Weiqiao Textile : Renewal of Continuing Connected Transactions-Renewed Steam Supply Agreements

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Weiqiao Textile Company Limited*

(a joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 2698)

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

RENEWED STEAM SUPPLY AGREEMENTS

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

Reference is made to the announcement of the Company dated 20 October 2017. According to the aforesaid announcement, among others, (i) Hongli Thermal Power and Ming Hong Textile, a wholly-owned subsidiary of the Company, entered into the Old Weiqiao Steam Supply Agreement in relation to the supply of steam by Hongli Thermal Power to Ming Hong Textile for the production needs in the Weiqiao Production Base for the period from 20 October 2017 to 31 December 2019 (both days inclusive); and (ii) Binzhou City Hongnuo and Binzhou Industrial Park, a non-wholly owned subsidiary of the Company, entered into the Old Binzhou Steam Supply Agreement in relation to the supply of steam by Binzhou City Hongnuo to Binzhou Industrial Park for the production needs in the Binzhou Production Base for the period from 1 January 2018 to 31 December 2019 (both days inclusive).

The Board would like to announce that, on 21 October 2019, (i) Hongli Thermal Power and Ming Hong Textile entered into the Renewed Weiqiao Steam Supply Agreement in relation to the supply of steam by Hongli Thermal Power to Ming Hong Textile for the production needs in the Weiqiao Production Base for a term of three years commencing on 1 January 2020 and ending on 31 December 2022 (both days inclusive); and (ii) Binzhou City Hongnuo and Binzhou Industrial Park entered into the Renewed Binzhou Steam Supply Agreement in relation to the supply of steam by Binzhou City Hongnuo to Binzhou Industrial Park for the production needs in the Binzhou Production Base for a term of three years commencing on 1 January 2020 and ending on 31 December 2022 (both days inclusive).

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LISTING RULES IMPLICATION

Each of Hongli Thermal Power and Binzhou City Hongnuo is an indirectly wholly-owned subsidiary of China Hongqiao. Given that the Parent Company and China Hongqiao are associates of Ms. Zhang Hongxia and Ms. Zhang Yanhong (both being executive Directors and, together with their other family members, having equity interests in these companies), each of Hongli Thermal Power and Binzhou City Hongnuo is a connected person of the Company under the Listing Rules. The transactions contemplated under the Renewed Steam Supply Agreements thus constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

The Continuing Connected Transactions contemplated under the Renewed Steam Supply Agreements are aggregated pursuant to Rule 14A.81 of the Listing Rules. As the highest applicable percentage ratio in respect of the Continuing Connected Transactions, on aggregate basis, is more than 0.1% but less than 5%, the Continuing Connected Transactions are subject to the announcement, reporting and annual review requirements but exempt from the circular (including independent financial advice) and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.

1. RENEWED WEIQIAO STEAM SUPPLY AGREEMENT

The material terms of the Renewed Weiqiao Steam Supply Agreement are set out as follows:

1.	Date:	21 October 2019
2.	Parties:	(1)	Hongli Thermal Power (including its subsidiaries); and
		(2)	Ming Hong Textile (a wholly-owned subsidiary of the
			Company, including its subsidiaries)
3.	Connected	Hongli Thermal Power
	person:

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4. Transaction Hongli Thermal Power and Ming Hong Textile entered into the

nature:Old Weiqiao Steam Supply Agreement on 20 October 2017,

pursuant to which, Hongli Thermal Power agreed to supply steam to Ming Hong Textile for the period from 20 October 2017 to 31 December 2019 (both days inclusive) for its production use. On 21 October 2019, Hongli Thermal Power and Ming Hong Textile entered into the Renewed Weiqiao Steam Supply Agreement, pursuant to which, Hongli Thermal Power agreed to continue to supply steam to Ming Hong Textile for a term of three years commencing on 1 January 2020 and ending on 31 December 2022 (both days inclusive).

5. Pricing basis and The price of steam to be supplied by Hongli Thermal Power to

payment term: Ming Hong Textile shall be RMB150 per ton (VAT inclusive),

which is determined by reference to the prices at which the same or comparable types of steam used for production are supplied by Hongli Thermal Power to any independent third parties on normal commercial terms in its ordinary and usual course of business in Weiqiao Town, Zouping City, Shandong Province, the PRC. Hongli Thermal Power shall provide the evidence of such market prices to Ming Hong Textile upon the request of Ming Hong Textile. If the price is otherwise mandatorily regulated by the PRC government, the mandatory governmental price shall be adopted by the Renewed Weiqiao Steam Supply Agreement.

The Directors confirmed that the pricing basis agreed between Hongli Thermal Power and Ming Hong Textile for the supply of steam is fair and reasonable, negotiated on an arm's length basis and constitutes a normal commercial term.

Hongli Thermal Power would, on the last business day of each calendar month, prepare an account book of the relevant expenses that shall be paid by Ming Hong Textile for that month. The expenses undue shall not be included in such account book. Ming Hong Textile shall, within the first twenty (20) business days of the following month, pay the amount due in full.

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6. Termination and Either party to the Renewed Weiqiao Steam Supply Agreement

renewal	may terminate it by providing at least thirty (30) days prior
	written notice to the counterparty. The Renewed Weiqiao Steam
	Supply Agreement is renewable for another term of three years
	(subject to the compliance of relevant requirements under the
	Listing Rules) unless either party decides not to renew it and give
	at least thirty (30) days prior written notice to the counterparty
	accordingly.

7. Maximum annual The historical transaction values, annual caps and purchase

transaction volumes for the steam supplied by Hongli Thermal Power to

values:Ming Hong Textile under the Old Weiqiao Steam Supply Agreement for the period from 20 October 2017 to 31 December 2019 are as follows:

	For the period
	from 20	For the	For the
	October 2017	financial year	financial year
	to 31 December	ended 31	ending 31
	2017	December 2018	December 2019
	(RMB million)	(RMB million)	(RMB million)
	(excluding VAT)	(excluding VAT)	(excluding VAT)
Historical
transaction			3.391
values	1.96	4.68
Historical annual
caps	8.58	8.58	8.58
Historical
purchase			25,0001
volumes (ton)	14,508	34,463

Note 1: For the nine months ended 30 September 2019, the purchase volume amounted to 18,527 tons and the transaction value for supply of the steam by Hongli Thermal Power to Ming Hong Textile amounted to approximately RMB2.54 million (excluding VAT). The Directors currently estimate that, for the financial year ending 31 December 2019, the purchase volume will be approximately 25,000 tons and the transaction value for supply of the steam by Hongli Thermal Power to Ming Hong Textile will be approximately RMB3.39 million (excluding VAT), which was calculated by annualising the actual purchase volume and transaction value for the nine months ended 30 September 2019.

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Set out below are the estimated maximum transaction values for steam (excluding VAT) which are estimated to be payable by Ming Hong Textile to Hongli Thermal Power and the estimated maximum purchase volumes of steam under the Renewed Weiqiao Steam Supply Agreement for each of the three financial years ending on 31 December 2022:

	For the financial year ending 31 December
	2020	2021	2022
	(RMB million)	(RMB million)	(RMB million)
	(excluding VAT)	(excluding VAT)	(excluding VAT)
Estimated
maximum
transaction
values	4.53	4.53	4.53
Estimated
maximum
purchase
volumes (ton)	33,000	33,000	33,000

The estimated maximum transaction values of the steam to be purchased by Ming Hong Textile from Hongli Thermal Power for the three financial years ending on 31 December 2022, are determined with reference to (i) the estimated use of steam at the maximum rate of the capacity utilization of the textile production equipment at the Weiqiao Production Base, i.e. 100% and the rate of the capacity utilization of the textile production equipment at the Weiqiao Production Base for the nine months ended 30 September 2019, i.e. 75%; (ii) the historical purchase volume of the steam under the Old Weiqiao Steam Supply Agreement for the nine months ended 30 September 2019, i.e. 18,527 ton; and (iii) the price of the steam to be supplied by Hongli Thermal Power to Ming Hong Textile under the Renewed Weiqiao Steam Supply Agreement, i.e. RMB150 per ton.

The formula for calculating the estimated maximum transaction value under the Renewed Weiqiao Steam Supply Agreement is set out below:

18,527 ton x (12/9) x (100%/75%) x RMB150/ton = RMB4.94 million (VAT inclusive)

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