Company's shares under Rule 6.01(3) of the Listing Rules (the "LC Decision"); and (iv) the Company's written request for a review by the Listing Review Committee of the Stock Exchange (the "Listing Review Committee") of the LC Decision, respectively. Unless otherwise specified, capitalised terms used in this announcement shall have the same meanings as those defined in the Announcements.

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The Board wishes to inform the shareholders and potential investors of the Company that the review hearing was held before the Committee on 11 May 2022. On 23 May 2022, the Company received a letter from the Stock Exchange notifying the Company that the Listing Review Committee, having considered all the submissions presented by the Company and the Listing Division, the Listing Review Committee decided to up hold the Listing Committee's decision to suspend trading in the Company's shares under Rule 6.01(3) of the Listing Rules on the ground that the Company has failed to comply with Rule 13.24 of the Listing Rules.

Set out below the Listing Review Committee's reasons for its decision:

1. The Company's shares were listed on the Main Board since 21 January 1994.
2. The Company was principally engaged in:
3. 1. Trading of commodities, including iron ore powder, cathode copper and coal (the "Commodities Trading Business") since 2013;
   2. Provision of logistics and warehousing services (the "Logistics Business") since 2015; and
   3. Exploration and production of oil and provision of oil well drilling services (the "Oil Business") since 2014.
4. In 2017, China Huarong Asset Management Co., Ltd became the Company's single largest shareholder upon converting the convertible bonds it held and now holds a 26.6% interest in the Company.
5. The current board of the Company had seven directors (being two executive directors, one non-executive director and four independent non-executive directors). All the directors were appointed in 2021 except for two independent non-executive directors appointed in 2009 and 2016, respectively.
6. On 5 October 2021, the Listing Division issued a show cause letter to the Company expressing its concern that the Company's businesses were not viable and sustainable and/or had no substance, and might have consequently failed to comply with Rule 13.24 of the Listing Rules. On 26 November 2021, the Listing Division, having first sought guidance from the Listing Committee, issued a letter setting out its decision that the Company had failed to comply with Rule 13.24 of the Listing Rules.
7. On 6 December 2021, the Company requested a review of the LD Decision by the Listing Committee. As set out in a letter dated 25 February 2022, the Listing Committee upheld the LD Decision.

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7. On 7 March 2022, the Company requested a review of the LC Decision by the Listing Review Committee.

APPLICABLE LISTING RULES AND GUIDANCE

1. Rule 6.01 of the Listing Rules provides that: "Listing is always granted subject to the condition that where the Exchange considers it necessary for the protection of the investor or the maintenance of an orderly market, it may at any time direct a trading halt or suspend dealings in any securities or cancel the listing of any securities in such circumstances and subject to such conditions as it thinks fit".
2. Rule 6.01(3) of the Listing Rules further provides that the Exchange may direct a trading halt or suspend dealings where "the Exchange considers that the issuer does not carry on a business as required under Rule 13.24 of the Listing Rules".
3. Rule 13.24(1) of the Listing Rules provides that "An issuer shall carry out, directly or indirectly, a business with a sufficient level of operations and assets of sufficient value to support its operations to warrant the continued listing of the issuer's securities".
4. Guidance Letter HKEX-GL106-19 provides further guidance on sufficiency of operations under Rule 13.24 of the Listing Rules and Rule 17.26 of the GEM Listing Rules.

LISTING COMMITTEE DECISION

12. The Listing Committee was of the view that the Company failed to maintain a sufficient level of operations and assets as required under Rule 13.24 of the Listing Rules to warrant the continued listing of its shares. The Listing Committee therefore upheld the LD Decision to suspend trading in the Company's shares under Rule 6.01(3) of the Listing Rules.

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13. The Listing Committee considered that the Company's businesses were not viable and sustainable for the following reasons amongst others:

1. The Commodities Trading Business, which had been the Company's major revenue driver since 2016, generated either losses or minimal profits in the past three years. Since the expiry of the Management Agreement in June 2020 between Tewoo Import and Export Trade Co., Ltd ("Tewoo") and the Company over Qian'an Logistics ("Qian'an"), a major subsidiary of the Company, segment revenue had substantially decreased from HK$5,513.6 million in FY2019 to HK$29.1 million in FY2020 and further to HK$4.2 million in 1H2021. The Company's business plans, including to re-negotiate the Management Agreement with Tewoo and to cooperate with the owner of an iron ore mine in Australia, were preliminary and subject to negotiation. Finally, the Company's revenue projection for the segment was questionable given the minimal revenue generated by Dongguan Logistics and without the support of any concrete business plans or signed contracts with other customers.
2. The Logistics Business operated at a minimal scale. It had a small customer base, had only generated revenue of less than HK$9 million, and was loss making in the past five years' The Company's plans regarding Mongolia Logistics and the potential investment opportunity in an online logistics platform in Guangxi were preliminary. In any event, the Company's projected segment revenue of HK$3.9 million in each of FY2022 and FY2023 was minimal.
3. The Oil Business operated at minimal scale, with revenue of less than HK$6 million since FY2016. Apart from a minimal segment profit of HK$2.4 million in FY2016 and HK$2.7 million in 1H2021, the business had been loss making in the past five years. Given the downsizing of the Oil Business, the Listing Committee remained concerned that this business was not viable and sustainable.
4. Notwithstanding the loan of HK$10 million from the Company's substantial shareholder announced in January 2022, it was doubtful whether the Company would have sufficient financial resources to discharge its debts as well as to support and expand its operations as planned. The Company's auditor had issued a disclaimer of opinion on going concern in respect of the Group's financial statements for the year ended 31 December 2020.

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SUBMISSIONS TO THE LISTING REVIEW COMMITTEE

Submissions by the Company

14. The Company submitted overall that it had now gathered enough assets to carry out its business plans, but was hindered by factors over which it had no control, including the pandemic. The Company submitted that these issues were only temporary and can be resolved over the next few months.

Commodities Trading Business

1. The Company provided an update with regard to its relationship with Tewoo in the context to the Commodities Trading Business. The Company outlined that Tewoo's recent restructuring had only been completed in late December 2021. Since then the Company had managed to have an online conference with the representative of Tewoo in around late January 2022 to explore the possibility of re-gearing the cooperation over the commodity trading business of Qian'an. While Tewoo did not turn down the Company's cooperation proposal, it suggested that the parties resolve the legacy issues that arose during the term of the Management Agreement first before commencing negotiations for the new management contract and/or other forms of cooperation. The Company noted that when the Management Agreement was in effect, the Company recorded annual revenues of HK$5,513.6 million in FY2019, HK$11,536.9 million in FY2018 and HK$3,090.3 million in FY2017. The Company submitted that if it is given more time to re-gear the cooperation with Tewoo, its annual revenue will be increased. The Company submitted that Tewoo's restructuring had only just been completed, and that if trading in the Company's shares was suspended, the negotiations would be adversely affected.
2. The Company submitted that, after the disposal of its indirect interest in RockEast, its cash level as at 29 March 2022 was approximately HK$48 million, and the Company intended to use part of the sales proceeds for the supply of construction material business in Dongguan Logistics. The Company reiterated that in the fourth quarter of 2021, Dongguan Logistics sourced, processed and delivered around 19,000 tons of processed river sand to Guangzhou Changlong for RMB2.897 million, and during the first month in 2022, Dongguan Logistics supplied 20,000 tons of various sand and gravel resources to Guangzhou Changlong for RMB1.435 million. Although its business was affected by the lockdown policy in the PRC since March 2022, the Company expected that Dongguan Logistics would generate not less than RMB20 million of revenue for the Company for FY2022 once it had sufficient funds.

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